Sam Zell Quotes

Further, as a huge perpetual consumer of capital, I respected the fact that there is no more consistent source of capital than the public markets.

This has always been a fatal flaw in U.S. real estate: the volume of development has been related to the availability of funds, not to demand.

This bit of hyperbole revealed a very important fact: At its heart, grave dancing was an opportunity to resurrect those assets deserving of a fresh start. It was a bet on my ability to affect a turnaround. And the low entry price paid for the risk I was taking to do it. Grave dancing involves confidence, optimism, conviction, and no small amount of courage. All the opportunity in the world means nothing if you don’t actually pull the trigger.

Conventional wisdom is nothing to me but a reference point.

chairman of everything and the CEO of nothing.

At some point the guy I was sitting next to turned to me and asked, “So what do you do?” I replied, “I’m a professional opportunist.” And that has been my response to that question ever since.

I knew what the Equity Office portfolio was worth. And I knew we were undervalued by Wall Street. Every quarter, the management team would do an in-depth analysis of every asset in the portfolio to develop a real-time valuation. The most reliable measure of our buildings’ value remained — and had always been, in my opinion — replacement cost. Replacement cost mattered more to me than rents or comparable prices or vacancies or economic growth or stock price. This was because replacement cost determined the price of future competition.

Years later, people would ask me, “How did you know when and what to buy?” But all I basically did was create a massive arbitrage — a fixed-rate instrument in an inflationary environment. I essentially took on $4 billion of nonrecourse debt at an average interest rate of 6 percent in an environment with inflation of 9 percent or higher. That means I was already making 3 percent returns the second the deal closed — without doing a thing to the assets. Sure, we picked some terrific properties, but every one didn’t have to be Class A.

I told David, “Go look at every store and its entire inventory, who we would sell it to and what we would get for it, in case the deal goes south.” It was a basic fire-sale analysis — what we’d get in the worst-case scenario if we had to liquidate the company. David came back and said, “We’d get 80 percent of our purchase price back.” So I knew that what we had to lose was 20 percent.

But by the end, we had raised over $1 billion. I think it was the largest fund of its kind at the time. We focused on turning around companies that had taken on excessive debt in the 1980s. We contributed our own capital in order to align our interests with those of our investors, and we didn’t charge fees on each acquisition like many leveraged-buyout firms did. Instead, we used the funds to share risk with our investors — and to share opportunities. We had a stated objective of holding our investments for ten to twelve years.

I have always believed that every day you choose to hold an asset, you are also choosing to buy it. Would I buy our buildings at the price Blackstone was quoting? Nope.

I put up virtually no capital, just a limited guarantee that I’d feed the deficit of the loan if necessary to keep it current over a three-year period, which was how long I thought it would take for the market’s supply/demand equilibrium to return. It worked because the lenders’ only alternative was to take back the assets, which meant taking over management — something they did not want to do. They had no structure in place to manage all those buildings. We did. We were ready. There was so much supply and opportunity we branched out from apartments into retail and office buildings. Between 1974 and 1977, we bought roughly $4 billion in assets with $1 down and a hope certificate.

I’m drawn to emerging markets because of their built-in demand. I’ve always believed in buying into in-place demand rather than trying to create it.

Some might see buying and creating value from others’ mistakes as a form of exploitation, but I see it as giving neglected or devalued assets, in any industry, new life. And often in my career I’ve been the only bidder for them — the last chance for a resurrection. I’m not claiming to be altruistic — just optimistic, and confident that I can turn those assets around.

There’s a line from an old movie, Wheeler Dealers: “You don’t go wheeling and dealing for the money, you do it for fun. Money’s just a way of keeping score.” And that’s how I see it. I’ve always been much more drawn to the experience.