Bob Goldsborough | Chicago Tribune
Sam Zell ran a Chicago-based real estate empire that he began building when he was still a college student, along the way gaining a reputation as a brash and scrappy operator unafraid to make gutsy investment calls.
Those investments included taking the Tribune Co. private in 2007 in a leveraged buyout. Despite selling a number of assets, the company filed for bankruptcy in late 2008 as the newspaper industry crashed.
Zell, 81, died of an unknown cause on Thursday, May 18, according a statement released by the company he founded, Equity Residential.
The iconoclastic executive’s personal style ran to motorcycle clothing and a liberal use of four-letter words. But to Zell, thinking differently was what enabled him to make his mark.
“Even as a child, I looked at things differently,” he told the Tribune in 2004. “I had so much innate self-confidence. Why is someone doing it the way they’re doing it? I can do it better.”
Zell was the son of Bernard and Rochelle Zielonka, who fled Poland in August 1939, just before the Nazis started bombing. His parents made their way through Russia to Japan and finally to the U.S., and settled in Chicago, where his father had grain trading contacts.
Around 1953, Zell’s parents changed their names to Bernard and Rochelle Zell and began raising their family in Albany Park, and Bernard Zell found a career in the wholesale jewelry business. The family eventually settled in north suburban Highland Park.
Portending his future entrepreneurial moxie, Sam Zell started taking photos at school dances and hawking copies of Playboy magazine at a markup to suburban classmates who weren’t able to get to the downtown newsstands where Playboy was sold.
Zell did not get along well with his father, telling the Tribune in 1993 that his father “was a very, very strong person, and I think the sons of strong, successful men tend to go one way or another. Either they view their fathers as a challenge, which is what I did, … or they go in the other direction and become lazy and unmotivated.”
At the University of Michigan, Zell worked on a sophomore musical with his fraternity brother and future colleague Robert Lurie. Zell took on a role that he would return to repeatedly in his real estate career: overseeing publicity and promotion.
“There’s never been a successful businessman that I know of that wasn’t very adept at selling himself and selling his ideas,” Zell told the Tribune in 1993.
During law school at Michigan, Zell and a partner started managing an apartment building in exchange for free rent. From there, they were offered another property to manage, and Lurie, a doctoral student, joined them.
After law school, Zell took a job in Chicago, but found he had little interest in life as an attorney — nor in what he viewed as low pay.
“I’ll never forget what it was like to have a wife and a kid and earn $58 a week,” he told the Tribune in 2004. “I thought that was terribly unfair.”
Zell and Lurie began buying distressed properties from developers reeling from rising interest rates. In 1968, Zell opened his first solo office on LaSalle Street. He began attracting investments both from his father and from other Chicago businessmen.
Like baseball Hall of Famer “Wee Willie” Keeler, who famously advised hitters to “hit ‘em where they ain’t,” Zell worked hard to find overlooked properties in cities that could produce better profits than Chicago. He bought apartment buildings in smaller cities like Toledo, Ohio; Tampa, Florida; and Reno, Nevada.
Though Zell embraced Reno, the so-called Biggest Little City in the World proved to be the location of Zell’s biggest stumble. He wanted to buy the most conspicuous building in Reno, the Arlington Towers high-rise, and offered to kick back part of the purchase price to a trust that the family selling the high-rise had established in the Bahamas. That would lower the publicly reported profit for the building’s sale and thus lessen the tax bill.
Alerted to the illegal maneuver, the IRS questioned the family selling the high-rise and decided to indict Zell, his brother-in-law Roger Baskes, Chicago lawyer Alan Hammerman and another tax lawyer, Burton Kanter — who was the primary target of the case — on charges of conspiring to defraud and impede the IRS.
Zell and Hammerman cut deals in 1977 to testify against the other two men, and Baskes ultimately was convicted and sentenced to two years in jail.
The Reno case barely dented Zell’s career, and he and Lurie continued buying up distressed properties. In an article written for a trade magazine, Zell gave himself the nickname “The Grave Dancer” to describe his preference for finding property owners in distress and taking advantage.
As real estate deals became harder to find, Zell and Lurie started targeting companies in other industries. Zell and Lurie pursued broken-down companies with a little-understood accounting item called “tax-loss carry forwards” on their books, and then they would go after more profitable firms and employ the tax losses to shield the income from them.
The duo took over bankrupt computer- and rail-car-leasing company Itel Corp. in 1985 and then borrowed huge amounts of debt to acquire well-known Chicago-area firms like Skokie electrical-equipment distributor Anixter Bros. and Great Lakes International.
Soon Zell was known as a freewheeling takeover mogul, and he acquired various other businesses through a billion-dollar vulture fund. Those businesses included drugstore chain Revco D.S., mattress maker Sealy, radio station chain Jacor, and the assets and trade name of Schwinn.
After Lurie’s death at age 48 from cancer in 1990, Zell shifted his tactics. The late-1980s real estate market softened, and Zell came to realize that he would be better served sharing risk on deals with public investors. From there, Zell began tapping into pools of funding in the stock market known as real estate investment trusts, or REITs.
By 1993, Zell had overseen initial public offerings of manufactured-home and apartment REITs, and four years later, he brought public his large portfolio of office buildings in a REIT. These IPOs significantly elevated Zell’s wealth.
Amid his success, Zell remained as outspoken as ever.
“People who deal with me know exactly where I come from, and frankly, I think that’s the most efficient way to do anything, and I think that’s why I can get as much done as I get done,” he told the Tribune in 1993.
Zell in late 2006 announced what at the time was the largest deal ever to take a public company private, selling his Equity Office Properties Trust to The Blackstone Group for $36 billion. The deal meant that numerous trophy buildings in Chicago, including the 44-story Civic Opera Building and the dual towers at 10 and 30 S. Wacker Drive, would shift from Zell’s control to a private buyout firm flush with cash.
Immediately after the deal was announced, some Wall Street analysts wondered whether Zell got as much as he could have in that transaction, the Tribune reported. Two years later, with the onset of the global financial crisis, few questioned Zell’s savviness in that deal.
Perhaps Zell’s highest-profile takeover, however, occurred in 2007 after the Tribune Co. announced it would consider restructuring, selling assets or going private in a leveraged buyout. Zell led an $8.2 billion leveraged buyout of Tribune Co., which the company’s board of directors approved.
Zell contributed $315 million of his own capital in equity to the deal, which saddled Tribune Co. with about $13 billion of debt and technically made a tax-efficient employee stock ownership plan the media company’s owner. However, the deal also gave Zell operating control of Tribune Co.
Upon the deal’s closing in December 2007, Zell insisted that he could find ways to make Tribune Co. grow.
“I became the CEO today because I felt that I needed to be a direct agent of change and I promise you won’t be disappointed in me fulfilling that objective,” Zell said.
Zell quickly started selling some assets, including the New York newspaper Newsday and the Chicago Cubs. However, with the economy declining and the newspaper business in particular struggling amid an industrywide falloff in advertising spending, Tribune Co. filed for Chapter 11 bankruptcy in December 2008.
“This filing is all about relieving the pressure on the company from too much debt,” Zell said, adding that he hoped that the company could emerge from Chapter 11 stronger and more competitive.
Zell relinquished the role of CEO but remained Tribune Co.’s chairman until the end of 2012, when the company emerged from bankruptcy and a bankruptcy judge approved a plan to transfer ownership of the company to a group of banks and hedge funds.
“Zell likely will be remembered by many largely as a caricature, the plain-spoken, pugnacious, gravel-voiced maverick with an affinity for jeans, open-collared shirts and salty language,” wrote Tribune business columnist Phil Rosenthal in 2012, upon Zell’s departure as chairman. “But in reality, it’s possible he’s just a wild-eyed optimist. Plenty of people saw eroding beachfront and storm clouds on the economic horizon well before Zell completed the Tribune Co. deal.”
Tribune Co. eventually was separated into broadcasting and publishing units. The Chicago Tribune is now owned by hedge fund Alden Global.
Zell was known for going on two-week motorcycle trips each year with associates. A resident of Chicago’s Streeterville neighborhood, he also spent time at his oceanfront home in Malibu, California.
Two previous marriages ended in divorce. Zell is survived by his third wife, Helen; a son, Matt; and two daughters, JoAnn and Kellie.
Information on services was not immediately available.
Goldsborough is a freelance reporter.