The Tim Ferriss Show - #407: Sam Zell — Strategies for High-Stakes Investing and Dealmaking

Starting point is 00:00:00 At this altitude, I can run flat out for a half mile before my hands start shaking. Can I ask you a personal question? Now would have seen an appropriate time. What if I did the opposite? I'm a cybernetic organism, living tissue over a metal endoskeleton. The Tim Ferriss Show. This episode is brought to you by FreshBooks. Long-time listeners of this podcast know that I've been talking about FreshBooks for years. It's the all-in-one invoicing and payments and

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Starting point is 00:05:10 This browser feels intuitive. It's super easy to use. You can import your bookmarks with one click and all your favorite Chrome extensions are also available with Brave. And it doesn't have to be either or. You can use multiple browsers for different things. Now, listeners of this show, The Tim Ferriss Show, can easily upgrade their browser for free. And all you have to do is go to brave.com forward slash Tim. That's brave.com forward slash Tim. I use Brave all the time, and I strongly suggest that you at least test it out. So go to brave.com forward slash Tim and give it a shot. Hello, hello, hello, Nelly. This is Tim Ferriss. I figured I'd mix up the intro. Welcome to another episode of the Tim Ferriss Show, where it is my job, each episode typically to sit down with world-class performers of all different types, from all different industries, from all different fields to tease out the habits, routines, favorite books, influences, and so on that you can in some fashion emulate or test and apply

Starting point is 00:06:09 in your own life. This time around in this episode, we have a slightly different format, which I'm super excited about. I will not be the one doing the deconstructing. Instead, we have my good friend Peter Attia taking my place. Now, Peter Attia, for those who don't know, is the common ingredient in two of the most popular episodes on my podcast of the last, say, 100 episodes. Specifically, those are episode number 352, Dr. Peter Attia versus Tim Ferriss, and episode number 398, Peter Attia, MD, fasting, metformin, athletic performance, and more. If you want to try one of those out after you hear Peter do his thing here, I would suggest going to number 352, where we talk about mental

Starting point is 00:06:58 and emotional health and different tools that can apply there. Coming back to this episode, though, in this episode, we have Peter interviewing Sam Zell, Z-E-L-L, a legendary dealmaker and investor. And as of the time of this recording, Sam's net worth stands at around $5.24 billion. As many listeners know, and many probably don't know, Dr. Peter Attia on Twitter and Instagram at PeterAttia, A-T-T-I-A-M-D, is a former ultra endurance athlete. So he's done swimming races of 25 miles, etc. A compulsive self-experimenter, so we get along well, and one of the most fascinating human beings I know. He is also one of my go-to doctors for anything related to performance and longevity, because blending the two is quite a sophisticated and subtle business. Peter also hosts The Drive, a weekly ultra deep

Starting point is 00:07:53 dive podcast focusing on maximizing health, longevity, critical thinking, and a few other things. He really gets into the weeds with specialists on his show. Topics include fasting, ketosis, Alzheimer's disease, cancer, mental health, and much more. You can subscribe to The Drive on Apple Podcasts, Spotify, or wherever you listen to podcasts. And you can find links to all of this in the show notes for this episode at tim.blog forward slash podcast and just search Atiyah, A-T-I-A. I will let Peter take from here to give Sam's full bio and introduce the episode. This is one not to miss. I really enjoyed it and hope you do as well. Thanks for listening. My guest in this interview is Samuel Zell. Sam is the chairman of Equity Group Investments.

Starting point is 00:08:38 He's also the chairman of five companies listed on the New York Stock Exchange. He's a legendary entrepreneur and investor who's active across a broad range of industries, including energy, manufacturing, logistics, healthcare, communications, and of course, real estate. Sam was recognized by Forbes as one of the 100 greatest living business minds in 2017, and he holds a place on the New York Stock Exchange's wall of innovators for his role in building the $1 trillion REIT industry. He's the author of an amazing book, Am I Being Too Subtle?, which after I read the book is the reason that I wanted to interview him. Through this conversation,

Starting point is 00:09:16 we cover a lot. We start with arguably the most important and transformative aspect of Sam's life, which is his parents' escape from Poland on the last train out in World War II and how this played an enormous role in his upbringing. We talked about his early businesses and the lessons that he learned along the way, in particular, how he used these lessons to assess risk. We talked about his ability to assimilate large volumes of information and how that allowed him to basically play an amazing role inside his business in predicting the market crashes of 91 and 2008 with respect to real estate. Talk about the incredible loyalty within his organizations. I won't elaborate much more on

Starting point is 00:09:56 this other than to say it's by most standards quite unique. And I was surprised as I got to know Sam, just how much the people that surround him share incredible loyalty to him. In fact, after we recorded the podcast, we went out for dinner and eventually wound our way back to his place. And his driver gave me a ride back home and I couldn't resist the opportunity to just sort of pick his brain and talk a little bit about that. And I was kind of blown away by the way in which he talked about Sam. And I really got the impression this was not something he was saying just because he felt he needed to say that.

Starting point is 00:10:30 We talked about how Sam takes in and processes so much information and how this sort of insatiable curiosity has really been the cornerstone of his success. We end with Sam's thoughts on the current state of the economy, which is something I just couldn't resist the opportunity to pick his brain about. This is one of the most in-depth interviews Sam has given, and it's a real privilege and honor to have been the one sitting across from him. So without further delay, please enjoy my conversation with Sam Zell. Sam, thanks so much for making time today and thanks for coming over. My pleasure.

Starting point is 00:11:10 There's so much I want to talk about, but I can't resist sort of starting at the beginning, which is the story before you even came along, before you were born. You've written very eloquently about this in your book, and it's clear that it's shaped more of you than probably most people would realize if they just met you or even saw all of your accolades. Tell me a little bit about your parents and how they wound up coming to the United States. My parents lived on the German-Polish border in the 30s. And my father was a grain merchant. And the Jewish community in Poland at that time was very, very limited and had very little exposure to the outside world. But my father, because he was in the grain business, was dealing with businessmen all over Europe. And so he had a much better understanding of how the world had changed and the risk that was occurring to the Jewish people. Events like Kristallnacht

Starting point is 00:12:06 that were never reported in Poland, he knew about. And he became alarmed at what was happening and began planning to leave Poland and go to the United States. He saved up money. One of the stories I tell in the book is the story of him basically getting money out of Poland and getting it to Israel or to Palestine at the time. And so, in effect, he went on a vacation to Egypt and Israel or Palestine. And basically, there was the Jewish organization that allowed Polish Jews to get money out of Poland. And so one day, a guy showed up at my mother's house who had, in effect, my father had told her, look, if some guy shows up, he can prove to you that I know him.

Starting point is 00:13:01 Give him all the money that's in the armoire upstairs. And in between, my mother received a letter from my father. And it was a typical rosy letter, having a great time, everything is terrific. And when she opened up the letter, she found a ripped piece of paper inside the envelope. And then a week later, a guy shows up at her door with the other half of the ripped piece of paper and that proves to her who he is and she gave him all of the money and 48 hours later the money was on deposit at Barclays Bank in Tel Aviv and that money eventually became the currency that they used when they were escaping from Poland. So it's now 1939. It's August 23, 1939.

Starting point is 00:13:54 And the world is stunned by the announcement of the Molotov-Ribbentrop Treaty, which was a treaty executed between Germany and Russia. And basically, Stalin and Hitler had made a deal. And my father looked at that treaty and said, this is basically an agreement to split up Poland. And so my father got off. He was on a train, turned around, went home, got my mother and said, we have to leave. And he moved my mother and my older sister, who was like two, a couple hundred kilometers from their town, went back and tried to convince other members of the family to come with him. Without exception, they all turned him down. He was like 34 years old. I think they all thought he was typical, overenthusiastic young man, didn't understand,

Starting point is 00:14:52 didn't remember that when World War I happened, the Germans invaded Western Poland. And the locals found that to be terrific. They were much happier under the Germans than they were under the Poles. The Germans were educated. The Germans were cultured, music, art. They thought it was fabulous. And they all said, this is an alarmist young man. He didn't understand as soon as the Germans come back, it's going to be terrific again. And my father instead knew about Kristallnacht, knew about all of the anti-Jewish activities in Germany, and he couldn't convince anybody to go with him. And so finally, at 4.30 in the afternoon of August 31st, 1939, he got on his train and

Starting point is 00:15:39 started going east. And at 6 a.m., the Luftwaffe bombed the rail yards. And that was the beginning of both the Germans and the Russians invading Poland from either side. He then continued. And just all he wanted to do was keep going east, keep going away from Germany. And there are times my mother told stories about her pleading with him to stop. Okay, we're far enough away from the border. Everything is going to be fine. Instead, all he said was, we got to keep going.

Starting point is 00:16:12 And they went by every conceivable form of transportation from bus to train to wagon cart, whatever and whichever methodology they could. They kept going east. And along the way, there were other refugees just like them, all moving east. And eventually, they got to Vilnius, which was the capital of Lithuania. And that's where the Russian army was. And that's where they paused. And they spent a few months in Vilnius trying to get adjusted. And at that time, there were a lot of other refugees in Vilnius.

Starting point is 00:16:50 And so there was a community and they shared information. They were all confronted with the same challenge, which was, how do we get out of here? And most important, how do we get visas to get out of here? While they were in Vilnius, the Dutch ambassador who would come out of Poland was on his way back to the Netherlands but couldn't go west, so went east and stopped in Vilnius. And he gave out visas to Curacao. Curacao is an island in the Caribbean off the coast of Venezuela, and it was a Dutch

Starting point is 00:17:25 protectorate and they had historically had an open visa policy to anybody because they were trying to populate Curacao, particularly with Europeans. And so all of these refugees got visas to Curacao, but the problem still became how do you get from Vilnius to Curacao? And obviously, the only way you could go was east. And obviously, the answer became the Japanese. And they found a consulate in Kovnes, which is the second largest city in Lithuania. And they told him their story. And he took pity on them. And they literally created something they called a transit visa. Now, there is no such thing as a transit visa.

Starting point is 00:18:13 But they created it. And they found a wood artisan who made a wood cut. And they created these visas. And Sempe Shugahara, who was the consul, ended up signing almost 2,000 of these. And in the meantime, he sent a notice to Tokyo and asked permission to grant the visas. And they came back and said no. And then he sent them a second question. And while he was waiting for them to respond is when he filled out all the visas. And when the response came back, they basically took him and relocated him.

Starting point is 00:18:54 But the people had these visas. At the same time, the Russian government was desperate for hard currency. And so they decided that, as only Russian entrepreneurs, that they had a train and that they could sell, in effect, train passes from Vilnius overnight to Moscow, and then 11 days and 11 nights on the Trans-Siberian Express to Vladivostok, where you could take a boat to Japan. And my parents, for $239 per person, bought transit on that train, went overnight to Moscow, spent the night in Moscow, actually went

Starting point is 00:19:39 to the Bolshevik ballet, and then the next morning got on the train and spent the next 11 days and 11 nights on the train with their two-year-old daughter going to Vladivostok. And then eventually boarded a boat and ended up in Japan, and then spent six months in Japan trying to get their visa to the United States, which they finally got in May of 1941. And they arrived in the United States May 18, 1941 at 6 a.m. in Seattle. Interestingly enough, as only the life of an immigrant could reflect, they arrived at 6 a.m. in the morning, and 6 p.m. they took their first English class because they were going to become Americans, and this was the most important thing in their life. So this was kind of the background, and I was born September 28th. So literally, I was born 90, 100 days after they came to this country. And typical of my mother was late with me.

Starting point is 00:20:47 And so the day I was born, she went to Marshall Fields, which was the major department store in Chicago, and started walking up and down the stairs, hoping that this would precipitate the baby. And eventually that night at 10 o'clock, the process started. And so they got dressed, went downstairs, got on a streetcar and rode the streetcar to the point where they had to get off and change to go to the hospital. But the other streetcar didn't come and it was 11 o'clock at night. So they walked the last six blocks. And then I was born very shortly thereafter. But when you come from that kind of a life and you hear the stories all over again for all of your young period of time, it gives you a very different perspective on life. The idea of somebody literally picking up and leaving where they were is just extraordinary.

Starting point is 00:21:48 How anybody could have the self-confidence. I mean, he didn't know where he was going. He had a wife and a baby daughter, and all he was doing was going away from the threat. So it made me very aware of how lucky I was. He must have told me a hundred times how lucky I was that I was born in the United States, how the streets of the United States were paved with gold, not monetary gold, but freedom. And that was really what it all meant. And he over and over again lectured me on how important it was to understand how unique an experience it was to live in a country where you really had the freedom to work harder or work less or change professions or do whatever it is you wanted to do as long as you didn't disturb your neighbor. So this was an extraordinary background for everything that eventually happened to me and without question very much influenced

Starting point is 00:23:00 how I made decisions going forward. Because more than anything else, what it told me was that anything was possible. That you didn't start with a set of limitations. You started with the entire spectrum was available. And it was how good you are, how committed you were, how hard you were willing to work that really was the limiting factors, not the society. Did your father ever articulate to you in explicit or implicit terms his decision-making process around? Because when I hear that story, Sam, I think of a huge asymmetry of risk.

Starting point is 00:23:40 So if you go back to the moment, the committed step, which is when your father had to decide to leave or not to leave now He couldn't have known that the train track was going to be bombed in 12 hours And this if I recall this was the last train out of Poland this I mean you didn't leave any margin there There's a very asymmetric risk issue, which is to be wrong to leave unnecessarily Has a downside but to stay incorrectly has another downside. Obviously, the latter has a much bigger downside. In other words, it's a very asymmetric risk.

Starting point is 00:24:14 So from a risk perspective, your father made the right decision, not just because history turned out to make it right, but simply on the basis of first principles. Your whole life, which we'll talk about as we continue this discussion, is so based on understanding risk. Does that lesson stand out to you in terms of teaching that element of risk? Did your father ever articulate it that way? I don't think he ever articulated it that way because I don't think he ever thought about it as risk and reward. I think he thought about it as survival. I think he thought about it and said, what am I giving up? When he looked at the society that he was leaving, and particularly at his age, I think he really thought that he was making a major decision

Starting point is 00:25:02 for creating optionality and freedom for his future. And I think that he had heard enough of what was going on in Germany and Austria at the time that I don't think he had any doubt of how big the risk was, how critical it was to exit. And yet, he was unable to convince everybody else. But everybody else were settled, they had their professions, they were living in this relatively small city, and most important, had very little exposure to the outside world. I mean, we live in a day of 24-7 sound from the cable TV stations, and we live in a world where there's newspapers every day that come from all over the world. And we can't really relate to the idea of a society

Starting point is 00:25:52 where information was literally limited. And the further you got from the point you were standing, the less dependable the information was. So he was functioning with a lot of information that his siblings and his friends didn't have. No different than when we talk about being a risk taker. What I talk about often is how critically important it is to be as knowledgeable as possible. That all my life I've basically focused on reading and digesting information because the well-educated, up-to-date you are, the better you are to be able to assess judgment and assess risk. When we had dinner a while back, you told me a footnote to the story you just told, which is years later, I don't remember how old you were. You may have been five, six,

Starting point is 00:26:50 seven, eight. You came out of your bedroom one night and your parents and maybe some other friends, I think were huddled around a small movie projector and they were watching something. Tell us that story. I think I was maybe six years old and we lived in Chicago and we lived in what's commonly referred to as a railroad apartment, which is you had a living room at the one end and the kitchen at the other end. And then it was a long row of bedrooms and bath. And my bedroom was at the far back next to the kitchen. And my parents had a group of immigrants that had their own little organization called the Harmony Circle Club. And once a month, they would get together in one of the other one's living room and talk about information, and particularly information about Poland and when they all were refugees from Poland and all Jewish

Starting point is 00:27:47 and all trying to get information. I don't know why I got up that night, but I got up that night and I snuck into the right near where the living room was and they were watching an eight millimeter movie. And I remember looking at the movie and as I'm sitting here talking, I can tell you that I can represent the images that I saw. And the images were of trucks and dump trucks. And on the back of the dump trucks in the bins were bodies and bones and heads and somehow or other they had all been dumped in the back of these trucks. And then I learned for the first time that this was all about the Holocaust. And these were smuggled out movies that were made of what was going on in these camps in Poland right before the end of the war. And I sat there and at first I couldn't conceive of

Starting point is 00:28:47 what I was watching. And then when I talked to them about it afterwards, I never told them that I snuck out to watch, but we talked about things over the dinner table, etc. And I began to understand that these concentration camps literally were created to wipe out a population and as efficiently as possible kill them. And then put them in dump trucks and find some place where they could be dumped and lime tossed on the bodies and buried accordingly. So it was an incredible thing for a six-year-old to watch. And most important of all, what I felt about it was that, but for the grace of God, it could have and should have been my parents. And in fact, most of their siblings ended up murdered in these concentration camps.

Starting point is 00:29:37 When you think about sort of your teenage years, you have a really unique set of personality traits, Sam. One of them is you pretty much do what you think is right, whether it's popular or not. Was that trait evident when you were growing up? Was that trait evident, for example, during adolescence when most of us succumb to the need to sort of be approved by others and do what others think is the right thing to do? Well, I certainly was no different than any other teenager. But the fact that I wasn't any different didn't really change the fact that I was very different and lived in a house where the closeness to which they came to being exterminated was very much aware for everybody all the time. I grew up in a house where my parents took the position that whatever I was doing, I was lucky I was doing it,

Starting point is 00:30:32 and I had to do more of it, and I had to study harder, and I had to excel. And other parents didn't have these kinds of influences on their children. So it became obvious to me at a relatively young age that I was different and that as much as I wanted to be accepted and as much as I wanted to be like everybody else, I also recognized that I wasn't and that I couldn't. And that at first, it was very frustrating and very much of a challenge and I didn't really know what to do with it. And then eventually I just came to the realization that I had to be my own thing and I had to be who I was and that other people had different ideas and different objectives and that was fine, but I couldn't accept what everybody else was thinking about. I also grew up in a world where the rest of the kids that I grew up with,

Starting point is 00:31:28 they were kids, but I grew up in an environment where they didn't really give me much of a chance to be a kid. And in fact, whether it was a six-year-old watching Holocaust movies or listening to my father telling me, you went to a basketball game last week. Why do you have to go again? And why are you so focused on having fun? You've got to be studying. You've got to be getting better. You've got to be able to take on what's going on. Well, needless to say, I didn't listen to everything he had to say. But living in that kind of an environment was very, very different

Starting point is 00:32:02 than what my peers were doing. So after college, how did you decide on law school? What other things did you think about? Did you have any sense of what you wanted to do? That was a very easy decision. My father's view was very simple. You got to have a profession. No matter what, you got to have something that you can quote a hang of shingalata. And law school seemed like a very logical

Starting point is 00:32:25 thing for me to do. Academically, I was very difficult to achieve. And so I went to law school not because I wanted to practice law. I went to law school so I had a degree and that if I didn't work out at whatever it is I was doing, I would be able to, in effect, still practice law and make a living. And that's what he, more than anything, stressed that I had to do. So your first stint in the law firm was a pretty short one. Yeah, well, actually, the better part of the story is that I had 44 interviews. 44. Talk about rejection. And I got rejected by 43. And I sent all the letters and I made all the appointments and followed up on it. And what I didn't understand was that, and it was actually

Starting point is 00:33:14 made very clear to me when toward the end of this process, I had an interview with a big fancy firm and I got through the first interview. I was very excited because I had been used to people rejecting me. And then I had a second interview at the firm and went really well. And they set up a meeting for me with the senior partner whose name was on the door. And I remember going in to see him. I walked into his office and it was a typical wood panel lawyer's office with books all over the place. And he was on the phone and he gesticulated with his hand and said, sit down. And I sat down and he finished the phone call. Then he got up and he closed the door to his office and he said,

Starting point is 00:33:57 tell me about your deals. And I looked at him and I said, tell you about my deals. I want a job. He said, we would never hire you. You wouldn't last more than three months. I said, what are you talking about? I said, I want to be a lawyer. I mean, what about Perry Mason? And he laughed and he said, you don't understand. And of course, the truth was I didn't understand. And so I basically asked him about it. And he said, do you understand? You put on your resume all the things that you did while you were in law school and while you were an undergraduate. And you built a real estate business.

Starting point is 00:34:38 You managed hundreds of apartments. You bought buildings. You refinanced buildings. You wrote a manual on property management. And you're literally just graduating from law school. How would anybody like you want to sit there and draft contracts all day? And I just looked at him and I said, I don't understand. He said, the reason you've been rejected like this is because everybody looks at you and says, this is a guy who's going to do something else. And why would we want to train him if he's going to be gone very shortly?

Starting point is 00:35:11 I'll never forget that interview and ultimately did get one job, actually with a firm that was kind of half entrepreneur, half law firm. I got there the first day and had this tiny office that was like six by six. They gave me a contract to do between a linen supply company and a dormitory at Northern Illinois University. And some client of the firm built the dormitory and they were entering into a contract with a company that provided linens. They wanted me to write the contractitory, and they were entering into a contract with a company that provided linens. They wanted me to write the contract. Well, for anybody who's been to law school, they know that the day you get out of law school, you don't know anything about being a lawyer. You may know a lot

Starting point is 00:35:57 about theoretical conflicts of interest and broad concepts of the law, but how to draft a contract, not a chance, particularly if you went to a good law school where, in effect, they look down on any quote-unquote lawyer vocational training. And so I went and I asked the guy who was sitting in the next office, and he gave me some form books and said, here, this gives you a base. And so I started working on the form books and it was terrible. So I submitted the first draft after a couple of days and it came back and it looked like the senior partner who had reviewed it had slid his wrists because he used a red pen on it. And the whole thing was full of red this and red that. And I'm looking at it and saying, I just went through three years of law school. And this is what ends up.

Starting point is 00:36:49 And so I then redid it again and finally submitted it to him. And before he responded to me, I went into his office on Friday morning and I said, could I speak to you for a second? He said, sure. And as only a 24-year-old would have thought, I looked at him and I said, you know, I really don't think this is a good use of my time. And I'll never forget the look on his face. And he looked up at me and he said, what are you saying? I said, I don't think this practice of law is a good use of my time. He said, well, what are you going to do? I said, well, I'm just going to go back and pick up where I left off in business in Ann Arbor, and I'm going to try and build a real estate business.

Starting point is 00:37:36 And he looked at me and he said, you're going to do what? And I explained to him that that's what I was going to do. And I thanked him very much for the opportunity. And he said, well, I've got a suggestion for you. I said, why don't you just stay here? And the law firm will do the legal work on your real estate. And we'll invest with you and help you get started. And I thought about that.

Starting point is 00:38:03 And I said, well, gee, that's a terrific opportunity. And so I said, fine. And the next day, came back to the office and I was no longer a lawyer and I was chasing deals. They, at the time, had a policy in this law firm where they would give everybody 50% of any business they brought in. And the methodology behind that was that we're trying to, in effect, encourage young lawyers to be a little entrepreneurial. And maybe they're getting an estate from somebody in the family who died or the contract, but the whole idea of quote-unquote hustling business. And so they, in effect, offered me the same objective. And of course, I started creating huge amounts of business.

Starting point is 00:38:51 And so, I don't know, maybe four weeks later, they came to me and they said, well, we had this deal where we gave you 50%, but that was really under the assumption that maybe you'd bring in one deal and so you'd get one positive experience. But the volume you're doing, I mean, we can't afford to give you 50%. So we're going to make it 35%. I said, okay. So then three or four weeks later, they came back and they said, well, you know,

Starting point is 00:39:18 we made this deal with you at 35 when we were assuming you were going to bring in this amount of business. And now you've brought in twice as much. And we got to cut it down to 25. I said, OK, so we'll cut it down to 25. And so, in effect, at the end of the first year, I think that this is 1966. And at the end of the first year, I think that my quote unquote job paid me $7,600 after I passed the bar on a per annum basis. And I think I made $75,000 as a result of my percentage of the business I brought in.

Starting point is 00:39:56 Well, that was a huge number. And I was obviously thrilled about it. And then they gave me a bonus. And the bonus was $200. And I said, I remember it was the thrilled about it. And then they gave me a bonus. And the bonus was $200. And I said, I remember it was the most depressing thing. What I wanted was recognition. What I wanted was them to understand that I was really, and instead, by virtue of paying me $200,

Starting point is 00:40:18 they were telling me that what I was doing wasn't very valuable. And I remember I was so depressed, I didn't know what to do. And I went to the gym and I shot free throws for an hour or two hours just to try and get this buzz out of my head. But then I realized that I had to leave. Subsequent to that, not too long thereafter, the end of the year, I was gone and set up my own shop. So let's go back to some of those early deals, because in many ways, that's sort of where you cut your teeth on your principles, that principles that have sort of guided your career through some of the largest deals in real estate history.

Starting point is 00:40:55 Can you recall sort of a representative deal from those days? What was your sort of overarching principle on real estate? Well, I think that one of the most significant things that happened was that while I was in law school, I went home and I sat down with my father. My father had been a very successful businessman and had joined other people in investing in quote unquote commercial real estate opportunities. So I came to him and I said, tell me about your deals. And he kind of proudly looked at me and said, oh sure. And he started describing it to me, the deals he had invested in. And when I listened to him, I realized there was a consistent theme to what he was talking about. And basically, he was investing in deals that were in major American cities, New York, Chicago, Los Angeles, San Francisco, but nowhere else. And second of all,

Starting point is 00:41:54 he was getting what he was very proud of was a 4% return. And I had been doing deals in Ann Arbor where I was getting 16, 20, 25 percent. And I just didn't understand. And then I realized or I came to the conclusion that what he and his buddies were doing were investing in what was already existing proven commodities, which were the major cities. And that, in effect, if I were willing to invest outside of those major cities, I was in a competitively better position. Whereas he was investing in New York, Chicago, and Los Angeles, et cetera, I ended up investing in Ann Arbor and Madison, Wisconsin and Tampa and Jacksonville and Orlando and Reno, Nevada and Arlington, Texas, all of which were small cities, growth cities, and ones where there was no competition. And it dawned on me that

Starting point is 00:42:56 when it was all said and done, the single most important criteria as an investor was what was your competition. And to the extent that you were able to operate and invest in arenas where there was little or no competition, you got much better deals. And where there was more people, a lot more deals and a lot less attractive returns as a result. And so that's when I kind of learned about or didn't really understand what I was learning at the time. But what I really concluded was that competition was terrific, particularly for somebody else. But for me, the real goal was to find situations where I could operate in a competitive environment that gave me the edge. And that became a principle of everything that I did.

Starting point is 00:43:47 And so whereas the first major deal I did was an apartment building in Toledo, Ohio. And you got to understand that part of the time, not too different from today, Toledo wasn't a very popular place. And I was keenly aware of that. But what I realized also was that because Toledo was a car manufacturing center and because it was referred to often as the armpit of the nation and a very negative environment, that also meant that no insurance company that made all the loans for real estate was going to underwrite a deal in Toledo when the statistics, the city was shrinking, et cetera. But all I looked at was the fact that I was able to buy one of the few apartment buildings in town. So I didn't have any competition. So that deal was one of the most successful deals that I had

Starting point is 00:44:37 ever done simply because there was no competition. And therefore, where there's no competition, you can produce exceptional margins. And therefore, where there's no competition, you can produce exceptional margins. And that was a great first lesson. And how did you price it? Are you pricing this based at the time, that is? Are you thinking about this just on the basis of cash yield? Or were you factoring in some sort of equity improvement in this real estate? That assumes a much greater knowledge level for me than was conceivable at the time. All I looked at was how much we were investing, what was the cash on cash return. The first deal, the cash on cash return was 19%. This was in the same environment where I'd seen my father was

Starting point is 00:45:20 investing money at four. And my father had just sold a number of interest in deals. So he, in effect, I brought him this deal. And he looked at it askance and basically said, yeah, come on, this is bullshit. But he called up a friend of his who was a property manager and said, you know, my son Sammy has brought this deal, and it's ridiculous. It's 19%. But would you take a day and go look at it? So the guy went and looked at it, came back, and said, you know, it's a terrific deal. And I've adjusted all the numbers and become much more conservative. But it's still an 8% return in an environment where 4% was the standard. So he recommended that we go ahead with it. And he put some of his own money in it. And so we did the deal. And sure enough,

Starting point is 00:46:12 it produced 19%, just like I said it was going to. But that was the first deal your dad came in with you? Yeah. And how did that feel? The second deal. My father, when I was in school, I ended up buying a square block, kind of house by house. And I didn't have the money, but I had enough to tie up the properties. And he eventually came and put up money and helped me get that first thing done. But this was the first, quote unquote, investment deal.

Starting point is 00:46:40 And is that something that, did you pause for a moment, I guess, and take some pride in that in a way that was like, wow, here I am. I'm now indirectly sort of helping my family support itself as well. Or was that just sort of below the radar of how you thought about it? Couldn't even imagine thinking that way. All I thought about was here was a transaction that made sense. I thought it was terrific from a yield point of view. It never dawned on me that this wasn't what everybody did. By the way, that's kind of a theme in what I do. And what I did was I never really understood that what I was doing was so unique. I just thought I was kind of making it up as I went along. And I went from that deal to one in Orlando and one in Tampa and one in Reno and et cetera, et cetera.

Starting point is 00:47:32 And after the first deal was the last time I ever had any trouble raising money. So that first deal required $280,000 of equity, which in 1959 or, or 1968 or whatever it was, was a lot of money. But once I'd done that one transaction, people lined up to invest with me. Probably they were enthralled by the fact that how could a 25-year-old be actually doing this? I never knew that every other 25-year-old didn't do it as well. Never even crossed my mind. I just kind of did what I thought made sense. And you're sort of realizing this principle though already, right? Which is being where everybody else is, is sort of not the place to be. I mean, you've written about this a lot. As we sort of fast forward for a moment, I want to go back to this, but

Starting point is 00:48:20 even if we stand here today now, of course, everybody looks at Sam, you've created an asset class that we haven't even got to yet that we're going to talk about. But you really come back to very fundamental principles when you speak about things. You talk about supply, you talk about demand, you talk about competition as though those things still apply. Whereas many people today sort of think that, come on, that was Econ 101. That mattered when there was a huge sort of gap. When I took Econ 101 at the University of Michigan, I walked into the first classroom and written on the blackboard was supply and demand. And I have to be honest with you, I'm not sure that there was ever anything else in

Starting point is 00:49:00 Econ 101 that I learned that was relevant. That if you understand and are focused on how supply and demand affects pricing, how it affects decision-making, how it affects risk, it's the governing principle of everything. But it's also simple. What was your philosophy around purchasing assets that were already capable of deploying yield versus developing assets? Well, at that time, there were a lot of quote-unquote income-producing assets that were available. I've always been a great believer that there's a lot of quote-unquote execution risk that has to be fit into your thought process when you're making a decision.

Starting point is 00:49:46 In that particular time, again, keeping it very simple, if I could establish a definition of cash flow and in effect, I would literally remember going to developers and saying, it's real simple, take the bottom line, multiply it by six, and that's what I'll pay. Now, I didn't know that that was a very high price. I was creating a price structure that was very attractive to me. I just thought, gee, I wouldn't do this unless I got a 16% return. So six times cash flow made perfect sense. And that's the way I thought about it. That's the way I thought about how. That's the way I thought about it. How do I raise money in the same manner?

Starting point is 00:50:25 What was attractive enough to get somebody to entrust their money to me? When did you start to appreciate the operational side of risk? So in those early small deals, like your first deal in college where you're basically buying homes on a block and renting them back to students. I assume you're the one rolling up your sleeves. You're the one doing the heavy lifting. At some point, as you start to scale this enterprise, you have to now trust other people to help you operate this business. How did you make that transition and how did you manage that risk? Again, I think you're giving me way too much credit. I just don't think I thought about it

Starting point is 00:51:03 that way. I mean, I thought about the fact that somebody had to cut the lawn and I knew that if I grew the size of the business, it wouldn't be me who had to cut the lawn. And not being the one cutting the lawn or cleaning the hallways or whatever was certainly as much of an objective as making money. So did you ever go into deals where you were the developer now and you were going to take that sort of construction risk as well? I did that in the late 60s when I built my first apartment project in Lexington, Kentucky. And when I also built the project that ultimately led to my relationship with the Pritzkers, which was this project in Lake Tahoe. In both cases, they were development

Starting point is 00:51:46 projects and they were from the ground up. And in both cases, I was very disappointed at how difficult it was. And I kept looking and saying, this doesn't make any sense. You're taking all this risk. You're starting to build something when you don't know what the market's going to be like when you finish it. Either you're putting it up for rent or you're putting up for sale. Depends on what the conditions are when you finish. You're subject to variances in costs. I mean, there's no greater lesson of inflation than designing a project and finding out that it costs 20% more than you thought it was going to cost because the costs have gone up in the meantime. So all the variables and the weather and all the things that happen and contractors making

Starting point is 00:52:32 mistakes. And when they made a mistake, there was nobody else to blame it on. And the fact that they made a mistake was too bad. But I was the guy who had to live with that mistake and live through it. So I kept looking at all the variables and saying, I don't understand, why would anybody be a builder when you're taking on all these variables? And the best thing that happens is at the end, you produce the same thing that you got when you bought an existing stream of cash flow. You mentioned Jay Pritzker a moment ago. How did you meet him? I had a friend of mine who was a national broker of real estate. And he and I were

Starting point is 00:53:10 friends. And he called me one morning and he said, I was in Atlanta yesterday with Jay. And I said, Jay who? And he said, Jay Pritzker. And I said, oh yeah, I heard of them. They're very wealthy people in Chicago. He said, Jay is really extraordinary. And Jay is looking for somebody to come work for him who is under 30, a lawyer, and a successful real estate entrepreneur. And I said to this guy, I said, well, if somebody actually met those criteria, why would they want to work for Jay or frankly work for anybody else? And he says, you're being too glib. This is an extraordinary guy. You really need to meet him. And so I said, okay. So he called Jay. And the next morning I went over to Jay's office at nine

Starting point is 00:53:58 o'clock. We just hit it off. And I sat at his desk from nine o'clock until 4.30. And meanwhile, he took calls and he made deals and I listened and we talked about everything back and forth. And when we got to lunch, he sat me down and he said, this is an incredible opportunity for you, Sam. You can come work for me and do real estate deals and you get to keep 5% of everything you do. And I looked at him and I said, gee, that sounds like a Pritzker deal. And he didn't laugh. But I said, you just need to understand that if I have all of the characteristics that you really want, then you shouldn't be able to hire me. And ultimately, up at 4.30 that afternoon, I said to him, you know, I said, rather than spend all this time where you keep trying to convince me I should come to work for you, why don't we

Starting point is 00:54:50 just do a deal together? And so we did a deal together. And that was the first of maybe 10 or 15 deals that we did over the years in various different places and different kinds of structures that led me to spend a lot of time with him and find him to be one of the most intriguing individuals and frankly, the smartest risk guy I ever met. What did you learn from him about risk? Boy, I'm not sure I know where to start, but I think it ends with the fact that you had to be realistic. You had to be able to look at it and say, what could go wrong? You know, if I learned anything from him, I learned that everything, if it went too well, you could survive. The only time you couldn't survive is if it didn't go so well.

Starting point is 00:55:36 So focusing on the upside was interesting, but not productive. Focusing on the downside was what risk was all about. And to the extent that you could quantify the downside, to the extent that you understood what the risk was you were taking, your chances of survival were much better. I think the key ingredient of that is focusing on what is the risk you're taking. I think a lot of people get in a lot of trouble because they do a transaction and they don't understand what the risk they're assuming is when they do the transaction. And what he taught me more than anything else was look at the deal and figure out where is the vulnerability? Where is the assumption you've made that has to be right

Starting point is 00:56:26 in order for the deal to work? And we were working on a deal in 1969. And it was very complex. And I put together a very complex presentation and sat down with him and took me 25 minutes to explain how we were going to do this and do that and do this and do that. And at the end, he looked at me and he said, well, step seven is the only step that's really relevant. That's where the risk is. If you can satisfy yourself that step seven, in this case, it was a multi-use complex. And the risk really was, could you release the office space? If you could lease the office space, everything else worked. So all the other things that I did to mitigate this, to mitigate, they're all irrelevant. Only real issue was, could you or could you not rent the

Starting point is 00:57:16 office space? If you could, the deal was going to work. If you couldn't, all the other stuff didn't matter. And the ability to zero in on what it is that represents the't stand front and center for you? If you're someone like me, who's thinking about where to invest 401k dollars, do you still think about it through that lens? I don't know how you can think about it any other way. I mean, if you're investing 401k dollars, you're basically trying to provide for your retirement or for your future. So then the question becomes, OK, what stands between you and achieving the objective? And if you can understand what it is, then you can quantify the risk. Can I rent the office space? If I can rent the office space, if I can bet on Raleigh, North Carolina being a growth area because of the research triangle, that's the assumption.

Starting point is 00:58:28 That's what makes you decide to invest in Raleigh or somewhere else. There's always some epiphany point that is what motivates you to make the decision. And that's the ultimate judgment you make. This is why I'm doing this. Why is a critical ingredient, and why usually connects to the word risk. Where did you meet Bob? Bob and I pledged the same fraternity at the University of Michigan in 1959. We were both part of a 21-guy pledge class. I didn't know him very well. We then both worked on a campus-wide thing called Soft Show, and we got to know each other a little better,

Starting point is 00:59:15 but basically didn't really know each other at all until we were friends, and like all of my fraternity brothers, but I wasn't really a big fraternity guy. And then when I was a senior and I had started this real estate business, I was in the house one night for dinner and he said, you know, I heard you were renting apartments and kind of running a little student housing project. And I said, yeah. And he said, that's really intriguing. If you ever need anybody else to join you, you should call me. And literally a couple months later, we got our third building. So there were two of us together, and we now needed a third guy. So we talked about it, and we offered Bob the opportunity to join us, and he did.

Starting point is 00:59:59 And eventually, Bob was an engineer and very, very organized character. So he, in effect, started turning what was literally hardly a business. It was two guys trying to get a free apartment and helped us turn it into a business. And then when I graduated from law school, I was confronted with this incredible decision of what was I going to do. At that point, I think I made a quarter of a million dollars my senior year in law school. It's just an enormous amount of money and I going to do. At that point, I think I made a quarter of a million dollars my senior year in law school. It's just an enormous amount of money. And I was a big deal in a small

Starting point is 01:00:30 pond. And the question was, should I stay in Ann Arbor? Obviously, it had done very well there. And I knew everybody. And I went back and forth about it. And I finally said, you know, I have to find out how good I can be. I have to find out what I can do. How far can I push and test my limits? And so I decided that I was going to sell everything in Ann Arbor and move to Chicago and see if I could build a career. Eventually, it came time to figure out who I was going to sell the business to.

Starting point is 01:01:03 And Bob became the obvious person because he was going to sell the business to. And Bob became the obvious person because he was going to stay there. I basically sold him the business. And the last thing I said to him was, I said, when you get tired of screwing around and you want to come play with the big boys, call me. We laughed and I laughed and then I moved to Chicago. And we continued kind of a very touch-based relationship, but not much. And then about three years later, he called me and he said, Sam, do you remember the last thing you said to me? And I said, yes. And he says, well, I'm ready. And I said, without hesitation, I said, come on. And so he moved to Chicago. And I was very sensitive to the fact that I didn't want him, if he was going to be my partner, I didn't want him to ever work for me.

Starting point is 01:01:54 And so I said, instead of paying you a salary, I'll give you an opportunity to own a piece of the deal. And as time goes on, we'll increase that to the point where we eventually become partners, 50-50 partners. And literally, that's what happened. We started out at 85-15, and then we were 70-30, and then we were 60-40, and then we were 50-50. And it all became an example of transference of risk, because he, in effect, began taking on the risks that I was taking. And we built the business together. I remember hearing somebody once talk about great partnerships. I wish I could remember who said this. And the gist of what they said was excellent

Starting point is 01:02:37 partnerships are when you have, they just used the example of two people. Obviously, partnerships can be more than two people. But they said when you have two people who have complementary skill sets but shared values, did that describe you and Bob? Yeah, I've never heard that phrase, but I think that's exactly right. In other words, our skill sets were very different. I mean, he was really an engineer. I mean, he literally, if the books didn't balance, the numbers didn't try to, he would just stop until they tried out. And I would believe, well, they're close enough, you know, and next. And I would be willing to go talk to anybody and chase down anything.

Starting point is 01:03:15 And he was a homebody. But we had a unique relationship and we could finish each other's sentences. We understood each other. And later on, I kind of understood also that a very important part of our partnership was that we didn't have much of a social relationship. So we didn't have the classic partner of the wife who says, how come they got this and we got that? We basically had independent social lives. We both had wives, we both had children, but we focused our time together on our enterprise. And once a year, we had dinner, the four of us, and we had a wonderful time, but we never really tried to

Starting point is 01:04:00 connect the personal day-to-day relationship with a personal relationship to building a business. So we spent 99% of our time focusing on building our business relationship and very little time. And we ended up with completely unrelated social relationships. Were you one of the first people that Bob told when he was sick? Yes, I was. But to be honest with you, I didn't understand it. Do you remember what he said to you? Yeah. I mean, he'd come down with a relatively aggressive form of cancer that he was going to get chemotherapy. And I just assumed that he would suffer a little bit and he'd be fine and we'd go on. And as this was in September of 87 that he told me that. We went on and he had surgery and he had various issues and suffered a lot, but then came back and I just never assumed that anything was other than just going to be painful process, but there was never

Starting point is 01:05:05 a terminal end to it. And then in February of 1990, he came down to the office on a Saturday and he hadn't been to the office for a month. And he said, I came down today because I wanted to talk to you. And I said, okay. He says, I want you to know that I'm going to die. And I looked at him and said, you're going to die? That wasn't on the list of options that I thought was possible. He said, no, no. He said, you don't understand. I've been trying to tell you for a couple of years now that this is very serious and very rampant and that not too many people survive this. And he says, it was obvious to me that you just didn't accept that as a possibility. And you needed to know that we're at the end here now, and I've got to prepare for it.

Starting point is 01:05:56 I'll never forget that morning as long as I live, because it was so shocking to me. Because I never even thought that dying was an option, that there could be a terminal event here. I mean, I got a cold, he got sick, and I didn't really connect it. But it was from that point forward that we started to prepare, and he eventually died in June of 1990. Did his loss change anything in you with respect to your horizon, your risk, your desire to do the work, or were you able to compartmentalize that and sort of move forward?

Starting point is 01:06:35 I mean, how did you think about losing a partner who was your equal at that point? I think that as I think back on it, I think that all I could think about was our legacy. And I think that I was more motivated rather than less motivated. And then I wanted to do more because as far as I was concerned, everything that I did represented me and represented him. And later on, when I endowed the real estate center at Wharton, I endowed it under Samuel Zell Robert Lurie. And later on, when I endowed the real estate center at Wharton, I endowed it under Samuel Zell, Robert Lurie. And when we did the entrepreneurial center in Michigan, I did it under Samuel Zell and Robert Lurie because everything I thought I was doing, I always thought I was doing for us. And that I thought what I did and how I did it reflected as much who I was as I wanted the world to remember who he was.

Starting point is 01:07:28 His wife has really carried on quite a legacy. I mean, I actually heard of Bob even before I'd heard of you many, many years ago through his wife's legacy of their philanthropy. Yes. Well, first of all, the two of them, before Bob died, spent a lot of time talking about philanthropy. And they both decided, it's very chic today to talk about the Giving Pledge. But this was 1990. Nobody heard of the Giving Pledge. But these two people said, you know, we have a fortune that we've made, and we have to give it away. And we want to give it all away. And we don't want to burden our children with any significant inheritance or the burdens that come with it. And so, in effect, before he died, they kind of had a pact as to what they were going to do. And

Starting point is 01:08:17 she happened to be a nurse. So particularly focused on medical and eventually the Lurie Hospital and a lot of other things that she did that were all involved in medical and created a wonderful legacy for him. I'll have you explain to folks. But what I think is most interesting is the role that you've played personally through your firm in actually creating something that we now really take for granted. So maybe spend a second explaining what a REIT is, and then let's kind of hear about basically the creation of what's now a more than trillion dollar asset class. It all began in 1958 when President Eisenhower signed something called the Cigar Bill. And it was some kind of legislation that had to do with cigars, and I don't know what it was. But somebody had added a provision that created the, quote, real estate investment trust. And the idea was that they wanted to create a vehicle that effectively created an opportunity for small investors to own pieces of large real estate projects. And the REIT concept basically said, whereas a corporation

Starting point is 01:09:48 is subject to double taxation, because REITs or real estate was illiquid, they eliminated one of those two steps so that, in effect, the REIT law allowed the creation of a vehicle that didn't pay corporate tax, but only pay tax on the distribution. And the requirement was that in order to qualify for a REIT, you had to distribute most of the income. So that was created in 1958. And they were, I don't know how many there were, but there were probably 10 or 15 that were created over the next, give or take, 25 years. The industry never grew very much. And by the time 1991 came around,

Starting point is 01:10:34 the entire industry was only $7 billion. And the reason was that the private real estate market was so much more attractive that the REIT world up until that point only attracted people that came from insurance companies or non-entrepreneurial scenarios. And effectively, it was just kind of a byproduct of the real estate industry, but all the action was on the private side. In other words, people weren't buying pieces of REITs. People were actually doing private investments in real estate directly. Yeah, I mean, that's what I did. In other words, we built a major real estate company. We had huge office apartments, retail. But ordinary people like me could not have participated in that type of deal.

Starting point is 01:11:21 Very difficult. So the idea was that you'd create these REITs. And then the classic description was the little old lady from Pasadena who wanted to own a piece of a New York office building. But effectively, because it was so unattractive compared to the private real estate side, it attracted very, very few significant players. It attracted a very limited amount of capital. And it was kind of a backwater of the real estate business. And then in 1989, we ended up with a very serious oversupply of real estate. And that led to a couple of insurance companies went broke. The savings and loan industry went broke. And little by little, all of the sources of capital that had funded the private side disappeared. So people like me were sitting there saying, you know, where is the capital going to come

Starting point is 01:12:16 from for the real estate industry in the future? Somewhere along the line, the thought process became, well, it's going to be real estate investment trusts. And in effect, we're going to have tos, I became very involved in the processing because I recognized that this was the solution. And that ultimately, this, if done right, would ultimately fulfill the ultimate dream, which was, quote, unquote, liquid real estate. Because ultimately, real estate was illiquid. And that was a big problem. So if you could create liquid real estate, then the scope of what was available was dramatically more available than ever before. And in 1993, in October, the National Association of Real Estate Investment Trusts, which was really another backwater organization whose sole objective was to protect

Starting point is 01:13:27 the law as written in 1958, with no understanding of the bigger scale questions and liquid real estate and what this was all about. In 1992, at the National Association of Real Estate Investors conference, I think they had 20 people. Between 1992 and 1993, as more and more people became more and more knowledgeable, when we had our conference in October of 1993 in New Orleans, we had 1,500 people. They'd never seen that many people involved in anything to do with real estate. And the National Association of Real Estate Investment Trust asked me to give the keynote speech. I remember working on the bullet points for the speech as I was flying into New Orleans. And I basically got up there and I said to them, I said, guys, I said, we have a horrible track record as a real estate industry dealing with the public.

Starting point is 01:14:27 Because up until then, the only reason that there was any kind of a public real estate trust or real estate anything was because there were no other options. In other words, so if you want to dump some properties, you created a real estate investment trust and you took the worst of your properties and sold it to the public. And this public were the fish, you know, the old poker story of if you're sitting there and you don't know who the fish at the poker table is, it's you. Well, that's how they did it. And it was not driven on what were the basics of real estate or cash flow.

Starting point is 01:15:00 It was basically driven on commissions. So it was very short-sighted. Because all the action was on the private side. And I basically said, I remember in that speech, I said, I was driving around Houston in 1984 and I saw a bumper sticker. And the bumper sticker said, please God, give us one more oil boom. I promise we won't screw it up this time. That's where the real estate industry was in 1993. And we had an extraordinary opportunity to take this and make it into something really significant. But we had to be, in effect, custodians of the public's trust as opposed to them that took

Starting point is 01:15:39 advantage of the public's trust. Now, speaking of, you started this story by talking about the savings and loan crisis in the early 90s. You wrote a letter in the late 80s, and I don't think you necessarily predicted the SNL crisis, but you certainly foreshadowed the circumstances that led to it. Yeah, I wrote an article for NYU's Real Estate Center. This is what, 88? This is 88. I sat around trying to figure out the title for the article. And I ended up coming to the conclusion that the right title for the article was from Cassandra with Love. Now, Cassandra was this lady in Troy who was cursed by the gods by making true predictions that nobody would believe. And I then sat down and wrote out an article that basically predicted what was going to happen to the real estate industry and what the future was. True to form

Starting point is 01:16:32 of Cassandra, nobody believed me. Everybody said, oh, see, I'm the pessimist again. He's trying to discourage other people so he can have more of the market. I mean, just all kinds of non-recognition or non-willingness to accept what to me was simple logic. But it reflected what has been a kind of a hallmark of my career, and that is my ability to sit down and think through where is tomorrow and how can I identify where tomorrow is going and how can I position myself to take advantage of that? And that article led me to lead the whole conversion of the real estate industry to the real estate investment trust industry and create liquidity. In that speech in October of 1993, I predicted that we would be $250 billion in 10 years and well on our way to a trillion.

Starting point is 01:17:26 And everybody thought I was truly insane. What is that number today? Just shy of a trillion dollars. What is it that you saw in 88 that you knew was going to create a real problem in the next couple of years? Because again, it's easy, I think, now to say, by the way, I'm going to give you another question I'm going to ask you in a moment just so I don't forget it as much as you. I want to talk about the differences between 91 and 2008, because you,

Starting point is 01:17:54 in many ways, saw both of these coming, though they were very different types of crises. So I want to come back to that. But it's easy to look back at 2008 and say, well, of course, there was going to be a credit crunch because of X, Y, and Z. And it's easy to look back at 2008 and say, well, of course there was going to be a credit crunch because of X, Y, and Z. And it's easy to look back at 91 and draw the same conclusions. It's not that easy to say it before it happens. And it's hard to go back and sort of remember what you saw at the time without the knowledge of hindsight. Yeah. I guess all I can remember about that period was that this was the 80s when the Japanese invaded the U.S. market. The Japanese came here and made the ultimate classic mistakes that all kinds of investors have made coming to the United States. And that is, well, what works in my home market obviously works somewhere else in a different market. The Japanese flooded the market with capital.

Starting point is 01:18:45 Occupancy revenues across the country in every form of real estate were down. Supply was way out of whack. And it wasn't very hard to predict that this was the end of the world in terms of real estate. And I remember vividly when I started raising money for the first real estate opportunity fund in 1989. I was confronted with the challenge where I walked in and sat down with an insurance company or a pension fund, and I said, the end of the world is coming. Here's the oversupply, here's the this, here's the that. And they looked at me and said, wait, what are you talking about? We just heard from our MAI, our appraiser, that our portfolio has gone up in value. I said, that's BS. That's not ever

Starting point is 01:19:26 happened. Look at the numbers. Look at what the numbers are telling you and look at where tomorrow's numbers are. I remember giving a speech at that time and talking about the fact that the missing element was we didn't have enough tenants for all the occupancy that we were creating. So you were raising a fund at that time for distressed assets, basically. You knew that the shoe's going to fall. I want to have lots of dry powder for when something happens. But nobody had ever raised a fund before, not for a distressed property. So you're talking about an asset class that people can't fathom at that point. In 1989, 80% of the institutions that I pitched to didn't have

Starting point is 01:20:06 real estate as an asset class. Let me make sure I understand what you're saying. You're saying in 30 years ago, 30 years ago, 80% of pensions and endowments didn't have real estate as an asset class. That's correct. They own stocks and they own bonds. And that was it. And there were a couple of really far out investors who had some real estate. But there was a very famous study by Ibbotson, I-B-B-O-T-S-E-N, that in 1992 reached the startling conclusion that real estate was a separate asset class. But prior to that, so here's this guy coming in and worse than that, he didn't even wear a suit and tie. And he's pitching us on the fact that the end of the world is coming and get ready and be prepared and be part of a fund. And that

Starting point is 01:20:56 first fund was unbelievably difficult to raise. And then the rest of them were very simple. So what was different in 08? Because I think for many people listening to this, I don't remember the savings and loan crisis because I just wasn't really old enough. But I remember learning about it when I became involved in credit risk more than a decade later or about a decade later. And so it became a historical lesson. And it had some pieces that were similar to 08, but some pieces that were different. You lived through both of these. Therefore, you're in a much better place,

Starting point is 01:21:29 I think, to explain where they were similar and where they were different and why the second one ultimately was much bigger. Well, but that's not true. Sorry, I should say why it had less containment. Well, the 208 crisis was the first recession since World War II where real estate was not in oversupply at the beginning. That's really not. The truth of the matter is the oversupply was in single family houses, but that's a different class than commercial real estate. But commercial real estate, although it wasn't great in 2007,

Starting point is 01:22:05 although I sold equity office in 2007, but by the time 2008 came, it was softening, but it wasn't in oversupply. Every other recession, 73, 81, 89, all of them were real estate recessions triggered by oversupply. So that made 208 very different than all the rest of them. It also meant that this also occurred at a time when interest rates were going down. So whereas in the past, when there were oversupplies, there was an enormous incentive on the part of the lenders to get rid of it at any cost. In 2008, the cost of carry was going down. Therefore, the motivation to get rid of it was

Starting point is 01:22:54 much less and the lenders were willing to take less hits. Therefore, the opportunities as a distressed buyer in 08 and 09 were nowhere near as attractive as they had been in the other cycles. Yeah. I actually remember you writing something on that. And that was a big aha moment for me because I didn't have the historical context you laid out, but I'd saw 08 up close and remember thinking, that's a great point. If you have a declining interest rate environment heading into a crash, it's a totally different animal. But remember, all of the previous crashes were precipitated by rising interest rates. So 73, I mean, interest rates went as high and 73 is 12%, which was just unbelievable at the time. So the cost to carry to a lender in terms of

Starting point is 01:23:47 taking back a property was very high. So they bit the bullet. We also, up until 1990, the real estate business had a very different accounting treatment. If in 1975, and from 73 to 75 or 77, I probably bought more real estate than anybody in the United States. All of it was bought a dollar down in a hope certificate because I'd go to the insurance company. And at that time, the definition of taking a hit was a scenario that was quote unquote, not recoverable within five years. So if you could make a case that it was recoverable within five years, you didn't have to take a write-off. By the time we got to 1990, the game had changed. And you, in effect, had to take a write-off based on the discounted cash flow. And so, in effect, coming up with a deal for a dollar down and a hope

Starting point is 01:24:44 certificate and giving them a long dated note, you didn't have to mark the note to market, created a very different environment. So in 1973, the name of the game was make the transaction happen. By 1990, the name of the game was you had to be able to discount it out. And so therefore in 1973, I didn't need a lot of cash. I raised the fund because I realized the only way I was going to be able to take advantage of this enormous market opportunity was by basically paying cash and buying stuff at 20 and 30 and 40 cents on the dollar. Is it safe to say, Sam, that commercial real estate occupancy or glut or supply demand,

Starting point is 01:25:25 however you want to think about it, is kind of a canary in the coal mine for the US economy? Historically, that has been the case, mostly because that oversupply is usually a function of too much capital availability and not enough discipline. So in effect, although it may end up creating oversupplies in real estate, it inevitably creates problems in other forms of finance as well. So in 1989, when we had that massive oversupply of real estate, we also had the beginning of the LBOs. And then the LBOs started, they were very conservatively financed. By the time five or six years had gone by, they were very aggressively financed. Can you explain to people briefly what a leverage buyout is? Sure.

Starting point is 01:26:12 A leverage buyout, in effect, is taking a company and whereas a normal company would have, let's say, 30% leverage, you buy it by, in effect, creating 70% or 75% leverage. And you make a whole series of, quote, immediate improvements that improve the cash flow and, quote, create the opportunity to make a lot of money going forward. Make a lot of money because so much of the value is in debt at that moment in time. Right. And in effect, the equity is very small. So if you make some significant improvements, the impact on a very small amount of equity is pretty gargantuan. Now, as we sit here today and record this, Sam, there's no one listening to this who hasn't been following the story of WeWork, but you were one of the first people to talk about WeWork through the lens of marginal supply. And in many ways,

Starting point is 01:27:08 there are few people that can comment on that type of a business model more than you. What is it about WeWork that years ago had you scratching your head saying, I don't understand this business? Unfortunately, not understanding it was not one of my problems. I think I understood it pretty well. You didn't understand why it could be viewed as so valuable. Well, I mean, my first exposure to the WeWork model, which is basically leasing an office floor for 15 years and then breaking it up and then leasing it to small users at higher rates. The first example of that was a guy named Paul Fijian in the late 50s. In the late 50s and early 60s, no new office building existed without a floor or two leased to Fijian. And then supply became much more prevalent, and he went broke.

Starting point is 01:28:03 And then somebody else did it again, and they went broke. And eventually, even today, the largest co-working company in the world called Regis, they went broke. Why? Because if you're the marginal supplier, when things are good, everybody uses you. And when things start to soften, you're the first one to feel the impact. So the idea that we work with some kind of technology company, I didn't understand that unless maybe they came up with a special way to underwrite beer or something, but it was basically a giant promotional effort. It's just the Enron of real estate. It's funny hearing you describe it in marginal terms, makes so much more sense for someone like me who doesn't have a great knowledge of economics,

Starting point is 01:28:49 but knows enough. When you look at the marginal cost curve of oil, you realize the reason the tar sands get hammered first in 2008. Exactly the same thing. Once the marginal cost became below the cost of crude, you're hosed. Well, just think about it. What was WeWork's competition? It was this plug at Starbucks. In other words, the guy came and he occupied a desk from you, but if things got tough, he went back to Starbucks and plugged his computer into the wall and he was in the co-working space. First of all, that insight to me is, it's a great example of how after the fact it's obvious, but before the fact you think, how was that not more obvious?

Starting point is 01:29:30 But come on, how could it not be obvious? I mean, where did these guys come from? They came from Starbucks. That's just such a great way to think about it. The question that I keep asking people about WeWork was, just tell me the cash flows that WeWork generate, what do they come from? Do they come from profits in other businesses, or do they come from venture capital, which in effect doesn't have the discipline of profitability? And the answer was obvious, and it still is today. And by the way, when it's all

Starting point is 01:30:07 said and done, any company that doesn't have a barrier to entry is vulnerable in any business. Just look at how many competitors WeWork has spawned. Now, most of them have been spawned because WeWork sold this technology concept. But the reality is that they're creating new WeWorks all the time, just calling them different things. There's something else that I know in the tech space we've talked about before, which is governance. And this is something that you've said so many amazing things on governance, everything from at one end of the spectrum, which is you wouldn't buy a business that you couldn't

Starting point is 01:30:41 run. On one level, you sort of have to be able to run a business that you're going to invest in. Yeah. I mean, that's why, although we have been agnostic and we've been in 25 different or 30 or 50 different businesses, but the standard has always been, if I can't run it, then I don't want to own it. And so we don't do rocket engines. We don't do biotech because if the proverbial hit the fan, I could always step in. And there have been numerous examples over the years where I've had to step in and take over and temporarily make something work. But if I can't do that, then that's above my pay grade.

Starting point is 01:31:17 I'm disciplined enough not to get involved in things that I couldn't run if I had to. Another principle of yours is sort of everybody has to have skin in the game. Well, I mean, to me, that's not a principle. That's just basic logic. I mean, if I'm depending on you to perform and you aren't at risk, I'm a fool. So every single thing I've ever done, including when I first started in business. From the first day, everybody who was in a decision-making position in my firms always had a piece of the action. And that piece of the action required an investment. Now, it might be a very small investment, but relative to their net worth, it was meaningful and they had skin in the game.

Starting point is 01:32:03 Speaking of your firm, Sam, you've spoken to several people who have worked for you. And I know people in your circle. It's a little bit unusual in the extent of loyalty that has followed you. You tend to collect people. They don't really go anywhere. Yeah. I don't know whether collect is that. I never thought of it in terms of collection, but I think it's true. But they don't leave, right? They don't leave. We have a long history of, even if you went to my world today, you'd be shocked at how

Starting point is 01:32:32 many people have been there for 20 and 30 years. And obviously, I take great pride in the fact that they have had the confidence level to stay with me all these years, and in many cases, in different roles. I mean, in other words, that's always been part of it. I'm really focused on the individual and his or her capabilities. And if I have trust in somebody and I have confidence in somebody, I'm just as comfortable having them do business A or business B. Because I think in the end, the success or failure is really a function of how good a businessman you are, how good you are making judgments. And that's what separates the men from the boys. So creating this long-term loyalty and connectivity is very important.

Starting point is 01:33:19 How do you do it? I don't know. It just kind of happened to me. But when I look around in my own world, I can't help but say that one of the key things that has separated and distinguished me from other people is that I have always been accessible. In other words, I make a joke of the fact that I've had the same office for 30 some odd years. And only four years ago did I discover there was a door on the office because I'd never closed the door. So that means that I was available to everybody. And by virtue of being able to be accessible to everybody, I'm in effect lowering the overall risk because there's no excuse if Sam's available. In the same manner, I've never had much of a hierarchical structure. Never even thought of it that way. Everybody wears the same thing to the work every day,

Starting point is 01:34:12 and there's no secrets. And one of my favorite words is, the enemy is without. In other words, we did a little drawing of a bunch of wagon trains circled, and the point being that the enemy is on the outside, not inside. Supposedly, Abe Lincoln created a team of rivals. Well, maybe running a government, you need a team of rivals. I don't know. But when you run a business, you don't need a team of rivals. You need a team of partners who are rivals to the outside. And that's always been

Starting point is 01:34:42 a critical part of the way we think and the way we operate. You told a story once about a woman working for you who came to you and said she'd had a change of heart and she wanted to go to divinity school. How did you handle that? Well, I mean, the answer is in the end, nothing is more important than in effect, facilitating people to test their limits, reach their goals. And she sat down with me and said, I'm at a stage in my life where I really need to change how I'm thinking. And although I didn't necessarily envy her or want to go to Divinity School myself, I said, well, if that's what you want to do,

Starting point is 01:35:17 then how can we arrange your work schedule so you can go to Divinity School, get a degree, and still stay relevant in the business world. And that's what we did. What does she do today? Still works for me. And she doesn't do any holy roller stuff. But in effect, that experience is very relevant to what she does and her almoscenary activities

Starting point is 01:35:38 and other things, which is wonderful. We have a mutual friend, which is how we met. And one day I was in his office. This is probably five years ago, and I saw something in his office and I was like, that's an incredible piece of artwork. And he said, oh, it's a Christmas present from Sam Zell. And I would learn later when you and I met that there's more to that story. So tell me a little bit about how you think about these gifts. Well, I think you got to go back to 1976. I've been in business for, give or take, I don't know, eight years.

Starting point is 01:36:10 And I'd started getting chocolates and grapefruits and all kinds of Christmas things, pens, pencils. And I felt motivated and felt that I had to somehow or other respond to all these people sending me this stuff. But the idea of me sending out a calendar with my name on it or a pen or a pencil, it's just crazy. I didn't make it, but that wasn't who I was. And so I decided that what I was going to do was I was going to send out to people some memento of where my head was at that particular year. And so the first year, I sent out just a simple loo-side block with a Samism on it, which was we suffer from knowing the numbers. Every year, I kept coming up with something different that reflected where my head was at or where I thought we were going or what I thought was happening. And then when you

Starting point is 01:37:03 do something for a very long period of time, it tends to get out of hand. And so by 1994, the idea was, well, let's do a music box. And so we did a little automaton with a music box and it happened to be VG's song, but basically talking about where we were and where the real estate industry was. And then we kept going and we did that for another 20 years. How much time goes into preparing that? Well, the answer is a lot. We ended up doing a lot of these very complicated automatons and we ended up getting a group in California that did the models for Star Wars movie to start doing these year-end gifts for me. Probably took about six months. The good news was we produced really exciting

Starting point is 01:37:54 products. The bad news was that I was basically making a prediction where my head was at six months before it was delivered. History turns out that I was pretty good at that. I mean, probably the most significant example of that was December 31st, 1999. I sent out a piece that was basically calling an end to the dot-com boom. And it was basically, the emperor has no clothes. And the song was Paul Simon's 50 Ways make a billion. I basically made fun of the idea that people had just thought that it was just so easy and let's just get it all. The idea for that year's gift had come when somebody said to me, you know, you must really be pissed off. You spent all those years becoming a billionaire and these people became a billionaire overnight.

Starting point is 01:38:41 And I said, when it turns to cash, call me. You're kind of a lifelong student. Earlier, you alluded to the fact that a big part of how you mitigate risk is know as much as is possible about your world. Now, when you were investing in dime bag stores on the side of Ann Arbor blocks, the world was a lot smaller than it is today. So how do you stay abreast of your environment and the environment you invest in today? What do you do to learn? I read and I read and I read and I read. I'm never without something that I'm reading. I read five newspapers a day. I read three magazines a week. I listen. I'm trying to observe. I'm trying to figure out. And when I think about it, I think about the fact that I have

Starting point is 01:39:34 some kind of a unique capability to sift through volumes of information and only remember the parts that are relevant. I mean, I read maybe one and a half books every two weeks, and most of them are escapist novels. And when I read them, it's Grisham, it's Baldacci, it's whatever it is. I'm very involved. I love reading them. And the day after I finished them, I can't remember anything about them. I don't remember who the protagonist was. I don't remember anything. But if there was a description of Berlin, I remember the description of Berlin because that in effect has potential relevance going forward. And so somehow or other, I'm able to get rid of what I'd call the non-relevant information. Create Stories was very entertaining while it happened,

Starting point is 01:40:33 but it's not relevant to tomorrow. And somehow or other, I'm able to hang on to and use that kind of unique information. So one of the stories that's applicable to this is I was on a motorcycle trip in Chile. And last day, it rained like crazy. And we cut the trip short by a day. And we started coming home early. And I realized that we were going to get home at 3 o'clock in the morning. And that didn't make a lot of sense. And so we're trying to figure out, well, geez, could we stop someplace on the way from

Starting point is 01:41:08 Chile to Chicago? And where could we stop? And then I remembered that I had read this protagonist escapist book where the final scene was a shootout on a golf course on an island in the Caribbean. And that this golf course was part of a resort that had an international airport inside the resort. And we ended up coming up in the name of the airport, and we ended up landing there, spending the night, and then coming back to Chicago at four o'clock the next afternoon. But that was really typical. Somehow or other, the only thing about the story that I could remember was this unique scenario of an international airport inside of a resort. I don't remember anything else about the book. I don't remember anything other than the shootout

Starting point is 01:41:57 at the end. But the only thing that was relevant in the book to me in the future was the airport and the resort. Everything else was superfluous. But it's that kind of segmentation and absorption that I think contributes to the decision-making that I'm constantly making. I'm constantly adding and increasing my knowledge of everything in every direction I can. I mean, a number of years ago, I went to Ulaanbaatar. Why would I go to Ulaanbaatar? Well, Ulaanbaatar happens to be the capital of Mongolia. And I had read someplace that they had opened a Gucci store

Starting point is 01:42:36 and another high-end retail store in Ulaanbaatar. And I said, why would they do that? And it turned out that the country was in a giant resource boom. And so I said, we got to go look at it and see what's there. That's kind of the way I attack and look at all kinds of information. You can't be an entrepreneur unless you're really curious. You've got to see the problems. You got to see the solutions.

Starting point is 01:43:03 And you can't see them from afar. You got to see the problems. You got to see the solutions. And you can't see them from afar. You got to see them up front. That's why I end up traveling 1,000 hours a year on my plane. The typical CEO of a Fortune 100 company travels 250 hours a year. But I got to see everything. And when I'm making risk decisions and I'm making decisions on partners, I want to see them in their home territory. Almost anybody will come see me if I invite them, but that doesn't do me anything.

Starting point is 01:43:31 It's also particularly relevant that if you go see them, you can decide when to leave. You mentioned obviously travel. You have been to some crazy places. You've been to places that most people don't think of as vacation destinies, like Iraq and Syria. Yes. I don't take vacations. As a matter of fact, that word is kind of foreign to me. I've never been one to sit on a beach. I don't know how to do that. I just want to see stuff. And one of the great stories that my wife and I talk about is that we went to Syria right before Syria came apart. And we went to Damascus and we went up into the various parts of Syria. And we had one day that we just didn't have enough time. And so we said, well, we'll go to Aleppo next time. And in between, of course, Aleppo was destroyed. So that only motivates me

Starting point is 01:44:21 more to constantly see stuff. And one of my great stories was I saw this video of the biggest copper mine in the world in Urangiawa. It was run by a company called Freeport Macmoran out of New Orleans. And I ended up at a conference sitting next to the CEO. And I said, I just read about this incredible mine and I want to go see it. And he said, just tell me and I'll set it up for you. So we flew into the jungle where there was an airport literally built into the jungle just to serve

Starting point is 01:44:50 the mine. And we went up to the mine and saw stuff that I'll never forget. So it's curiosity. It can't be an entrepreneur. You can't be a risk taker unless you're also just ape about knowledge. And you just got to keep absorbing and separating out that which is relevant and that which isn't. It's very easy to get overcome by too much information and therefore you can't make decisions. So you've got to be able to sort it out. I mean, you alluded to that earlier when you talked about your very first Christmas gift, which had a quote about, what was the exact quote? Something about- We suffer from knowing the numbers.

Starting point is 01:45:28 Yeah. How do you draw that line? I'm a person, Sam, who will always err on the side of analysis paralysis. Maybe it's because I was an engineer. I don't know. And obviously knowing none of the numbers is counterproductive. How have you navigated that balance? Or maybe

Starting point is 01:45:45 asked another way, how would you teach somebody or help somebody find their own way? Well, the origins of that sentence, we suffer from knowing the numbers, really reflects the fact that there have been numerous times in my career when everybody else was doing stuff. And I wanted to do it too, except I knew too much. It was too knowledgeable. And so if I didn't know as much, then I could make the same mistakes they were. But by virtue of knowing the numbers, it became the disciplinary factor that kept me from making a mistake and becoming part of conventional wisdom instead of an independent thinker. Ah, so you actually are praising the knowledge there and

Starting point is 01:46:31 not criticizing it. I'm not criticizing it at all. I'm saying that it's a burden. I mean, it'd be so much easier if I didn't know so much. Then I could just say, hey, everybody's buying the FANG stocks, jump on the bandwagon. But that's just not the way I think. And I've spent my whole life trying to separate what other people think is cool and what I know is something different. So you're in your 70s, if I'm doing my math right, and you're not even close. I mean, you'll never retire. I've never asked you this question in other contexts, but I know the answer. Retire. Exactly. What does retire mean to you? Retire would mean stopping something that is-

Starting point is 01:47:10 Retire from what? Yeah, exactly. I mean, I haven't worked since the fourth day that I was in that law firm. Or as my dad used to tell me, make your vocation your vacation. You'll never work a day in your life. And that's exactly what I've done. I mean, I've spent my whole life. I've loved everything I've done. I've loved getting up in the morning. I never was found myself getting up in the morning and saying, oh my God, I got to go do this again. And I've tried very hard to focus my life on never doing anything I don't want to do and never being any place I don't want to be. With all the lessons that stand behind you, lots of people think the US economy has been too frothy for too long. And lots of people, myself included, are wondering, oh my gosh,

Starting point is 01:47:56 should I be sitting in all of these equities at this moment? Should my 401k be distributed this way versus that way? I certainly won't ask you those types of granular questions, but on a more macro level, how bullish are you on the US economy at this point in time? And I guess just for context, we're having this discussion in October of 2019. So what's your view? You've been through every cycle and you also have the luxury of seeing cycles both in and out of this country because of the nature of your work. What do you think about the world we live in today? Well, when all is said and done, you have to think from the perspective of what I call pure logic. For 25 years, and people ask me about interest rates, for 25 years, the United States, the risk-free rate of return was 5.6%. If the risk-free rate today was 5.6%,

Starting point is 01:48:49 the country would be broke, as would the rest of the world. So you start with the assumption that the world we live in creates a set of limitations. I think one of those limitations today is that nobody can afford for interest rates to go up. So therefore, I think that with the amount of debt being created, that's even more the case today. So I think that, number one, I don't think we're in a bullish environment. Despite the fact that stock market today is at an all-time high, I don't think it's the same kind of an all-time high as it has been in other, quote, frothy periods. I think we've pretty much come to the conclusion that growth is limited. And I think growth is limited, but I think growth is going to continue to be positive. I'm very sensitive to the question

Starting point is 01:49:52 which I get all the time about what inning are we in. But I also think that people aren't focused on what I think is even more important question, when did the game start? So in the stock market, it was January or February of 2009. But if you were in the real estate business, the real estate business was really terrible in January of 10 and January of 11 and January of 12 and only started beginning to get better in 13 and 14. So what inning are we in? When did it start? And I think the same thing is true of a lot of other things. So I guess what I would tell you is I think that the environment is benign, not aggressive, not pessimistic. I think that our whole system is based on or built on growth. And we are in a period of substandard growth. And substandard

Starting point is 01:50:48 growth, I think, is also recessionary, in effect, defers recessions. So I think it's very likely that we will continue to bounce along till the beginning of 21, and maybe even for longer, because in effect, the central banks don't have the tools with which to defend themselves. Therefore, they have to keep the process benign. And as you see, here we are in what's supposed to be the eighth or the ninth inning, and instead of the Fed raising rates, they're lowering rates. Yeah, that's the weird thing, isn't it? It's sort of like having a fire department that's low on water. Well, that's one way to look at it. But I think another way to look at it is it's having a fire department who figures that

Starting point is 01:51:36 the best way to solve, to mitigate the risk is to wet everything down before the fire begins. Yeah, yeah. Slow drip with sprinklers. Yes. Well, I like the way you're thinking about that. And I like your optimism. In terms of the US's position globally, Sam, look, I mean, in the 80s, as you described earlier, everybody thought that Japan was coming to eat the lunch of the United States.

Starting point is 01:52:06 Today, obviously, that sentiment has been replaced by China. Do you see the relationship between the US and China as much more complicated and much more interwoven? Or do you see them as independent economic behemoths? Well, I guess you got to start by the fact that I think that China has been taking advantage of the United States for 20 years. I think when China was admitted into the WTO, there was an assumption that by virtue of them being admitted into the WTO that they were going to behave differently. The reality is they've behaved as every mercantilist since the beginning of time. And we have not had the, what I'll call, independence or clearness of thought to understand what was going on. And only now are we,

Starting point is 01:52:47 frankly, out of necessity, creating the kind of environment that challenges China and, in effect, says to them, you can't continue to take advantage of us. And if you do, we're going to change the terms of the game. And of course, that's a very political question, which I don't think either of us want to dive into. Do you believe that we are tethered to each other in some way from a sort of supply and demand standpoint? In other words, do you believe that the fate of one country rests somewhat with the other independent of behavior change? Well, I think that there's little doubt that all of the countries of the world are much more connected today than they ever have been. Obviously, the two biggest, by definition, are much more connected. I don't

Starting point is 01:53:32 think that we can ignore China's existence, nor do I think China can ignore our existence. And one way or another, we have to find a middle ground where China can continue to prosper and grow, but not in the mercantilistic portion. I mean, like identifying five industries they're going to pour capital into to take over AI and stuff like that. We can't afford to let that happen. Sam, what advice would you give to someone like me? So like you, I'm first generation. And when I look at my kids, they are growing up in an environment that has more to offer, more opportunity, more privilege, more comfort than the environment I grew up in. I have to imagine the same is true for your kids. How do you think about instilling in our kids the lessons and virtues that first-generation kids had instilled into them without much thought on the part of their parents because they were the

Starting point is 01:54:32 defaults? I guess no matter what you say, I think it comes down to can you inspire your children? Can you encourage your children to excel? My message to my children has always been go for greatness. I never fantasized of anybody, of my children working for me. If it turned out that one of my children had the talents necessary, that'd be great. But what I really communicated to them over and over and over again is find what makes you happy. Find the challenge and then excel at it. Be the best you can at who you are and with the talents that God has given you. That's the message that I've given to my children over and over and over again. Yes, I've been very successful.

Starting point is 01:55:23 And yes, they're going to have less challenge financially than I did. But financial challenge is not the ultimate answer. The ultimate answer is, can you maximize what skills or genes or understandings you have and make a difference? That's what we're on this earth for. And that's what our responsibility is. And I, as a parent, am responsible to inculcate my children with that. And hopefully what I've done financially and otherwise gives them the freedom to truly excel at whatever turns them on. Last question, Sam, outside of your business world, what problem are you most interested in? I know that your wife, who I've had the privilege of meeting, Helen, is very involved philanthropically. As you think about your priorities over the next

Starting point is 01:56:17 20, 30 years. Let us pray. Where do you see the ability to apply your problem solving, your resources to problems that go beyond your day-to-day problems within business, which is you're constantly a problem solver there? Well, I think maybe the best way to describe it to you is that I've been very focused on freedom of speech. I'm very, very concerned about America is truly unique. America is like no other country in the world. I've been the beneficiary of that. And the challenge that I have and the thing that I worry about most is, can we keep America capable of providing unique opportunities for people to test their limits and excel. And freedom of speech is one of the most important things. I think that I've been very concerned about what's going on in the college campuses, what's going on in business, where politically correct is the standard that, in effect, I think challenges the freedom that has made this country great.

Starting point is 01:57:26 And so that's probably the single biggest issue that concerns me more than anything else. Do you think the pendulum is just going through a cycle and that we're just seeing a very extreme end of it with respect to that particular issue? I hope that's the case, but I'm not sure that is the case. And I'm not sure that the perpetuation of standards in universities or in the workplace is not changing our society in a way that ultimately is going to be deleterious to the future and to the opportunity for our children and our grandchildren. Well, Sam, I know that for you to sit down for this long is a big ask. So I'm really grateful for this chance.

Starting point is 01:58:08 I feel like in some ways we barely scratched the surface of all of the stories that are out there and all the Sam-isms. We didn't even get to 20. We may have scratched the surface of five or six of them. But I want to thank you so much for your time today. And I've enjoyed this discussion as much as any I've had with you. Well, it's my pleasure. And it's very fulfilling to think that people will listen to this conversation and will reach their own conclusions and find what parts of it resonate with them.

Starting point is 01:58:36 And if I've created that kind of an opportunity, then the time spent is very, very, very cheap. Thank you, Sam. Hey, guys, this is Tim again. Just a few more things before you take off. Number one, this is Five Bullet Friday. Do you want to get a short email from me? Would you enjoy getting a short email from me every Friday that provides a little morsel of fun for the weekend?

Starting point is 01:59:01 And Five Bullet Friday is a very short email where I share the coolest things I've found or that I've been pond fun for the weekend. And Five Bullet Friday is a very short email where I share the coolest things I've found or that I've been pondering over the week. That could include favorite new albums that I've discovered. It could include gizmos and gadgets and all sorts of weird shit that I've somehow dug up in the world of the esoteric as I do. It could include favorite articles that I've read and that I've shared with my close friends, for instance. And it's very short.

Starting point is 01:59:28 It's just a little tiny bite of goodness before you head off for the weekend. So if you want to receive that, check it out. Just go to 4hourworkweek.com. That's 4hourworkweek.com all spelled out. And just drop in your email and you will get the very next one. And if you sign up, I hope you enjoy it. This episode is brought to you by Brave, the next generation web browser. I love Brave. And if you haven't heard about it, here is the skinny. Brave was built by a team of privacy-focused, performance-oriented pioneers of the web. And I do mean pioneers. Brave was

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The Tim Ferriss Show - #407: Sam Zell — Strategies for High-Stakes Investing and Dealmaking

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The Tim Ferriss Show - #407: Sam Zell — Strategies for High-Stakes Investing and Dealmaking

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.