The Z-factor

Sam Zell recently made headlines when Equity Office was acquired in the largest private equity real estate deal ever. But Zell has been making headlines for the past 40 years. Always opinionated, never boring, Zell sat down with PERE for an interview earlier this year.

At a time when so many investors are bemoaning the frothy state of the US real estate market, perhaps it’s not surprising that Sam Zell is upbeat. After all, the man who has made billions by investing against the conventional wisdom has never been one to go along with the crowds.

“I think the US market is a wonderful place to invest,” says Zell, relaxing in his office overlooking the Chicago River, his voice as calm and casual as his work attire—today an orange cashmere sweater and blue jeans.

Having invested in every real estate cycle of the past 40 years, however, Zell concedes the need for caution. He warns that investors today need to be much more discerning than they may have been in the past, adding that prospects for opportunity funds in the US are limited—one reason why his private equity real estate vehicle, Equity International Properties, is focused primarily on foreign countries like Brazil and Mexico. But he adds: “If your objective is safety and relatively less volatility, and therefore less risk, then I think [the US] is a great environment.”

Given Zell’s position as chairman of two of the largest publicly traded real estate investment trusts in the country, Equity Office Properties and Equity Residential, his optimism may be understandable. As Zell himself points out, “I have a significant amount of my own net worth invested here.” But a man who anointed himself the “Gravedancer” for his ability to pick up distressed properties on the cheap is not necessarily someone you’d expect to be so bright and cheery about a hot market.

Zell, of course, has always had his own unique style. He still rides a Ducati motorcycle to work, prefers jeans to a suit and tie, sports the same slim, chin-curtain beard he’s worn for years and sprinkles his conversation with expletives. He is opinionated, candid, a maverick in an industry filled with mavericks. The “Gravedancer” dances to the beat of his own drum.

I think the US market is a wonderful place to invest.

Sam Zell

Unlike many high-profile investors who are content to focus on a specific area of expertise, Zell has never been one to limit himself—he once remarked that “the definition of a schmuck is someone who reaches their goals.” Throughout the 1970s he and his late partner, Robert Lurie, created a real estate empire by buying properties from beleaguered real estate investment trusts. In the 1980s they diversified into corporate buyouts, turning moribund or bankrupt companies such as Itel (now Anixter) and General American Management & Investment into multi-billion dollar conglomerates. By the end of that decade, Zell had returned to real estate, raising one of the first opportunity funds ever and eventually launching four publicly traded REITs. Along the way, he raised a $1 billion private equity fund targeting distressed buyouts and when the dot-com era busted and the economy went into recession, he went hunting for junk bonds as well.

Being a renaissance man in the world of finance, however, doesn’t always translate into favorable press. In reading the countless articles that have profiled Zell over the years, one gets a picture of a hard-charging, brash and unforgiving businessman: he has been called irreverent, abrasive, even ruthless. Yet in person, Zell comes across as soft-spoken, charming and, dare it be said, gentle. It could be that the “Gravedancer” is mellowing with age—he recently turned 65. But perhaps the reality is something else entirely. Maybe one of the greatest real estate investors of the modern era simply defies categorization.

The complete interview with Sam Zell appeared in the February 2006 issue of Private Equity Real Estate. To subscribe, Click here.