In an interview to Graham & Doddsville, an investment newsletter from Columbia MBA students, Sam Zell talked about business, investment, philosophies, and Brazil, saying the country “is probably the best single major market in the world.” 

Interview highlights below:

About his college years and entry into the real estate business…

“… during my junior year at Michigan, my friend told me the owners of his apartment building planned to tear down the building to construct a new 15-unit apartment building. I said to my buddy, ―We are students. We understand what students want. Let‘s pitch him an offer to man-age the building and maybe we can get a free apartment out of the deal. We did, and our pitch worked. We took over management of the building, helped to de-sign it and rented out the units. In exchange, the owner gave us two one-bedroom apartments in lieu of a fee. We were so good at it that the building own-ers soon gave us the oppor-tunity to manage another building, and then another. By the time I graduated law school four years later, we managed something like two or three thousand apart-ments.”

Approach to value investment …

“I start by not paying much attention to the market. I think the Street reflects the value of the last share traded, but the true value of the asset may be more or less than what‘s indicated publicly. In the same manner, I don‘t make investments predicated on the assumption that there‘s a greater fool out there who‘s going to buy it from me for more than I paid for it. I look for situations that logically make sense to me.”

No hi-tech… 

“We don’t invest in high tech, simply because we don’t understand it and because it’s valued on if-come-maybe. … I can do much better prognosticating value on something I understand than on companies that are valued by a third party. That’s really key to how I look at things. I’ve never been willing to depend on a third party to value my investments. I have to value them myself and I have to look at my investments as though I’m going to own them permanently.”

No marketing…

“I had an inherent skepticism of marketing because I felt that it wasn’t measurable. My philosophy was to invest in businesses that served externally created demand – businesses where I didn’t have to generate demand.”

About attractive countries for investing…

“We‘ve been very involved in emerging markets, particularly Mexico, Brazil and Colombia. These are enormously powerful growth markets. In the case of Brazil, the country is self-sufficient in fuel, water and food, and has a trained executive class, and is growing at something like 4% a year. I think Brazil is probably the best single major market in the world.”

Example of current investments in Brazil…

“We started BR Malls , which today is the largest shopping center company in the country. Same store sales are 12-14%. Compare that to a top-performing US shopping center company where same store sales are at 1-2%. We also have a homebuilder in Brazil. When you look at the numbers, you discover that Brazil has seven million units of pent-up demand. Just like with dredging, it makes a big difference if you‘re building into a scenario where pre-existing demand exists versus trying to generate demand.”

If the Brazilian government is investor-friendly…

“Any time you go into emerging markets, you are trading the rule of law for growth. Anybody who thinks that they could go into a Brazilian court and be treated like a local is very naïve. The same thing is true of Mexico. You have to start with selecting a good partner who can protect you or who is strong enough to give you a real, credible perspective of any situation.”

It is a fact that Sam Zell puts his money where his mouth is. We have reported in January that Zell was in early talks to buy Grupo Tha, a Brazilian real estate company based in Parana… the deal has been officially sealed a few days ago.

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