How did Sam Zell develop his independent thinking and personality traits?

Growing up with parents who narrowly escaped the Holocaust and emphasized hard work and excellence, Sam Zell realized early on he was different from his peers. This environment, coupled with witnessing the horrors of the Holocaust at a young age, led him to conclude he had to be his 'own thing,' fostering an independent mindset and a dedication to his own objectives rather than seeking external approval.

What motivated Sam Zell to leave his first law firm for entrepreneurship?

After a brief and frustrating stint at a law firm where he found little satisfaction in drafting contracts, Sam Zell realized practicing law was not an efficient use of his time. He explicitly told his senior partner he was going back to building a real estate business, a shift that led the firm to invest with him and later inspired him to start his own firm after earning a bonus he considered insulting.

What was Sam Zell's overarching principle in his early real estate deals?

Sam Zell's key principle was to find opportunities with little or no competition. He observed his father investing in major cities with low returns (4%), while he pursued deals in smaller, growing cities like Ann Arbor or Toledo, where he found cash-on-cash returns potentially much higher (19%). This focus allowed him to secure better deals and achieve exceptional margins.

What important lessons did Sam Zell learn about risk from Jay Pritzker?

Sam Zell learned from Jay Pritzker the critical importance of focusing on the downside and identifying the ultimate decision-making risk in any deal. Pritzker taught him to ask, 'What could go wrong?' and pinpoint the one or two assumptions that absolutely had to be right for a deal to work, rather than focusing solely on upside potential.

How did Sam Zell's partnership with Bob Lurie exemplify a successful business relationship?

Sam Zell and Bob Lurie had a partnership built on complementary skill sets but shared values. Bob, an engineer, brought organization, while Sam was more of a deal-chaser. They consciously kept their social lives separate, focusing 99% of their time on their business enterprise, allowing them to collaborate effectively without personal conflicts influencing their work.

What was Sam Zell's role in the creation of the modern REIT industry?

Sam Zell was instrumental in transforming the Real Estate Investment Trust (REIT) industry in the early 1990s. Recognizing that the private real estate market had collapsed, he championed REITs as the solution to access public markets and create 'liquid real estate.' He helped legitimize the asset class, predicting its growth to a trillion dollars and advocating for custodianship of public trust.

How did Sam Zell predict the real estate crisis of the late 1980s?

In 1988, Sam Zell wrote an article titled 'From Cassandra with Love,' predicting the impending real estate crisis. He observed a massive oversupply of real estate driven by Japanese capital flooding the US market in the 80s, coupled with declining occupancy rates. This clear imbalance of supply and demand, despite others' disbelief, indicated an imminent downturn.

What are the key differences between the 1991 and 2008 real estate crashes according to Sam Zell?

The 2008 crisis differed from previous recessions, including 1991, because commercial real estate was not in an oversupply initially (though single-family housing was). Additionally, interest rates were declining in 2008, reducing lenders' motivation to quickly liquidate distressed assets, making the distressed buyer opportunities less attractive than in previous cycles precipitated by rising rates.

Why was Sam Zell critical of the WeWork business model?

Sam Zell viewed WeWork as a 'marginal supplier' in the co-working space, with no real technology advantage or barriers to entry. He noted that such models (leasing large spaces and subleasing smaller units) historically fail during economic softening, as users return to cheaper alternatives like Starbucks. He called it 'the Enron of real estate' due to its reliance on venture capital rather than actual profitability.

How does Sam Zell foster loyalty and maintain accessibility within his organizations?

Sam Zell prides himself on long-term loyalty within his firms, where many employees stay for decades. He attributes this to always being accessible, historically keeping his office door open, and maintaining a non-hierarchical structure. He believes in fostering a 'team of partners' who are unified against external 'enemies,' rather than internal rivals.

What is Sam Zell's philosophy on continuous learning and knowledge acquisition?

Sam Zell is a lifelong student who constantly reads five newspapers and three magazines a week. He possesses a unique ability to sift through vast amounts of information, retaining only what is relevant for future decision-making, such as geopolitical details or unique infrastructure scenarios, while discarding 'escapist' narrative details. This insatiable curiosity and disciplined information processing are central to his risk assessment.

What is Sam Zell's current macroeconomic outlook for the U.S. economy (as of Oct 2019)?

As of October 2019, Sam Zell describes the economic environment as 'benign,' not bullish or pessimistic. He believes that due to high levels of debt, no one can afford interest rates to rise, leading central banks to keep rates low. This results in a period of 'substandard growth' that defensively defers recessions, potentially extending the current cycle until 2021 or longer.

What is Sam Zell's main concern outside of business, particularly regarding future generations?

Sam Zell is deeply concerned about freedom of speech in America. He worries that politically correct standards on college campuses and in the workplace are challenging the fundamental freedom that has made the country great. He hopes this is a cycle but fears it could be a 'deleterious' long-term change affecting opportunities for future generations.

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Key Moments

TL;DR

Sam Zell shares investment strategies, risk management, and lessons on competition from his career.

Key Insights

Family background and escape from Nazi-occupied Poland deeply influenced Zell's perspective on risk and opportunity.

Understanding and minimizing competition is a core principle for assessing and securing better deals.

Information and knowledge are critical for effective judgment and risk assessment.

REITs, once a backwater, were transformed into a trillion-dollar asset class through strategic innovation.

Focusing on the downside and quantifying risk are essential for survival and success in business.

Partnerships thrive on complementary skill sets and shared values, with clear boundaries between personal and professional lives.

Curiosity and continuous learning, even from non-traditional sources, are vital for entrepreneurial success.

Freedom of speech and the preservation of unique American opportunities are critical concerns for maintaining societal progress.

THE SHAPING FORCE OF IMMIGRANT EXPERIENCE

Sam Zell's profound understanding of risk and his drive for opportunity are deeply rooted in his parents' harrowing escape from Poland during World War II. Their journey, marked by resourcefulness and a clear-eyed assessment of existential threats, instilled in Zell a lifelong appreciation for freedom and the belief that anything is possible with hard work and commitment. This immigrant narrative provided a unique lens through which he viewed life and business, emphasizing that limitations are often self-imposed rather than societal.

NAVIGATING RISK THROUGH KNOWLEDGE AND COMPETITION

Zell learned early that information is power. His father's ability to gather intelligence unavailable to his peers allowed him to make critical decisions for survival. Zell embraced this, cultivating an insatiable curiosity and a habit of reading extensively to stay informed. He stresses that a deep understanding of the market, particularly the dynamics of supply, demand, and competition, is paramount. Operating in arenas with little or no competition, he found, yielded the best deals and superior returns, a principle he applied throughout his career.

THE STRATEGIC DEVELOPMENT OF THE REIT INDUSTRY

Zell was instrumental in transforming Real Estate Investment Trusts (REITs) from a minor, unappealing sector into a significant trillion-dollar asset class. Recognizing the opportunity presented by the 1989 real estate crisis and the disappearance of traditional capital sources, he championed the potential of REITs to provide liquidity in the real estate market. His involvement with Merrill Lynch and his advocacy, particularly his keynote at the NAREIT conference, shifted the industry's perception and practice towards a more robust, public-market-driven model.

DISSECTING RISK: THE PRITZKER LESSON

A pivotal learning experience for Zell came from his partnership with Jay Pritzker, who taught him to focus on the critical vulnerability in any deal – the single step that, if it fails, causes the entire venture to collapse. This involved identifying the core assumption and quantifying the downside risk. Zell learned that understanding what could go wrong, rather than solely focusing on the upside, dramatically increases the chances of survival and long-term success. This principle of zeroing in on decision-making risk is universally applicable across all asset classes.

BUILDING LOYALTY THROUGH PARTNERSHIP AND ACCESSIBILITY

Zell's success is also attributed to the remarkable loyalty of his teams, cultivated through a philosophy that emphasizes shared values and complementary skill sets. He fostered an environment where partners had 'skin in the game,' a meaningful investment in the ventures they pursued. Zell's own accessibility, maintaining an open-door policy and avoiding rigid hierarchical structures, built trust and reduced internal risk. He believed in empowering individuals, allowing them to test their limits and pursue their goals, even if it meant changing careers.

IDENTIFYING MARGINAL SUPPLIERS AND ECONOMIC INDICATORS

Zell views commercial real estate dynamics as a canary in the coal mine for the broader economy, often signaling issues stemming from excessive capital and a lack of discipline. He applied this insight to businesses like WeWork, identifying them as marginal suppliers vulnerable to market shifts. His ability to analyze situations through the lens of supply, demand, and marginal costs, understanding that seemingly innovative business models can be susceptible to fundamental economic principles, has been a hallmark of his prescient market calls.

STAYING RELEVANT: THE POWER OF ENDURING CURIOSITY

Despite his age and accomplishments, Zell remains a lifelong student, driven by an incessant curiosity. He travels extensively, not for leisure, but to observe and understand changing global dynamics firsthand. His method of absorbing information involves distinguishing relevant details from inconsequential ones, allowing him to retain unique insights that inform his decision-making. This relentless pursuit of knowledge, coupled with a pragmatic approach to problem-solving, enables him to identify opportunities and navigate complex economic landscapes.

THE ESSENCE OF RETIREMENT AND ENDURING VALUES

For Zell, retirement is a foreign concept. He views his vocation as his vacation, a natural extension of his inherent curiosity and passion for problem-solving. He stresses the importance of instilling enduring virtues in the next generation, focusing on encouraging children to pursue greatness, find happiness in their challenges, and excel with their unique talents, rather than solely focusing on financial comfort. His primary concern for the future lies in preserving American ideals, particularly freedom of speech, which he sees as foundational to the nation's unique opportunities.

Mentioned in This Episode

●Software & Apps

●Companies

●Organizations

●Books

●Concepts

●People Referenced

Common Questions

Sam Zell's parents' escape from Poland in 1939, just before World War II, profoundly influenced his perspective. Their journey of leaving everything behind to seek freedom instilled in him an understanding that anything is possible and that freedom to make decisions and excel is paramount, shaping his approach to risk and life's challenges.

Topics

Risk Management Freedom Of Speech Mindset & Self-Improvement Business & Entrepreneurship Money & Investing History & Geopolitics Real Estate Investment Global Economy Market Analysis Economic Cycles Entrepreneurial Mindset Leadership Principles

Mentioned in this video

People

Tristan Harris

Mentioned as a guest on another podcast episode discussing data collection and manipulation.

Samuel Zell

The chairman of Equity Group Investments and a legendary entrepreneur, investor, and author, known for his work in real estate and other industries.

Jay Pritzker

A wealthy and intriguing individual, one of Sam Zell's early partners and a significant mentor, from whom Sam learned about assessing and quantifying downside risk.

Epogen Heidi Botsen

Conducted a famous study in 1992 that concluded real estate was a separate asset class.

Bob Lurie

Sam Zell's long-term business partner, an engineer who helped turn Sam's early real estate ventures into a structured business. He later died of an aggressive cancer.

Peter Attia

Host of The Drive podcast and co-host of this episode, a former ultra-endurance athlete and a doctor focused on performance and longevity.

Chiune Sugihara

The Japanese Consul in Kaunas, Lithuania, who took pity on refugees and issued almost 2,000 transit visas, defying his government's orders.

Brendan Eich

Co-founder of Brave, previously co-founder of Mozilla Firefox and creator of JavaScript.

Paul Simon

Musician whose song '50 Ways to Make a Billion' was referenced in one of Sam Zell's year-end gifts critiquing the dot-com boom.

Companies

Starbucks

Cited as a primary competitor and 'plug-in' alternative for WeWork's users, highlighting WeWork's vulnerability as a marginal supplier.

Brave

A privacy-focused, performance-oriented web browser that offers unmatched speed, security, and privacy by blocking trackers and scripts.

Gucci

A high-end retail store whose opening in Ulaanbaatar, Mongolia, prompted Sam Zell's visit to the country.

Equity Group Investments

Samuel Zell's firm, active across a broad range of industries including energy, manufacturing, logistics, healthcare, communications, and real estate.

Freeport-McMoRan

A company based in New Orleans that operates the biggest copper mine in the world in Papua, Indonesia, visited by Sam Zell.

Marshall Field's

A major department store in Chicago where Sam's mother walked up and down stairs to induce labor on the day Sam was born.

Merrill Lynch

Worked with Sam Zell on the first of the 'modern era' REITs.

Enron

A disgraced energy trading company, used by Sam Zell as a comparison for WeWork due to its perceived lack of fundamental value and reliance on promotion.

Barclays Bank

The bank in Tel Aviv where Sam's parents' money was deposited after being smuggled out of Poland.

WeWork

A co-working company whose business model Sam Zell critically analyzed as a marginal supplier with no barriers to entry, comparing it to Enron of real estate.

Locations

Aleppo

A city in Syria that Sam Zell planned to visit but was later destroyed, reinforcing his motivation to constantly see stuff.

Papua, Indonesia

Location of the biggest copper mine in the world, visited by Sam Zell.

Venezuela

Country off whose coast Curaçao is located.

China

Discussed in relation to the US economy, with Sam Zell believing it has taken advantage of the US for 20 years through mercantilist behavior.

Vilnius

The capital of Lithuania, where Sam's parents paused their escape and met other refugees.

Israel

Referred to as Palestine at the time, where Sam's father initially sent money to a Jewish organization to assist their escape from Poland.

Moscow

Where Sam's parents spent a night and attended the Bolshevik Ballet before continuing their journey on the Trans-Siberian Express.

Ulaanbaatar

The capital of Mongolia, which Sam Zell visited after reading about high-end retail stores opening there, indicating a resource boom.

Japan

Its investors 'invaded' the US market in the 1980s, making classic mistakes and flooding the market with capital, contributing to oversupply.

Seattle

The city in the United States where Sam's parents arrived on May 18, 1941.

Lithuania

Where Sam's parents took refuge in Vilnius and later obtained transit visas in Kaunas.

Mongolia

The country Sam Zell visited due to a giant resource boom, observing its capital, Ulaanbaatar.

Russia

Country involved in the Molotov-Ribbentrop Treaty and eventual invasion of Poland.

Toledo, Ohio

The location of Sam Zell's first major real estate deal, an apartment building he bought because of lack of competition.

Curaçao

A Dutch protectorate in the Caribbean, for which Sam's parents received visas from the Dutch ambassador.

Germany

Country involved in the Molotov-Ribbentrop Treaty and anti-Jewish activities, leading to Sam's father's alarm.

Iraq

A 'crazy place' Sam Zell has visited, not for vacation but out of curiosity.

Syria

A 'crazy place' Sam Zell visited just before its conflict, expressing regret at not being able to revisit Aleppo.

Organizations

Bolshevik Ballet

The ballet company whose performance Sam's mother attended in Moscow during their stopover.

Lurie Hospital

A hospital established as part of the philanthropic legacy of Bob Lurie's wife.

Northern Illinois University

A university with a dormitory for which Sam drafted a contract for linen supply in his first law firm job.

New York Stock Exchange

Where five of Sam Zell's companies are listed, and where he holds a place on its 'wall of innovators' for his role in the REIT industry.

Poland

Sam Zell's parents' home country, from which they escaped during World War II.

Luftwaffe

The German air force that bombed rail yards, marking the beginning of the invasion of Poland in 1939.

WTO

The organization China was admitted to, with the assumption of different behavior, which Sam Zell believes did not materialize.

Forbes

Recognized Sam Zell as one of the hundred greatest living business minds in 2017.

University of Michigan

Where Sam Zell pledged the same fraternity as Bob Lurie and where he took Econ 101, learning about supply and demand.

National Association of Real Estate Investment Trusts

Initially a backwater organization, it gained significant attendance by 1993, where Sam Zell gave a keynote speech advocating for trust in the public markets.

Chile

Where Sam Zell went on a motorcycle trip and remembered a unique airport/resort combination from a book.

Software & Apps

The Drive

Peter Attia's weekly podcast focusing on health, longevity, and critical thinking.

Mozilla Firefox

A web browser co-founded by Brendan Eich.

Trans-Siberian Express

The train line Sam's parents took from Moscow to Vladivostok, an 11-day and 11-night journey.

FreshBooks

An all-in-one invoicing, payments, and accounting solution that helps entrepreneurs, contractors, and freelancers save time on bookkeeping tasks.

JavaScript

A programming language created by Brendan Eich.

Books

Am I Being Too Subtle?

An amazing book by Sam Zell, which inspired Peter Attia to interview him.

Legislation & Policy

Molotov-Ribbentrop Treaty

A non-aggression pact between Germany and Russia in 1939 that Sam's father interpreted as an agreement to split Poland, prompting his family's escape.

Media

Perry Mason

A fictional lawyer, representing Sam's initial, naive understanding of what practicing law would be like.

Star Wars

The movie franchise whose model makers were hired to create complicated automatons for Sam Zell's year-end gifts.

Concepts

Damascus

The capital of Syria, visited by Sam Zell before the country's conflict.

Cassandra

A figure from Greek mythology, cursed with making true predictions that no one would believe. Sam Zell titled an article 'From Cassandra with Love' to reflect his own unheeded predictions about the real estate market.

Leveraged Buyout

A transaction strategy in which a company is acquired using a significant amount of borrowed money to meet the cost of acquisition. These were conservatively financed initially, then aggressively later in the 1980s.