Sam Zell - The Corp Governor

Published: May 31, 2023

It was August 2009 when I first saw him. I was at a Rush Street cafe located in the Gold Coast neighborhood of Chicago. I saw a stocky man in a biker blue denim jacket, a white beard, a balding head, and an overflowing smile. One of my business school classmates with me said, “That’s Sam Zell”. I had two thoughts: Who is Sam Zell? and why is a billionaire dressed like a biker?

After living in Chicago for a few years and eventually joining Green Street, I quickly learned that Sam Zell was a legend in the REIT space. He founded several well-known REITs: Equity Residential (the largest apartment REIT), Equity Lifestyle Properties (a best-in-class manufactured housing REIT), and Equity Office. In 2007, Zell made headlines when we decided to sell Equity Office to Blackstone for $36 billion. It was the largest leveraged-buyout in history (at the time) and at the peak of the market! That likely explains the large smile he had walking that day on Rush Street.

In 2014, Zell was part of an activist takeover of CommonWealth, a poorly structured and managed $8bn office company. The one-year saga was a “life-or-death battle” for the external manager and in the end Sam was appointed Chairman of a completely new board. My Green Street peers and I tracked the soap opera closely so it was celebrated when our friend and colleague, Adam Markman, was appointed as CFO of Zell’s latest company - Equity Commonwealth.

Zell was not your typical REIT Chairman. In fact, he even had a biker crew called “Zell's Angels.” Aside from his TV personality, Zell truly understood what was required to attract capital to the REIT sector. The common Zell touch on all the aforementioned companies was his value for shareholder-friendly practices. These companies had best-in-class corporate governance, executive compensation practices, investor disclosure, and simple capital allocation strategies that aligned with creating shareholder value over time.

After I learned of Zell’s passing several weeks ago, I searched for Zell’s 1993 NAREIT speech that my mentors have referenced over the years. In 1993, Zell took two REITs public and despite being a new REIT CEO in the “Modern REIT” era, he understood then what was required to make the industry prosper. And he wasn’t shy about sharing his critiques of the industry’s checkered past. I reread his letter several times and there are a few excerpts that stuck out to me.

“I might add that the 1991 and 1992 REIT version is probably the first REIT version that is really designed and created to actually work. Where there really is a justification for their existence, and where, in fact, the structure and the pricing for the first time really represented a scenario where it was a "fair deal to both sides," both the buyer and the issuer.”

“...ours is an industry that has historically been fraught with conflict. Consequently, we should have self-managed REITs where the people running the REITs are incentivized, REITs where the people running the REITs have only one responsibility and that is to grow the value of the REITs for its shareholders.”

“Those sponsors who are trying to make a home run on their initial IPO will pay an enormous price later on. The very important basic premise of what really is a fair deal is a deal where everybody makes money, both the sponsor and the stockholder. That is what it is all about.”

Sam Zell is often referred to as “The Grave Dancer” but based on what I know about his work “The Corp Governor” seems more appropriate. I never met Zell but I do appreciate the lessons and REIT market legacy he left behind. It’s been thirty years since his speech but I am sure the REIT community will be celebrating his legacy at the NAREIT conference in NYC next week.

Be Brava,

David De La Rosa