Sam Zell

Some emerging markets will check all the boxes — strong population growth, growing middle class, verge of investment grade, great leadership, and hunger for capital — and then be missing the one ingredient that enables you to monetize your investment: scale. Without scale, you don’t have liquidity. You have no optionality. In essence, you’re stuck. Africa is a great example. I think many countries, such as Botswana, have potential, but the upper and middle classes are too small for me to get involved. Chile is another example. It has the institutions and leadership, but only 17 million people — no scale.

It also opened up new challenges. When you invest in emerging markets, you’re trading the rule of law for growth. If you think you can count on receiving justice in a foreign courtroom, you should think again. So, the first question is always “Who’s your partner?” By that I mean “Who is going to watch your interests on the ground every day?

Sentimentality about an asset leads to a lack of discipline.

There’s a line from an old movie, Wheeler Dealers: “You don’t go wheeling and dealing for the money, you do it for fun. Money’s just a way of keeping score.” And that’s how I see it. I’ve always been much more drawn to the experience.

chairman of everything and the CEO of nothing.

I said, “You’ve got to be able to look at the deal and know what it hinges on to know whether it works or not. If you realize that the key component works, then you use the numbers to test it. You don’t do the numbers to find out eight hours later whether it was worth starting.” I’m sure his IQ was higher than mine. But that isn’t how we operate. You have to be able to effectively assess the initial picture and see where the greatest risk is most likely to be, or you’ll spend your life doing numbers just to find out if a deal will work. And all that time lost is time you could have been looking at other opportunities.

I started negotiating the deal, which was complex beyond belief. I was creating structures and terms that had never been done before. I went to Jay and took him step-by-step through this incredibly complicated transaction. And damn it if he didn’t just look at me and say, “But, Sam, isn’t the real key to this whole thing just to rent the office space?” And sure enough, that’s what the whole transaction was predicated on. Jay’s level of intellectual rigor really appealed to me. And I immediately latched on to the understanding that I could cut right to the heart of something complex if I broke the problem into pieces. It was a matter of organizing my thinking. A discipline.

In addition to looking at worst-case scenarios, I look at how hard something is to execute. The simpler the goals and the steps to reach them, the more likely I’ll be successful. And if they aren’t simple to begin with, I look at how I can untangle the complexities.

The third acquisition was a big single-family house. I found an architect, a small local general contractor, and we created a design for four separate units. Then I went to the bank and got loans to do the renovation. I was twenty-three, with a BA in political science. I didn’t know anything about financing. But it never crossed my mind that I might be too young to start an investment business or that I couldn’t do it. I didn’t know any better, but was able to sell the banks on my ability to get it done. Our management company took over the property, did the renovation, and rented the units. The asset did very well.

Where there is scarcity, price is no object. This basic tenet of supply and demand would later become a governing principle of my investment philosophy.

This bit of hyperbole revealed a very important fact: At its heart, grave dancing was an opportunity to resurrect those assets deserving of a fresh start. It was a bet on my ability to affect a turnaround. And the low entry price paid for the risk I was taking to do it. Grave dancing involves confidence, optimism, conviction, and no small amount of courage. All the opportunity in the world means nothing if you don’t actually pull the trigger.

So I called Merrill Lynch and said, “I want to create an opportunity fund wherein investors put up cash to become my partners in the purchase of distressed real estate.” No one, including me, had done this kind of fund before, but they thought it was a great idea. They put up 5 percent of the first fund’s target and said they’d raise the balance of the capital. Six months later, we still had no commitments. Not one. So I took over the process and hit the road — from May 10 through June 30, 1989. I found that to raise money, I had to do it personally. I traveled with Merrill forty-two of those fifty-two days and did every single presentation — typically three to four a day in different cities.

A Jewish refugee delegation, including my father, went to the Vilnius Japanese vice consul, Chiune Sugihara, for these transit visas. Sugihara wired Tokyo three times for permission to help the refugees, but was denied each time. The vice consul was a Japanese career diplomat, but he had also been raised in a middle-class samurai family. And part of the code of the samurai is benevolence and mercy, and appreciation and respect for life. Despite the risk to his career and his family, Sugihara ignored his direct orders and decided to do as much as he could. For the next month, he and his wife barely stopped to eat or sleep as they wrote out thousands of transit visas. My family was among the six thousand Jews Sugihara saved — the Sugihara Survivors.

I’ve always valued long-term relationships, but John Hsieh, the former head of Itel’s container leasing business, taught me that you simply cannot succeed in-country without them. Hsieh had extensive international experience and contacts. He took me under his wing, and we traveled the world meeting Itel’s customers and suppliers — from a cocktail party in Rotterdam with British and German customers to a dinner in Hong Kong with a Chinese shipping company. The deep relationships he had with his customers enlightened me. I learned that the extreme degree to which you rely on strong personal relationships is perhaps the single biggest difference between doing business in the emerging markets and the U.S.

I put up virtually no capital, just a limited guarantee that I’d feed the deficit of the loan if necessary to keep it current over a three-year period, which was how long I thought it would take for the market’s supply/demand equilibrium to return. It worked because the lenders’ only alternative was to take back the assets, which meant taking over management — something they did not want to do. They had no structure in place to manage all those buildings. We did. We were ready. There was so much supply and opportunity we branched out from apartments into retail and office buildings. Between 1974 and 1977, we bought roughly $4 billion in assets with $1 down and a hope certificate.