Real Estate Wisdom in Sam Zell Biography: A Review
Sam Zell, author of Am I Being Too Subtle? is an American businessman and investor who has made a wide fortune. His large-scale, highly profitable property acquisitions following the crash in commercial property values in the late 1970s earned him the nickname "the grave dancer." Also an innovator and contrarian thinker in business and investment, Sam was the U.S.'s largest purchaser of property between 1973 and 77. In a recent podcast we reviewed Zell’s biography and made mention of our key favorite elements of his life. Here is a more comprehensive run-down of Sam Zell’s life as well as a look into his entrepreneurial wisdom.
Early Life and Schooling
Zell was born in 1941. His parents had immigrated to the United States shortly before Germany invaded Poland in 1939. His father was an American jewelry wholesaler.
From an early age Sam was interested in business, and at 12 years old in 1953 he embarked on his first venture- buying Playboy magazines from the city and selling them to friends for an impressive mark-up. Zell recalls that he was an importer in the suburbs for the remainder of the year and called this experience his "first lesson" in supply and demand.
Entrepreneurial Life
Zell's entrepreneurial journey continued after college. Robert Lurie, Zell's friend, helped manage student apartment units for landlords at the University of Michigan. Their first gig was managing 15 homes. The couple spent a lot on improving and purchasing distressed properties to flip them or rent them to students.
Zell had owned between 100 and 200 apartments and had managed over 4,000 apartments by his graduation in 1966. Before returning to Chicago, he sold his portion of the property-management business to Lurie.
From there Sam established Equity Group Investments (EGI), the predecessor to Equity Group Investments. It and its partners built the nation's largest collection of U.S. offices, mainly by finding opportunities that other investors missed. Zell's investments included trailer parks, railroad rolling stock, insurance companies, and minority stakes in Chicago White Sox baseball. But, his success was primarily due to investments in commercial realty. In 1999, he founded the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies of the University of Michigan's Ross Business School to honor his longtime partner.
Am I Being Too Subtle?
In his book, Sam gives us tips for preparing for such an occasion. He also shares his business and investment strategies with us that have made him a huge success over the last 50 years. Sam believes honor is more important than anything.
In his biography Sam explains the EOP transaction and how he sold it. He called it "A Godfather Offer" and said it was too good to refuse.
Sam’s childhood story is captivating on its own - his parents' brave escape from Poland during WW2 and his early childhood in Chicago profoundly influenced his philosophy. An enlightening example of building yourself through ashes.
Sam Zell’s Perspective on Real Estate Investment
Image Source: Unsplash
“The modern REIT age was fundamentally responsible for the definition of liquid realty. It also redefined the concept of real estate being run like a business. This contrasts with the historical developer who purchased land, found a tenant, and then developed the building. The day he handed over the building, he was gone. The creation and growth of REITs have created an era of real-estate executives who are more like business executives than developers. “
The Emerging Markets
“In 1997 we started to get involved in emerging markets. Our motivation was to see the impact of modern REITs on liquidity creation. We were convinced there was an opportunity for this to happen in emerging markets. Many times, it turned out that it was a political problem. I was initially confused, but REITs sounded fantastic until your horse was gored. Today, Japanese REITs are successful. While they may not be as successful as before, they are controlled by major real estate firms. They encouraged and adopted a management system where these companies were managed externally, and their external managers were owned and controlled by large real estate companies. It's a conflict of interest that can slow down the growth of an industry.”
What Makes Mobile Home Parks a Crucial Investment?
Image Source: Unsplash
Sam Zell believes Mobile Home Parks are the future of Real Estate investment. Some buyers still have a negative opinion of this niche, but prices are still reasonable, and they haven't been bid up like traditional multi-family apartment building prices over the last decade. Another important aspect is that most sellers are mom-and-pop, meaning they don't maximize profit or sell price. Mobile home parks also have few institutional or professional owners, which is a major difference from other reality niches.
Additionally, every county and every city has outlawed new mobile home park construction for at least 30 years. Mobile home parks have a very low tax base. The land does not have any brick-and-mortar improvements that could be taxed. Mobile home parks do not have the same tax base as apartment buildings. Because of this, it is illegal to build more mobile home parks. This means that there is a fixed supply curve for mobile homes parks.
Tenants can maintain their homes relatively low because they own them. Mobile home maintenance costs are approximately five per cent of the revenues. Apartment buildings cost around fifteen per cent. This shows how much you could save by investing your money in the mobile home community.
Winding Up!
Sam Zell had an incredible life journey. He is someone all real estate investors should look upto. So, if you are someone who has a keen eye for real estate investment, then you should be creating a strategy. Just like Sam Zell. He strongly believes that Mobile Home Parks will revolutionize your investment strategy. So, like Sam, you should also invest in your future with Mobile Home Parks.
Get in touch with Park Avenue Partners and start your Mobile Parks Home journey today!
