3. Samuel Zell
Let's talk about Samuel Zell, one of America's greatest real estate owners and an icon of the American real estate industry. In 1968, he founded a real estate investment company, The Equity Group Investments. Since its foundation, Equity Group Investments (now known as Equity International) has grown beyond real estate. The privately held company manages a billion-dollar investment portfolio with assets across multiple continents and multiple industries, including finance, transportation, energy, and media. Zell is best known for founding modern real estate investment trusts (REITs), and he and his team have created some of the largest listed REITs in the world. These include Equity Residential (EQR), a residential REIT with a market cap of about $20.5 billion as of October 2020, and a national real estate office REIT with a market cap of about $3.32 billion. This includes Equity Commonwealth (EQC).
Zell was Born in 1941 and grew up in a Jewish family in Chicago. His parents immigrated to the United States of America in 1939, shortly before Germany invaded Poland, and his father was a jewelry wholesaler. From an early age, Zell was interested in the world of business. In 1953, at the age of 12, he bought Playboy in bulk for $1.50 in 2/4 units and resold it for $3. At a 2013 Urban Land Institute conference, Zell called it his "first lesson on supply and demand," adding, "I spent the rest of the year being an importer. Everything from Playboy magazines to Suburbs and back then. Zell's entrepreneurial journey continued throughout his college years.
While at the University of Michigan, he managed college dormitories for his landlord with his friend Robert Lurie. Their first appearance covered 15 households. However, they spent much of their time buying and improving poor properties, renovating them, or renting them out to students. When he graduated in 1966, Zell managed a total of 4,000 apartments, of which he owned between 100 and 200. He sold his shares in his property management business to Lurie before returning to Chicago.
Shortly after graduating from law school and passing the bar exam, Zell joined a legal firm, but quit during freshman week. Eventually, he made a full-time career out of his real estate investments. In 1968, Zell founded what would become Equity Group Investments and persuaded Lurie to work with him the following year. A wave of overbuilding in the late 1960s and early 1970s caused the market crash of 1973. Apartment buildings were the first to be affected, followed by other types of real estate. Many commercial real estate loans have defaulted and many developers have abandoned their projects. This provided Zell and Lurie with an excellent opportunity to acquire quality real estate at a very affordable price. At the end of the crisis, the two had a valuable portfolio of residential, office, and commercial buildings.
As they held the portfolio for many years, the building's value recovered and eventually exceeded its previous valuation level. Meanwhile, Zell and Lurie paid off their debts from the property's monthly rental income. This method of real estate investing was fairly new at the time. Most real estate investors make more money reselling their buildings than earning rental income.
After successfully transforming a distressed property into a worthy one, Zell decided to diversify his investments into multi one. In the early 1980s, he started buying companies. Surprisingly, his investment strategy hasn't changed as of date. In an interview with Reader’s Magazine, he said: “In the late ’80s and early ’90s, I purchased an office building for $1.50. To date, I kept looking over my shoulder to see who my competitors were, but there was no one there. Fear and courage go hand in hand.
Zell focused its acquisition on the goal of undoing a failed deal. Since expanding Equity Group's investment portfolio, Zell has invested in companies operating in different sectors including rail transportation, container leasing, passenger cruises, plastic packaging, agrochemicals, and industrial manufacturing.
