Sam Zell: how to get rich on toxic assets
Sam Zell is one of the most scandalous investors in the United States. He is a man for whom toxic assets are a chance to make several additional millions. In the United States, he is even called Warren Buffett for the poor. Indeed, the oligarch has earned all of his income by purchasing companies that are in great difficulty.
Three principles of Sam Zell
Every year thousands of companies in the world face a serious crisis that may arise for various reasons. Such organizations have always been under the close scrutiny of Sam Zell. He has been in business for 50 years, and during this time he has managed to clean up many businesses. In total, this approach brought him $4 billion.
Zell’s approach has always been the same. He chose companies that no longer had special prospects and bought them well below market value. When he came in, the billionaire would do a huge cleanup, firing all his former management team and appointing talented managers. Hundreds of people have passed through Zella’s school and made successful careers at his enterprises. The resurgence of organizations created tens of thousands of new jobs.
Zell has made only one serious mistake that he is still remembered for. He bought The Tribune in 2007, but never managed to cope with the company’s problems. The organization was declared bankrupt. Nevertheless, the oligarch himself was not particularly upset about the failure, although it gave a lot of reasons for evil tongues.
In Zella’s Chicago office, there is an inscription in Latin: Saltator Sepulcri, which means Dancing on the bones. And indeed, it is an old nickname of a businessman, which he was given back in the 70s of XX century. That was the time when an entrepreneur’s article was published in the press about how to benefit from other people’s mistakes. On its basis, a book was published, in which Zell told about his approach. He formulated three principles to which he adhered in the course of his work.
1. Choose companies with unclaimed assets, or in poor financial condition, up to the threat of insolvency.
2. Make sure the organization has prospects.
3. Structure your business in a way that maximizes tax savings, but does not break the law.
Zella’s consultant Stan Ross said that the businessman always used his principles when working with toxic assets.
The best evidence of Zella’s approach is the deal to acquire Archstone, which owned luxury apartments and many land plots. To make the purchase, the oligarch had to negotiate with his competitor, AvalonBay. The acquisition cost $16 billion, which is very cheap for such an asset. Here you can trace the first principle. Archstone had huge problems, first of all, because of the management crisis.
The prospects of the project were huge. The company owned real estate in cities where it is extremely difficult to build new housing, and the cost of apartments is high. Archstone owned properties in San Francisco, New York, Washington and other cities. We do not forget about the third principle – tax savings. Zell made the deal through the company Equity Residental, which had tax benefits.
This is how a businessman has always worked. You can remember dozens of his projects, which were received for a small amount, and as a result, brought a multi-billion dollar profit. Only Sam Zell’s principles were more valuable than this money, which allowed him to earn billions.