Sam Zell: billions on investments in distressed assets

Sam Zell: billions on investments in distressed assets

Sam Zell: how to get rich on distressed assets

Sam Zell is one of the most scandalous investors in the USA. This is a person for whom distressed assets are a chance to make a few extra millions. In the United States, he is even called as as “the poor man’s Warren Buffett”. And really, the oligarch earned all of his income by acquiring companies that are experiencing great difficulties.

Sam Zell’s three principles

Every year, thousands of companies in the world face a serious crisis that can arise for various reasons. Such organizations have always been under the scrutiny of Sam Zell. He has been 50 years in the business, and during this time managed to put things right in many enterprises. In total, this approach brought him $4 billion.
Zell’s approach was always the same. He chose companies that no longer had great prospects, and bought them well below market value. After joining, the billionaire arranged a grand purges of staff, dismissing the entire former management team, and appointing talented managers to the posts. Hundreds of people who have made a successful career at his enterprises have passed through Zell’s school. The “resurrection” of organizations created tens of thousands of new jobs.
During the work, Zell made only one serious mistake, he is remembered to this day. He bought The Tribune in 2007, but could not cope with the problems of the enterprise. The organization was declared bankrupt. Nevertheless, the oligarch himself was not particularly upset because of the failure, although it gave a lot of reasons for “evil tongues”.

In Zell’s office, located in Chicago, there is an inscription in Latin: “Saltator Sepulcri“, which means ”Grave Dancer”. And indeed, it is a long-standing nickname of a businessman, which he was given in the 70s of XX century. It was then that the press published an article of the entrepreneur on how to benefit from the mistakes of others. On its basis, a book was published in which Zell talked about his approach. He formulated three principles, which he adhered to 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 such a way as to ensure maximum savings on taxes, but not to violate the law.
Zell’s consultant Stan Ross said that the businessman always used his principles when working with distressed assets.
The best evidence of Zell’s approach is the acquisition of Archstone, which owned luxury apartments and lots of land. To make a purchase, the oligarch had to negotiate with its competitor, the company AvalonBay. The acquisition costed $16 billion, which was very cheap for such an asset. Here it is possible to track the first principle. Archstone experienced huge problems, primarily due to the management crisis.
The project had great prospects. The company owned real estate in cities where it was extremely difficult to build new housing, and the cost of apartments was high. Archstone owned property in San Francisco, New York, Washington and other cities. Do not forget about the third principle – saving on taxes. Zell had a deal through Equity Residental, which had tax benefits.
The businessman always worked this way. We can recall dozens of his projects, he got for a small amount, and eventually brought a multi-billion dollar profit. More valuable than this money were only the principles of Sam Zell, so that he was able to earn billions.