Friday, August 14, 2009

Will the Grave Dancer Lose the Tribune? A Lesson for All Real Estate Investors

World class real estate investor Sam Zell has not had an easy time at the Tribune Co. these last few years. As the article reprinted below from the Los Angeles Business website, Zell may be ousted by the company's creditors.

I'm a huge fan of Sam Zell, the notorious "Grave Dancer" that made his career and fortune buying distressed real estate. I have been a shareholder of many of his companies, especially EOP and EQR over the years and he has put some good money in my pocket. I wish he would write his autobiography the way Bill Zeckendorf did. I'd love to get inside this guy's head and learn how he approaches real estate investment.

But a common lesson I have learned over my nearly thirty years in the real estate business is that good real estate investors do not necessarily make good investors in other equities. Yes, there is a great deal of overlap. All equities are essentially the same at the core. But just because you can manage hundreds (or tens of thousands) of rental units does not mean you know how to run a newspaper, a dry cleaner, or a shipbuilding firm.

I've seen dozens and dozens of real estate investors, many of whom I have known personally as friends and business associates, over the years squander their hard earned fortunes on all sorts of business boondoggles from racehorses to hotel development schemes to bakeries. You name it. Real estate made them rich. Other businesses made them poor again.

The advice here is simple. KNOW WHAT YOU KNOW AND STICK TO IT.

I don't know what motivated Sam Zell to buy a newspaper---especially at a time the fundamentals of the industry were collapsing. Maybe he saw a bargain, maybe it was the vanity of running a public mouthpiece, William Randolph Hearst revisited.

I don't know.

But what I do know is that while he may not be losing much money on this deal he sure is paying dearly in lost reputation. And that means a higher cost of capital in the future for his next big deal.

If you are successful in your real estate niche, stay there.

Expand outwards from your niche. Know how to build apartment buildings? Then build more of them. Larger ones. Build them for others to buy. Build them for others to manage for you. Understand the process?

Avoid what corporate analysts call "di-worseification" (not diversification, get it?).

Just because you know how to build single family homes does not mean you know how to build hotels. Maybe you can, maybe you can't, but ego has driven so many successful real estate investors into bankruptcy. Success breeds vanity which gives birth to a feeling of invincibility.

Ask Achilles how that feels.

Robert J. Abalos, Esq.


Report surfaces again that Tribune's Zell could be ousted

Real estate mogul Sam Zell, who privatized Tribune Co., the parent of the Los Angeles Times, could be ousted as part of reorganization plan put forth by creditors, the Chicago Sun-Times reports Friday.

The Sun-Times report says that the creditors plan to stage a takeover of their own and sell off the company's newspapers and broadcast stations as they see fit. The Sun-Times cites sources who are close to the deal.

Zell owes these creditors $8.6 billion, and those creditors are reportedly becoming impatient with him. But the creditors have until Nov. 30 before they can file a plan since Zell was on Monday granted an extension on his own Tribune reorganization.

This isn't the first time this rumor has surfaced. Reports came out in June that stated Zell would lose Tribune to the same group of investors.

That report stated that "the plan centers on a debt-for-equity swap that probably would give the senior lenders a large majority ownership stake in the reorganized company."

Tribune went private in December 2007 through a buyout led by Zell. The deal left the company with nearly $12 billion in debt. Tribune has sold off assets and cut jobs since the close of the deal to help with the debt payments. The company filed for bankruptcy in December 2008.

On Thursday, the Los Angeles Times launched the redesign of its Web site

It's been speculated that the Times is placing more emphasis on its site since it's losing money on its printed version.

The new site design follows closely other Tribune Co. properties such as the Chicago Tribune and The Baltimore Sun.