Legendary real estate investor Sam Zell passed away last week at 81. He was clearly a larger-than-life figure who communicated in a very unfiltered way such that you always knew what he thought and where he stood.
In the last year or two, I read his autobiography Am I Being Too Subtle? Given how public he was during his life as well as outspoken, I honestly went into it thinking I would not learn that much. I must say I was pleasantly surprised and really enjoyed it. I had a chance to see him speak a couple of times and know people who have worked for him, but I never got to meet him myself. He is a giant in two industries in which CWS has operated, manufactured housing communities, as well as in apartments, which is our primary focus today. He started Equity Lifestyle Properties, which is an industry leader in the former, and Equity Residential Communities, which is one of the largest apartment owners. I thought I would honor his life by citing some of my key takeaways from his book.
Early on Zell makes it clear that he is far more than a real estate investor. He viewed himself as an entrepreneur.
“But what I really am is an entrepreneur. I focus less on specific industries and more on seeing opportunity in anomalies or trends that catch my attention.”Click To Tweet
I can relate to his passion for making key discoveries and coming up with powerful insights that can be monetized. He strongly believed that this way of viewing the world and applying common sense and universal business principles could unlock and capture value in a myriad of industries, not just real estate. He had interests in a wide variety of businesses, such that real estate represented approximately 50% of his net worth.
His overriding mission was stated as follows:
“What I want to do is use my gifts to find opportunities no one else sees, solve problems others can’t, do great deals, turn around broken assets, and grow great companies. In short, I want to make a difference. I don’t mean that in a pious way. I’m talking about progress—shaking up the status quo, moving the needle, building something meaningful.”
He hated the status quo, especially when people would say they do it this way because that’s how it has always been done. That is stuck thinking and stifles progress. He also knew that he could never break through barriers and achieve what he wanted to accomplish by caring about what others thought. He believed that “indifference to rejection was a fundamental part of being an entrepreneur.” When combined with tenacity, you have two critically important characteristics of entrepreneurs to enable them to ignore naysayers who are not nearly as knowledgeable and passionate, as well as the ability and willingness to overcome obstacles that inevitably arise on the road to growth and progress.
While it’s important to have thick skin to overcome outside negativity, this resilience is fostered by developing one’s ability to think critically. As Zell says,
“Critical thinking is the hallmark of an entrepreneur. That open-minded ability to independently assess is in direct contrast to a formulaic approach.”Click To Tweet
When one can come to rely on one’s own judgment and thought process and have a trusted group of people to use as sounding boards, then this can help build the confidence and hone the instincts of an entrepreneur to pursue a path with conviction even if many others are critical of it.
In addition to his ideas about entrepreneurialism, the other area that I found quite interesting related to his thoughts about risk management and how important simplicity was in managing risk. Zell wrote,
“My whole life has been a progression of incremental insight into determining risks.”Click To Tweet
I can relate to this wholeheartedly. I try to make a mental note of everything that has gone wrong or exposed me to more risk so that when I come across similar circumstances in the future, I will have built up pattern recognition to help me avoid them in the future. And while maybe it’s not the most fun and joyful way of living, I do find it immensely interesting and take some pride in avoiding the potential problem in the future.
And while it was important to him to try to identify all of the key variables influencing the success or failure of an investment, he also didn’t want to lose sight of the forest for the trees.
“To me, risk-taking rests on the ability to see all the variables and then identify the ones that will make or break you.”Click To Tweet
Sam Zell grew up and lived in Chicago his entire life. Jay Pritzker was one of the most successful and revered investors and philanthropists in modern Chicago history. He also happened to be Sam Zell’s mentor and perhaps the person he most admired throughout his life. This is one of the things Zell learned from Pritzker about the power of simplicity.
“Jay taught me to use simplicity as a strategy. He had an uncanny ability to grasp an extremely complex situation and immediately locate the weakness. He always said that if there were twelve steps in a deal, the whole thing depended on just one of them. The others would either work themselves out or were less important. He had a laser focus on risk. I like to say my father taught me how to be, law school taught me how to think, Jay taught me how to understand risk.”
As part of his risk management thinking and approach, Zell tried never to lose sight of the worst-case scenario to understand his downside.
“But at any time, it’s about being aware and simplifying the worst downside scenario—seeing over the abyss. It’s about discipline and avoiding emotional response. And then you decide whether to play or walk.”
He was also big on minimizing execution risk. It comes down to joint probabilities. For example, if each critical step has a 90% chance of succeeding and there are five of them, then there is a 59% chance of it working out. On the other hand, if there are seven critical variables and each one has a 75% chance of succeeding, then there is only a 13% chance of success. Warren Buffett was a big believer in this thinking and approach, and so was Zell.
“In addition to looking at worst-case scenarios, I look at how hard something is to execute. The simpler the goals and the steps to reach them, the more likely I’ll be successful. And if they aren’t simple to begin with, I look at how I can untangle the complexities.”
Rest in peace, Sam. You sure left your mark. The world was a more interesting and colorful place with you in it.
Samuel Zell (born Shmuel Zielonka; September 28, 1941 – May 18, 2023)
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