Zell embraces challenges beyond real estate

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CHICAGO -- If there were a Hall of Fame for real estate investors, Sam Zell would be a certain first-ballot inductee.

The Grave Dancer, as he long ago dubbed himself for his ability to revive moribund properties, has had a golden touch with real estate ever since he got his start managing apartment buildings as a college undergrad. The blockbuster sale of Equity Office Properties Trust last month, which netted Zell about $1 billion, only enhanced that legend.

But it shouldn't surprise anyone if the 65-year-old magnate adds a giant newspaper and TV company like Tribune Co. to his holdings. The stable of companies he chairs or is the major shareholder in already do everything from run supermarkets in Brazil and sell and grow wine in Chile to create an oil company in Kuwait, convert waste to energy in the U.S. and sell electrical wiring systems worldwide.

Real estate may be his trademark, the billionaire investor noted recently, but it's only "probably 25% of my world."

"I'm a professional opportunist," Zell said in an interview with The Associated Press. "I'm pretty sure that no matter what topic you pick, we're involved in some way or another."

Newspapers could be next. Zell has been in talks with Tribune about a possible acquisition of the ailing media company, which has been reviewing options for its business since last fall. He confirmed that his proposal calls for taking the Chicago-based conglomerate private and that he does not intend to break it up, but otherwise declined to disclose details.

Tribune has promised a decision by the end of March.

While he loves analyzing opportunities, spotting bargains and making deals, the jeans-wearing, raspy-voiced Zell is more free-spirited entrepreneur than pinstriped mogul.

His office overlooking the Chicago River is stuffed with evidence of other passions: a model of a Ducati motorcycle, photos of outdoor expeditions, a memento of the Chicago Bulls' championships and the humorous and elaborately personalized talking music boxes he designs annually as holiday gifts for business associates.

He rules questions about personal interests or family off-limits -- perhaps understandable from a personal security standpoint from someone ranked 158th on Forbes magazine's list of the world's richest people, with a fortune estimated at $5 billion. His business style, though, is anything but a mystery: bold, thorough, and opportunistic at times when others are fearful.

"He's been a pioneer in many ways," said Arthur Oduma, an analyst who follows real estate for Morningstar Inc. "Not necessarily as a developer, but as a financier. He really understands the capital markets. His instincts seem to be right -- buying at the bottom in many cases, and selling at the top."

Zell went on a buying spree of properties after the savings and loan crisis of the 1980s, when few others dared to, Oduma said. He encouraged institutional investors to pool their money for commercial real estate in the early '90s when it was on the outs.

He also has championed the real estate investment trust as the optimum model for owning real estate in terms of liquidity, the analyst said, resulting in the investment community looking more favorably on REITs.

Zell said that while his biggest deal ever was this year's $23 billion sale to Blackstone Group of Equity Office, the office-tower company he spent three decades building up, he wouldn't call it his most successful.

"I've never thought about it in those terms," he said. "What does the word 'successful' mean? Rate of return? No, not even close."

Declining to single out any other deals as his best, he said he doesn't go out of his way to rate them.

"The truth is that I have been economically very successful, but I was never really driven by accumulation," he said. "I was much more driven by achievement."

Zell's business philosophies, and his sense of humor, are encapsulated in a little red booklet entitled "Quotations From The Chairman" that contains aphorisms accompanied by cartoons he conceptualized. Among his favorite adages: "Unless you're the lead dog, the scenery never changes," and "Be a risk taker; however, define risk by your own terms."

At an age associated with retirement, he remains a lead dog and a risk-taker.

Zell shared his views on current real estate issues and other topics in the AP interview. Here are excerpts:

AP: What's your take on the meltdown of the subprime mortgage market and people defaulting more on loans?

ZELL: Perhaps the biggest question is why is anybody surprised? Having said that, I also don't understand why a problem in the subprime market would have much of an impact anywhere else. These are marginal customers. These people don't have any disposable income to begin with. So they're certainly not going to affect retail sales.

AP: So you think Wall Street has overreacted?

ZELL: Absolutely. They're acting as though subprime loans were like dot-com companies, where in effect it went poof and it went to zero. There are assets behind all these loans. ... Some people will get hurt, as they do in every excess. But the idea that this excess is some kind of a giant contagion that's going to destroy the economy is preposterous.

AP: What's your outlook for commercial real estate?

ZELL: I think the commercial real estate market is very strong. I think it's going to get stronger. ... When we have our next recession, and I don't know when that might be -- if I were betting, I'd bet on the first quarter or the first half of '09 only because historically in a new administration everybody wants to fix everything -- but when that next recession comes, you're obviously going to see an impact on office, as you would in any recession.

AP: And for residential?

ZELL: The for-rent market is very strong. It is not as strong as it was last year, but it's still very strong by historical standards. As it gets stronger, the rent-to-buy comparison narrows. So in effect, it'll result in more balancing and probably generate more buyers in some markets.

AP: What about the outlook for the REIT markets, both internationally and in the U.S.?

ZELL: We see a worldwide growth in liquid real estate vehicles. We also see enormous opportunity to use the capital markets to assist the development, particularly in the developing world.

One of the things that I think many people don't recognize is that in many of the developing countries, there's vast real estate ownership. It's very concentrated and very illiquid. And that by virtue of creating these real estate vehicles, one of the things you're doing is you're unleashing the power of the wealth and making it much more productive than in effect having it sit in fallow land or agriculture or something like that.

AP: How do you measure your success professionally?

ZELL: I believe that I was given certain talents and abilities, and that my responsibility to myself and to society is to maximize. And that's really what's driven me throughout my life. And when I hold up achievements, those achievements revolve around making a difference, doing something better that nobody else has ever done before, or solving a problem. Those are the definitions of success.

AP: What remaining goals do you have?

ZELL: I think the answer is that if I wasn't doing new things and attacking new challenges every day, I'd be bored silly. So as far as I'm concerned, it's taking on those challenges, taking on those risks, understanding, and then seeing if my judgment and my vision is correct.
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