WEBVTT 00:00:00.000 --> 00:00:02.299 Okay, picture this scenario. You're at a dinner 00:00:02.299 --> 00:00:05.059 party. It's one of those nights where, you know, 00:00:05.080 --> 00:00:07.660 the wine is flowing, the conversation is getting 00:00:07.660 --> 00:00:10.919 a little intense, and the topic turns to genius 00:00:10.919 --> 00:00:13.740 investor. Always a contentious topic. Right. 00:00:13.839 --> 00:00:16.179 Someone immediately brings up Warren Buffett. 00:00:16.199 --> 00:00:19.460 Value investing, patience, drinking cherry Coke. 00:00:20.460 --> 00:00:22.920 You know, the slow and steady approach. Of course, 00:00:23.019 --> 00:00:25.559 the Oracle of Omaha. Then someone else jumps 00:00:25.559 --> 00:00:28.800 in with like Elon Musk, the visionary, the high 00:00:28.800 --> 00:00:31.059 tech risk, the guy who's, you know, sleeping 00:00:31.059 --> 00:00:33.259 on the factory floor. Two very, very different 00:00:33.259 --> 00:00:36.079 archetypes of success. Exactly. But then you 00:00:36.079 --> 00:00:38.460 chime in, you lean over the table and you say, 00:00:38.560 --> 00:00:41.000 what about the guy who called himself the grave 00:00:41.000 --> 00:00:43.840 dancer? The guy who turned dead buildings into 00:00:43.840 --> 00:00:46.600 gold mines and then sold his entire empire for 00:00:46.600 --> 00:00:49.359 thirty six billion dollars right before the world 00:00:49.359 --> 00:00:53.520 ended in. And the room probably goes silent because 00:00:53.520 --> 00:00:55.679 half of them think you're talking about, I don't 00:00:55.679 --> 00:00:58.460 know, a supervillain from a comic book. Exactly. 00:00:58.740 --> 00:01:01.420 And in a way, the story we are covering today 00:01:01.420 --> 00:01:05.480 has all the beats of a supervillain origin story, 00:01:05.620 --> 00:01:08.599 but it also has the beats of a classic pull yourself 00:01:08.599 --> 00:01:10.439 up by your bootstraps American Dream success 00:01:10.439 --> 00:01:14.379 story. It is messy. It's so incredibly complicated. 00:01:14.640 --> 00:01:16.859 It is the story of Sam Zell. We're looking at 00:01:16.859 --> 00:01:20.349 a stack of sources today, that is. It's heavy. 00:01:20.469 --> 00:01:22.170 I mean, physically heavy. We've got biographical 00:01:22.170 --> 00:01:24.450 records. We have these financial autopsies of 00:01:24.450 --> 00:01:27.170 the 2008 crash. There are legal filings from 00:01:27.170 --> 00:01:28.989 one of the largest bankruptcies in media history. 00:01:29.269 --> 00:01:31.549 And we even have Zell's own writings. Right. 00:01:31.590 --> 00:01:33.510 His book, Am I Being Too Subtle? Which tells 00:01:33.510 --> 00:01:35.810 you a lot about the guy right there. Yeah. So 00:01:35.810 --> 00:01:37.829 our mission for this deep dive is pretty specific. 00:01:37.989 --> 00:01:40.430 We aren't just reciting a biography. We want 00:01:40.430 --> 00:01:43.209 to figure out how a man develops a sort of sixth 00:01:43.209 --> 00:01:46.129 sense for market timing. How do you know when 00:01:46.129 --> 00:01:48.709 to buy when everyone is screaming sell? And maybe 00:01:48.709 --> 00:01:50.870 more importantly, how does that same genius lead 00:01:50.870 --> 00:01:54.150 you to make one of the most catastrophic business 00:01:54.150 --> 00:01:57.030 mistakes of the 21st century? It really is the 00:01:57.030 --> 00:01:59.909 ultimate case study in risk. I mean, Sam Zell 00:01:59.909 --> 00:02:02.780 was a man who lived on the edge. financially, 00:02:02.879 --> 00:02:05.579 legally, and, you know, personally. He passed 00:02:05.579 --> 00:02:09.599 away in May 2023, and he left behind a legacy 00:02:09.599 --> 00:02:13.800 that is equal parts textbook brilliance and cautionary 00:02:13.800 --> 00:02:16.080 tale. So let's start with that name, The Grave 00:02:16.080 --> 00:02:19.949 Dancer. Most CEOs hire these expensive PR firms 00:02:19.949 --> 00:02:21.629 to make them sound friendly and approachable. 00:02:21.689 --> 00:02:23.349 Oh, yeah. They want to be the visionary or the 00:02:23.349 --> 00:02:26.490 builder. The connector. Sam Zell wrote an article 00:02:26.490 --> 00:02:30.650 in 1976 titled The Grave Dancer, a guide to the 00:02:30.650 --> 00:02:33.590 risky art of resurrecting dead properties. He 00:02:33.590 --> 00:02:35.610 owned it. He just he put it right out. He didn't 00:02:35.610 --> 00:02:37.810 just own it. He branded himself with it. And 00:02:37.810 --> 00:02:39.550 to understand why, you have to understand what 00:02:39.550 --> 00:02:41.870 the economic world looked like in the mid 70s. 00:02:41.870 --> 00:02:44.250 It wasn't today's world of. you know, high speed 00:02:44.250 --> 00:02:46.590 trading and complex algorithms. No, not at all. 00:02:46.689 --> 00:02:48.990 The real estate market had crashed and crashed 00:02:48.990 --> 00:02:51.729 hard. Developers were defaulting on loans left 00:02:51.729 --> 00:02:53.750 and right. There were these half finished skeletons 00:02:53.750 --> 00:02:56.490 of buildings all over American cities. It was 00:02:56.490 --> 00:02:59.909 a wasteland. And most people, you know, rational 00:02:59.909 --> 00:03:02.909 people look at a half finished building owned 00:03:02.909 --> 00:03:05.189 by a bankrupt developer and they see a disaster. 00:03:05.370 --> 00:03:07.110 They see a money pit. They run the other way. 00:03:07.520 --> 00:03:10.039 Of course you do. Because a dead property is 00:03:10.039 --> 00:03:11.879 a headache. I mean, it has liens, it has all 00:03:11.879 --> 00:03:14.800 these legal issues, probably angry tenants, maybe 00:03:14.800 --> 00:03:17.919 even structural problems. It's just a mess. But 00:03:17.919 --> 00:03:22.759 Zell looked at it and saw a mispricing. He realized 00:03:22.759 --> 00:03:25.360 that if he could buy the asset for pennies on 00:03:25.360 --> 00:03:28.280 the dollar, literally below the cost of replacing 00:03:28.280 --> 00:03:31.219 the bricks and the glass, he don't need the market 00:03:31.219 --> 00:03:33.080 to boom. Right. He just needed the building to 00:03:33.080 --> 00:03:35.110 function. he could make his money just by bringing 00:03:35.110 --> 00:03:37.650 it back to life. So he, as the name suggests, 00:03:38.030 --> 00:03:40.469 danced on the grays of the developers who got 00:03:40.469 --> 00:03:43.129 overextended. It's such a vivid image, isn't 00:03:43.129 --> 00:03:45.150 it? But before we get into the mechanics of how 00:03:45.150 --> 00:03:46.889 he made billions doing that, and we will get 00:03:46.889 --> 00:03:48.849 into the weeds of the strategy, I want to back 00:03:48.849 --> 00:03:50.710 up. Because you don't just wake up one morning 00:03:50.710 --> 00:03:52.669 with the guts to look at a financial disaster 00:03:52.669 --> 00:03:54.949 and say, yeah, I'll take it. No. That kind of 00:03:54.949 --> 00:03:57.849 risk tolerance, that feels innate, or at least 00:03:57.849 --> 00:04:00.729 learned very, very early. It is innate, but it's 00:04:00.729 --> 00:04:03.180 also inherited. I mean, if you look at the origin 00:04:03.180 --> 00:04:05.680 story section of our notes, it reads like a spy 00:04:05.680 --> 00:04:08.659 thriller. We throw the word survivor around a 00:04:08.659 --> 00:04:11.020 lot in business. You know, he survived the dot 00:04:11.020 --> 00:04:14.240 -com bubble. But Samsell's parents were literal 00:04:14.240 --> 00:04:16.379 survivors of an apocalypse. We're talking about 00:04:16.379 --> 00:04:20.199 World War II here, the real deal. Yes. His parents, 00:04:20.399 --> 00:04:23.540 Ruchla and Bereksielunka. They were Jewish, living 00:04:23.540 --> 00:04:27.000 in Poland in 1939. This is right at the onset 00:04:27.000 --> 00:04:29.879 of the Nazi invasion. Now, just try to imagine 00:04:29.879 --> 00:04:32.629 the atmosphere. It's just... Confusion, terror. 00:04:33.129 --> 00:04:35.089 Most people in their community were hesitating, 00:04:35.089 --> 00:04:37.509 maybe hoping things would blow over or they were 00:04:37.509 --> 00:04:39.930 simply trapped with no way out. But Zell's parents. 00:04:40.209 --> 00:04:42.430 They made a split second decision to run, to 00:04:42.430 --> 00:04:44.529 just go. And they didn't just hop on a train 00:04:44.529 --> 00:04:46.649 to France or take a boat to England, which would 00:04:46.649 --> 00:04:48.389 have been the, I guess, the more common escape 00:04:48.389 --> 00:04:50.529 route. No, those routes were closing faster or 00:04:50.529 --> 00:04:52.129 already gone. This is one of the most fascinating 00:04:52.129 --> 00:04:54.610 details in the biographical records. They went 00:04:54.610 --> 00:04:57.610 east. They fled through the Soviet Union. And 00:04:57.610 --> 00:04:59.870 to do that. They needed papers. They needed a 00:04:59.870 --> 00:05:02.209 way out. This is where that name Shiori Sugihara 00:05:02.209 --> 00:05:03.870 comes in. I've heard him called the Japanese 00:05:03.870 --> 00:05:06.529 Schindler. That's a really fair comparison. And 00:05:06.529 --> 00:05:08.810 honestly, he deserves a deep dive of his own. 00:05:09.350 --> 00:05:11.769 Sugihara was a Japanese diplomat stationed in 00:05:11.769 --> 00:05:14.689 Vilnius, Lithuania. He went against direct orders 00:05:14.689 --> 00:05:17.089 from his government in Tokyo, and he started 00:05:17.089 --> 00:05:19.910 handwriting transit visas for Jewish refugees. 00:05:20.209 --> 00:05:23.269 Wow. He was writing them for 18, 20 hours a day 00:05:23.269 --> 00:05:26.370 until his hands literally cramped up. He saved 00:05:26.370 --> 00:05:29.689 thousands of lives. And Sam Zell's parents were 00:05:29.689 --> 00:05:31.870 holding some of those precious visas. That gives 00:05:31.870 --> 00:05:35.649 me chills. So the very existence of this future 00:05:35.649 --> 00:05:38.689 billionaire real estate tycoon hinges on a rogue 00:05:38.689 --> 00:05:41.350 diplomat signing a piece of paper in Lithuania 00:05:41.350 --> 00:05:44.069 in 1940. It's incredible. It really is. It shows 00:05:44.069 --> 00:05:45.930 you how fragile history is. Yeah. But getting 00:05:45.930 --> 00:05:48.230 the visa was only step one. They still had to 00:05:48.230 --> 00:05:50.529 cross Russia. And this is where the chutzpah. 00:05:50.829 --> 00:05:52.370 which is a word we're going to use a lot regarding 00:05:52.370 --> 00:05:54.970 Zelfirst, appears. They're traveling through 00:05:54.970 --> 00:05:57.670 the Soviet Union, a place that is hostile to 00:05:57.670 --> 00:05:59.910 practically everyone at that time. To avoid suspicion, 00:06:00.250 --> 00:06:03.129 they didn't act like desperate refugees. I read 00:06:03.129 --> 00:06:05.089 this note in the source material and I actually 00:06:05.089 --> 00:06:07.490 laughed out loud. They pretended to be tourists 00:06:07.490 --> 00:06:10.689 on a cultural trip. They pretended they were 00:06:10.689 --> 00:06:12.750 traveling across the entire continent specifically 00:06:12.750 --> 00:06:15.709 to see the Bolshoi Ballet. That is just, it's 00:06:15.709 --> 00:06:18.250 beyond belief. The world is burning. You are 00:06:18.250 --> 00:06:20.670 fleeing for your lives. You have the Nazis behind 00:06:20.670 --> 00:06:23.110 you and the Soviets all around you. But you act 00:06:23.110 --> 00:06:25.829 like you're just really big fans of ballet. Oh, 00:06:26.029 --> 00:06:27.930 we're just here for the culture. It's a survival 00:06:27.930 --> 00:06:30.449 mechanism. It's fake it till you make it. But 00:06:30.449 --> 00:06:33.110 with, you know, life or death stakes. They travel 00:06:33.110 --> 00:06:35.430 from Russia to Japan, then to the United States, 00:06:35.629 --> 00:06:38.170 eventually settling in Chicago. Specifically, 00:06:38.389 --> 00:06:40.649 they move from Seattle to Albany Park first. 00:06:40.850 --> 00:06:43.550 And Sam was born in Chicago in September 1941. 00:06:44.540 --> 00:06:46.639 So just four months after they arrived. Four 00:06:46.639 --> 00:06:49.319 months. So he's born into this energy, this energy 00:06:49.319 --> 00:06:52.100 of we beat the odds. We are smarter than the 00:06:52.100 --> 00:06:55.540 system. Exactly. His father changed the name 00:06:55.540 --> 00:06:58.680 from Zalonka to Zell. He started as a wholesale 00:06:58.680 --> 00:07:01.180 jeweler, but quickly moved into real estate and 00:07:01.180 --> 00:07:04.680 stocks. And Sam grew up watching this. He grew 00:07:04.680 --> 00:07:06.779 up hearing the stories of the escape. He learned 00:07:06.779 --> 00:07:09.920 very, very early on that rules are, well, let's 00:07:09.920 --> 00:07:12.019 call them suggestions for other people. Right. 00:07:12.319 --> 00:07:15.680 But for the Zells, survival meant outsmarting 00:07:15.680 --> 00:07:18.740 the system. It was baked into his DNA. And that 00:07:18.740 --> 00:07:20.920 manifested pretty early, didn't it? The Playboy 00:07:20.920 --> 00:07:23.199 story is the classic anecdote here. It's almost 00:07:23.199 --> 00:07:25.379 legendary in business circles. It is. And it's 00:07:25.379 --> 00:07:27.800 funny. But it's also a perfect lesson in arbitrage. 00:07:28.339 --> 00:07:30.680 So Sam is a teenager. He lives in the suburbs 00:07:30.680 --> 00:07:32.939 of Chicago. He takes the train into downtown. 00:07:33.279 --> 00:07:35.759 Now, think about the geography. What does downtown 00:07:35.759 --> 00:07:38.720 Chicago have that the quiet suburbs don't? Newsstands. 00:07:42.250 --> 00:07:44.110 Playboy magazine. Correct. And who lives in the 00:07:44.110 --> 00:07:46.829 suburbs? Teenage boys who desperately want Playboy 00:07:46.829 --> 00:07:49.170 but are too scared to ask their parents or they're 00:07:49.170 --> 00:07:50.910 just unable to get to the city to buy it themselves. 00:07:51.310 --> 00:07:53.730 So he sees a market inefficiency. A huge one. 00:07:53.790 --> 00:07:55.790 So he buys the magazines for, what, 50 cents 00:07:55.790 --> 00:07:57.709 a pop? Something like that. And he brings them 00:07:57.709 --> 00:07:59.610 back to the suburbs. He's essentially acting 00:07:59.610 --> 00:08:02.930 as a smuggler of, well, of culture. of a sort 00:08:02.930 --> 00:08:05.069 he brings them to his hebrew school classmates 00:08:05.069 --> 00:08:08.149 and sells them for three bucks that is a massive 00:08:08.149 --> 00:08:11.689 markup i mean that's a 600 markup it's classic 00:08:11.689 --> 00:08:15.139 arbitrage he found a market inefficiency a geographic 00:08:15.139 --> 00:08:18.399 barrier to entry, and he exploited it. He wasn't 00:08:18.399 --> 00:08:20.459 creating the content. He wasn't writing the articles 00:08:20.459 --> 00:08:23.019 or taking the photos. He was just moving the 00:08:23.019 --> 00:08:26.100 asset from a place of low value, the newsstand 00:08:26.100 --> 00:08:28.000 where it was common, to a place of high value, 00:08:28.139 --> 00:08:30.420 the Hebrew school locker room where it was contraband. 00:08:30.639 --> 00:08:33.600 It's the same exact logic as shipping oil from 00:08:33.600 --> 00:08:35.759 where it's plentiful to where it's scarce. He 00:08:35.759 --> 00:08:37.580 just did it with centerfolds. It's incredible. 00:08:37.879 --> 00:08:40.200 He did the same thing with photography. In eighth 00:08:40.200 --> 00:08:42.700 grade, he took photos at the Brom. He realized 00:08:42.700 --> 00:08:44.970 that the memory of the event was... a distressed 00:08:44.970 --> 00:08:47.490 asset. People wanted it. And if he didn't capture 00:08:47.490 --> 00:08:49.909 it, it was gone forever. So he cornered the market 00:08:49.909 --> 00:08:52.509 on memory. Exactly. He developed them, sold them 00:08:52.509 --> 00:08:55.029 to the students. He just he saw the angle. The 00:08:55.029 --> 00:08:57.409 guy was just wired differently. I mean, most 00:08:57.409 --> 00:08:59.549 kids are thinking about how to pass algebra or 00:08:59.549 --> 00:09:01.210 who they're going to ask to the dance. He's thinking 00:09:01.210 --> 00:09:03.909 about supply chains and monopoly power. And that 00:09:03.909 --> 00:09:06.110 escalated when he got to the University of Michigan. 00:09:07.140 --> 00:09:09.460 This is where the grave dancer really begins 00:09:09.460 --> 00:09:11.799 to take shape. He wasn't just doing odd jobs 00:09:11.799 --> 00:09:14.120 for beer money. He started managing an apartment 00:09:14.120 --> 00:09:17.539 building. A 15 -unit building. In exchange for 00:09:17.539 --> 00:09:19.460 free rent, right? That was the initial... At 00:09:19.460 --> 00:09:22.059 first, yeah. That was the deal. I'll plunge the 00:09:22.059 --> 00:09:23.700 toilets and collect the checks if I can live 00:09:23.700 --> 00:09:27.139 here for free. A classic student job. But then 00:09:27.139 --> 00:09:29.659 he looked at the math. He looked at the landlord's 00:09:29.659 --> 00:09:32.159 headaches. Tenants calling at 2 a .m. about... 00:09:32.299 --> 00:09:35.379 Leaky faucets, vacancies, all that stuff. An 00:09:35.379 --> 00:09:37.919 operational nightmare. Right. And he realized 00:09:37.919 --> 00:09:39.840 he could solve those problems for other owners 00:09:39.840 --> 00:09:43.019 in exchange for a cut of the profit. He partnered 00:09:43.019 --> 00:09:45.440 with his fraternity brother, Robert H. Lurie. 00:09:45.559 --> 00:09:49.100 Okay, so this partnership, Zell and Lurie, this 00:09:49.100 --> 00:09:51.059 is crucial to the story, isn't it? Because Zell 00:09:51.059 --> 00:09:54.059 was the loud mouth, the front man, the guy on 00:09:54.059 --> 00:09:57.230 the motorcycle, the personality. Right. Zell 00:09:57.230 --> 00:09:59.850 was the deal guy. He was the rainmaker. He was 00:09:59.850 --> 00:10:01.809 the one selling the vision to the property owners. 00:10:02.250 --> 00:10:04.529 Lurie was the engineer. He was the operations 00:10:04.529 --> 00:10:07.690 genius. He was the guy who made sure the toilets 00:10:07.690 --> 00:10:09.889 actually got fixed on time, the heating systems 00:10:09.889 --> 00:10:13.289 worked, and that the books balanced. It's a classic 00:10:13.289 --> 00:10:16.769 Steve Jobs, Steve Wozniak dynamic, but for student 00:10:16.769 --> 00:10:18.730 housing in Ann Arbor. It's a perfect analogy. 00:10:19.110 --> 00:10:21.470 You need both. You need the vision and you need 00:10:21.470 --> 00:10:23.789 the execution. So by the time Zell graduated 00:10:23.789 --> 00:10:25.950 from law school, and I want to emphasize, he 00:10:25.950 --> 00:10:29.750 went to and finished law school in 1966. What 00:10:29.750 --> 00:10:31.950 were their numbers looking like? The numbers 00:10:31.950 --> 00:10:34.230 are staggering. They were managing over 4 ,000 00:10:34.230 --> 00:10:37.429 apartments. 4 ,000! That is a small city. That's 00:10:37.429 --> 00:10:39.769 a huge operation for anyone, let alone a couple 00:10:39.769 --> 00:10:41.769 of college kids. It is huge. And they weren't 00:10:41.769 --> 00:10:43.950 just managing. They owned between 100 and 200 00:10:43.950 --> 00:10:45.929 units outright. By then, they were netting about 00:10:45.929 --> 00:10:49.649 $150 ,000 a year. In 1966 dollars. Which is... 00:10:50.009 --> 00:10:52.070 what, over a million dollars a year in today's 00:10:52.070 --> 00:10:54.029 money, something like that, all while being full 00:10:54.029 --> 00:10:56.250 -time students. That is absolutely wild. Most 00:10:56.250 --> 00:10:58.029 law students are just trying to pass the bar 00:10:58.029 --> 00:11:00.809 exam and find a junior associate job where they 00:11:00.809 --> 00:11:02.710 can make coffee. And this guy's running a massive 00:11:02.710 --> 00:11:05.950 property management firm. Exactly. So he steps 00:11:05.950 --> 00:11:08.590 out of law school, passes the bar, and he practically 00:11:08.590 --> 00:11:11.590 never practices law. Why would he? He's already 00:11:11.590 --> 00:11:15.590 a real estate mogul. But the key takeaway here... 00:11:15.659 --> 00:11:18.480 Isn't the money, I don't think. It's the dirt 00:11:18.480 --> 00:11:20.879 under the fingernails experience. What do you 00:11:20.879 --> 00:11:24.340 mean by that? Well, a lot of modern finance guys 00:11:24.340 --> 00:11:27.039 go straight from an MBA to a hedge fund. They 00:11:27.039 --> 00:11:29.299 look at spreadsheets. They build complex financial 00:11:29.299 --> 00:11:32.000 models. They treat buildings like bond yields. 00:11:32.139 --> 00:11:34.679 They just see a number in a cell. Right. It's 00:11:34.679 --> 00:11:37.919 abstract. Very. But Zell knew what a bad boiler 00:11:37.919 --> 00:11:39.980 looked like. He knew what kind of carpet lasted 00:11:39.980 --> 00:11:42.240 the longest in the student rental. He understood 00:11:42.240 --> 00:11:44.340 the product. He had been the one getting those 00:11:44.340 --> 00:11:47.480 2 a .m. calls. And that gave him a massive advantage 00:11:47.480 --> 00:11:50.000 when he started buying graves. Because he could 00:11:50.000 --> 00:11:52.840 look at a failing building. He could know exactly 00:11:52.840 --> 00:11:55.440 how much it would cost to fix it because he'd 00:11:55.440 --> 00:11:58.139 done it himself. He could see past the financial 00:11:58.139 --> 00:12:01.000 statements to the actual grunt and mortar. That's 00:12:01.000 --> 00:12:04.139 a huge edge. OK, so he has the operational chops. 00:12:04.340 --> 00:12:07.240 Let's fast forward to the 1970s. The grave dancer 00:12:07.240 --> 00:12:10.340 era really kicks off. The economy is in the tank. 00:12:10.539 --> 00:12:13.059 We have stagflation. Interest rates are climbing. 00:12:13.690 --> 00:12:16.669 Banks are panicking. In the 1973 -1975 recession 00:12:16.669 --> 00:12:19.450 was brutal. It was the first major economic contraction 00:12:19.450 --> 00:12:22.330 since the Great Depression. Real estate developers, 00:12:22.549 --> 00:12:25.610 who are optimists by nature, had completely overbilled. 00:12:25.710 --> 00:12:28.070 They always do. They always do. They borrowed 00:12:28.070 --> 00:12:30.049 money assuming the good times would roll forever. 00:12:30.309 --> 00:12:32.629 And when the music stopped, they were left with 00:12:32.629 --> 00:12:34.529 half -empty office towers and apartments they 00:12:34.529 --> 00:12:37.029 couldn't fill. The whole industry was on the 00:12:37.029 --> 00:12:39.490 verge of collapse. Enter Sam Zell. Andrew Zell, 00:12:39.629 --> 00:12:42.289 the banks were stuck holding the bag. A bank 00:12:42.289 --> 00:12:44.009 does not want to own an apartment complex. They 00:12:44.009 --> 00:12:45.389 don't have a maintenance department. They don't 00:12:45.389 --> 00:12:47.509 want to deal with evictions or marketing. They 00:12:47.509 --> 00:12:50.009 just want their money back. So Zell walked into 00:12:50.009 --> 00:12:52.789 these banks and said, essentially, I will take 00:12:52.789 --> 00:12:54.990 this headache away from you. That was the pitch. 00:12:55.769 --> 00:12:57.669 But he didn't just buy them with cash, right? 00:12:57.750 --> 00:13:01.289 He used these really creative structures. He 00:13:01.289 --> 00:13:03.690 was a master of the workout. That's the term. 00:13:04.330 --> 00:13:07.789 He would say to the bank, look, if you foreclose. 00:13:08.159 --> 00:13:10.039 You'll be lucky to get 50 cents on the dollar, 00:13:10.179 --> 00:13:12.679 maybe. And you have to manage it for two years, 00:13:12.740 --> 00:13:14.700 which you're terrible at. If you let me take 00:13:14.700 --> 00:13:17.159 over, I'll manage it. I'll turn it around. I'll 00:13:17.159 --> 00:13:19.179 pay you back your principal over time. But I 00:13:19.179 --> 00:13:22.440 keep the equity upside. So he's betting entirely 00:13:22.440 --> 00:13:25.940 on his ability to fix the unfixable. He gets 00:13:25.940 --> 00:13:28.700 the asset for almost no money down. And he was 00:13:28.700 --> 00:13:30.929 betting on inflation. This is a technical point, 00:13:31.009 --> 00:13:33.450 but it's so important to a strategy. Zell understood 00:13:33.450 --> 00:13:36.330 that in an inflationary environment, hard assets 00:13:36.330 --> 00:13:38.870 like real estate go up in value. Even if the 00:13:38.870 --> 00:13:41.149 cash flow is bad today, the bricks are worth 00:13:41.149 --> 00:13:42.809 more tomorrow. Right, because the currency is 00:13:42.809 --> 00:13:45.950 worth less. Exactly. So he locked in long -term 00:13:45.950 --> 00:13:48.330 fixed rate debt on these properties. And then 00:13:48.330 --> 00:13:50.889 he just let inflation erode the value of the 00:13:50.889 --> 00:13:53.830 loan while the property value skyrocketed. He 00:13:53.830 --> 00:13:56.230 was genius. That is smart. It's using the macro 00:13:56.230 --> 00:13:58.850 economy as a tailwind. But we have to talk about 00:13:58.850 --> 00:14:01.000 the risk. Because it sounds easy in hindsight, 00:14:01.279 --> 00:14:03.320 but there were moments where he was skating on 00:14:03.320 --> 00:14:06.039 really thin ice. The Reno deal. Ah, yes, the 00:14:06.039 --> 00:14:10.000 Reno hidden gem. This was 1969, so slightly before 00:14:10.000 --> 00:14:12.320 the big recession plays, but it was a sign of 00:14:12.320 --> 00:14:14.879 things to come. He found a building called Arlington 00:14:14.879 --> 00:14:17.240 Towers in Reno, Nevada. It was the top of the 00:14:17.240 --> 00:14:19.559 market there, tallest building in the city. He 00:14:19.559 --> 00:14:22.820 bought it for $9 million. But the deal had, as 00:14:22.820 --> 00:14:25.720 they say, hair on it. A lot of hair. The sellers 00:14:25.720 --> 00:14:29.970 wanted a very specific and creative... Tax treatment. 00:14:30.269 --> 00:14:32.929 Zell wanted the deal. So according to the biographical 00:14:32.929 --> 00:14:35.350 records, his brother -in -law concocted a scheme. 00:14:35.570 --> 00:14:38.470 It involved offshore transactions to shield the 00:14:38.470 --> 00:14:40.990 sellers from taxes. Offshore transactions in 00:14:40.990 --> 00:14:43.789 1969. That sounds sketchy even for back then. 00:14:43.929 --> 00:14:46.210 It was. It was a really complex series of transfers 00:14:46.210 --> 00:14:48.190 designed to look like one thing while being another. 00:14:48.350 --> 00:14:50.649 The legality was described in the sources as 00:14:50.649 --> 00:14:53.870 murky at best. And, well, the IRS eventually 00:14:53.870 --> 00:14:56.000 audited it. They didn't like what they saw. And 00:14:56.000 --> 00:14:57.980 this is where we see Zell the pragmatist versus 00:14:57.980 --> 00:15:01.039 Zell the loyalist, a real crossroads. It was 00:15:01.039 --> 00:15:03.799 a pinch point. The feds were circling. Zell made 00:15:03.799 --> 00:15:07.299 a calculated decision. He cut a deal. He agreed 00:15:07.299 --> 00:15:09.840 to testify about the entire scheme in exchange 00:15:09.840 --> 00:15:12.500 for immunity from prosecution. And the brother 00:15:12.500 --> 00:15:14.860 -in -law, the one who designed the scheme. He 00:15:14.860 --> 00:15:17.019 went to prison. He served two years in jail. 00:15:17.320 --> 00:15:20.899 Oof. That is cold. I mean, that's family. It's 00:15:20.899 --> 00:15:23.539 ruthless. But from Zell's perspective, it was 00:15:23.539 --> 00:15:26.610 survival. If he goes to jail, the empire collapses. 00:15:27.129 --> 00:15:29.850 Everything he's built is gone. He chose the empire 00:15:29.850 --> 00:15:32.769 over his brother -in -law. It's a dark chapter, 00:15:32.870 --> 00:15:35.169 but it reinforces that grave dancer mentality. 00:15:35.669 --> 00:15:37.549 You do what you have to do to keep the music 00:15:37.549 --> 00:15:39.850 playing. It certainly adds a layer of, I don't 00:15:39.850 --> 00:15:42.370 know, grit. to the persona. It's not just about 00:15:42.370 --> 00:15:44.789 smart math. It's about navigating these really 00:15:44.789 --> 00:15:46.950 treacherous waters and coming out on top. And 00:15:46.950 --> 00:15:48.990 surviving. That's the key theme. He survived 00:15:48.990 --> 00:15:51.070 that and he survived the recessions. He kept 00:15:51.070 --> 00:15:53.929 building. He and Robert Lurie built what became 00:15:53.929 --> 00:15:56.009 Equity Residential, this massive apartment company. 00:15:56.169 --> 00:15:58.889 But then tragedy strikes in 1990. Robert Lurie 00:15:58.889 --> 00:16:01.549 dies of cancer. He was only 48 years old. This 00:16:01.549 --> 00:16:03.990 was a devastating blow, not just emotionally. 00:16:04.190 --> 00:16:06.269 I mean, by all accounts, they were like brothers, 00:16:06.429 --> 00:16:10.289 but operationally. Zell was the kite. Lurie was 00:16:10.289 --> 00:16:13.529 the string. Without Lurie, Zell was untethered. 00:16:13.610 --> 00:16:16.230 And this happened right as the early 90s recession 00:16:16.230 --> 00:16:19.309 hit. Another recession. The timing was just brutal. 00:16:19.509 --> 00:16:22.549 But this time, the stakes were way higher. Much, 00:16:22.549 --> 00:16:25.509 much higher. By 1990, the numbers were astronomical. 00:16:26.480 --> 00:16:29.659 Zell was personally guaranteeing loans. The sources 00:16:29.659 --> 00:16:33.139 say he had roughly $600 million in personal guarantees. 00:16:33.419 --> 00:16:35.399 Let's just pause on that for a second. A personal 00:16:35.399 --> 00:16:37.759 guarantee means if the company goes bust, the 00:16:37.759 --> 00:16:40.539 bank comes for your house, your car, your personal 00:16:40.539 --> 00:16:42.740 bank account, everything. It's all on the line. 00:16:42.879 --> 00:16:45.700 Everything. He was on the hook. He later described 00:16:45.700 --> 00:16:47.500 this period as the most stressful of his life. 00:16:47.539 --> 00:16:50.259 He was working 80 -hour weeks, juggling creditors, 00:16:50.259 --> 00:16:52.419 trying to keep the liquidity flowing. And he 00:16:52.419 --> 00:16:54.899 realized that the lone wolf cowboy model wasn't 00:16:54.899 --> 00:16:56.700 sustainable anymore. He couldn't carry that much 00:16:56.700 --> 00:16:58.700 risk on his own back. No, the numbers were too 00:16:58.700 --> 00:17:00.840 big. So he changed the game again. He looked 00:17:00.840 --> 00:17:02.759 at the public markets for a way out. This is 00:17:02.759 --> 00:17:04.599 one of his biggest contributions to the financial 00:17:04.599 --> 00:17:07.619 world, isn't it? He popularized the modern REIT, 00:17:07.720 --> 00:17:11.710 the Real Estate Investment Trust. In 1993, he 00:17:11.710 --> 00:17:14.569 took his apartment empire public as equity residential. 00:17:15.150 --> 00:17:17.769 OK, so explain a REIT to me like I'm five. Sure. 00:17:18.759 --> 00:17:20.700 Before REITs became popular, if you wanted to 00:17:20.700 --> 00:17:22.819 invest in real estate, you had to physically 00:17:22.819 --> 00:17:25.779 buy a building. That requires a ton of money, 00:17:25.920 --> 00:17:29.119 lawyers, inspections, and it's really hard to 00:17:29.119 --> 00:17:31.480 sell quickly. It's illiquid. Right. A REIT is 00:17:31.480 --> 00:17:33.460 like a mutual fund for buildings. It's a company 00:17:33.460 --> 00:17:35.420 that owns real estate. And you can buy shares 00:17:35.420 --> 00:17:37.140 of it on the stock market, just like you buy 00:17:37.140 --> 00:17:39.200 shares of Apple or Google. So it makes real estate 00:17:39.200 --> 00:17:42.019 liquid. You can buy and sell it in a day. Exactly. 00:17:42.119 --> 00:17:44.740 And for Zelle... It did something even more important. 00:17:44.920 --> 00:17:47.700 It allowed him to raise a huge amount of cash 00:17:47.700 --> 00:17:50.599 from public investors, money he used to pay off 00:17:50.599 --> 00:17:52.759 those personal debts. So he traded ownership 00:17:52.759 --> 00:17:54.940 for safety. That's a perfect way to put it. He 00:17:54.940 --> 00:17:57.779 diluted his stake, but he eliminated that $600 00:17:57.779 --> 00:18:01.019 million gun pointed at his head. He spread the 00:18:01.019 --> 00:18:03.400 risk. And he grew the company massively in the 00:18:03.400 --> 00:18:07.200 process. Massive. By the IPO, they had 22 ,000 00:18:07.200 --> 00:18:11.000 apartments. A long, long way from that 15 -unit 00:18:11.000 --> 00:18:12.980 building in Ann Arbor. But the real masterpiece, 00:18:13.240 --> 00:18:16.019 the Mona Lisa of his career, you could say, came 00:18:16.019 --> 00:18:19.240 a decade later. The sale of EQ office. This is 00:18:19.240 --> 00:18:21.279 Section 3 in our notes. The sale of the century. 00:18:21.539 --> 00:18:25.819 And this is the moment. that really cements the 00:18:25.819 --> 00:18:28.240 legend. It's what everyone points to. It's 2006. 00:18:28.579 --> 00:18:31.720 The real estate market is foaming at the mouth. 00:18:31.779 --> 00:18:33.960 Prices are going up every single month. Everyone 00:18:33.960 --> 00:18:36.660 is buying. Credit is cheap. You could get a loan 00:18:36.660 --> 00:18:38.880 if you had a pulse. The bubble. We all remember 00:18:38.880 --> 00:18:41.119 it. But inside the bubble, it just feels like 00:18:41.119 --> 00:18:43.460 a party. It feels like it's never going to end. 00:18:43.900 --> 00:18:46.980 Zell, however, is looking at the numbers. He 00:18:46.980 --> 00:18:48.799 sees that the prices people are willing to pay 00:18:48.799 --> 00:18:50.960 for office buildings make absolutely no sense 00:18:50.960 --> 00:18:53.099 relative to the rent they can collect. The cap 00:18:53.099 --> 00:18:55.160 rates were compressed to historic lows. It was 00:18:55.160 --> 00:18:57.640 pure speculation. It was. So he decides to sell. 00:18:57.759 --> 00:19:00.420 Not just one building. Not a few. The whole thing. 00:19:00.519 --> 00:19:03.700 He puts his entire office portfolio, EQ office, 00:19:04.079 --> 00:19:07.460 up for sale. And he finds a buyer in the Blackstone 00:19:07.460 --> 00:19:09.960 group. Blackstone is the biggest of the big boys 00:19:09.960 --> 00:19:12.819 in private equity. They're the whale. They are. 00:19:13.200 --> 00:19:16.119 And they were hungry for assets. So in February 00:19:16.119 --> 00:19:20.220 2007, the deal closes. Zelle sells EQ office 00:19:20.220 --> 00:19:24.180 to Blackstone for $36 billion. Let that number 00:19:24.180 --> 00:19:27.680 sink in. $36 billion. It was the largest leverage 00:19:27.680 --> 00:19:29.940 buyout in history at that time. It was, and the 00:19:29.940 --> 00:19:33.660 date is the most crucial part of the story. Early 00:19:33.660 --> 00:19:36.640 2007. Right. Just months before the subprime 00:19:36.640 --> 00:19:38.400 mortgage crisis triggered the Great Recession. 00:19:38.519 --> 00:19:41.880 By late 2007, the cracks are showing. By 2008, 00:19:42.119 --> 00:19:44.319 Lehman Brothers collapses and the global economy 00:19:44.319 --> 00:19:47.200 just melts down. Commercial real estate values 00:19:47.200 --> 00:19:50.720 plummeted. They fell 30, 40, sometimes 50 percent. 00:19:50.759 --> 00:19:53.660 Just wiped out. If he had waited 12 months. Yeah. 00:19:53.740 --> 00:19:56.140 Even six months. The deal would have evaporated. 00:19:56.160 --> 00:19:58.960 Gone. The company might have gone bankrupt. Instead, 00:19:59.039 --> 00:20:00.960 he walked away with billions and billions in 00:20:00.960 --> 00:20:03.619 cash at the absolute tippy top peak of the market. 00:20:03.930 --> 00:20:06.109 It is widely considered one of the greatest sells 00:20:06.109 --> 00:20:08.430 in the history of Wall Street. And it wasn't 00:20:08.430 --> 00:20:10.230 luck, was it? Our sources are pretty clear on 00:20:10.230 --> 00:20:11.890 that. It was that same instinct from the Playboy 00:20:11.890 --> 00:20:13.950 days. This asset is overpriced here. I'm getting 00:20:13.950 --> 00:20:16.470 out. It's discipline. He had a famous saying, 00:20:16.609 --> 00:20:20.329 liquidity equals value. He valued the ability 00:20:20.329 --> 00:20:23.089 to get out more than the potential to squeeze 00:20:23.089 --> 00:20:25.990 the last dollar of profit from a deal. And that 00:20:25.990 --> 00:20:28.130 discipline saved him. But he didn't sell everything. 00:20:28.289 --> 00:20:30.690 He kept the mobile homes, which I find fascinating. 00:20:30.990 --> 00:20:33.269 Equity lifestyle properties. This is my favorite 00:20:33.269 --> 00:20:35.589 part of his portfolio because it is so unsexy. 00:20:35.910 --> 00:20:38.190 Mobile home parks. Trailer parks, essentially. 00:20:38.450 --> 00:20:41.210 Yes. He owned over 400 of them. And here's why 00:20:41.210 --> 00:20:44.230 they are a genius business model. If you own 00:20:44.230 --> 00:20:46.450 an apartment building and you jack up the rent 00:20:46.450 --> 00:20:48.829 by 20 percent, the tenant moves down the street. 00:20:49.230 --> 00:20:52.049 It costs maybe $500 to move a couch and a bed. 00:20:52.210 --> 00:20:55.069 Right. High turnover. But in a mobile home park, 00:20:55.269 --> 00:20:58.829 the tenant owns the home, the physical box. But 00:20:58.829 --> 00:21:01.430 Zell owns the land under it. To move a mobile 00:21:01.430 --> 00:21:03.750 home costs thousands and thousands of dollars. 00:21:03.950 --> 00:21:06.430 It often damages or destroys the home. So they 00:21:06.430 --> 00:21:08.710 can't leave. They never leave. It is a captive 00:21:08.710 --> 00:21:11.109 audience. The cash flow is incredibly stable 00:21:11.109 --> 00:21:15.049 and predictable. It's an annuity. That is diabolically 00:21:15.049 --> 00:21:18.170 smart. And it's recession -proof. When the economy 00:21:18.170 --> 00:21:21.769 tanks, people downsize into mobile homes, demand 00:21:21.769 --> 00:21:24.910 actually goes up. Zell didn't care about the 00:21:24.910 --> 00:21:28.150 prestige of owning the shiny skyscraper. He cared 00:21:28.150 --> 00:21:30.490 about the reliability of the check clearing every 00:21:30.490 --> 00:21:32.750 month. It really fits his persona, doesn't it? 00:21:33.130 --> 00:21:35.369 Unpretentious, cash flow heavy assets that other 00:21:35.369 --> 00:21:37.849 people might, you know, look down on. Value is 00:21:37.849 --> 00:21:40.289 value wherever you find it. And that philosophy 00:21:40.289 --> 00:21:42.779 didn't stop at real estate. This is where we 00:21:42.779 --> 00:21:44.819 see Zell the corporate raider. Right, because 00:21:44.819 --> 00:21:46.660 once you have that much capital and that much 00:21:46.660 --> 00:21:48.859 confidence from a sale like the Blackstone deal, 00:21:49.059 --> 00:21:51.559 you start looking at other sectors. In 1991, 00:21:51.880 --> 00:21:54.420 even before the big sale, he started the Zell 00:21:54.420 --> 00:21:57.400 Chilmark Fund. The goal was to invest in distressed 00:21:57.400 --> 00:22:00.299 securities, junk bonds, companies in bankruptcy. 00:22:00.539 --> 00:22:03.380 He was applying the grave dancer logic to corporate 00:22:03.380 --> 00:22:05.359 America. What were some of the companies on his 00:22:05.359 --> 00:22:08.099 shopping list? It's a real nostalgia trip. Schwinn 00:22:08.099 --> 00:22:10.670 Bicycle Company. The bike company, the one we 00:22:10.670 --> 00:22:12.869 all had as kids. Yes, they were in bankruptcy. 00:22:13.069 --> 00:22:16.990 He acquired them for $60 million in 1993. Four 00:22:16.990 --> 00:22:19.029 years later, he sold the company for $86 million. 00:22:19.670 --> 00:22:22.509 Not a bad return at all. Not bad for a side hustle. 00:22:22.789 --> 00:22:25.029 He did it with the Revco drugstores. They were 00:22:25.029 --> 00:22:27.630 in a messy bankruptcy. He invested $250 million. 00:22:28.170 --> 00:22:30.650 When Rite Aid eventually bought the brand, he 00:22:30.650 --> 00:22:34.960 walked away with $363 .8 million. So he also 00:22:34.960 --> 00:22:37.420 got into radio with a company called Jicor and 00:22:37.420 --> 00:22:39.859 department stores with Carter Hawley. The strategy 00:22:39.859 --> 00:22:42.119 was always consistent. You buy the debt when 00:22:42.119 --> 00:22:44.539 the company is on its back. That gives you leverage. 00:22:44.900 --> 00:22:47.140 Then you take control of the equity during the 00:22:47.140 --> 00:22:49.660 restructuring. You fix the balance sheet and 00:22:49.660 --> 00:22:52.460 you sell to a strategic buyer. It worked in real 00:22:52.460 --> 00:22:54.140 estate and for a while it worked in corporate 00:22:54.140 --> 00:22:57.380 private equity. OK, so by 2007, Sam Zell is on 00:22:57.380 --> 00:22:59.819 top of the world. He's the genius who timed the 00:22:59.819 --> 00:23:02.240 market perfectly. He has billions in the bank. 00:23:02.640 --> 00:23:05.119 He has this bulletproof reputation as the grave 00:23:05.119 --> 00:23:07.660 dancer who can fix anything. And I feel like 00:23:07.660 --> 00:23:10.339 this is the exact moment where hubris enters 00:23:10.339 --> 00:23:13.000 the chat. It is the classic Greek tragedy arc, 00:23:13.079 --> 00:23:14.779 isn't it? You conquer the world and you start 00:23:14.779 --> 00:23:17.900 to think you can walk on water. Or in Sanzel's 00:23:17.900 --> 00:23:20.400 case, walk on ink. He turned his eyes toward 00:23:20.400 --> 00:23:22.440 the media industry. The Tribune Company. This 00:23:22.440 --> 00:23:24.940 is an American institution. A shine. The Chicago 00:23:24.940 --> 00:23:28.960 Tribune. Yeah. The LA Times. Newsday. The Baltimore 00:23:28.960 --> 00:23:32.440 Sun. They owned the Chicago Cubs. They owned 00:23:32.440 --> 00:23:34.759 Wrigley Field. It was corporate royalty. But 00:23:34.759 --> 00:23:37.660 it was a distressed asset, a falling angel. It 00:23:37.660 --> 00:23:40.500 was, absolutely. The internet was just eating 00:23:40.500 --> 00:23:42.660 newspapers alive. Classified ads were moving 00:23:42.660 --> 00:23:45.119 to Craigslist. Readership was dropping. Revenue 00:23:45.119 --> 00:23:47.680 was in a nosedive. Zell looked at this and thought, 00:23:47.779 --> 00:23:50.099 it's just another distressed asset. It's just 00:23:50.099 --> 00:23:52.339 another building with bad management. I can fix 00:23:52.339 --> 00:23:55.460 this. But a newspaper isn't a building. No. A 00:23:55.460 --> 00:23:57.720 building doesn't have an editorial board. A building 00:23:57.720 --> 00:23:59.579 doesn't have a sacred public service mission. 00:23:59.680 --> 00:24:01.859 And a building's value isn't based on how many 00:24:01.859 --> 00:24:03.480 people read it every morning with their coffee. 00:24:03.779 --> 00:24:06.500 Zell applied his real estate playbook to a media 00:24:06.500 --> 00:24:09.319 company and it was a catastrophe. Let's break 00:24:09.319 --> 00:24:11.220 down the deal because the financial structure 00:24:11.220 --> 00:24:14.259 here is infamous. It was an ESOP, right? An employee 00:24:14.259 --> 00:24:17.079 stock ownership plan. Yes, and that sounds good, 00:24:17.140 --> 00:24:19.759 doesn't it? An ESOP is usually a nice way to 00:24:19.759 --> 00:24:22.380 give employees a stake in the company, but Zell 00:24:22.380 --> 00:24:24.940 used it as a tax shield. It was a very complex 00:24:24.940 --> 00:24:27.680 maneuver. By structuring the company as an S 00:24:27.680 --> 00:24:30.359 -corporation owed by an ESOP, the Tribune company 00:24:30.359 --> 00:24:33.200 would theoretically pay zero federal income taxes. 00:24:33.720 --> 00:24:36.160 Okay, that sounds clever from a tax perspective. 00:24:36.220 --> 00:24:39.220 It is clever. but the purchase price was $8 .2 00:24:39.220 --> 00:24:42.500 billion. And here is the kicker, the part that 00:24:42.500 --> 00:24:44.720 everyone always remembers. How much of his own 00:24:44.720 --> 00:24:47.920 money did Sam Zell put in? I'm guessing to control 00:24:47.920 --> 00:24:50.809 an asset. that big, at least a billion, maybe 00:24:50.809 --> 00:24:55.269 two. $315 million? Wait, he bought an $8 .2 billion 00:24:55.269 --> 00:24:59.190 company for $315 million. How is that even possible? 00:24:59.509 --> 00:25:02.049 He used leverage, massive, massive leverage. 00:25:02.210 --> 00:25:04.890 He loaded the company up with $8 billion in new 00:25:04.890 --> 00:25:07.349 debt to pay off the old shareholders. So the 00:25:07.349 --> 00:25:09.549 company is now swimming in debt and Zell controls 00:25:09.549 --> 00:25:11.890 it for a tiny fraction of the cost. That sounds 00:25:11.890 --> 00:25:13.869 like buying a mansion with a credit card and 00:25:13.869 --> 00:25:15.789 then making the mansion pay the credit card bill. 00:25:16.009 --> 00:25:18.990 That is exactly what an LBO, a leveraged buyout, 00:25:19.009 --> 00:25:21.549 is. And if the mansion or the newspaper keeps 00:25:21.549 --> 00:25:24.470 making money, it works. You pay down the debt 00:25:24.470 --> 00:25:27.170 and you look like a genius. But if the revenue 00:25:27.170 --> 00:25:30.789 drops... And this is late 2007. The revenue didn't 00:25:30.789 --> 00:25:33.369 just drop, it fell off a cliff. The Great Recession 00:25:33.369 --> 00:25:36.289 hit. Car dealerships stopped advertising. Department 00:25:36.289 --> 00:25:38.829 stores stopped advertising. The cash flow that 00:25:38.829 --> 00:25:41.029 was supposed to service that massive debt... 00:25:41.259 --> 00:25:44.519 Just it vanished. But before the financial collapse, 00:25:44.680 --> 00:25:47.279 there was a culture shock. Zell brings in his 00:25:47.279 --> 00:25:49.559 people. He brings in Randy Michaels, the CEO. 00:25:50.119 --> 00:25:52.960 Randy Michaels was a former radio DJ, a shock 00:25:52.960 --> 00:25:55.460 jock executive. He had zero newspaper experience. 00:25:55.740 --> 00:25:57.460 Putting a shock jock in charge of the Chicago 00:25:57.460 --> 00:25:59.920 Tribune, I mean, that's a choice. It was a disaster. 00:26:00.099 --> 00:26:01.819 The culture clash was nuclear. You have these 00:26:01.819 --> 00:26:04.440 Pulitzer Prize winning journalists who take their 00:26:04.440 --> 00:26:07.480 job as a public trust very, very seriously. And 00:26:07.480 --> 00:26:09.720 then you have Michaels and his crew who, according 00:26:09.720 --> 00:26:11.980 to the numerous reports, turned the executive 00:26:11.980 --> 00:26:15.220 suites into a frat house. The notes mention poker 00:26:15.220 --> 00:26:18.819 parties. Not just poker parties. They held these 00:26:18.819 --> 00:26:22.160 lavish. beer and poker parties in the office 00:26:22.160 --> 00:26:25.720 of Colonel Robert R. McCormick. McCormick was 00:26:25.720 --> 00:26:28.380 the legendary publisher of the Tribune. His office 00:26:28.380 --> 00:26:31.559 was a historic shrine to journalism. People were 00:26:31.559 --> 00:26:33.400 reverent about it. And they were treating it 00:26:33.400 --> 00:26:35.539 like a Vegas suite. It was a form of symbolic 00:26:35.539 --> 00:26:38.559 desecration. It sent a message, the old rules 00:26:38.559 --> 00:26:41.420 don't matter anymore. But the behavior went way 00:26:41.420 --> 00:26:44.210 beyond disrespect. There were serious allegations 00:26:44.210 --> 00:26:47.190 of a hostile workplace. Reports of executives 00:26:47.190 --> 00:26:50.029 openly discussing the sexual suitability of female 00:26:50.029 --> 00:26:53.329 employees. It was ugly. And meanwhile, they are 00:26:53.329 --> 00:26:56.670 firing people by the thousands. 4 ,200 layoffs. 00:26:56.750 --> 00:26:58.809 They are gutting the newsrooms to try and pay 00:26:58.809 --> 00:27:00.869 the interest on the debt. So you have this bizarre, 00:27:00.950 --> 00:27:03.069 toxic situation where executives are getting 00:27:03.069 --> 00:27:05.609 huge bonuses and partying in the shrine, while 00:27:05.609 --> 00:27:07.329 the actual journalists who create the product 00:27:07.329 --> 00:27:09.970 are packing up their desks. The morale was non 00:27:09.970 --> 00:27:11.789 -existent. And financially, it just couldn't 00:27:11.789 --> 00:27:14.950 hold. No way. It lasted less than a year. In 00:27:14.950 --> 00:27:17.309 December 2008, the Tribune Company filed for 00:27:17.309 --> 00:27:19.970 Chapter 11 bankruptcy. One year. He bought it 00:27:19.970 --> 00:27:22.009 at the end of 07, and it's bankrupt by the end 00:27:22.009 --> 00:27:26.200 of 08. One year, it listed $7 .6 billion in assets 00:27:26.200 --> 00:27:30.200 against $13 billion in debt. It was, and I believe 00:27:30.200 --> 00:27:32.559 still is, the largest bankruptcy in the history 00:27:32.559 --> 00:27:34.740 of the American media industry. So Zell loses 00:27:34.740 --> 00:27:39.220 his $315 million. He does. Which, let's be honest, 00:27:39.259 --> 00:27:41.000 for him was a bad day at the office, but not 00:27:41.000 --> 00:27:43.839 a fatal one. He's worth billions. But the employees. 00:27:44.670 --> 00:27:46.829 Their pensions, their retirement savings were 00:27:46.829 --> 00:27:49.849 tied up in that ESOP. The stock became worthless. 00:27:50.009 --> 00:27:52.049 They lost everything. That is the dark side of 00:27:52.049 --> 00:27:54.450 leverage, isn't it? If you win, you win big with 00:27:54.450 --> 00:27:56.569 other people's money. If you lose, the house 00:27:56.569 --> 00:27:58.509 burns down, but the arsonist might just walk 00:27:58.509 --> 00:28:01.609 away with singed eyebrows. And legally, it dragged 00:28:01.609 --> 00:28:05.509 on for a decade. In 2019, Zell and other executives 00:28:05.509 --> 00:28:08.869 settled a lawsuit for $200 million. The allegation 00:28:08.869 --> 00:28:11.720 was fraudulent transfer. essentially, that they 00:28:11.720 --> 00:28:13.400 structured the deal in a way that looted the 00:28:13.400 --> 00:28:15.539 company's value while knowing, or they should 00:28:15.539 --> 00:28:17.259 have known, that it couldn't survive the debt 00:28:17.259 --> 00:28:19.599 load. They paid $200 million to make it go away. 00:28:19.880 --> 00:28:22.460 Which is, you know, it's not a legal admission 00:28:22.460 --> 00:28:24.299 of guilt, but it's an admission that things went 00:28:24.299 --> 00:28:27.500 very, very wrong. The Tribune deal is the great 00:28:27.500 --> 00:28:30.339 stain on the legacy. It proves that you can be 00:28:30.339 --> 00:28:33.240 a genius in one sector real estate and a complete 00:28:33.240 --> 00:28:36.059 fool in another media. He misread the industry, 00:28:36.240 --> 00:28:39.039 he misread the culture, and he catastrophically 00:28:39.039 --> 00:28:41.440 misread the economy. It's a slice of humble pie 00:28:41.440 --> 00:28:43.839 the size of Wrigley Field. Speaking of which, 00:28:43.900 --> 00:28:45.839 they had to sell the Cubs during all this, right? 00:28:46.039 --> 00:28:48.700 They did. That was one of the few good assets 00:28:48.700 --> 00:28:51.259 they could liquidate to pay creditors. They sold 00:28:51.259 --> 00:28:54.019 the Chicago Cubs, Wrigley Field, and a stake 00:28:54.019 --> 00:28:56.980 in Comcast Sportsnet Chicago to the Ricketts 00:28:56.980 --> 00:29:00.099 family for about $900 million during the bankruptcy 00:29:00.099 --> 00:29:03.160 proceedings. So the Ricketts family has Sam Zell's 00:29:03.160 --> 00:29:05.940 bad debt to thank for owning the Cubs and eventually 00:29:05.940 --> 00:29:07.980 winning a World Series. In a roundabout way, 00:29:08.059 --> 00:29:10.890 yes. History is funny like that. Let's pivot 00:29:10.890 --> 00:29:13.349 to the man himself, because we've painted a picture 00:29:13.349 --> 00:29:15.490 of a ruthless calculator, but humans are complex. 00:29:15.809 --> 00:29:19.630 And Sam Zell was... Well, he was a character. 00:29:19.869 --> 00:29:21.710 He was not your typical country club billionaire. 00:29:22.009 --> 00:29:24.769 He didn't play golf, he rode motorcycles. Very 00:29:24.769 --> 00:29:28.359 fast motorcycles. Wells Angels. Yes. He organized 00:29:28.359 --> 00:29:31.339 these trips. Every year, he'd get a group of 00:29:31.339 --> 00:29:35.359 his high net worth friends, tycoons, CEOs, powerful 00:29:35.359 --> 00:29:37.960 people, and they'd ship their motorcycles to 00:29:37.960 --> 00:29:39.380 some remote part of the world, you know, the 00:29:39.380 --> 00:29:42.700 Andes or New Zealand, and just ride. The image 00:29:42.700 --> 00:29:44.799 of a bunch of billionaires in leather jackets 00:29:44.799 --> 00:29:46.720 tearing through the mountains, it's like a movie. 00:29:46.859 --> 00:29:48.960 It's wild. It speaks to his need for adrenaline. 00:29:49.470 --> 00:29:51.849 He famously rode a Ducati to work in downtown 00:29:51.849 --> 00:29:54.329 Chicago. There's a story in the notes about him 00:29:54.329 --> 00:29:57.230 doing 145 miles per hour across the pampas in 00:29:57.230 --> 00:29:59.890 South America. At 145 miles per hour, if you 00:29:59.890 --> 00:30:01.829 hit a pebble, you're dead. There's no margin 00:30:01.829 --> 00:30:04.130 for error. That's the point. He was addicted 00:30:04.130 --> 00:30:06.930 to risk. Whether it was financial leverage or 00:30:06.930 --> 00:30:09.430 motorcycle speed, he needed to feel the edge. 00:30:09.589 --> 00:30:12.430 He also skied, played racquetball, played paintball. 00:30:12.529 --> 00:30:15.369 He lived loud. And he spoke loud. Oh, the language. 00:30:15.880 --> 00:30:18.519 He was famous for it. Salty is the polite word. 00:30:18.680 --> 00:30:20.980 Vulgar is probably more accurate. He did not 00:30:20.980 --> 00:30:23.700 care about politeness or corporate speak. He 00:30:23.700 --> 00:30:26.099 titled his book, Am I Being Too Subtle? Straight 00:30:26.099 --> 00:30:28.339 talk from a business rebel. Which is clearly 00:30:28.339 --> 00:30:30.839 a rhetorical question. Subtlety was not his thing. 00:30:31.099 --> 00:30:33.720 Exactly. He was a rebel to his core. He wore 00:30:33.720 --> 00:30:36.160 jeans to board meetings. He wanted to disrupt 00:30:36.160 --> 00:30:38.859 the stuffy corporate atmosphere. He enjoyed being 00:30:38.859 --> 00:30:40.660 the bull in the china shop. But then you look 00:30:40.660 --> 00:30:42.240 at his checkbook and you see a completely different 00:30:42.240 --> 00:30:45.529 side. The philanthropy. It was massive. Yeah. 00:30:45.869 --> 00:30:48.390 And very targeted. Right. He gave huge amounts 00:30:48.390 --> 00:30:51.349 of money to education. The Zell Lurie Institute 00:30:51.349 --> 00:30:53.609 at the University of Michigan. The Zell Lurie 00:30:53.609 --> 00:30:56.029 Real Estate Center at Wharton. He wanted to teach 00:30:56.029 --> 00:30:58.470 the next generation how to be entrepreneurs like 00:30:58.470 --> 00:31:01.130 him. He was trying to clone himself in a way. 00:31:01.210 --> 00:31:03.930 I think so, yes. He funded programs that taught 00:31:03.930 --> 00:31:06.930 action, not just theory. He wanted to create 00:31:06.930 --> 00:31:09.970 more deal makers. And he never forgot his roots. 00:31:10.519 --> 00:31:13.420 He gave millions to Jewish causes. He donated 00:31:13.420 --> 00:31:16.079 to the Herslia Interdisciplinary Center in Israel. 00:31:16.440 --> 00:31:18.740 He named a high school in the Chicago suburbs 00:31:18.740 --> 00:31:21.759 after his mother, Rochelle Zell Jewish High School. 00:31:21.900 --> 00:31:24.200 He honored that struggle his parents went through. 00:31:24.339 --> 00:31:26.859 It's that paradox again. The guy who would gut 00:31:26.859 --> 00:31:29.240 a newspaper to save a buck is the same guy donating 00:31:29.240 --> 00:31:31.720 millions to educate children and preserve Jewish 00:31:31.720 --> 00:31:34.619 history. It's hard to reconcile. And politically, 00:31:34.839 --> 00:31:37.400 he was just as confusing. He was generally a 00:31:37.400 --> 00:31:40.759 conservative, a libertarian, really. He donated 00:31:40.759 --> 00:31:43.599 to Restore Our Future, which supported Mitt Romney. 00:31:44.039 --> 00:31:47.000 He disliked government regulation, which makes 00:31:47.000 --> 00:31:49.019 perfect sense for a real estate developer. But 00:31:49.019 --> 00:31:52.259 then in 2019, he donates to Lori Lightfoot for 00:31:52.259 --> 00:31:56.160 mayor of Chicago. A progressive, black, lesbian 00:31:56.160 --> 00:31:59.500 Democrat. It was the last person anyone expected 00:31:59.500 --> 00:32:02.579 him to support. It shocked people. It did. But 00:32:02.579 --> 00:32:05.339 his wife, Helen, was more liberal. Zell once 00:32:05.339 --> 00:32:07.319 joked that he leaned right and she leaned left. 00:32:07.920 --> 00:32:10.039 But the Lightfoot donation might have been pragmatic. 00:32:10.779 --> 00:32:13.019 He's a Chicago guy through and through. He cared 00:32:13.019 --> 00:32:15.140 about the city. Maybe he thought she was the 00:32:15.140 --> 00:32:17.059 best choice for the city at that time, regardless 00:32:17.059 --> 00:32:19.019 of party. Or maybe he just liked to fight her. 00:32:19.539 --> 00:32:21.720 Lightfoot was known for being tough and abrasive. 00:32:21.839 --> 00:32:24.099 That's a great point. He respected grit above 00:32:24.099 --> 00:32:26.519 almost anything else. He probably saw a bit of 00:32:26.519 --> 00:32:29.579 himself in her in that sense. So Sam Zell dies 00:32:29.579 --> 00:32:33.579 in May 2023. He's 81 years old. He leaves behind 00:32:33.579 --> 00:32:36.779 a net worth of roughly $5 .2 billion. A long, 00:32:36.779 --> 00:32:38.900 long way from that refugee boat his parents were 00:32:38.900 --> 00:32:41.549 on. When we step back and look at the whole arc, 00:32:41.670 --> 00:32:43.890 the escape from the Nazis, the Playboy hustle, 00:32:44.049 --> 00:32:46.569 the billions in real estate, the Tribune disaster, 00:32:46.829 --> 00:32:49.390 the motorcycles, what is the takeaway? What's 00:32:49.390 --> 00:32:51.750 the final lesson from his life? I think the takeaway 00:32:51.750 --> 00:32:54.170 is about the nature of value, with a capital 00:32:54.170 --> 00:32:58.029 V. Sam Zell had this unique, almost supernatural 00:32:58.029 --> 00:33:00.710 gift for seeing financial value where others 00:33:00.710 --> 00:33:04.019 saw garbage. He saw value in a bankrupt building. 00:33:04.180 --> 00:33:07.180 He saw value in a trailer park. He saw value 00:33:07.180 --> 00:33:09.180 in a complicated tax loophole. He also has a 00:33:09.180 --> 00:33:11.559 but. But he also showed the limits of that worldview. 00:33:11.819 --> 00:33:14.440 When you treat everything as just a financial 00:33:14.440 --> 00:33:16.740 asset, when you treat a newspaper like a trailer 00:33:16.740 --> 00:33:19.680 park, you miss the intangible value. You miss 00:33:19.680 --> 00:33:22.339 the culture. You miss the human element. And 00:33:22.339 --> 00:33:24.579 that can lead to absolute disaster. The grave 00:33:24.579 --> 00:33:27.000 dancer strategy works great on graves. It doesn't 00:33:27.000 --> 00:33:29.220 work so well on living, breathing institutions. 00:33:29.779 --> 00:33:32.299 Precisely. He proved that high risk leads to 00:33:32.299 --> 00:33:34.700 high reward, but it also guarantees that eventually 00:33:34.700 --> 00:33:37.960 you will crash. He crashed the Tribune, but he 00:33:37.960 --> 00:33:40.440 survived. He always survived. And that brings 00:33:40.440 --> 00:33:43.240 us to the big question for you listening. We 00:33:43.240 --> 00:33:45.660 are living in an era now where everything is 00:33:45.660 --> 00:33:48.240 data driven. Algorithms make buying decisions. 00:33:48.680 --> 00:33:51.279 High frequency trading dominates the market. 00:33:51.539 --> 00:33:54.640 Is there still room for a Sam Zell? Is there 00:33:54.640 --> 00:33:57.380 still room for the gut instinct cowboy who rides 00:33:57.380 --> 00:33:59.740 a Ducati and buys things because he just feels 00:33:59.740 --> 00:34:02.500 the market turning? Or was he the last of a dying 00:34:02.500 --> 00:34:05.480 breed? And maybe more importantly, if there is 00:34:05.480 --> 00:34:07.740 still room for them, should we let them buy our 00:34:07.740 --> 00:34:09.840 newspapers? That is the question. Thanks for 00:34:09.840 --> 00:34:11.780 diving deep with us today into the life of the 00:34:11.780 --> 00:34:13.019 Grave Dancer. See you next time.