Book Review of Am I Being Too Subtle by Sam Zell

This Book Review of Am I Being Too Subtle by Sam Zell is brought to you from Divya Ahuja from the Titans of Investing.

Genre: Dancer Biographies
Author: Sam Zell
Title: Am I Being Too Subtle (Buy the Book)

Summary

Am I Being Too Subtle is an autobiography written by Sam Zell detailing his success as a real estate tycoon and the factors that contributed to it. This autobiography is titled as such due to the reputation that Zell has in the finance world; he is known for being extremely blunt.

Throughout the novel Zell not only discusses his achievements, or in some cases failures, but also the lessons he learned from each instance. Through these lessons, he aims to inspire others to search for their own opportunities and leave a meaningful impact on the world.

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Zell begins by describing his parents’ experience and their worldview. Due to his father’s international business, they were able to sense the growing Anti-Semitism around them before it was too late. In 1939 they escaped Poland in fear that their lives were in danger. After they left, they spent the better part of two years making their way to the United States in search of religious and economic freedom.

Growing up, Zell’s childhood was comprised of balancing American culture with his parents’ more traditional lifestyle. Being devout Jews, Zell’s parents required that he attend Hebrew School in downtown Chicago a few times a week. During one of his after-school trips to the city, he began his first entrepreneurial venture.

By purchasing Playboy magazines at 50 cents by the train station and reselling them for $3, he was able to learn first-hand how powerful the laws of supply and demand are. These principles stuck with him as his businesses began and then eventually began to grow.

Throughout the book, Zell highlights his guiding principles and how they influenced his thought process. These include the laws of supply and demand, liquidity equals value, limited competition, long term relationships, the importance of simplicity, and the benefits of choosing an unconventional route.

Due to his parents’ pressure to find a stable occupation rather than continue making deals, Zell attended the University of Michigan’s law school. Ironically, after graduation his legal knowledge was put towards creating businesses and making deals rather than securing a stable job.

His parents’ pressure stemmed from their status as immigrants, as well as their risk averse personalities, believing that regardless of potential opportunity risk should always be mitigated. Zell however, fell in love with risk and developed a detailed understanding of how to evaluate it.

This high risk high reward mentality led to his initial real estate acquisitions in Ann Arbor and then eventually to his Class A real estate portfolio around the country. Through careful market evaluation he was able to predict the real estate crash of the 1970s and through his prescience was able to amass a large

portfolio of prime properties for pennies on the dollar. This portfolio of properties eventually came together to comprise the largest real estate sale of that time.

Along with predicting the crash, he was able to use external factors, such as legislation, to see the hidden value in several companies. When Congress passed the Economic Recovery Tax Act, Zell was able to recognize the value of the extension of net operating loss carry forwards (NOLs) and acted accordingly.

By purchasing public companies with large NOLs he was able to shield profits and increase profitability through the reduction of tax payments. Due to the fact that he recognized this much earlier than his competitors, he was able to acquire several companies with limited competition.

As highlighted in the two previous examples, Zell recognized opportunity in areas with low growth and had the foresight and patience to wait out downturns and crashes. Knowing when to stop and when to proceed shielded him from heavy losses and placed him in a prime position to acquire both companies and processes.

In the conclusion, Zell discusses his philosophies and how they’ve contributed to his success today. He ties them back into his deals as well as how they’ve been shaped by his influential relationships. While discussing relationships Zell calls attention to his current wife, Helen, and how she’s shifted his recent focus slightly from business to philanthropy.

By wrapping the book up with his contributions towards education and the importance of inspiring entrepreneurial spirit in students, Zell restates his desire to take the narrow path and how it has allowed him to achieve greatness.

Introduction

Several of Sam Zell’s transactions have been the largest in real estate history and he is well known for bringing failing businesses back to life. His vision and drive to succeed drew him not only to real estate, but also to other individual entrepreneurs whom he helped create products that are extremely prominent in our day to day lives, such as Mucinex for example.

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From selling Playboy magazines at a hefty margin to convincing developers to allow him to manage properties, Zell’s daring spirit pushed him to take chances and make risky decisions. He has a saying he sticks by, ‘if everyone is going left, look right’. This saying is representative of his business mentality and the key to his success. This business philosophy earned him the title of ‘Grave Dancer’ – someone who invests in industries at their lowest point and revives businesses that others deem to be too far gone.

His autobiography takes his readers on a journey that showcases his highs, lows, and the lessons he learned through them all.

Although the story is not shown in chronological order, it represents his development from an early risk-taker, to a seasoned investor. In order to accurately portray his story, the following brief is split into four parts. The first discusses his background: his parents’ experience leaving Poland, their beginning in the United States, and his early businesses.

The second focuses on his deals and his takeaways from them. The third highlights his important relationships and the impacts they had on him. Lastly, the fourth focuses on what makes Zell different, both personally and professionally.

Part I: Background

Born to two Jewish immigrants from Poland, Zell grew up in a much different environment than most of his peers did. His father, Bernard, was a grain merchant who traveled through Europe and sold grain to various countries. This type of travel was uncommon in the 1930s and provided the older Zell with a vast knowledge of different cultures and languages, along with an astute awareness of current events.

Through his access to news from different countries, Bernard was able to recognize that Anti-Semitism movements were growing and that his family was in danger in Poland. With an elaborate, albeit less secure, plan, he alongside his wife Rochelle and daughter Julie were able to escape Poland right before the bombings occurred in 1938.

Over the span of twenty-one months Bernard, Rochelle, and Julie traveled through the Soviet Union into Japan, and finally into the United States before making it to safety. Although they arrived in Seattle, they eventually settled in Chicago in 1941, where they remained for their entire lives.

Having been a grain merchant in Europe, Bernard set out to recreate his prosperous business in America but was unable to do so due to the lack of education he had received.

Eventually, he moved into wholesale jewelry, remaining conservative in his endeavors. Bernard became a prominent figure in the Jewish community and emphasized education, religion, and maintaining a good name, also known as ‘shem tov’ in the Jewish community. This conservative mindset often felt burdensome to Zell and as a result his relationship with his parents was strained growing up.

In his early teen years, his family moved to a suburb of Chicago and demanded that he attend a Jewish program to ensure that he didn’t forget his heritage. His weekly trips into the city allowed him to create his first venture; selling Playboy magazines at a margin to his classmates. It was through this experience that he realized he was a natural entrepreneur – a passion which was further ignited during his undergraduate career.

In 1959 Zell began his undergraduate career at the University of Michigan as a political science major. He pledged a fraternity, played sports, and got involved in several activities that his parents deemed frivolous. His passion for motorcycles was born there and has remained as his symbol of freedom till this day. This is also where his career in real estate began, specifically in the middle of his junior year.

It was a pitch to manage an apartment complex being developed by their university that started it all. His pitch was extremely successful, thereby awarding Zell several management contracts by the same landlord. Throughout his time in college he only held one job as a summer salesman for a cosmetics company and spent the rest of his time managing the real estate development.

Very soon after graduation, he got married to a woman named Janet and made the decision to continue his education at the University of Michigan School of Law.

Although his experience would not be described as enjoyable, Zell states that his legal knowledge is invaluable to him even today because “you cannot play by the rules if you do not understand them.”

Zell continued to make real estate deals and purchased his first building in Ann Arbor in 1965, eventually acquiring the whole block. This was the largest block of land held by one owner near campus and he sold it the following year for much more than he’d paid for each acquisition individually.

Through this process he learned the value of listening, honesty, and the value of the unknown factor. At this time, his father joined him, invested in his real estate, and became his business partner. This not only assisted Zell with his business, but also improved his relationship with his father.

He graduated law school in 1966, the same year his son, Matthew, was born.

His high growth low competition strategy had eventually run its course in Michigan and after graduation he returned to Chicago to see if this could be replicated. Bob Lurie, his longtime friend and eventual business partner purchased the business and remained in Ann Arbor.

Zell attributes much of his success to his environment as a child. It shaped him into a curious individual that discussed profound topics and questioned everything. It also taught him that being unconventional is okay and that going against the status quo often reaps abundant fruit.

Part II: The Deals

Zell is known for being able to predict a downturn before it occurs which allows him to secure an advantage before the market realizes what is happening. This insight comes from a direct understanding of his fundamental sources of knowledge; the laws of supply and demand, liquidity equals value, limited competition, and long-term relationships.

The emphasis Zell places on the laws of supply and demand, more specifically understanding when they’re out of balance, has allowed him to reap profits on several deals and avoid the extreme downturns thousands of individuals face when the market collapses.

One of his biggest indicators was in 1973 when the real estate industry was in a building frenzy due to dedicated real estate lenders and several real estate investment trusts (REITs).

At this point Zell halted his purchases and waited, believing that the market would crash, which it did in 1974. At this point in time, lenders didn’t want to take over management of the real estate that had just lost its value, so they allowed Zell to restructure the debts and guarantee that he would feed the deficit of the loan if that became necessary.

Due to this crash, between 1974 and 1977, Zell was able to purchase roughly $4 billion of assets with mostly guarantees and very little capital down. Picking up properties that were otherwise set on the path to failure gave Zell the nickname ‘Grave Dancer’.

He chose the mass amount of properties based on three characteristics: priced below replacement cost, deferred maintenance, and good quality as well as location. With a combination of these three factors, Zell was able to acquire several class A assets that other buyers were unable to, because they didn’t see the crash coming.

Most of the deals discussed are shown in a favorable light, including the challenges that came with them.

Nonetheless, there were deals that did not go so well, but even they were positive in that they taught Zell lessons he utilized in the future. Notably, in 1976 he acquired a high rise hotel and apartment complex in Reno, Nevada. The deal had gone through due to an elaborate tax structure Zell’s brother in law Roger and his colleague drafted for Zell.

As Harvard trained lawyers, both Roger and his colleague were well versed in contracts and how to bend them. The deal went through without any issue and the problems came a few years later. Roger, his colleague, and their entire law firm became the subject of an IRS investigation, eventually involving Zell.

Zell was able to avoid charges, but the indictment remained on his record and caused problems for him later on. Roger, however, was convicted, thus teaching Zell the importance of being stringent and firm when it came to legal matters even if it meant not closing the deal.

Zell paid great attention to external factors when choosing which deals to go ahead with.

In 1981 when Congress passed the Economic Recovery Tax Act, no one was looking at its impacts on nuanced accounting standards. Zell analyzed the implications of this act and realized that it provided for great value that Wall Street hadn’t accounted for. By extending the life of company’s net operating loss carry forward (NOL), companies were able to maintain their profits while simultaneously reducing their taxable income.

Introduced as a means to assist firms during hardship, it inadvertently increased the value of companies with heavy NOLs that were beginning to regain profits. One such company that Zell invested in was a conglomerate founded in 1967; Itel. Itel had three main divisions, leasing aircrafts, shipping containers, and railcars. In 1981, Itel declared bankruptcy and in 1983 it surfaced from Chapter 11 with break-even cash flows and $450 million in NOLs.

Through a slow acquisition of stock and ownership, Zell eventually acquired a significant stake in the company and was elected Chairman and CEO of Itel in 1985. Considering that Itel was just now building itself back up, Zell needed to make changes in order to ensure that progress continued. Zell sold off everything within the miscellaneous section to create liquidity to support the rest of the company.

Itel was number four out of seven major players in the freight shipping category and so Zell purchased number seven. This addition made Itel number one. By combining systems and facilities he was able to reduce redundancies, thereby reducing costs and increasing profits. He then went on to purchase another competitor, further increasing Itel’s market share. Lastly, he evaluated the railcar section of the business.

The railcar bubble had recently burst, making the early 1980s the worst possible time to own railcars.

Their values were falling dramatically and due to this production stopped. However, following the laws of supply and demand, Zell predicted that this decreasing supply would eventually intersect with the demand so he went ahead and did what everyone told him not to do and purchased more railcars. With the belief that he could acquire a large amount of market share, he purchased Pullman Industries, a large assemblage of grain and tank railcars.

In 1987 Zell paused on the railcar front and moved Itel into an industry it had not been present in before; wiring and cable distribution. Through the extremely difficult acquisition of Anixter, they were able to expand across the globe. In 1992, Zell sold off the rail cars to GE, once again having made a profit from what was presumed to be a dead industry.

Lastly, Zell’s biggest deal was the largest leveraged buyout of the time; the sale of Equity Office to Blackstone Group in February of 2007 for $39 billion. Equity Office was the largest real estate investment trust in the country, composed of hundreds of prime office buildings in every major market. Equity Office went public at $21 a share in 1997 and exited the market in 2007 at $55.50 a share, after collecting $16.48 a share in dividends.

Zell was able to do this through achieving economies of scale to drive down costs and thereby increase their returns. Their management team was from one of Zell’s other private companies, thereby further reducing costs as well as redundancies. Zell also secured long term leases with large corporations that provided stable income and a competitive advantage.

In 2000, Equity Office acquired Spieker Properties, initially viewed as a costly merger with a bad reputation.

Spieker Properties was a West Coast REIT from Menlo Park, California that merged during the dot-com let down. Zell saw this as an opportunity rather than a waste and purchased the REIT causing controversy over the validity of his decision. By 2006 however, it was apparent that this was a positive acquisition and that Silicon Valley was a prime location to own property in.

Often times Zell became increasingly worried that Equity Office was getting too big to sell and that he wouldn’t be able to maximize the return he had wanted to for his shareholders. However, his perspective shifted in late 2005 when he received an offer of purchase for Equity Office. Made by the California Public Employees’ Retirement System, it was the first indication that the REIT could be sold.

However, the bid was undervalued according to Zell and he turned them away. Another bid came in from them in 2006, under valued again. Over the summer, two bigger players came into the arena; Steve Roth, chairman of Vornado Realty and Blackstone Group. At first Blackstone was allied with Brookfield, but over the next few months Blackstone dropped them and returned as a single player, with Jon Gray leading initial negotiations.

The first bid from Blackstone was low, as the last few bids had been, and Gray was told to only return if he had a ‘Godfather Offer’ mentioned to be upwards of $45 a share. In November, Blackstone returned with a bid of $47.50 which officially began the bidding war that ensued over Equity Office. They increased to $48.50 with a total of $20 billion in cash and $16 billion in debt.

This agreement, as per Zell’s requirements, also came with a smaller breakup fee of $200 million as to encourage competition and healthy bidding. The competition Zell hoped for arose in the form of Steve Roth from Vornado. In January of 2007 he submitted a preliminary bid of $52 a share with 40% in Vornado common stock and the remainder in cash.

The shareholders as well as Zell desired a deal with more cash, as stock increased the risk both financially as well as in regards to time.

Steve Schwarzman, Blackstone’s chairman and CEO upped the offer to $54 a share, raising the total to $38.3 billion. The additional caveat to this change was that the breakup fee was increased to $500 million per Blackstone’s request. Vornado countered with $56 a share, raising the cash portion to $31 billion.

The following week they added on an offer to speed up the process, a factor that was holding them back in the eyes of Zell and his shareholders. Although this counter had been made, Blackstone still held the lead and raised its bid to $55.25 and eventually to $55.50. With an increase in the breakup fee to $720 million, they were able to secure the deal which finally closed in February of 2007.

Zell’s comprehensive understanding of risk and his desire to unlock potential allowed him to be a leading player in the market. His ability to evaluate opportunities and gain control of different markets provided him with great recognition. Over the course of his lifetime he completed several successful deals and revived many companies, though not all the size of Equity Group.

Part III: Zell’s Relationships and Teachings

Much of the credit for his success goes towards his entrepreneurial mindset. This mindset, Zell mentions, is a product of his environment growing up as well as the relationships he made along the way.

Although he married three times, he was able to maintain positive relationships with each wife and with all of his children. His most discussed marriage was regarding Helen, Zell’s wife today. Helen, Zell, and their spouses were good friends in law school but they lost touch once they moved away. In 1995, a year after Zell’s second divorce, Helen and Zell reconnected at an art exposition and their relationship developed extremely quickly after that.

Within a short period of time she had integrated fully into his life.

This new personal development brought about a different perspective and pushed some of his focus from business onto philanthropy. Zell had always contributed to society, from Jewish organizations with his father all the way to the University of Michigan later on, but it was never with the passion that came after Helen.

She shared the same values as Zell did and believed that education held great importance, along with the arts, Jewish, and medical causes. Her belief in the importance of education prompted the creation of the Helen Zell Writers’ Program, a highly selective graduate program at the University of Michigan. Together they’ve founded and funded several educational programs geared towards their passions as well as furthering Jewish education and strengthening their community.

Apart from family, one of Zell’s most prominent and impactful relationships was with Bob Lurie and he considers him to be his only true partner till this day. Bob and Zell went to the University of Michigan where Bob remained when Zell graduated and sold him his real estate management company in Ann Arbor.

Two years later, Bob sold off the asset management company and joined Zell in Chicago.

When Bob first arrived in Chicago, their company Equity Group Investments (EGI) wasn’t a partnership. Over the next few years, it slowly transformed into one with increased contributions and returns. Both his and Zell’s personalities came together to create a business culture unlike any other. They considered it to be a meritocracy and removed the facades and barriers present in every other investment group at the time.

Bob had large, frizzy red hair and never seemed to change out of his jeans, plaid shirt, and boots. He was described as unconventional, a realist, and the grounding voice of reason in the office. Although he was detail oriented and handled the logistics of Zell’s optimism, he also joked around and once added a clause in a contract between him and Zell stating that the dispute would be resolved by whoever was taller, something that was never settled.

His eye for detail and light hearted personality made Bob Zell’s first and only true partner as well as his closest friend. In 1990 when Bob lost his fight to cancer, Zell faced personal uncertainty as well as a challenging decade.

When Bob passed away, Sheli Rosenberg took over his position. Sheli was Zell’s first in house lawyer, a woman who stayed with him for twenty years. Ten years after she joined the company she was promoted to CEO, something that was unheard of during this time. Similar to Bob, Sheli was loyal to Zell and never hesitated to speak her mind. She not only developed a professional relationship with Zell, but also a strong friendship built upon mutual understanding and trust.

Another prominent figure in Zell’s life was Jay Pritzker.

Jay Pritzker was one of the most prominent businessmen in Chicago and a legend in the world of investing. The introduction occurred in 1969 when Zell received a phone call with a recommendation to work for Pritzker, as he was searching for someone similar to Zell. Although Zell didn’t end up taking the job, he did end up taking the meeting which lasted approximately eight hours.

Jay introduced Zell to a different way of thinking and taught him the importance and value of simplicity, both in business and everyday life. Alongside Jay, Zell saw the complications of development and abandoned that early on, to follow Jay in simpler processes with less complications and a smaller probability of failure. Through the influence of Jay’s friendship, trust became one of Zell’s abiding principles.

There were several instances in Zell’s life where Jay’s unconditional trust and their mutual understanding saved him from sticky situations. Zell considered himself to be an extremely competitive individual, an attribute that became more prominent as his friendship with Jay continued to develop. Another important lesson imparted by Jay was the importance of simplicity.

Jay preferred projects with less steps and a clearer path to the finish line so that there were fewer points at which something could go wrong. After Jay and Zell took on a development project together with several steps and consequently several problems, Zell took to remembering the importance of simplicity when choosing to take on a project. This lesson served him well and from then on he evaluated his choices by factoring simplicity in as well.

When Jay passed away in 1999, it was a significant loss for Zell. Jay and Bob had simultaneously established extremely trusting and deep relationships with Zell both professionally and personally. Their influence was prominent in Zell’s life, second only to his parents. Both men had an outsized influence on Zell’s life and made him realize the value of long-lasting relationships.

Part IV: The Difference

Throughout his career, Zell made it a point to make both his company and his lifestyle different from those that surrounded him. He believed that this difference inspired creativity and that once somebody had worked for him, there was no way they could be happy anywhere else. He defined his company as a meritocracy with an environment that cultivated confidence and one that nurtured healthy discussion.

It allowed employees to wholeheartedly be themselves with the value of each individual determined solely by what they produce not by office politics. Equity Group Investments, the center of all of his investments and other equity-related funds, maintained an open-door policy that not only welcomed everyone but also empowered them to be self starters.

Zell believes that he has an eye for good people and by trusting this process he is able to find people that will fit in well with his organization in terms of values, aligned interests, and the desire to make a difference. He runs his company and makes decisions as an owner and a leader, but still encourages those around him not to take themselves too seriously, also known as his Eleventh Commandment.

Equity Group Investments’ (EGI) culture is largely shaped by his Eleventh Commandment, which is reflected distinctly in his dress code as well as in the way the office itself is decorated.

Zell often takes meetings on a private patio with the noise of Chicago buzzing around him and his two office ducks playing in the heated pool. Jeans are more common than suits and both he and Bob often showed up in jumpsuits with vivid colors. The Beatles were always playing in their office, another way Zell communicated that work was meant to be enjoyable and engaging rather than monotonous. This fun-loving, carefree spirit also drove EGI’s annual gifts and events.

Widely known for their popular gifts, EGI often sent out easily distinguishable gifts based on the predicted theme of the market for the upcoming year. For 15 years before the financial downturn in 2008, Zell sent out music boxes with different songs parodies to highlight major events for that year. Another gift, distributed more often than annually, which showcases how differently Zell liked to do things, was his IPO t-shirts.

When he went on road trips to attract investors and pitch them companies, he created funky t-shirts with different sayings. Zell employed this unique approach to highlight his commitment towards the company and to leave a lasting impression on potential investors. The idea was to make the t-shirt so memorable that it would make the investors want to commit to the company he was pitching.

Along with unusual clothing used as a strategy to pitch to investors, Zell used t-shirts to inspire creativity and integrated them into his unusual yet captivating birthday parties every few years. These shirts were themed and guests were allowed to wear them in any manner that they desired. Aimed at removing competition and barriers imposed by dress codes, these t-shirts were often the ticket to enter his grand affair.

These parties were initially structured, in a parallel manner to his company, as a scavenger hunt focused on following the clues and solving the problem.

As his guest list grew, he shifted the structure slightly and created an experience that consisted of shipping containers with various scenes inside each one. He aimed to create a cohesive, yet mind-boggling experience that remained in the guests’ mind long after they’d left. Doing things differently is something Zell is well known for, and is what made him memorable to everyone he met.

Throughout his lifetime Sam Zell has not only created an empire but has also built a lasting legacy through the impact he’s had on his community. Through inspiration from his wife Helen, who poured her heart into philanthropy, Zell created several programs to encourage young visionaries to become entrepreneurs as he had.

By returning to his alma mater, the University of Michigan, he was able to teach a course on risk to students from all disciplines and all ages. Risk, markedly the understanding of it, was a big contributor to his success and he believed that providing an early and firm understanding of it would be invaluable for these students and lead to success for them.

In 1999 he founded the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan as he realized the dire need for different thinking at the school. Memorization and regurgitation had become habit for students there and they weren’t used to analyzing the numbers for what they meant rather than what they said. Seeing this need also inspired him to launch two other programs, one at the Northwestern Kellogg School of Management and one in Israel, known as the Interdisciplinary Center (IDC).

IDC was well known for its “hungry” students that came from diverse backgrounds and were generally older, as several had served in the Israeli military. In 2015 these programs combined into one alumni network known as the Zell Global Entrepreneurship Network (ZGEN) to encourage global thinking and promote student created businesses.

In conclusion, Zell offers and expands upon the different pieces of advice he has received and cultivated along his lifetime. This advice includes maintaining flexibility, always striving to do the right thing, maintaining a good reputation, and being the first in order to secure an advantage. Zell imparts this advice in the hope that it will push others to make the most of their day, go all in, and strive for greatness.

HookedtoBooks.com would like to thank the Titans of Investing for allowing us to publish this content.  Titans is a student organization founded by Britt Harris. Learn more about the organization and the man behind it by clicking either of these links.

Britt always taught us Titans that Wisdom is Cheap, and principal can find treasure troves of the good stuff in books.  We hope only will also express their thanks to the Titans if the book review brought wisdom into their lives.

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