Would Sam Zell Buy Los Angeles Commercial Real Estate Today?
I wanted to understand how one of the greatest real estate investors of all time actually made investment decisions and use his thinking models to decide if this is a time to buy, sell or hold.
I wanted to know what he actually did and how he thought so I studied some of Sam Zell’s best decisions on assets that he did very well on, his mistakes that I can learn from and his investing rules to see what they will teach me about investing better today.
Here’s what I found.
Sam Zell became famous for buying real estate after other owners got into trouble.
People called him the “Grave Dancer.”
He actually gave himself that name in a 1976 article. He said he made money by dancing on the skeletons of other people’s mistakes.
It sounds harsh.
But the idea was simple.
He looked for good buildings that had been hurt by bad decisions.
Sometimes the owner paid too much or the owner borrowed too much.
Sometimes the loan came due at the worst possible time when interest rates went up and liquidity went down.
Zell wanted to buy after those mistakes had already pushed the price down. This is how he got his margin of safety and higher yields which paid him while he waited.
His Strategy Was Simple: Buy Cheap.
One of Zell’s best-known Los Angeles deals was in Downtown Los Angeles.
The tower cost more than $300 million to build.
The office market broke down, lenders took control and Zell’s group bought the building for around $90 to $100 million.
Zell said his strategy started and ended with replacement cost.
He liked buying buildings for 30 or 40 cents on the dollar.
The reason was simple. If he bought an existing building far below the cost of building a new one, a future developer would need much higher rents to compete with him.
Zell could charge less and still get a high yield.
Buying below replacement cost is one of the most important decisions for me to make on any future purchase. If I can’t buy below replacement cost, I won’t even look at the asset.
I have to pay a low enough price to have room to survive any Black Swan Event.
It does not matter only whether it is a good building, it has to be a low enough price for everything that could go wrong. Who knew Covid would come, there will be rent freezes and eviction moratoriums.
He Bought the Seller’s Problem
Many of Zell’s best deals happened after lenders took buildings back.
The owners may have too much debt and need higher rents than the market will pay. His thinking is simple: Buy at a lower price, lower the rents, fill the empty space and be patient.
A good building with bad debt can become a great opportunity at the right price.
He Did Not Try to Predict Everything
As I kept reading, I noticed the same pattern.
Zell did not need to know exactly where interest rates were going. This is one thing I have been trying to do for the last 5 years since rates started going up. I keep trying to predict where rates are going and I am going to stop that thinking.
He did not need to call the exact bottom of the market.
He did not need to know how quickly rents would recover.
He wanted to buy at a price that gave him room to be wrong.
The question was:
“Am I paying a low enough price if things go wrong?”
That is a much better way to think about investing now that I am learning this rule. No one knows the future. We can control what we pay, we can control the amount of leverage we use and we can decide whether the possible return is worth the risk. As I read this in many books, ask yourself “What is the upside, what is the downside and are you ok with the downside?” If you are not ok with it, then don’t invest.
There is no need to force a deal just because you want to make a deal. I recently got asked when was the last time you bought anything. I sold in 2019, I built in 2022-2024 and have been improving what I own from 2024-2026. And If I don’t get a low enough price, I am not a buyer.
Cash Gave Him Choices
One fact about Zell that I loved reading about.
At one point, he owned a large amount of real estate but did not have enough cash.
He later summed up the lesson in three words:
“Liquidity equals value.”
In simple terms, cash gives you choices.
When lending stops, owners with too much debt can be forced to sell.
Cash is like Oxygen, when you are out of cash, you can easily be forced to sell and lose the asset.
My take
People often treat cash like money that is not working.
Zell saw it differently.
Cash can help you survive a bad year.
It can keep you from selling at the wrong time.
It can let you buy when someone else has no choice but to sell.
Cash does not always produce the highest return today. It does give you the chance to earn a higher return later though.
He Knew When to Sell
In 2007, Blackstone bought Equity Office for $39 billion. At the time, it was the largest private-equity deal ever completed.
Zell personally received roughly $1 billion.
Blackstone then sold about $27 billion of the buildings soon after the deal closed to reduce its risk.
People often say Zell called the top of the market.
Maybe he did.
But his own explanation was easier to understand. Its absolutely brilliant and I am happy to be learning this today.
He said that if he chose not to sell Equity Office for $39 billion, it was the same as choosing to buy it for $39 billion.
That is a powerful way to think.
My take
This completely changed how I think about selling.
Instead of asking:
“Should I sell?”
Zell’s rule asks:
“If someone handed me all this cash today, would I use it to buy this same building again at my selling price?”
If the answer is no, maybe you should sell.
I do not need to know whether the market has peaked.
I recently went through this same exercise with my own portfolio. I attached a price to each property based on what I thought the market might pay.
Then I asked myself whether I would buy each property today at that price.
I’m still analyzing this as I look for what other options look like. That is a very different way to look at something you already own instead of asking people if the market has bottomed out, if rates are going lower or higher.
Even Sam Zell Made Big Mistakes
Zell was not right every time.
In 2007, he led the purchase of Tribune Company for about $8.2 billion.
The deal used a lot of debt.
Then the newspaper business kept getting worse.
Tribune filed for bankruptcy about a year later.
Zell reportedly lost about $315 million personally.
This may be one of the most useful parts of his story.
He had just completed one of the greatest real estate sales in history.
Then he made one of the worst investments of his career.
My take
A low price is not enough.
You still have to understand what you are buying.
That deal reminded me why I keep doing more research before making a decision. I want to understand the asset, the market and the policies to evaluate the overall risk.
Sam didn’t bet everything on one idea because he believed he had to be right.
One bad deal should not end the game.
What Is Happening in Los Angeles Today?
After studying Zell, I started looking at current Los Angeles deals differently.
I stopped asking whether office was dead, if interest rates are going higher or lower, are the policies going to get worse before they get better.
I am starting to ask whether some buildings have finally become cheap enough. Can I create a model that can get to 15%+ IRR over a 5-10 year period. If I can get reach those numbers and have downside protection by collecting a good yield while I wait, then it starts to look attractive.
A Falling Price Is Not Always Cheap Enough
Union Bank Plaza at 445 South Figueroa Street tells a different story.
KBS paid about $208 million for the building in 2010.
Waterbridge later bought it for about $104 million in 2023.
That looked like a huge discount.
Then Waterbridge sold it for about $80 million in 2024.
This is an important warning.
A building can fall 50% and still not be cheap.
The previous price does not tell you the current value.
The real question is whether today’s price is low enough for the rent, expenses, debt and the yield it pays to wait for growth or recovery.
So Would Sam Zell Buy Los Angeles Commercial Real Estate Today?
I do not know.
And after studying him, I do not think that is the best question.
The better question is:
Would today’s prices be low enough for him?
Los Angeles still has strong areas like West Los Angeles, Beverly Hills, West Hollywood and more.
People still need housing. Everyone is not leaving Los Angeles and moving to Florida and Texas.
Businesses still need certain types of space for industrial, kitchens, distribution centers and more.
Land is hard to replace.
But we also face high borrowing costs, rising insurance, rent rules, Measure ULA and uncertainty about where demand is going.
I do not think Zell would spend much time complaining about those things.
He would put them into the numbers.
Then he would lower the price he was willing to pay.
If the price became low enough, he would buy.
If it did not, he would wait.
The Biggest Lesson I Found
Before I started this research, I didn’t know what his strategy was.
His real skill was understanding why the property was distressed, if the previous owner paid too much, have bad financing on it or possibly mis managed it?
A good building with a broken deal can become a great investment after the price falls.
The Sam Zell Playbook
I think his playbook comes down to eight simple ideas.
1. Buy Below Replacement Cost
Buy cheap enough that you can survive if the recovery takes longer than expected.
2. Buy the Seller’s Problem
Sometimes the building is fine.
The previous owner’s decisions created the opportunity.
3. Give Yourself Room to Be Wrong
You do not have to predict the future if you do not overpay.
4. Cash Creates Opportunity
Liquidity gives you choices when everyone else runs out of them.
5. Think Differently About Selling
If someone offered you today’s value in cash, would you buy the property again?
6. One Mistake Should Never End the Game
Protect yourself so you can invest another day.
7. Always Ask Why the Deal Exists
Sometimes the best opportunity is not fixing a bad building.
It is buying a good building after someone else made a bad decision.
8. Wait for the Price
Do not buy because you like the building.
Do not buy because everyone else is buying.
Do not buy because you think the market has reached the bottom.
Wait until the price makes the risk worth taking.
Sam Zell’s in one sentence, it would be:
Sam Zell waited until great buildings became great deals.
What I’m Looking At Next
Now I want to take the next step.
I want to study Los Angeles properties that recently sold at large losses and find out Why.
I want to compare their price per square foot, replacement cost, current income, debt and possible future uses.
Then I want to answer a more useful question:
Which Los Angeles commercial real estate deals today are finally cheap enough to pass the Sam Zell test?
I am also working on a Sam Zell Deal Calculator.
The calculator will go much deeper than a simple checklist.
For a multifamily property, I may need to review the full rent roll, current rents, market rents, collections, operating expenses, cost per square foot, price per unit, location, building condition and future upside.
A quick review could take 30 to 60 minutes.
A deeper review could take two or three hours.
Then there is the property visit.
The goal is not to produce a fast answer.
The goal is to understand the deal well enough to ask the same simple question Zell seemed to ask throughout his career:
Am I paying a low enough price for everything that could go wrong?
After I finished writing this Arcticle
I received a LinkedIn message from Jay Lybik, who worked for Sam Zell for almost 20 years and sat in many meetings with him.
I asked him what he thought investors today could still learn from Sam.
His answer wasn't about cap rates, spreadsheets or complicated financial models.
He said Sam looked for value, looked for moats, and wasn't afraid to zig when everyone else was zagging.
He also said Sam believed in not getting crazy with debt. No floating-rate loans. No 80% to 85% loan-to-value financing.
Jay said Sam hated meetings.
"He wanted the summary of the summary."
That tells you a lot about how he thought. He wanted the important facts, made a decision, trusted the people he hired and moved on.
I asked him how Sam found all of these incredible deals.
He said the deals came to him. He wasn't chasing opportunities anymore.
The more I think about it, the more I believe Jay's first comment may have been the most important.
He said Sam looked for moats, just like Warren Buffett.
Maybe that's one of the biggest lessons of all.
Sam wasn't just buying discounted real estate.
He was buying assets that were hard to replace, in markets where it was difficult for competitors to build new supply.
That makes me think differently about Los Angeles.
Conclusion:
I'm not trying to become Sam Zell. I'm trying to become a better investor by studying how people like Sam Zell thought. If you're doing the same thing, I hope this research helps.
If you are interested in testing the Sam Zell Calculator together on an OM, send me a email at David@AtlasBrief.LA.
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