Samuel Zell is an iconic figure in American real estate. In 1968, he created a company, Equity Group Investments, to invest in properties. Since its founding, Equity Group Investments, now known as Equity International, has expanded beyond real estate. The privately held firm controls a billion-dollar investment portfolio with interests spread across multiple continents and several industries, including finance, transportation, energy, and media.

Key Takeaways

  • Zell made his fortune investing in undervalued real estate properties and holding them for the long term.
  • He is a pioneer in the real estate investment trust and created two of them.
  • Zell has described his strategy as "dancing on the skeletons of other people's mistakes."

Zell is considered the creator of the contemporary real estate investment trust (REIT), and he and his team created some of the world's largest publicly-traded REITS. They include Equity Residential (EQR), an apartment REIT with a market capitalization of nearly $20.5 billion, and Equity Commonwealth (EQC), an office REIT with properties across the U.S. and a market cap of nearly $3.32 billion as of October 2020.

According to Forbes, Zell's net worth is $4.7 billion. Here is an overview of how he made his fortune.

Early Life and Schooling

Born in 1941, Zell was raised in a Jewish household in Chicago. His parents had migrated to the United States in 1939 shortly before Germany invaded Poland, and his father was a jewelry wholesaler.

From a very early age, Zell had an interest in the world of business. In 1953, when he was 12, he would buy copies of Playboy in bulk quantities for two quarters each and resell them for $1.50 to $3. "For the rest of that year, I became an importer—of Playboy magazines to the suburbs," Zell recalled at a 2013 Urban Land Institute meeting, calling the experience his "first lesson in supply and demand."

Zell's entrepreneurial journey continued throughout his college years. While at the University of Michigan, he and a friend, Robert Lurie, managed student apartment units for landlords. Their first gig involved 15 homes. But they actually spent a lot of time purchasing and improving distressed properties with the goal of either flipping them or renting them to students.

By the time he graduated in 1966, Zell had managed a total of 4,000 apartments and had personally owned somewhere between 100 and 200 of them. He sold his share of the property management business to Lurie before moving back to Chicago.

Early Real Estate Career

Shortly after graduating from law school and passing the bar, Zell joined a firm of attorneys, which he quit after his first week. He eventually decided to make a full-time career out of investing in real estate.

In 1968, Zell founded what was to become Equity Group Investments and in the following year convinced Lurie to work with him.

A rash of overbuilding during the late 1960s and early 1970s helped to precipitate a market crash in 1973. Multifamily residential real estate was affected first, with other property types soon following suit. Many loans on commercial properties entered into default and many developers abandoned their projects. That presented Zell and Lurie with the perfect opportunity to acquire high-quality properties at inexpensive prices.

At the end of the crisis, the two possessed a valuable portfolio of apartment, office, and retail buildings.

They held the portfolio for many years and, as a result, saw the worth of the buildings regain and eventually exceed their previous valuation levels. In the meantime, Zell and Lurie serviced their debt payments from the monthly rental income the properties produced.

This approach to real estate investing was fairly new at the time; most property investors made their money by flipping buildings rather than accumulating rental income.

Beyond Real Estate

Following his success with turning distressed properties into valuable ones, Zell decided to diversify his investments. By the 1980s, he began to purchase companies.

Notably, his investment strategy remained the same. As he described it in an interview with LEADERS magazine, "I made my fortune by turning right when everyone else was going left. In the late '80s and early '90s, I was buying office buildings at 50 cents on the dollar. I kept looking over my shoulder to see who my competition was, but there was no one. I could not help but question whether I was wrong. Fear and courage are very closely related."

Zell focused on taking over failing businesses with the goal of turning them around. Since expanding Equity Group's investment portfolio, Zell has invested in companies that operate in various sectors including rail, container leasing, passenger cruise, plastics packaging, agricultural chemicals, and industrial manufacturing.

At one time, it owned a controlling interest in the Tribune Company, owner of the Chicago Tribune and the Los Angeles Times. The purchase was widely criticized purchase, as in taking the company private, Zell loaded it with so much debt it went bankrupt.

Zell made news in 2007 after he sold his portfolio of 573 office properties, the Equity Office REIT, to The Blackstone Group (BX), the world's largest alternative investment manager, for $39 billion. At the time, the transaction was the largest leveraged buyout deal in history.

It was also considered a shrewd move in retrospect since it happened just before the subprime mortgage crisis and subsequent real estate slump.

The Grave Dancer

In an article for the New York University Review, Sam Zell described his real estate strategy as "dancing on the skeletons of other people's mistakes." The line earned him the nickname "Grave Dancer."

While his operations have made him a controversial figure, he is undisputedly one of the wealthiest entrepreneurs in the world.