Super Terrific Happy Hour Ep. 13: Sam Zell

Super Terrific Happy Hour Ep. 13: Sam Zell

September 27, 2021

This week, on the Super Terrific Happy Hour, Stephanie & Grant are joined by the legendary Sam Zell, a billionaire investor, entrepreneur and philanthropist whose uncanny knack of knowing not just which businesses to get into, but when to let somebody else take them off his hands (at significantly higher prices) is unmatched.

In this wonderful conversation, Steph and Grant expose the details of Sam’s first ever business venture, the personality traits which give him an edge over his competitors and the methods by which he identifies potential opportunities amidst an onslaught of pitches from people keen to have him be a part of their latest venture.

Frank, humble and insightful, Sam is everything you’d want him to be and so much more…

The Grant Williams Podcast
The Grant Williams Podcast
Super Terrific Happy Hour Ep. 13: Sam Zell
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This week, on the Super Terrific Happy Hour, Stephanie & Grant are joined by the legendary Sam Zell, a billionaire investor, entrepreneur and philanthropist whose uncanny knack of knowing not just which businesses to get into, but when to let somebody else take them off his hands (at significantly higher prices) is unmatched.

In this wonderful conversation, Steph and Grant expose the details of Sam’s first ever business venture, the personality traits which give him an edge over his competitors and the methods by which he identifies potential opportunities amidst an onslaught of pitches from people keen to have him be a part of their latest venture.

Frank, humble and insightful, Sam is everything you’d want him to be and so much more…

 

Grant Williams:

Here’s the bit where I remind you that nothing we discuss during the Super Terrific Happy Hour should be considered as investment advice. This conversation is for informational and, hopefully, entertainment purposes only. So while we hope you find it both informative and entertaining, to say nothing of super and terrific, of course, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. And now, on with the show.

Jerry Seinfeld:

People always tell me, “You should have your money working for you.” Because you send your money out there, working for you, a lot of times, it gets fired. You go back there, “What happened? I had my money. It was here. It was working for me.” “Yeah, I remember your money. We had to let him go.”

Grant Williams:

Welcome, everybody, to another edition of The Super Terrific Happy Hour. Joining me is the super, terrific, and 99 times out of 100 happy, Stephanie Pomboy.

Stephanie Pomboy:

Hello. 100% when I get to do this with you. Cheers.

Grant Williams:

Aww. Such a sweetheart. How are you, Steph? You all right?

Stephanie Pomboy:

I’m just jiggy. How are you?

Grant Williams:

Jiggy? Okay. I wouldn’t class myself as jiggy, but I’m English, I don’t think we’re allowed to be jiggy.

Stephanie Pomboy:

You’re not allowed to jig.

Grant Williams:

No, and I think-

Stephanie Pomboy:

Is that Irish? Isn’t that Irish?

Grant Williams:

Yeah, definitely. I think better than average is how we Brits exclaim that we’re doing fantastically well. We’re rather more taciturn than you lot [crosstalk 00:01:30]. So look, we have joining us today on The Super Terrific Happy Hour, a very, very special guest, a good friend of yours and someone who I’ve been so excited to talk for such a long time. And I would never steal your thunder, so why don’t you let people know who we’re about to talk to?

Stephanie Pomboy:

Oh, no. I mean, I don’t know if I would call him a good friend, but I was fortunate enough to make this man’s acquaintance back at the… Actually, after the housing bubble had begun to deflate, but people were still deep in denial, and just had pangs of nostalgia as I watched bubbles being inflated all over again, and wanted to reach back out. And that man is Sam Zell, none other than the one and only. And I don’t know that he really requires any further introduction other than just by name.

Grant Williams:

He does not. Well, let’s bring him in. Let’s talk to Sam Zell.

Stephanie Pomboy:

Let’s do it. Hey, Sam. How are you?

Sam Zell:

I’m terrific. Long time, no see.

Stephanie Pomboy:

Yeah, right. You haven’t aged a day. Sam, have you met Grant before? I know that you know who he is from Real Vision, but I don’t know if the two of you have ever met.

Sam Zell:

I don’t think we’ve crossed paths before.

Grant Williams:

Hi, Sam. We haven’t. We almost met at the TIGER 21 conference a couple years ago, but not quite. It’s great to meet you.

Stephanie Pomboy:

And thank you so much for doing this. This is really… I’m excited for it more than any of the other ones we’ve done so far.

Grant Williams:

Yeah, especially when we just talk to each other.

Sam Zell:

I’ll try and make it interesting.

Stephanie Pomboy:

Oh, I’m not worried about that at all. Oh, my gosh. So I guess we should just dive in.

Grant Williams:

Yeah, we’ll just dive straight in.

Stephanie Pomboy:

So to sort of set the table, Sam, as you know, the reason that I suddenly started thinking I really wanted to connect with you… I mean, it’s always great to chat with you, but I’ve been kind of waxing nostalgic as I watch the Fed inflate these bubbles all over the place, and it just brought me back to when we first met the sort of… I think at that point, the housing bubble was already deflating, and with the question as to how bad it was going to get and what the impact would be on the financial sector. But it was just a fascinating time, and I thought, “What a great time now to get your perspective on what’s going on, and the similarities and differences that you see, and where you’re finding opportunities, and all of that.” So thank you for joining us. I’m really excited to have you, and I guess we can start with that first obvious question: When you look around, do you see any echoes to that period back in 2007?

Sam Zell:

Well, I think that we’ve seen a lot of inflationary pressure. I’m a little skeptical about whether the word transitory is an appropriate adjective to talk about it what we’re seeing, but we’re seeing tremendous pressure, particularly on wages. I don’t know where the people have gone, but they’re not there, and everybody is talking about how difficult it is to fulfill slots and keep everything working. And to some extent, we’re getting away with lesser staffing in some of our businesses without any complaints, which I find kind of an interesting phenomenon. So our margins are actually improving because we can’t hire the people, and there’s an acknowledgment in restaurants that are open three days a week because they can’t get people. It’s very much in… Just as we talk about inflationary expectations, we’re also talking about expectations where everybody’s having trouble fulfilling their needs, and so expectations of service are going down.

Sam Zell:

I had conversations in the last week about delays in supply chain stuff. A year ago, or a year and a half ago, people would be tearing out their hair and screaming about these supply chain problems. There’s an acceptance that things are screwed up. One of my people flew out, we have an export business on the West Coast, and he flew out to California yesterday, and as he was landing, he took a picture of Long Beach Harbor, where it’s just full of ships waiting to get unloaded. Well, that’s a very vivid picture of the backup in the supply chain. Maybe that makes it much easier for it be accepted, but it’s certainly pushing up prices.

Grant Williams:

I was just going to say, Sam, it’s interesting we’re talking about parallels between 2006/7 and now, but also what you’re talking about there, there are kind of eerie recollections of the ‘70s and the similar sort of wage price pressure and supply chain stuff. So when you compare those two and that idea that transitory may not be the right word, what kind of images does it conjure up from your experiences back in the ‘70s?

Sam Zell:

Well, I’m among the few who are old enough to have been around in the ‘70s, and I guess what I would say is that inflation is an event and it’s a mindset, and so far, we’ve only had the event. If it goes along too much further, it’s going to become a mindset. On the other hand, we’re sitting here, writing all kinds of different businesses and the message that we’re giving our management teams is, “Are you raising prices fast enough to keep up with the increase in your costs?” They’re pressuring labor. I mean, we own a 4000 bed hospital chain, where the nurse compensation issue is anywhere from $40 an hour to $200 an hour, and in great shortage. So a lot of these things that are going on in a lot of different places, and are we catching up, or… How many times do you have to ask for a price increase, if the first time you didn’t ask for enough?

Stephanie Pomboy:

Oh, before we get too far into this road of what’s going on today versus prior periods, I’d love to kind of backtrack and start at the beginning with you, because your life and your whole career are just so fascinating, and how you got into the business to begin with. I mean, I was going to say real estate, but you’re in so many businesses now, but you started out in real estate, or actually, before that, you were peddling Playboy magazine. So maybe you want to talk a little bit about how you became the phenomenal entrepreneur that you are today, and certainly how your family history plays into that?

Sam Zell:

Well, I’m for sure an immigrant’s son. I was born three or four months after my parents came to this country. They escaped living in Western Poland. Anyway, escape was across Russia and Japan into the United States, which took them 18 months. So I grew up in a very interesting household. My father thought the streets of the United States were paved with gold, and not because it was easy, but because there was opportunity and that nobody was stopping him from doing whatever he wanted to do, as opposed to Europe, etc, where there were all kinds of limitations being Jewish, or whatever the case might have been. But very early in my life, I recognized that I was different. I just wasn’t the same as everybody else, and I’m certain that I attribute that to growing up in a house where people were in this country for months when I was born.

Sam Zell:

They set standards and expectations that were very different from my friends. I mean, my father’s favorite comment was, “You had enough fun. Study, read, and get smarter.” But I’d say that was very much of a European sentence that he kept saying over and over again. When I was in high school, on a Friday night, I went to the basketball game. So the next week, I wanted to go to the next basketball game. My father’s response was, “You already went to a basketball game. Why would you want to go to another one? You need to be at home, studying.” And then, of course, I really wasn’t a great academic.

Sam Zell:

I had a peculiar capability for seeing opportunity. I mean, when I first moved to the suburbs, for the first year, I would re-commute back into the city every day. I had to go to Yeshiva, which was high-end Hebrew school, and being a 12 year old and living in a world where we could really be left alone, I mean, I wandered around the city and I discovered that a guy named Hugh Hefner put out a new magazine called Playboy. And Playboy was only sold in the newsstands underneath the railroad stations, by the L-tracks. It was way too risque for a normal distribution system, and certainly none of it was acceptable in the suburbs.

Sam Zell:

So anyway, I bought a copy, and it’s 50 cents, and I read it on the way home and it was really interesting. I showed it to a friend of mine, and this friend of mine, he’s like, “Wow, that’s really terrific. Do you want to sell it?” Anyway. I sold him my 50 cent Playboy for $3, and I went into the import-export business, and the key was maintaining the margins. But I’ve always been very sensitive to opportunity, and I think of very high caution, or thought process toward the word risk. As I said before, I wasn’t much of an academic. I was good enough to get into one of the best law schools in the country, I was good enough to get into one of the schools. Just barely, but got in. And I was able to take advantage of stuff, which ultimately led me to real estate, where a friend of mine was living in a house and the guy who owned the house, and bought the house next door, and by the end of school, ripped the two houses down and built a 50 unit apartment building.

Sam Zell:

And I said to my friend, “Gee, we’re students, we understand. Why don’t we pitch him on managing the apartment building in return for free apartments?” And that’s what we did, and they bought them out. So that’s how we got involved in the real estate business, and we were very good at it, and pretty soon we had three buildings and six buildings and 12 buildings, and then started buying buildings. And meanwhile, I went to law school, and academically, I did just well enough to graduate in the top quarter of my class. But law school was the worst bore of my lifetime, I think. I couldn’t conceive what that was like. And then I went to try and get a job, and I figured to get a job, I’m going put on my resume what I’ve been doing for the last three years, and it wasn’t law school.

Sam Zell:

And so I talked about all my real estate activities, and I had 43 interviews and 43 rejections. And then somebody finally gave me a job, and I lasted four days. In the morning of the fifth day, I went to a senior partner and I said, as only a 24 year old would say, “I just don’t think this is a good use of my time.” And so I just went… He says, “What are you going to do?” I said, “I’m going to go back and do deals just like I did before,” and his response was very interesting, he says, “That sounds like a good thing. Well, stay here. We’ll do the legal work, and we’ll invest in your deals,” and they did. That lasted for a year. You can’t be inside of a meritocracy where somebody gets paid based on performance.

Grant Williams:

Sam, so let me ask you, because I think there isn’t a man of life who hasn’t had a great idea like your Playboy scam you’ve done. We all had those ideas, but very few people actually either have the courage or the sense to actually follow that and actually do it. We’re like, “Yeah, wouldn’t it be great to do that?” And then no one ever does. What is it, even as a young man, that drove you to actually follow through and do that?

Sam Zell:

The only way I can answer your question is by telling you that I had an enormous amount of self-confidence. And by the way, I mean, what’s so unique about my business is that my business has changed every three or four years, over a 50 year period, and stuff we did in the late ‘60s, we aren’t doing anything like that anymore. So we constantly not still. No matter how good our idea is, somebody is going to copy it. And so, we develop our ideas, we take advantage of our situations, we’re very, very sensitive to what’s going on in the world around us. I think we’re very high up there on the observer level, and look to take advantage of those situations and not get caught up in we have this Judeo-Christian capitalistic view that competition is really terrific. And I really believe competition is really terrific for you. Me, I want a monopoly, and if I can’t have a monopoly, at least I want to have an oligopoly.

Sam Zell:

But competition is destructive, really destructive, and great ideas have been morphed into nothing just by virtue of too much… Look at the WeWork situation. Now, I mean, that’s a business that I watched start out in the late ‘50s, and the idea, the simple idea was rent a whole floor at a discounted rate, and then re-sublet it to little users. And every single business like has eventually going bankrupt because at some point, the office supply oversupply situation knocks them out of business. And here was one that was going to come up with a completely different solution, and yet the facts were the same. So they should have renamed it not WeWork, it should rename it to Savings and Loan. Short-term leases and long-term liability.

Stephanie Pomboy:

Right. Well, one of the things that, as an observer from the outside, I would say is integral to your tremendous success is that you don’t put yourself ahead of the business. You have a line in your book about how people let the brand appear bigger, or they think their brand is bigger than their performance, and it seems-

Sam Zell:

It sounds like an ex-president.

Stephanie Pomboy:

It sounds… I mean, that’s such an amazing… That resonated so deeply with me because you see that people who are very successful, who keep playing the same hand over and over and aren’t chameleons, they don’t change and adapt to the different environments as you have over your entire career. That is such a gift. How do you explain how you do that? How are you so flexible and willing to put yourself sort of second and say, “I’m not just a real estate guy. I can go out and make sure that I’m doing the best I can do in whatever business it is.”?

Sam Zell:

But I really think that it comes down to kind of, for lack of a better word, simplistic ideas that in… I mean, when I talk about simplistic ideas, it’s being scared. Just the simple concept of being scared. And I don’t mean scared where you’re shaking in your boots, but really concerned about change and how things are working, and a willingness to let a great deal go by. There have been a number of deals in my career where I was wrong, just like there are a number of years where I was wrong and paid for it. I missed great opportunities, but that’s okay. I got enough opportunities, and those opportunities are really defined in very simple… I mean, it’s like my criteria for hiring people. I’m not looking for the guy with the highest IQ. Give me above average IQ and a high level of motivation, and I’m going to transform that person into a very successful entity. Unless, of course, I want to design rocket engines or biotech this or that, but that’s… I change-

Stephanie Pomboy:

You wouldn’t hire me for that job, I promise you that.

Sam Zell:

Yeah, but I think there have been a lot of jobs, a lot of situations where… And I’m not willing to take that kind of risk, so I avoided it, but supply and demand, market share, recognizing that one of the greatest lies in the world is build a better mousetrap and they’ll come to it. It really is just an incredible lie. Everything is sold, everything is sold, and if you can’t sell whatever your ideas are, they die by the wayside, and there’s certainly been lots of cases.

Stephanie Pomboy:

How do you come up with your ideas, Sam? How do you decide, “I want to get into the logistics business. I want to own logistics companies.” I mean, do you in the morning, pick up The Wall Street Journal and find ideas on the back page, or where… How do you get your ideas on what new business is to get into, and what to sell?

Sam Zell:

Yeah. I mean, I think that without question, I’m a voracious reader. I read four or five newspapers a day, and The Economist and 13D, and all kinds of different things, and I have a kind of unique ability to assess what I’m reading, and separate the wheat from the straw, and understand kind of what elements of what I’m reading have relevance and how logical they are. And as much as I’d like to tell you, and people constantly ask me questions like, “Well, what markets are you interested in?” The reality is that 99.999% of every transaction that gets done, gets done as a result of a third-party deciding to do something.

Sam Zell:

I just don’t believe… Logistics is simple, let’s go find our logistics companies. We can have a positive view on logistics, but inevitably, the transactions that get done are the ones where someone is motivated to achieve a particular objective. We’ve done three big logistics deals in the last year, the last two years, and I think, I hope they’re going to be wonderful deals, they certainly have been so far. But in each one of those three cases, we were really dealing with a completely different motivation, and that is generational change.

Sam Zell:

Now, as in each case, you had a family or two families who controlled the business, and they had two people in the business and six people waiting for a check, and we provided the liquidity and the skills in order to make those businesses much more effective, and the results have been very positive. And that’s just another different version, and in each case, I think there was a private equity sale that they could have made, that would have been better for them than the deal they made with us, but most people don’t understand that, beyond a financial return, people are motivated by their legacy, and they don’t want to spend 50 years building a company and selling it to somebody who’s going to strip it down and sell it to somebody else. And so that’s kind of a niche we’ve stepped into over the last three or four years, as we’ve seen a real need for it as kind of investors.

Grant Williams:

Sam, over the years and clearly from the conversation so far, going all the way back to your childhood, you’ve had this innate ability to spot opportunities and you also are kind of very well-known and respected for your ability to time exits, and from what you’ve said so far, a lot of that feels like it’s just A), common sense, and B)a feeling of when either the competition’s getting too hot or the risks are getting too high, that’s when you’ll exit. So given the fact that some of those clearly are just things you’ve been gifted with as a young man and you’ve nurtured over the years, have there been any kind of character traits along the way that you’ve had to try and smooth off, any things that got you into trouble or caused you to make errors in your early days that you’ve managed to kind of push aside as you’ve gotten older, more experienced?

Sam Zell:

I’m not sure I can make the distinction between early days and late days, but I think I can identify the fact that staying power is the name of the game. I’ve always had great confidence in my ability to deal with a situation as long as I have enough time to do so. One of the mantras here is, “No surprises.” In other words, we don’t kill the messenger, but we don’t want any surprises. So having said that, I did a distributing deal, and that was a unfortunate and huge failure. And we underwrote the deal with the assumption of 6% suppression in rates over the first five years, and instead, we have 30. Unfortunately, nothing you can do about that, but clearly, we didn’t have… the deal would never have made sense if we had been required to create the staying power for that kind of a drop in revenue.

Sam Zell:

So there are always these things that are relevant to my thinking, but staying power is always been a relevant issue, and availability… That commensurate with staying power is availability of capital. And I’ve always run my businesses with the idea that I’m a giant consumer of capital, and therefore, have to deal with now in my past, or present, and future, but my past to create a scenario where I’m a very likely candidate for people to lend to, or an investor basically.

Stephanie Pomboy:

Well, that kind of brings us… It’s a good segue into the current landscape and world we’re seeing today because the availability of capital, let’s say, has become incredibly plentiful thanks to all the monetary and fiscal policies, but then you’re dealing with this question as to sustainability, the other topic you talked about, and it seems like we’re now pushing the limits of how far we can continue to have this sort of profligate policy and sustain these various bubbles. I mean, how are you investing around that today? Has it changed anything in the way that you look at your businesses, or the way you think about where things are headed in the near future?

Sam Zell:

Nah. First of all, we don’t know what’s going to happen over the next few weeks in Congress. If, God forbid, the entire three and a half billion dollar deal-

Stephanie Pomboy:

Trillion. Trillion.

Sam Zell:

Trillion deals.

Grant Williams:

Billions, trillions.

Stephanie Pomboy:

Right.

Sam Zell:

If that were approved, I would have a very, very negative response, and I would think that they are running into a brick wall of inflationary expectations and too much capital. I don’t think that’s what’s going to happen. How much smaller than that? Maybe not at all. I don’t know the answer to that, but that will have an impact on it. As a result, we’re probably a little more conservative than we normally would be. It’s foolishness not to recognize the backdrop where… Highest margins and highest prices in history. And at the same time, in every one of our businesses, we’re seeing enormous pressure on wages across the board, and that’s a big deal. And wages is little bit like shorting a stock, there’s no guarantee as to where it stops because it’s an unlimited [inaudible 00:33:20]. So I think caution has been very much our mantra of late. We’ve taken a number of deals that maybe a year ago, we would have taken a equity position, now, we’re only taking a preferred position, and that may not be enough coverage.

Stephanie Pomboy:

You recently bought gold. What was the idea behind that?

Sam Zell:

Well, I mean, what’s going on in the whole world, not just in the United States, is the debasement of currency. I bought gold, and added to it because I think that it is part of diversification, recognition that every country in the world, not just the United States, is printing more fiat currency. Sooner or later, that translates into the price of gold, and so in a very broad sense of diversification, that, from my perspective, made sense.

Stephanie Pomboy:

Do you think if they actually do go through with this three and a half trillion dollar budget, would you be expanding your position in gold, or is that just now you feel like you’ve got that there and you’re set, and you’re just going to have that be part of your [crosstalk 00:34:55]?

Sam Zell:

Yeah, my attitude is that every day, I reset my expectations.

Grant Williams:

Sam, given the fact that wages is such a problem, and an increasing problem, and that, obviously, is common to just about every industry, are there any industries where you still think there might be some value, or just the fact that wage is such a universal input cost that it really puts a line through so many things you might want to invest in?

Sam Zell:

Your question is very much like the one I referred to a little while ago about markets. No deals that happen happened because this particular segment of the industry is going to do well. They happened because of a set of circumstances, family breaking up, another problem somewhere else where something comes up, and you then confronted with opportunity to do something you might not otherwise have done and you wouldn’t have done, in a designated industry. But the industry at that price, under those circumstances, becomes a very attractive and complete package.

Grant Williams:

How do you deal with bandwidth problems? Because you must get shown so many opportunities, and I’m sure every one of them is represented to you as the greatest opportunity you’ll ever see.

Sam Zell:

Almost.

Grant Williams:

Yeah, right. So how do you manage the bandwidth and filter that down? Is it a numbers game, just the amount of people looking at it?

Sam Zell:

No. First of all, I don’t really answer your questions, so let’s begin on that basis. I think that there is an enormous filtering process that begins with eliminating deals that I can’t understand. If I had one standard, it would be we don’t do anything that if things got bad, Sam couldn’t run, okay? I don’t want to run anything, it’s not my cup of tea, but four or five times in my career, something’s happened where I’ve been called upon to step in and make decisions with reference to running a company. So therefore, we don’t invest in biotech, we don’t invest in rocket engines, etc. So that’s kind of the starting point of limiting the bandwidth. Then the second thing is simplicity. I get pitched literally all day long, and I tell everybody, “If you can’t tell me everything I need to know in two sentences, it’s too complicated for me.” Now, it seems to me, based on my experience, that almost every good idea doesn’t require multiple steps. It quickly acquires conviction, understanding and recognition of the shortest distance between two points is a straight line.

Stephanie Pomboy:

In that category of trying to keep it simple and being able to explain it in two sentences, I immediately think of cryptocurrency because I don’t understand it and I certainly can’t explain it in two sentences, so I’m very curious on your thoughts, if you have any, on the excitement about cryptocurrencies right now.

Sam Zell:

I think you just enunciated my [crosstalk 00:38:54].

Stephanie Pomboy:

Okay. I’m glad I’m not the only one.

Sam Zell:

I’ve tried to understand it, I’ve tried to identify its relevance. I understand what it’s trying to do. It doesn’t seem to be doing it with any efficiency, and every time you turn around, there’s another scandal. So at least at this moment, I’ve stayed out of this whole arena, and as I have said earlier, every now and then, I’ll miss out on something, and I’m comfortable missing out. If I’m missing out on cryptocurrency, next.

Stephanie Pomboy:

I feel the same way.

Grant Williams:

Sam, obviously the monetary policy of the last 20 years as an entrepreneur and, as you say, a heavy user of capital, has been an incredible tailwind for doing deals and putting businesses together. As you hear this talk about a taper, how does that make you rethink what you might be planning on doing in the next sort of two or three years, or is that something that you would wait until you saw meaningful steps, i.e don’t think that they can taper when you think monetary policy is going to remain loose for a considerable amount of time?

Sam Zell:

I think that the numbers suggest that monetary policy will get tighter, but not very much tighter, meaning the ability the government services is limited. You couldn’t, for 25 years at an average interest rate of 5.6%. You couldn’t go back to buying 5.6% without bankrupting the company, the country. Yes, a 30 year period of low interest rates has benefited the entrepreneurial skillset, and I’ll just tell you that is the other side of the coin, and that is that when the cost of capital gets too cheap, the entrepreneur responds differently. The entrepreneur says, “If I don’t do it today, I’ll do it tomorrow. If I’ve got to wait a little longer for something, I’ll wait a little longer.” You think the [inaudible] of my abilities have doubled because interest rates have gone from four to two… I don’t think so. And so, I think there’s a lot of elements here that people would be foolish to make judgments on.

Stephanie Pomboy:

I know this doesn’t necessarily segue smoothly, but I’m just dying to know given what’s happening in China with Evergrande, if you have any thoughts about that as you observe what’s unfolding there.

Sam Zell:

Well, it’s just a bigger example. I mean, real estate industry has a long, long history of a lack of discipline, and it’s contributed too by the fact that if you ask anybody on the street, “Where would you put your money it’ll be safe?” Real estate. So the only difference here is that Evergrande is so much bigger. You don’t remember all the home builders and all the real estate developers they went broke, starting with Trammell Crow? I mean, the biggest of all over the evolution of a growth of a country. And if you think about it, China has gone through a big growth, it’s been undisciplined, it’s created a lot of competing factions, in other words real estate developers enticed by the government one day, by local government the next day, by the stock market the third day. So I think that none of it’s particularly surprising. The scope of it is with $3 billion worth of it. That, for one company, with thousands and thousands of people who paid down part of the cost of the unit, but have no legal right to do anything.

Stephanie Pomboy:

Do you have any thoughts on how that unfolds?

Sam Zell:

Poorly.

Stephanie Pomboy:

Well said.

Sam Zell:

Yeah, so I don’t think the government can let it go down. I think the first victim will be the company itself, and I think that there’s probably more negativity in this story of that company in going forward. I wouldn’t be surprised if, over the next few years, that company kind of disbands and breaks up into smaller companies. The issue of scale in real estate, something I spent a lot of time on, and nobody’s ever really proved that scale works, and that challenges the whole question of, “Are you better off with a smaller company that focuses on particular productivity if you’re not getting any scale by growing the size of it?” Hard for people to acknowledge it.

Stephanie Pomboy:

Right. Bigger is always better, they say.

Grant Williams:

Always., Sam, you’re always described when we read about you in the newspapers as ‘investor’ Sam Zell, but you’re also a businessman, you run these businesses, and that requires a longer-term strategic mindset, a longer-term way of thinking about things, but we kind of live in a world where everybody’s attention, everybody’s focus is becoming compressed, and everything’s about the news cycle in the moment and things flare up and die down very, very quickly. How do you juggle those two, that pressure in a short-term-oriented world with the requirements of having a longer-term focus on really everything that you touch?

Sam Zell:

My first reaction to your question is the word discipline. I have been in lots and lots of different things, and I’ve had opportunities to invest in over a long period of time, and the ones that I tried to stay away from are the ones that are relatively short-term. I think real money is made by long-term. I just sold a company in the last year that I controlled for 37 years, and made a fortune. I’m about to sell another one that we’ve controlled for 20 years. And maybe during all those 20 years, we didn’t do great, but overall, we thought the prospects were there, we thought that they were companies that could survive that long. You know what I mean? one of these things where… I was just reading what’s been the five biggest companies in America 10 years ago versus today, and they change. So the sustainability of the company itself becomes one of the assets that you have to evaluate as you look at them going forward.

Grant Williams:

And how do you avoid the attachment? Because obviously, having a business for 37 years, to be able to sell that, again, requires… You talk about discipline, it really does, but from a portfolio standpoint and selling the stock in a company, you might like, to selling an absolute business, how do you do that?

Sam Zell:

I think you go back to comments I made about competition. I’ve usually looked at business opportunities by virtue of who could compete with me, what would be their cost of entry, etc.? And at times, companies’ values got beyond what I thought were reasonable. I mean, invented Equity Office Properties and I built it into a $39 billion company. I never thought anybody would try and take over the company, it was too big. But when they came down the pike and they were offering me a number that didn’t relate to my own assessment of the situation, it was relatively easy to cross over and say, “No, it’s worth x and somebody is going to pay me x plus x. Next!”

Sam Zell:

Now, the people complain that that was all about market timing. I don’t even know what market timing is. If market timing means that when somebody is willing to pay you too much for something, that may be the market timing that you’re looking for. But as long as the relevance of what you’re doing is understanding that anytime you own an asset, that your entry point or your cost point is below that which a potential competitor might come into, that’s the levels of disruption that ultimately lead to destruction.

Stephanie Pomboy:

When you look around today, are there particular industries that you see as reaching that point where people are putting more value on it than it really is worth, that you would be looking as major risks?

Sam Zell:

Well, as I said, I don’t buy markets, but what I would say is that there are certain elements of real estate that I think are certainly questioning whether you’re getting an adequate return for the risk you’re taking. I mean, something like real estate, I think, today is uniquely risk-free in the minds of investors, and history says that’s never been the case, and I wouldn’t vote for that being the case today.

Stephanie Pomboy:

It’s interesting how short memories are because it really wasn’t that long ago that they got burned with that same logic the last time, but what do they say? History doesn’t repeat, but it often rhymes, and it sure seems to be.

Sam Zell:

Well, something I always said: He who fails to learn from history is condemned to repeat it.

Stephanie Pomboy:

Mm-hmm (affirmative).

Grant Williams:

Mm-hmm (affirmative). But if we are in another real estate bubble, that sounds pretty good news for you, Sam, because you navigated the last one pretty flawlessly.

Stephanie Pomboy:

Exactly.

Sam Zell:

We’ve done well in the real estate business, not by being crazy, but by being sane and focusing on logical trends. You got to remember that in real estate, a great deal of the value creation comes inside the land. So the land is the accordion, and brick and mortar goes up 10%, 7%, whatever, but the real key is the land accordion, and the extent that you can anticipate that direction and recognize that… I mean, in 2000, I think FAR or floor area ratio in New York City was 50 bucks. It’s pricing land. By 2007, it was 1,500. You don’t need a PhD to figure out that something’s wrong here.

Stephanie Pomboy:

Oh, my gosh. And yeah, many people did need a PhD, and many people with PhDs couldn’t figure out, like the entire Federal Reserve staff.

Grant Williams:

Sam, how has the pandemic affected both kind of your business mix and your philosophy, and the way you think about risk?

Sam Zell:

We view the pandemic as something that happens periodically. I don’t know how we can derisk it. I think we can be a little more careful. You can require vaccinations, etc., etc., and that’s what we’ve done. I’ve been here every day since the pandemic began, and the first three months, I was the only one here. But I also don’t believe in motivation by modem, and I think all this work from home BS is really BS, and I don’t think you can develop a company camaraderie, a future through Zoom.

Stephanie Pomboy:

That’s another interesting thing that you talk about in your book is how you could probably sit in your office and have people come through and visit with you all day, but you like to go out and see people on their own turf and get a real feel that way. I mean, do you-

Sam Zell:

This morning, we just scheduled a bunch of trips for the next six, eight weeks back to companies that we haven’t been to for one reason or another, just to say hello and make sure they knew we were still there.

Stephanie Pomboy:

That’s what I was going to ask. You probably had to miss out on that for a while, yeah.

Sam Zell:

I think every business suffers from a lack of attention, and you get real results from attention.

Stephanie Pomboy:

Mm-hmm (affirmative). I mean, you also travel internationally quite a bit too.

Sam Zell:

Yes.

Stephanie Pomboy:

I want to hear about your latest… When was the last Zell’s Angels trip?

Sam Zell:

About 10 days ago. We spent six days in Tuscany, and when you look at motorcycle trips, you kind of prioritize what’s important. The guys are important, the weather is important, the hotel is important, the food, the wine, and the roads. And this just happened to be one of the most perfect trips one could ever ask for. The weather was perfect, the guys were perfect. Everything was just great. And the roads in Tuscany, I mean, you go out the front door of the hotel, you go right, you go left and all you get are twisty, turny roads.

Stephanie Pomboy:

And the food and the wine are obviously guaranteed to be good.

Sam Zell:

And the oldest guy’s 82, and I’m the second-oldest. And we’ve been doing this for 35 years.

Stephanie Pomboy:

And these are people that you’ve been in the business with forever? I mean, it seems like… When we keep coming back to the question of where you get your ideas and how you decide to do deals, it seems like you have sort of cobbled together in your career a core group of people that you go back to frequently and do deals with, and that you’ve sort of cobbled together a little entourage of entrepreneurs that you’re able to work together.

Sam Zell:

That’s what makes it interesting. I no longer work for monetary objectives. I’m gonna give it away anyway. So the real objective is how do you make it interesting, how do you make it challenging, and how do you affect other people as well as them affecting you? That’s the ultimate challenge.

Grant Williams:

So Sam, do you think there will come a point where you slow down, or will you just continue to do what you do indefinitely?

Sam Zell:

People ask me that question all the time, and to me, the answer is slow down from what, or retire from what? I like what I do. I find it challenging. I certainly need challenge, I don’t play golf. So when I do deals, and as long as I can intellectually handle the challenge, it’s going to keep me sharper and keep me better going forward.

Stephanie Pomboy:

Yeah, I don’t think you have anything to worry about on that score. Thank you so much, Sam. This has been a wonderful conversation. You can just feel your energy and your passion for what you do, and it’s just effusive.

Sam Zell:

Well, thank you, Steph. Thank you. This was really fun, guys.

Grant Williams:

Sam, thank you very much. It’s been a real thrill. Thank you. All right, thanks. Bye bye.

Stephanie Pomboy:

Bye.

Grant Williams:

And then there were two. Oh, man. That was fascinating.

Stephanie Pomboy:

Isn’t he awesome?

Grant Williams:

He is unbelievable. I mean, really just… What a remarkable man.

Stephanie Pomboy:

He’s so cool. I just love him. Anyway.

Grant Williams:

It’s so fascinating listening to him, just how much of this is innate. Everybody spends so much time trying to figure out how to be better at this and better at that, and then there are people like Sam Zell who just have a feel for it and a sense of the right thing to do and timing and all that stuff. You can’t teach it, which is why I was curious as to if there’s anything he had to get rid of, any habits he had to kind of get rid of that… Because if you have that kind of innate feel for this stuff, and you can just get the hell out your own way, it must just be fantastic.

Stephanie Pomboy:

Well, I think the other great asset for him is his background. His parents fled the Holocaust, and he came to this country, and his dad, I think, was a grain trader in Poland, but he couldn’t get a job here in the US, so he started selling jewelry, I mean, and he somehow built himself up to be a very successful jewelry salesman, even though he had never done that before. And he’s instilled in Sam, I guess, that kind of, there’s nothing that can stop you, just go do it mentality, and you shouldn’t be playing basketball, you should be out there figuring out what the next business is. So at 12, he’s selling Playboy magazines to his horny little teenage buddies.

Grant Williams:

I mean, that is a market for which there is an infinite demand, for sure. But I do wonder, when Sam said that, it made me think about… He said when his family came to America and there was nothing to stop you doing anything, you kind of look around now and with regulations and all the stuff that’s happened, Sam compared it with Europe and the problems in Europe, and it feels as though maybe it’s a natural part of the arc, and a country like America gets great by not being in anybody’s way, and then ultimately, it gets regulated to the point where it just spoils the advantages it once had.

Stephanie Pomboy:

Well, the other thing that I thought you were going to go on is the contrast between this driving work ethic and this just rabid desire to achieve versus what we’re seeing today, where at least part of this labor shortage is attributable to people saying, “Hey, I don’t need to get off the sofa. The government’s paying me to sit here, and I’d rather play video games on my sofa,” or whatever these people are doing, than actually go out and try to be an entrepreneur and try to be like Sam Zell. It’s just that contrast is so stark to me. I wish I had asked him about that, but I suspect I knew what his answer would have been. It definitely wouldn’t have flown in his household at all.

Grant Williams:

No, for sure. But it is funny, isn’t it, when you talk to someone who has that innate sense of this, which Sam has, and he explains it away in a kind of self-effacing, self-deprecating way, and I guess that’s all you can do, right? But you do get the sense that for him, it’s all about the idea and then the building of it, and fine, he’ll evaluate an opportunity, but it’s not about the money, it’s not about… And even back then, you get that sense that he just wanted to do deals and wanted to get involved in stuff, and do different things. It’s just so fascinating to get a chance to speak to him. So thank you, on behalf of me and everybody listening for Sam Zell.

Stephanie Pomboy:

I mean, I think it’s really exciting, and just to tie a bow on that point, the comment he made, and it resonated so deeply with me that you can’t let your brand seem bigger than your performance, and that is kind of part of his self-effacing mentality. I mean, he’s Sam Zell. He could very easily have this sense like, “Hey, I don’t need to listen to these people and be flexible and look for what I might need to get rid of, or what I might need to be building a position in,” but he does, and that, I think, is why he’s almost 80 and he’s still one of the most successful investors out there, and it doesn’t seem to me like his lost his edge at all. If anything, he’s probably just honing it sharper with every year.

Grant Williams:

But I mean, that’s another great point you bring up because the culture today of investment and people in the industry is absolutely the antithesis. Your brand is everything. It’s all about I want to be on TV and I want to be famous, and I want to be all this stuff, and ultimately, give me one Sam Zell, and I’ll give you 100 of all these guys who just want to be well-known and have a brand, and I just don’t think there’s any longevity to that for the most part. I mean, there will be some who are successful, but…

Stephanie Pomboy:

Well, there’s also that intoxication of having your ego constantly reinforced. These people, they go on CNBC, and they’re touted as the great genius, and they start to let their own sense of self-worth sort of, I would say, discharge them from the discipline of what they used to do so well, analyzing and thinking about ideas, and now they just kind of, “Well, I’m smart, so I don’t need to really do the work,” and clearly that does not apply to Sam at all.

Grant Williams:

No, but sadly, it does actually work, or at least part of it. If you have a brand and you’re famous, people will invest in your idea just because, “Oh. Yeah, that bloke’s famous. He must know what he’s doing.” I mean, I suspect this-

Stephanie Pomboy:

Well, for now.

Grant Williams:

Well, I was just about to say, I was just about to say I suspect this will come crashing to a halt, but maybe not just yet.

Stephanie Pomboy:

I think… Sorry.

Grant Williams:

Go on. Go ahead.

Stephanie Pomboy:

I mean, there are any number of P. T. Barnum’s out there today that we could point to, but the point is made.

Grant Williams:

Ain’t that the truth. Ain’t that the truth. Well, we can allow… Everyone can point to their own one. I’m sure it will land upon a very small number of names even. But well, Steph, I guess that’s it for another Super Terrific Happy Hour, and how super and terrific was that?

Stephanie Pomboy:

It was absolutely. Loved it. Thank you for doing that with me.

Grant Williams:

So much fun. Well, all that remains is just to thank you for listening to us. If you don’t follow us already, you can do that. I don’t think there’s any need for us to tell you how to follow Sam Zell because just Google Sam Zell. You’ll find everything you need to know. Steph and I are little different. If you want to follow me, you can do so on Twitter, you’ll find me @ttmygh.

Stephanie Pomboy:

And I’m @spomboy.

Grant Williams:

@spomboy she remains. Steph, until the next time, I hope we do this again very, very soon.

Stephanie Pomboy:

Pip pip and cheerio.

Grant Williams:

Nothing we discussed during The Super Terrific Happy Hour should be considered as investment advice. This conversation is for informational and, hopefully, entertainment purposes only. So while we hope you find it both informative and entertaining, to say nothing of super and terrific, of course, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.

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