Business Books & Co.
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4 months ago

[S4E6] Am I Being Too Subtle? by Sam Zell

Straight Talk from a Business Rebel

Transcript
David Kopec

Sam Zell amassed a multi billion dollar fortune, largely in real estate, through contrarian bets and a strong understanding of market fundamentals. In this episode, we discuss his short business memoir, am I being too subtle? Welcome to business books and company. Every month we read great business books and explore how they can help us navigate our careers. Read along with us so you can become a stronger leader within your company or a more adept entrepreneur. This month, we read the 2017 memoir am I being too subtle? Straight talk from a business rebel by Sam Zell. Zell was the billionaire founder of equity residential equity International and EQ office. In addition, he had controlling interests in several other large enterprises, perhaps most controversially, Tribune Media. Am I being too subtle? Describe Zell's upbringing, career, business philosophy and success, transforming troubled assets into productive capital. But before we get into the book, let's introduce ourselves.

David Short

I'm David Short.

David Short

I'm a product manager.

Kevin Hudak

Hi, I'm Kevin Houdak, chief research officer for Washington, D. C. Based commercial real estate research and advisory firm.

David Kopec

And I'm David Kopek. I'm an associate professor of computer science at a teaching college. So let's start with Sam Zell's upbringing. He had a pretty interesting family history, including the events that immediately preceded his birth.

David Short

Yeah, so Sam was born in Chicago in 1941 to Rochelle and Bernard, although those weren't their given names, but I'm not going to butcher attempting to pronounce them. They were both Holocaust survivors who had fled Warsaw on the last train out before nazi takeover. According to the book, they fled Poland via Russia and Japan before eventually arriving in America, first in Seattle and then Chicago, where Sam was born and raised. His father had been a grain trader in Poland and became a wholesale jeweler and ultimately real estate investor in Chicago. It really is a fascinating tale at the beginning of the book, honestly, like one of the more compelling origin stories than probably anything that we've ever read, really. Sam graduated from the University of Michigan, both undergrad and law school, and that would later on become very important parts of his philanthropy.

David Kopec

Thanks for that, David. Okay, let's go to his early career. What were his first successful enterprises?

Kevin Hudak

Yeah, so he started early, right? As a junior in college at University of Michigan, he pitched to the landlord next door on managing their 15 unit student housing building. So Sam and his partners, they ended up renovating, running, and maintaining the building for a fee. And he describes that they were able to succeed with that small start by creating a bit of an alternative aesthetic. They were a bit more modern and avant garde in their interior designs. They basically gutted the building and made it look more like an Ikea catalog versus the homes that these students were coming from, which may have been a bit more rustic and traditionally designed. He took a bit of a detour and went to the University of Michigan law school. He actually tried practicing law very briefly, but it wasn't his cup of tea. But he does law at his legal education as teaching him how to assess and think and really draw the line in deals. And also when he was responding to some of that government regulation that we'll talk about later, in reality, it really helped him understand the rules of the game that he was getting into. Then starting in 1965 or so, he bought a series of buildings in Ann Arbor, essentially looking at student housing first, where that was sort of his bread and butter, but then eventually got into all manner of multifamily deals in submarkets like Ann Arbor that were high growth but really underserved by supply, not on the radar of competing and larger capital. And that typically would be when he would get out of markets later on. I think one of his first significantly successful enterprises was when he bought up an entire block in Ann Arbor. He was sort of the pitch man, convincing dozens of families on that block to sell their homes and the land under them for his consolidation. And that's really the start of this whole, make the whole greater than the sum of its pieces approach to scale that Sam Zell talks so much about, this idea of making one plus one equal three.

David Short

Thanks for all that, Kevin. The other funny part I found was that he was entrepreneurial from the start. He talks about, as I think, like a middle school student going into Chicago and buying playboys and then bringing them back to his suburb and selling them to the other boys, know, three times the price. So he was know, keeping an eye out for a deal, know, seeing market inefficiencies.

Kevin Hudak

Well, he certainly recognized imbalances in supply and demand in that shape.

David Kopec

Yeah, that sounds like a good business. So another interesting aspect of Zell's success, beyond his interesting upbringing, is the role that partnerships played throughout his career. There were two that really stood out to me in the book. One is with Jay Pritzker, and the other is with Bob Laurie. I'm hoping we can talk a bit about each of those.

Kevin Hudak

Yeah. When it comes down to Sam's idea of partnership, he had very few of them. He describes Bob Lori as one of his best friends and his only true business partner. But it comes back down to maintaining his image and reputation and behaving gracefully in those partnerships that then influenced him throughout the rest of his life. But Bob Luri was essentially Samzell's employee number one partner number one. He was a fellow Michigan student who really ended up being the operational and logistics guy. At first, when we were talking about that Ann Arbor business that Sam Zell had, he and his original partners sort of sold that Ann Arbor management business to Bob Loury. But Bob Loury remained one of his best friends. And alongside Bob, Sam ultimately created equity group Investments, EGI, in 1971, which then became the base of that whole equity brand that everyone knows about. The way that Zell describes it, Bob was Mr. Inside and Sam was Mr. Outside. Sam being the more public facing, sales oriented leader, whereas Bob was more of the internal company operations and culture. When we move on to Jay Pritzker, who Sam met in his early life as well, Jay was really a legend in the Chicago finance and investment community. Sam was set up to meet with him by a New York broker, I believe. And their first deal together was this property in Lake Tahoe. And really, it was by force of personality and perseverance that Sam was able to both get this meeting with. You know, he was sort of vetted by Jay's father at first. And it was an all day meeting after going up the building in the elevator. What really was beneficial for Sam, though, is that Jay was sort of this elder statesman in Chicago who was able to teach Sam kind of the importance of know, breaking up these large, complex deals into their individual components and then identifying which one of those components was the most important, on which the deal hinge, sort of getting to that most critical deciding and determining success factor. That first Lake Tahoe project also showed Sam that he didn't want to be a developer, more a deal maker and investor. I remember reading that with Jay's finance and backing, he put together that Lake Tahoe development, which ultimately, I believe the roofs were obstructing parts of the upper floors, views of Lake Tahoe. And all of the units were disproportionately sized due to some water pipes that were in the middle of the building. So again, Jay left him with a lot of lessons, one of them being he wasn't meant to be a developer, more the financial backer, more the investor, and sort of the deal maker and strategist.

David Kopec

Yeah, I would describe the relationships as one being equals, Bob Laurie and Sam Zell, and the other being more of a mentorship relationship. Jay Pritzker kind of the mentor to Zelle, Zell being the up and comer. Pritzker giving him great advice, but also kind of backing him up with capital that he needs to advance some of the larger deals. So two very different relationships, but I think equally important to his success, as he describes it in the book. Yeah.

David Short

Pritzker also comes to the rescue at one moment later on where Sam needs 50 million and his whole deal is going to blow up. And just Pritzker wires him the money. He really did believe in him, and.

Kevin Hudak

He backed it up, and that was.

David Kopec

Like, 20 years after they first met. I think that was during the recession of the early 1990s, and Zell's back was really against the wall. So it shows the power of having one of these long lasting mentorship business relationships. Okay, let's go on to some of the business fundamentals that are expressed throughout the entire book. Zell kind of talks about some of the same themes over and over again, things like supply and demand. He also, at the same time, though, considers himself a contrarian. I'm wondering if we can talk a bit about where in the book he found business fundamentals coming out front and center and where in the book he found more of these contrarian ideas. Do you really agree with him that he is a contrarian? Because to me, it seems like he makes most of his big business decisions based on supply and demand, which he says. He says that over and over again. That's the most important thing in any deals I look at where there's oversupply, where there's undersupply, et cetera. Right. So did you really find him to be a contrarian?

Kevin Hudak

Yeah. I don't know.

David Short

I guess I would say there are a couple of moments that are pretty contrary. I think pretty early on in the book, he talks about graduating from law school, and he'd been doing these business deals, and he'd been quite successful with it. And now he graduates from law school. This is a very prestigious field. This is what his parents wanted him to do. Now he's a lawyer, he gets a job in a law firm. And I don't remember the details exactly, but I think it's literally within weeks, he realizes he just can't do this job because he's making so much more money doing deals in real estate that it's just completely illogical for him to actually be this junior associate in this law firm. And then ultimately, the law partner even recognizes it and is open to letting him just keep an office inside of the law firm and start continuing to do his deals, bring some of them to the firm in terms of doing the legal work and potentially co investing with him and whatnot. And so he manages to turn his first job out of law school into instead continuing this real estate deal making thing that he'd been doing. But again, it's not like, oh, he had no opportunity and he just couldn't handle the law, and he had to go do this. He was already an incredibly successful real estate investor from the work that he had done in college and then through law school, and so, oh, I should keep doing the thing that makes me three times as much money. How contrarian is that? Actually, I don't know. It seems like that would be a little bit easier of a decision to make than he may imply. A little bit. I do think there are some things that he did which were contrary to the market, at least. Although, again, I think to your point, it's kind of more of a supply and demand thing than it is like true contrarianism. So he certainly was very successful buying the bottom of both the real estate market and then one of his first non real estate investments he invests in. What are they? Train cars. So the train industry is struggling during a recession, and the value of train cars has fallen way below replacement cost. And so, yeah, Sam swoops in and buys the largest train car thing and does kind of like a roll up, and now has a whole bunch of train cars that then he can lease out and ultimately sell back for much more than he paid for it. But is it really that, contrary to see that housing is selling for much less than it would cost to build, train cars are selling for much less than it would cost to own them. And these are fundamentally valuable assets to some degree. And if the market comes back, these properties are going to appreciate. So, yeah, I think you're probably right that he was more of a supply and demand opportunist than a true contrarian.

Kevin Hudak

Yeah, and I think there was some contrarianness in his style. Right. More than some of his business moves. In the beginning of the book, Sam says it himself, quote, if everyone is going to look left, you should look right. I think it's notable that his parents lives he credits to being saved by a japanese vice consul who was disobeying direct orders to help the refugees and instead let his family pass and make their way on in their journey to the states. He kind of fashioned himself the grave dancer. And I almost thought that the book should have been maybe even titled the Grave Dancer. That should be mentioned more prominently in the beginning. But as the grave dancer, he fashioned himself as the one to make moves opposite trends and take his capital out, for example, before a crash, so that he could then buy up the cheaper pieces, the companies, the parcels by the bottom, like what Short said. He says that he sort of steps aside while the music is still playing so that he's not overinvested once that music stops. And so more contrarian in style. That did influence some of his business moves, but definitely agreed with you, Kopec.

David Kopec

In short, he also was kind of unorthodox, and I like that word a little better than contrarian, to describe some of his moves in terms of how he approached management and how he approached day to day business life. For example, he claims he was one of the first people to start wearing jeans to the office. Kind of interesting. He would take motorcycle trips with fellow businessmen, and he called themselves the Zells angels. And he was known for using a lot of profanity, which I think plenty of people do that, but maybe not so much in 1960s business culture.

Kevin Hudak

Yeah, and I think one of the ways that I like that idea of being unorthodox, and I think one of his earlier unorthodox investments was actually when he started equity lifestyle properties and was all around manufactured homes and rv home communities. It was almost a segment of the market that was looked down upon by his fellow real estate investors for viewing them as low class, transient. But one of my big takeaways from the book was the importance of getting on site, getting on the ground. It sounded like Sam did his research. He visited the communities in person. He saw these lush views of lakes and forests that they all had. And he also discovered from talking to these folks that there was less than 1% turnover in their residence. Now, equity lifestyle properties, or at least when the book was written, was one of the largest owners of these manufactured home communities. And he cites they had consistently high returns, on average, 17% yearly. So again, very unorthodox and sort of moving away from any of the biases on image and optics that might have distanced some of those other investors.

David Kopec

So we know that he thought about himself as a contrarian, but we also know that he followed business fundamentals pretty closely overall. How would you describe his business philosophy?

Kevin Hudak

Yeah, so I would say there's a few tenets of it that he mentions throughout the book and that we can also derive. I mean, first amongst them, I mentioned before, but simplicity is key. And that's what he got from Jay Pritzker, whether it's breaking apart the complex elements of the real estate deal, or even eliminating redundancies, creating synergies in the companies that he acquired. Unfortunately, that sometimes backfires. Like we'll talk about in the tribune example, another tenet was that liquidity is value, right? Just like his ability in the 1980s during the real estate bubble to instantly raise $3 billion and buy those distressed properties while others had gone under already due to that cash crunch. Really, it was all about his ability to be liquid and capable of responding to those imbalances in supply and demand. Then I think he also was obsessed with scale, right? He wanted to have control over the whole of something, whether it was the city block in Ann Arbor that he had acquired. Being liquid enough to achieve that scale is important. There was a brief profile about some of his international work when he started moving into emerging markets, and scale became even more important in his investment decisions. Right. Mexico and Brazil having unrealized growth potential and scale capacity. Another tenet, I think, and he demonstrates this on and off throughout his career, was employees being best motivated by having skin in the game, right? All of those first equity employees would make a small investment in the deals compared to Sam and Bob's larger investments. But everyone had a piece of the deal residuals. Everyone had skin in the game. When we talk about company culture, he thought competition was important, but even in the workplace, because they all depended on each other's success for those deal residuals, there would be this sort of cooperative, all hands on deck mentality. And again, we've mentioned those imbalances in supply and demand, but where those lines meet, he always saw as his opportunity zone. And really, he would always invest below replacement cost, right. Creating that competitive advantage, as Dave mentioned, with rail.

David Kopec

Right.

Kevin Hudak

If rail cars were available at half the cost to create, right. But demand was remaining flat, it's a good opportunity to buy there because opposing capital is going to have to come in later and spend full costs to build new rail cars to catch up with that. You know, finally, I think he believed that business wasn't worth doing unless it was fun, right? Dave Kopek mentioned the lax dress code, the jeans, lots of episodes of cursing in the office lax culture. He had those annual gifts or those sculptures with showtoon like song parodies, music boxes, and then also the occasional parties with staff and clients and friends. Now, I will note, and as we get into the Tribune example later, some of these different principles or tenets that he promulgated throughout the book could also come and backfire.

David Kopec

Thanks for that, Kevin. That was a really great overview. So we've already touched on a little bit some of the non real estate investments that Zell made. But let's talk about that transition, because the first couple of decades of his career are really focused on real estate. And then we see in the 1980s, Zell start to move more aggressively into non real estate businesses. Why did he do that?

David Short

So ultimately, the real estate market had really collapsed, and he wasn't certain about what the right move was to make. Interest rates had gone up dramatically, and he found that the opportunities had shifted from real estate to certain other types of businesses. And so I really do think it was market driven. He was always looking for a good deal. He didn't feel like that was what he was going to get with the way the markets were working at that time in real estate. And so then he looked elsewhere, and ultimately, we kind of talked about some of these already. He found the rail car business. He invested in the fertilizer business down the line. There are a number of reasons and ways in which he found new opportunities, but ultimately, it was really about business fundamentals. Like, were these businesses that were actually truly valuable? Did they have something that he felt confident was going to be valuable into the future, even if right now it was potentially mispriced? And, yeah, why was there some opportunity? Was it because he had capital when others didn't? Or what was his edge? And if he knew what his edge was, he knew why this was going to be a successful deal. He was willing to be very aggressive when other people weren't feeling that way, and he was very successful doing so. And I also think fundamentally, he really is a deal maker more than anything else. So he sees an opportunity. He realizes that someone is in a position where they have to sell something that he thinks is long term valuable, and then he makes a deal that he's able to get through that maybe it's not the best deal for that person, but it's the only deal they're getting at that time. And so if they have to take.

Kevin Hudak

It, they have to take it.

David Short

Yeah.

David Kopec

It reminds me of the first line of the art of the deal by Donald Trump, where he's like, I don't do it for the money, I do it for the. Like Zelle seems to just be type of business. Like, he doesn't care if he's selling fertilizer or rail cars or real estate. He's interested in the structure of the deal. He's interested, like you said, in the business fundamentals and the opportunities. He doesn't really care about the subject matter of the companies that he's buying. And I think that was a theme throughout the latter half of the book. Okay, let's talk about the government. Because the government's policies have had a huge impact on the real estate market over the last 50 years, Zell was able to take advantage of some of these policy changes, both in terms of tax structure and regulation. So what were a couple of examples.

Kevin Hudak

Of that I mentioned before about Sam's law school education? And even though he didn't end up practicing, he still has some points in the book where he looks back to his law school education and really emphasizes how important it was for him to master some of these government policies and regulations. I know at one point he really studied and mastered the ipo process, which was so complex and allowed him to succeed with some of his first ipos. But speaking just to straight government regulations, I think one of the most important ones was the economic Recovery Tax act back in the 80s, which extended the term of net operating loss carry forwards from seven to 15 years. So nols, right. It allowed the companies to offset their current year's taxable income with those past losses, thus reducing what they owed currently and creating some value in Sam's mind, right. He believed that the market was undervaluing some of these companies that had high nols. So Sam and his team, they would find companies with high nols and then add some profitable or shielded business subsidiaries under them and thus maximize the value of the original asset. I mentioned grave dancing before. He mentioned that this was sort of a subtle twist on grave dancing and really relied on his legal education to master those rules quickly where others couldn't. Another idea that he seized upon was really the REIT structure. Right. Real estate investment trusts. While regulations allowing reits to be treated more like mutual funds and sort of democratize them for everyday investors, while that existed long, right? And they allowed investment in a pool, a range of commercial assets. Sam sort of took the lead in professionalizing reits. Right. He kind of calls himself the architect of the modern REIT, and there was a REIT mafia even, where he would take the lead in emphasizing what he called transparency, predictability and accountability, and also always guaranteeing that they had high quality assets. And so it's because of that, not just the REIT structure, but his taking the lead in professionalizing the REIT structure that he claims he helped grow the industry from $7 billion in the than 1 trillion plus dollars in 2016. Then one final thing I'd add about kind of government policy changes and regulations, it certainly seems like some of these NIMBY policies, right? Not in my backyard. Policies from different municipalities, states really helped constrain supply of some of the new manufactured home communities and rv home communities he worked on early, thus helping him.

David Kopec

Thanks, Kevin. Actually, could we take a step back and could you explain what a REIT is for our audience? Anyone can invest in one. I used to invest in a couple, but what are they, in layman's terms?

Kevin Hudak

Happy to help with that. So REits real estate investment trusts are companies that own, sometimes manage, any sort of income producing real estate. Like I mentioned before, in the 60s, reits were, in turn, treated more like mutual funds, which allowed more regular, everyday investors to invest in them and get some of those dividends right. The rules behind a REIT is that 90% of their income must be distributed as dividends every year. Reits can own anything from warehouses, hospitals, industrial lots, office buildings, apartment buildings, even shopping centers and hotels in some ways as well. And so with reits, really, it's about taking nontraditional real estate investors. Previously, you had to have the funds and the team to own and manage real estate. But with reits, it allows everyone to come together in that large range of commercial assets. And I would mention that a lot of, when you look at Samzell's businesses, a number of those real estate companies were structured as reits, essentially.

David Kopec

Okay, thanks for that. That adds a lot of clarity. So both inside and outside of real estate, Zell was known for turning around distressed assets. Like you mentioned earlier, Kevin, he was known as a grave dancer. Why do you think he was so successful in that niche, no matter what the type of business was?

Kevin Hudak

Yeah, I mean, it comes down to having that knack for identifying those distressed assets in the first place. Right, whether they're properties or companies. In the 70s, he took on $4 billion worth of loans at a rate of 6%, while inflation was at 9%. They then used that money to buy older properties and inventory that cost a lot less than constructing new buildings. So it was his ability to identify those distressed assets, combined with his ability to get capital, combined with his sense of where are these properties, where I can buy them for less than half the replacement cost. He understood that these distressed assets, in any high replacement cost industry could provide more value than building something new. While it still preserves his liquidity and his capabilities to play the game I mentioned earlier, he puts a lot of faith in the people and the environment that these companies operate in, and he would travel out personally to ensure cultural fit in any acquisition. When we're talking about non real estate companies, he was also pretty good at turning around and revolutionizing stagnant board cultures. Right. He provides some vignettes and anecdotes from some of the first board meetings at companies that he was targeting. And he could tell instantly whether this was a board that was thinking ahead and addressing the right issues, or if they were folks that weren't even reading the binders and the materials coming into the meeting. And instead, it was more like a presentation instead of a dialogue. Ultimately, he also had some good business sense to stay away from those companies that he knew. Their boards can't change and the company can't change.

David Kopec

Yeah, that makes a lot of sense. Now, not everything in his career was successful, and you already alluded to it earlier, he had a pretty bad deal with this Tribune Media. Tribune Media is a conglomerate of media organizations. Some famous newspapers are under it, and Zell became the owner, the steward of it. And within a couple years of him taking over, there were some bankruptcies. So what went wrong with Tribune Media?

Kevin Hudak

So I think your question being, was Sam a good steward of Tribune Media? I would say that as the book presents it, he would say yes, that he was coming into a lot of organizational and legacy inertia that was against him in the know. He says that Tribune was, quote, an institutional company with a hierarchical culture and dozens of business units that worked in silos. He came in trying to convey a great sense of urgency, a need for pace, a need for creativity and innovation. And he thought that he had found that pool with a group of journalists, basically, that didn't end up being the case. Plus, with the great recession of 2008, that led to a lot of layoffs and consolidation of the assets. And it led him to make some interesting decisions around marketing. Remember I mentioned before, seizing on redundancies and creating synergies? At one point, they even shrunk the physical size of the Tribune newspapers by an inch just to reduce some of those costs. And in the end, it seemed like a lot of that change was just too fast for the journalists. He tried to synergize some of the broadcast and newspaper divisions across the country. For example, sending one reporter to cover a big event versus twelve different reporters from different bureaus under the Tribune banner. He simplified the papers quite a bit, like in that USA Today style that we're all used to, sold a lot more ad space, which, again, just continued upsetting the Tribune purists. At the end of that chapter, he says that he admits that he used harsh language. The substance and the motivation behind some of these changes may have been questionable, but he says he wanted to create that urgency, elicit passion from a group that it seems like he really initially respected but then seemed to look down upon towards the end. I'd say when we talk about him being a good steward, he almost should have stayed away from the Tribune in the first place. Earlier in the book, he mentions that he was always opposed to what he called hometown deals, where there's a lot of emotion, a lot of territoriality around a given brand or a company. Right. He stayed away from Rockefeller center and the World Trade center because he was opposed to hometown deals.

David Kopec

Right.

Kevin Hudak

The hometown attitudes and that sense of ownership drive up bidding wars, drives up competition, makes everyone so sensitive to what you're doing. But in the Tribune acquisition, he basically bought a company that served dozens of hometowns and that had a lot of pride of ownership, and as a result, he ended up with dozens of issues. He even tried to kind of ameliorate this by starting an employee stock ownership plan in ESOP, and that didn't work either.

David Short

It's funny talking about the hometown things, because through that Tribune ownership, he ended up owning the Cubs, and he also owned other sports teams. There's a very funny dynamic where he's like, oh, I don't want to own these premier New York properties because people are going to overpay for them. But then he ends up owning all these sports teams.

Kevin Hudak

It just seemed very counterintuitive for him to even get in there. So when we asked the question, was he a good steward? I do believe that he did everything that he thought was right, but with that fundamental miscalculation of the hometown sentimentality and the power of those hometown attitudes, he just couldn't bend them to his will. Essentially, I think what we're seeing here.

David Kopec

Are some of the limits of being what some might call a corporate raider. Somebody like a Carl icon who comes into a business not really understanding it, not really understanding the will, the wishes of the employees and the consumers, and then makes all kinds of changes that they would generically make at any company that they bought without really understanding the legacy. So I think this whole I'm neutral about the business. I just like the deals that might work when you're selling a commodity, but when you're selling something that's highly specialized and something that has a huge amount of very experienced and complex labor issues involved, that requires a person on the ground who really feels like they're part of the pack and that people respect in that business. I don't think the corporate raider mentality works as well. So I think he kind of hit his limit in the type of business that you can manage in the same generic way that he did with his other equities in this deal. And I would also add to it on kind of the not as harsh side. The traditional media was just doing very badly in general when he purchased this company. So there might have been no out, no matter what he did, there might have been no positive outcome with Tribune Media. So let's talk about the idea of being self made. Zell calls himself self made throughout the book. Do you actually think he was self made? Because his father was very successful? His father became a successful jeweler and actually was a successful real estate investor himself. Helped connect Zelle with some of his early deals. Was an investor in some of his early deals. Is that self made? If your dad is really helping you out quite a bit early on in your career and creating some opportunities for you.

David Short

Yeah, I mean, he credits his family in a lot of ways, but then he also talks about how he's a self made man, whatever. I think it's something everyone wants to think about themselves. Right? Like, they don't want to think, like, oh, I'm only here because of my family, but some people really aren't. I don't think that he is one of those people. I think he certainly benefited from his family. Obviously, just the fact of his existence was through incredible force of will of his family. And to have been raised by those parents, I'm sure, was incredibly important to his success. And he credits them for all of that stuff. I think he likes to think of himself as self made. But I think to your point, Kopek, anytime your family has invested so much in your early, like, I just think that is really not the definition of self made for me. So for me personally, I think he's an incredibly successful businessman. Obviously outstripped anything his father had done by many orders of magnitude in terms of the scale of his success. But he probably could never have done the early real estate investments had he not grown up around a family that was doing those things. He wouldn't have known how to start doing that stuff so young. And powers of compounding, when you start early, it becomes a lot easier to be very successful in the end.

Kevin Hudak

Yeah. And I think it's interesting when he even talks about this idea of self made and people asking him that question often, he willingly acknowledges the advantages that his parents wisdom, their perseverance, their self determination sort of influenced his own. And he gladly says, I'm not self made in those qualitative senses for. And then on the financial side, I definitely agree with. You know, I would add, though, to that it was an interesting kind of vignette when his father was investing in his businesses. You then had Sam starting to be even more successful than his father. And at that point, I believe his father pulled out some of his investments or didn't continue along that path because he sensed that there was a little bit too much risk than he was willing to tolerate, which I thought was funny. Father son dynamics.

David Kopec

This does remind me of Trump again, sorry to keep bringing up Donald Trump, but people critique Donald Trump and say, well, he's not self made. And Donald Trump always says back, all I got was a small $1 million loan from my father when I started my real estate ventures in Manhattan. And people make fun of that, and they're like, a million dollars is a lot of money. That's not really very self made. I think that's probably a similar kind of scale that we're talking about here. Zell became a billionaire like Donald Trump did, and probably for what was in the 1960s was probably close to that kind of difference in magnitude of something like a million versus billions that he was probably receiving from his father, although he doesn't put the exact numbers in the book. So if you think Donald Trump is self made, then I think you can also think that Samzell is self made. Personally. Yeah, I think not every person can go and take a million dollars and turn that into a billion dollars. I think that requires something next level. So if he wants to call himself self made, I think that's okay. But I could certainly see how people who don't have those kind of capital in their family could resent people like that calling themselves self made. Okay. Anything else in the book you want to discuss? We've kind of been all over the place, but were there some things we missed?

David Short

Yeah, I can't believe we haven't talked about this so far, but Sam Zell top ticked the real estate market, like, just before the market crash in 2007, 2008. So after all of this, we sort of talked about some of his success, but it really is just such an incredible story. And he goes into a lot of detail, to be honest, maybe more than is necessary, but it's not surprising because it's such an incredibly important part of his ultimate success. So he sold equity office properties in 2007 to Blackstone. He claims that he didn't really want to do it and that Blackstone made him this godfather offer. As he talks about, they had to make him an offer that he couldn't refuse. And so he really created a bidding war between both Blackstone and Stephen Roth, the other major investment player, real estate tycoon, who Sam had been friends with for a long time and had often thought sort of what would be the way he would potentially sell his business. But ultimately, Roth was offering primarily equity in the new business, while Blackstone was offering almost entirely cash, or I think actually it was entirely cash. And so he was able to sell for, I think, $39 billion. And I think it was within, like, a year or two, the market had completely turned. Everything blew up. Obviously, we all remember the financial crisis, and I think it ended up getting marked down by 35%. So it was really top tick, the commercial real estate market just before the implosion.

David Kopec

Yeah.

Kevin Hudak

And I also think that one thing I noticed was he does spend some time covering failures, and you mentioned short his incredible success, particularly when he talks about the Tribune, but also with the american classic cruise line, which operated between the hawaiian islands. So he does cover some failures. He lauds a professor at U of Michigan who taught a class called failure 101. I would have actually liked to have seen some more anecdotes from some of those failed transactions and failed companies in that case. Right. He mentions a chinese home builder that they invested in, who, after some government regulation changes, the chinese home builder forgot how to speak English and never returned his calls. I would have liked to have seen a little bit more into how he diagnoses some of those failures. Apart from the Tribune, he tends to blame it a lot on some of the macroeconomic factors, like with the american classic cruises after 911, air travel went down, and a cruise line that operated largely within the hawaiian islands couldn't really survive. But as we know. Right, failure does indeed have many fathers, and this was his biography, after all, so he can really cover what he wants to.

David Kopec

I'll just add in that he did some great philanthropy work, and he covers some of that at the end of the book.

Kevin Hudak

Okay.

David Kopec

Thinking about the book as a whole, what were your biggest takeaways?

David Short

Honestly, I really enjoyed the narrative, and I feel like you hear Sam's voice through the book in a way that I really appreciate. So I do think, I mean, maybe he had a ghostwriter who helped him, but I think whoever that was listened to Sam talk a lot and really put that into it, or maybe he wrote it himself. I really don't know the details. I would just say any billionaire, I would imagine, would get some kind of support from someone, but it really was just, like, a clear expression of how he sees himself, and you really got to feel his brash personality. And so I really enjoyed that dynamic of it. He is authentically himself. He's never being too subtle.

Kevin Hudak

I really enjoyed, and echoing everything that short mentioned about the voice of this book being superb, I really enjoyed his theory or his prioritization of seeing how people operate on their home court.

David Kopec

Right.

Kevin Hudak

It's why Zell said he spends over a thousand hours per year on his plane traveling around the world to meet these potential partners in person. I thought his way of reading a board or a company that I mentioned earlier seemed unparalleled for the time as well, bringing in that determination to understand where is this board going and can I help them? And people who won't read the documents before the board meeting can't be helped. He wants that dialogue and discussion, not just a presentation.

David Kopec

Right.

Kevin Hudak

And making his presentations fun and differentiated from the dozens of investor decks that others would present definitely resonated with me as well. It had echoes of the presentation secrets of Steve Jobs.

David Kopec

Right.

Kevin Hudak

And I really thought it was funny that he would have those IPO roadshow shirts made, you know, frequent mentions of his holiday sculptures, music boxes, those holiday gifts. Was a lot of fun, too, but more important, more sentimental. I really enjoyed his focus on reputation being critical.

David Kopec

Right.

Kevin Hudak

He mentions it as Shemtov in Hebrew earlier on the idea of a person's honor and that that was drilled in him at an early age. He mentions that he would often do deals with a lower cut for him or his partners, or friendlier terms for his opponent or his peer in that deal, recognizing that his reputation and his grace in that moment will bring that person back for even more deals and even more profitable deals for the both of them. And I thought that was a great principle that he mentioned a few times in his narrative.

David Kopec

I would say my two biggest takeaways were the importance of partnerships and the importance of understanding economics. The two partnerships that we discussed earlier really seemed critical to his development as a businessman and his understanding of supply and demand and how he was able to apply that across industries. I thought was almost kind of inspiring, because when you study business, you almost always start by studying economics, and then you get so narrow in your particular type of business that sometimes you kind of forget about all that economic stuff you studied. And I feel like he applied it at every step, really understanding where the market was going, how market forces were affecting the opportunities, and being an opportunist in kind of a good sense of that word. Okay, let's think about who should read this book. And ultimately, do we recommend it? And let's start with Kevin. Since Kevin, you're our real estate guy, and this was sort of kind of a real estate book, so do you recommend it and who should read it?

Kevin Hudak

Well, since you asked about the real estate know, I think everything that short mentioned about equity's presence in commercial real estate could really fill an entire podcast on its own. But needless to say, I'd highly recommend it to anyone in real estate today. It seems like Sam was just at the leading edge of a few big trends which continue to be important to this know first amongst them, and probably career defining for him, was this idea of value add investing and going after distressed properties where he could make some minor improvements, bring in better third party management, but ultimately extract even more value for his partners and his shareholders. The second trend was what we call today the flight to quality, where you see a lot of commercial real estate companies moving towards urban environments, higher grade properties as well. For Sam, he kind of had a journey in his real estate career. He started with the small, high growth markets like Ann Arbor, serving a particular niche like student housing. Then he changed his critical success metrics as the industry changed, right. He ultimately moved into some of these commuter environments. It turns out that he was actually responsible for some of those signs you see on the sides of highway, apartment and condo buildings saying you could be home now, right? These class b commuter apartments. And then finally he ended up in some of those urban markets, right? He noticed that couples were marrying later, there was more preference towards urban lifestyles. And he changed his decision metrics to reflect more walk scores, safety know over just looking at these suburban splendor commuter environments. And finally, another big trend I think he seized upon was this idea, what we call today placemaking, right? It's been part of the industry lexicon for some time now, but Sam sort of started that with this whole idea of the whole is greater than the sum of its parts. If you remember, he was really focused on owning entire blocks and having control of all that development, whether it's the retail, other mixed uses around those. And again, that's evolved into now what we call place making, having that scale and control over a full development, over a full city block, so that you can maintain high quality consistency and create that ambiance that your tenants, that your residents might be looking for. But aside from the real estate perspective, I'd recommend this book to anyone inside or outside the commercial real estate industry. I think it was exceptionally readable. It generally had a straight sequence that just formed. Know to his timeline and his business. And really importantly, it was super short. It's a very quick read. While not everyone will have Sam's war chest going in, it's definitely a business biography where you can take home some good lessons from it, even if you're not just yet at the top of your industry's game. Like Kopek mentioned, there is that fundamental understanding of supply and demand and basic econ principles that really shine through because he's always hammering it in and repeating that at every one of his acquisitions. Sparing a few, he grounds his anecdotes in those economic principles, the grave dancing, even, such that you could really apply it to any size, deal or business decision making, and even some personal decision making as well. So I'd wholeheartedly recommend it. I think it applies to most professionals, whether you're in real estate or not and at different stages in your career lifecycle.

David Kopec

David, what about you? How do you feel about it?

Kevin Hudak

I enjoyed it.

David Short

I would echo a lot of what Kevin said. I think it's definitely, probably most appealing to a real estate audience. But as we've talked about here, he ventures into a lot of different businesses and there are certainly insights you can take, even if you're only interested in renting an apartment for the rest of your life. But I would recommend it to anyone who really enjoys these sort of business novels. He goes into a lot of his life experiences and whatnot in a way that I think is a lot more personal than many of these written by the entrepreneur books that we've seen in the past. And so, yeah, really enjoyed it. Would recommend it to anyone who wants something that's going to teach them about a person and business. And again, to Kevin's point, it's short too. Like it was, I don't know, I think 180 pages or something like that. So an easy read as well.

David Kopec

I'm going to rate it a neutral. I actually enjoyed the first couple of chapters about his family history and his upbringing more than I enjoyed the rest of the book. The rest of the book wasn't bad. It certainly wasn't poorly written. Some parts of it I found interesting. Did I think it was going to be especially applicable to my career? Probably not, which is why I'm more in the camp of if you're involved in real estate and you want to understand more about the history of the business, then this is probably a pretty good book for you. Like Kevin said, and I trust Kevin since he's our real estate guy. But if you're just kind of a general business reader. It's not bad, but I think there's probably better books for whatever your particular business interests are. But that's maybe our difference here, guys. Okay, thinking about our next book. Kevin, you're going to introduce it, right? Yep.

Kevin Hudak

So next we'll be reading build by Tony Fidel, the former CEO of Nest Labs and a serial entrepreneur. Build has personal anecdotes and stories. It has practical and operational advice and breakdowns of the big ideas behind products that have really come to define us these days. It combines Tony's career trajectory from founding startups to being a big company executive. And I hear it has some short sort of drive by summaries of some of these peer products and companies as he grows in his career. Right? And the lessons as a result within it are meant to apply to professionals and entrepreneurs at all life stages.

David Kopec

Thanks Kevin. I'm really looking forward to build. David and Kevin, how can our listeners get in touch with you?

David Short

You can follow me on Twitter at.

Kevin Hudak

David G. Short, and you can follow me on Twitter at hoodaksbasement. H-U-D-A-K-S basement.

David Kopec

Actually, it's x guys, and you can follow me on X. I'm at Dave Kopek. D-A-V-E-K-O-P-E-C thanks for listening to us this month, everyone. Don't forget to hit that subscribe button on your podcast player of choice. Don't forget to leave us a review if you enjoy the podcast, and we'll see you next month.

We discuss the 2017 memoir Am I Being Too Subtle?: Straight Talk From a Business Rebel by Sam Zell. Zell was the billionaire founder of Equity Residential, Equity International, and EQ Office. In addition he had controlling interests in several other large enterprises, perhaps most controversially Tribune Media. Am I Being Too Subtle? describes Zell’s upbringing, career, business philosophy, and success transforming troubled assets into productive capital.

Show Notes

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Edited by Giacomo Guatteri

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