Photo: Sam Zell
On Monday, one of America’s most successful investors and entrepreneurs visited the Kellogg School of Management. Sam Zell is Co-Founder and Chairman of Equity Group Investments, a Chicago-based private equity firm that specializes in distressed assets. He has made his deepest mark on the real estate industry, having created a number of real estate investment trusts (REITs)—including Equity Residential Properties Trust, the nation’s largest.
Zell visited as part of the school’s Brave Leaders speaker series, which culminated in his public interview with Dean Blount. But Zell also spoke with a select group of Kellogg School faculty about topics ranging from real estate to risk to the importance of possessing an entrepreneurial mindset.
So what did our faculty members take away from the discussion? Here are some of the highlights.
Liquidity, Liquidity, Liquidity
“I was most impressed by his view that ‘liquidity is value,’” says Therese McGuire, a professor of management and strategy. Liquidity is, of course, one of the biggest benefits of REITs, which are corporations that own (and usually manage) a large portfolio of properties. While selling individual properties can prove time-consuming and difficult, selling stock in REITs is as quick and painless as selling stock in any other type of corporation. REITs are “genius,” says McGuire, because they “turn very illiquid assets—buildings—into liquid assets.”
But Zell noted that there are too many REITs in the United States—a comment that struck Craig Furfine, a clinical professor of finance, as curious. “This seemed inconsistent with his positive view of publicly traded real estate companies in general and his experience running such companies in the US specifically. Zell explained his comment by saying that many publicly traded US REITs do not actually achieve sufficient scale to where ‘liquidity is value,’” explains Furfine. “Yet he still sees the need for new public REITs in other countries, although only when they become of sufficient scale to achieve the value he attributes to being a large, public company.”
Risk and Opportunity
“Another nugget concerned his insight about scaling and growth, with respect to developing countries,” says Thomas Hubbard, a senior associate dean of strategic initiatives and a professor of management and strategy. “He crystalized it nicely as a trade-off between exploiting large growth potential and going into areas where the rule of law is weaker.” And if you do decide to enter a high-growth, high-risk environment, the most important thing you can do is pick the right partner.
“[Zell] had a very succinct way of describing the opportunity and risk in emerging markets: ‘You are trading growth for the rule of law,’” agrees Ben Jones, an associate professor of management and strategy. “That is close to a one sentence encapsulation of what I teach Kellogg students in MGMT 466 (International Business Strategy in Non-Market Environments) and in our executive programs.”
Teaching Smart Decision-Making
“I enjoyed the back-and-forth with Sam regarding the role of economic intuition in his decision making and why that is challenging to teach business school students,” says Mike Mazzeo, an associate professor of management and strategy.
What it takes to make smart decisions, according to Zell, is an extraordinary amount of common sense—something that isn’t always easy to teach. Sometimes students are too keen to adhere to carefully learned formulas in lieu of sensibly considering a problem anew.
“The discussion made me think more seriously about how we introduce topics—especially strategy—in the classroom,” continues Mazzeo. “Sam obviously has a deep economic intuition that allows him to evaluate opportunities quickly and accurately. For students lacking that innate ability, how can we help them develop it? My inclination is that a focus on critical thinking and lots of application examples are the key.”