7
SAM’S WAY (OR THE HIGHWAY)
OVERNIGHT, IT SEEMED, Sam Zell had become a business icon. Thanks to the blockbuster deal, his name appeared in headlines on the front pages of every major daily newspaper. Suddenly he was regarded with adulation. He saw what others could not. One pundit even noted that his reputation had suddenly been elevated to super-hero status and that he could leap over his own tall buildings with a single bound. The only thing missing was a costume change—Zell could easily wear a “Super Sam” outfit complete with a red S on his chest.
That bit of fun might be over the top for most corporate executives, but put nothing past Sam Zell. To be sure, philosophy 101 teaches that a razor-thin line exists between genius and madness. Which characterization best fits Zell? That depends on whom you ask, but he is sanguine, and downright comfortable, within his quirky persona. He proudly admits to an abundance of self confidence, which allows him to continually push the limits of what he views as possible.
One thing that can be said of Zell with absolute certainty—you always know where he stands and what he’s thinking. And just in case you don’t, he often reminds you with a curt “Do you want me to speak slower?” followed by a quick and condescending smirk. He almost never keeps his opinions to himself, which is part of what makes him so interesting to so many people.
“It’s a combination of his intelligence—he clearly is brilliant—and his filter is less high-strung than others so he’s willing to say what’s on his mind while most of us have impulse control,” said Jonathan Kempner, former president of the National Multihousing Council and the Mortgage Bankers Association. “He’s delightful and insightful and therefore he’s quite compelling. He also looks like he’s straight out of central casting.”1

SALESMAN SAM

Adult readers of the Dr. Seuss book Green Eggs and Ham usually have one of two takeaways after poring over the whimsical classic of children’s literature. The first is admiration for lead character Sam’s salesmanship abilities and his ultimate success. The second is loathing for his persistence in pushing a product on an obviously annoyed, bewildered, and downright hapless customer, a negative characterization to which nearly everyone can relate.
As another salesman Sam, Zell more closely aligns himself with the former interpretation of that story than the latter. He relishes the art of the sale and always has, viewing it as a kind of purist art form that only a few have mastered, including himself.
Zell even takes issue with noted playwright and fellow University of Michigan alum Arthur Miller. In his highly acclaimed play Death of a Salesman, Miller portrays the stereotypical salesman, lead character Willy Loman, as a down-on-his-luck, miserable wretch of a human being trudging through life. According to Zell, however, salesmanship is a gift that should be revered, and contrary to popular belief, “nothing is bought and everything is sold.” Ultimately, he believed his ability to communicate and gain followers was one of the great keys to his success.
Zell so highly values the art of communication that he insists it is essential to the making of a true leader. “I realized that being able to sell your ideas is what leadership is really all about. People will follow ideas. People don’t follow people. And your ability to define and delineate your ideas, to bring them to a level of simplicity so that others can both understand and buy in, is an extraordinary asset and a requirement to achieve true leadership.”
Though he is a committed nonconformist, one might get the sense that Zell is fearless. He insists quite the opposite is true. “At times going against conventional wisdom is painful, lonely, and for sure creates all kinds of self-doubt and fear. I might add that fear is an extraordinarily healthy characteristic. I don’t do business with anybody who’s not afraid, and I won’t hire anybody who is confident to the point where fear is not very close to the surface. I’ve often said that fear and courage are cousins and very closely related.”2

TAKE ME ON

Often it is difficult to know exactly where Sam the Salesman and Sam the Person diverge. In speeches, he expounds. In private meetings, he is thoughtful and even congenial. So which is the “real” Sam Zell? Is he just playing the corporate clown to stir up the troops and have a bit of fun?
“My job is to ask questions,” he said. “And sometimes I’m going to be right. But I promise you I will for sure be wrong sometimes, and maybe more, but I just want people to take me on. I’ve spent my whole career trying to build up people around me who will take me on, because that’s the ultimate test of whether the ideas are right or not.”3
For many, however, taking on Sam Zell, the man of many contradictions, has proven anything but a pleasant experience. “At the L.A. Times, he brought people together and said they could ask him anything, but as soon as anybody did, he flew off,” said Kevin Roderick, a twenty-year veteran of the Los Angeles Times and founder of an all-things-L.A. Web site called LA Observed. “That was a very deflating moment at the L.A. Times, because then they saw that he was not a guy who had their best interests at heart. He was not very interested in journalism. He was not there to make the newspapers better or improve journalism. But also there was a sense that he was . . . not what he seems to be. He’s just an angry little man to some people.”4
Angry or not, the business record, at least, indicates that Zell has been right a lot more often than he has been wrong. That’s not to say he hasn’t had some spectacular blunders. One notable bogey was his investment in American Classic Voyages Co. Saddled with a hefty debt load, management bungles, and a catastrophic drop in tourism following the September 11, 2001, terrorist attacks, the company filed for Chapter 11 protection in October 2001 with only $37.4 million in assets and $452.8 million in debts.
Surprisingly, Zell lost more than $100 million of his own money in the deal, but U.S taxpayers lost far more, to the tune of more than $350 million. In the mid-1990s, American Classic lobbied the U.S. Maritime Administration to build two 1,900-room cruise ships, the first to be built in the United States in fifty years. Zell received more than $1 billion in government loans to build the ships, but the bankruptcy filing mothballed those plans. Zell and American Classic then incurred the wrath of one U.S. Senator John McCain, who had repeatedly warned against using government funding for the project.
When you live the point-man, risk-taking life that is Sam Zell’s, you’re bound to meet failure. “He is not shy about admitting he is wrong,” said colleague Peter Linneman. “But he is not quick to admit he is wrong either, and that’s a good trait, because if you’re constantly changing your mind, it probably means you’ve changed your mind a lot of times when you shouldn’t have, and you’re blowing with the wind as it were. There is a belief in the fundamentals. He’ll say he’s in the business of trying to be right sixty-five percent of the time as an investor. Barry Bonds or Willie Mays were legends because they hit .330, and in the investment world, if you can hit .650 or so, you’re a legend.”5
Other Zell alumni swear that their years with Zell were career changers. Many are highly pedigreed, with MBAs from Harvard and other highbrow institutions. Stephen Quazzo and Randy Rowe, both Harvard grads, were on Zell’s original team in the mid-1980s, helping set up the Zell/Merrill Lynch investment funds, as well as Zell’s follow-on Equity branded companies.
“What I learned the most being there was what it takes to be a principal,” said Quazzo, who heads Chicago-based Transwestern Investment Company, which has invested more than $10 billion in commercial real estate. “I had come from the investment banking side at Goldman Sachs, where you’re advising clients, making recommendations, and performing valuations. But when you’re on the other side and you’re the owner or you’re making a decision to invest and putting your own capital at risk, the dynamics are a lot different. Working with Sam’s organization, you understand how truly capital-intensive real estate is and how labor-intensive it is. Among the many things he’s particularly adept at is being a good risk manager and being able to evaluate downside. He’s a quick read on any potential decision and being around him all that time and seeing that, well, hopefully some of it rubbed off.”6
For Rowe, chairman of real estate investment firm Green Courte Partners in suburban Chicago, it was all about the constant intellectual challenge. “I can’t imagine a better place to have gone to learn real estate. I considered it my postgraduate, postgraduate degree in joining Sam in 1989, given what was going on in the markets and given that securitization was coming about and there were going to be new vehicles and approaches. It was a very exciting time, very fast-paced, intellectually very stimulating. Sam is a brilliant guy and has a number of sayings that as you get older you have more appreciation for. Things like, ‘Let the asset be what it wants to be.’ Or ‘If you’re not the lead dog, the view never changes.’
“Obviously Sam loves what he’s doing or he wouldn’t be doing it. He is an extremely unique individual in that he can take almost any business and have an impact and make it better,” said Rowe. “He would tell you that the concepts are pretty consistent. Ultimately everything is driven by cash flow. If you focus on what the real cash flows are and what you can do to impact those cash flows, that ultimately is what creates value. Whether it is a corporate-style business or something totally unrelated to real estate or not, the basic business concepts are consistent. That includes incentivizing and rewarding people.”7 8
Of course brilliance is one thing, but demeanor is another. And Zell’s has certainly been questioned over his forty-five-plus years in business. It’s not surprising that he has won his fair share of detractors. His abrasive nature and do-it-now mentality do not endear him to everyone, which explains why so many of his inner circle have had to develop rather thick skins.

SHUTTING OUT THE NOISE

To keep his business acumen razor sharp, Zell insists that briefings be kept to a single page, no matter how complicated the deal or issue. Anything more is summarily dismissed. This is not a case of attention deficit disorder, but more a practical realization that his insanely busy schedule requires quick thinking and steady focus.
For Zell, simple ideas and concepts have always yielded the highest rewards. “Having conviction means that you can shut out the noise.”
Zell has the experience of having seen several business cycles, from the go-go real estate boom of the eighties to the dot-com era of the late nineties. And he has stayed true to the belief that if it looks too good to be true, it probably is worth avoiding. He has resisted the temptation to run with the herd. Or better yet, the lemmings.

MOTIVATED MAN

Zell is never one to stand still. In fact he openly detests what the rest of Corporate America views as downtime. What some call manic, Zell terms motivation, though he can’t credit some mystical formula he ingested as a child as the root cause of his drive to overachieve.
While most businesspeople are raised on the notion that goals are set to be achieved, Zell says goals are just bumps in a longer career road. It’s that motivation factor again, and for anyone cruising along the twists and turns of Zell’s career highway, there are telltale signposts everywhere, the most prominent being “No Limits.”
Rather than having some advanced type of attention deficit disorder, Zell insists that he is just constantly eager to learn and to do, rather than sitting pat with what he has already learned in life. He is intensely curious, craving to discover the next bit of knowledge that will put him ahead. Combine that trait with his motivated nature, and he can often be described as a sort of whirling dervish.
While Zell is known as a global purveyor of four-letter words, one that he tosses around a lot, risk, is less offensive. An entrepreneur, he opines, embraces risk in their soul. Still, he seems to have a chip in his brain that moderates the actual degree of risk he is willing to chance. His root philosophy is to strike gold around 70 percent of the time, leaving another 30 percent to play high-stakes poker.

NEXT!

Like all businesspeople, Zell lives in a world that is closely tied to economic conditions. And certainly the economy was in full-on growth mode in 2006 and early 2007, the halcyon days when deals like the Equity Office sale were doable, and worries about tomorrow were nearly nonexistent.
As late as September 2007, only seven months after his Equity Office sell-off, Zell viewed collateralized loan and debt obligations as infantile prodigies of Wall Street’s latest fascination with financial engineering. While still untested, to him they represented yet another means to an end, potentially powerful new sources of investment capital.
And oh how they would be tested. According to the National Bureau of Economic Research, the U.S. recession actually started in December 2007. For once, Zell’s prognostications failed him as he did not grasp the full magnitude of the coming economic storm. He largely blamed the crisis on a lack of confidence rather than on a lack of capital, dismissing the gathering clouds over the world economy as little more than an inconvenient, negative perception perpetuated by off-the-mark media reports. At the time, he thought a turnaround might appear in as little as three to six months.
Unfortunately for Zell, the economic crisis would grow far worse than he imagined, leading to the worst downturn since the Great Depression in the 1930s. And just on the horizon lay his date with Tribune Company.