Key Investing Lessons From Real Estate's "Grave Dancer"

Be an investing contrarian

Author

Tim Melvin
October 09, 2024

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Samuel Zell, often referred to as the "Grave Dancer" for his ability to revive distressed properties, is one of the most iconic figures in American real estate investing. His contrarian approach and keen eye for undervalued assets have made him a billionaire and a legend in the industry.

Born in 1941 to Polish immigrants who fled to the United States before World War II, Zell grew up in Chicago. He began his real estate career while still a student at the University of Michigan, managing student apartment buildings. This early experience laid the foundation for his future empire.

After graduating from law school in 1966, Zell partnered with his college roommate Robert Lurie to form Equity Group Investments. The firm started small, buying properties in growing Midwestern markets. Zell's strategy was simple yet effective: buy low, improve the properties, and sell high.

Zell's success can be attributed to several key strategies that set him apart in the real estate industry. His contrarian investing approach often led him to invest in markets and properties others avoided, earning him the "Grave Dancer" moniker. This willingness to go against the grain allowed him to find value where others saw only risk.

Perhaps one of Zell's most remarkable skills was his ability to time market cycles. He had an uncanny knack for buying during downturns and selling at market peaks. This timing strategy allowed him to maximize profits and minimize losses throughout his career.

Zell's career is marked by several significant deals that showcased his investment acumen. In the 1970s, he acquired distressed properties during the real estate crash, setting the stage for massive profits in the 1980s as the market recovered. This move solidified his reputation as a savvy investor who could spot opportunity in crisis.

In 1993, Zell formed Equity Residential, which grew to become the largest publicly traded apartment owner in the United States. This venture demonstrated his ability to scale his investment strategies and capitalize on the growing demand for rental housing.

Four years later, in 1997, Zell created Equity Office Properties Trust, which eventually became the largest office REIT in the country. This move showcased his versatility in different real estate sectors and his ability to build large, successful organizations.

Perhaps one of Zell's most notable achievements came in 2007 when he sold Equity Office to Blackstone Group for $39 billion. At the time, this was the largest leveraged buyout in history, cementing Zell's status as a titan of the real estate industry.

Sam Zell's career in real estate spans over five decades, marked by bold moves, contrarian thinking, and an unerring instinct for value. From humble beginnings managing student apartments to building a multi-billion dollar empire, Zell's journey embodies the entrepreneurial spirit of American real estate. His legacy as the "Grave Dancer" who could spot opportunity where others saw only risk will long be remembered in the annals of real estate history.

While Sam Zell operated on a grand scale, many of his strategies and principles can be adapted by individual investors looking to succeed in real estate. One of the key lessons from Zell's career is the importance of embracing contrarian thinking. Like Zell, individual investors should look for opportunities in areas or properties others might overlook. This could mean investing in up-and-coming neighborhoods or considering property types that are temporarily out of favor.

In the Melvin Real Income Report, we’re doing just that.

Our Big Five REITs are contrarian investments in solid companies with the tailwinds to handily beat the market. Buy those, and you won’t be disappointed. But if you want more, and faster, returns, you’ll have to dig deeper into niche REITs that are even better positioned than the Big Five.

That’s exactly what I’ve done for my Premium subscribers in the Total Return Model Portfolio. 15 of the best REITs with world-class business models, healthy financials, and that are hugely undervalued by the market. To gain access right now, upgrade to Premium by clicking here!

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Where We Are Today

Zell's success came from identifying undervalued assets, and individual investors would do well to adopt this focus on value. Thoroughly research properties and markets to find those with potential for appreciation. Look for properties that can be improved to increase their value. This approach ties directly into another of Zell's strategies: improving properties. He often bought distressed properties and enhanced them. On a smaller scale, investors can look for properties that can benefit from renovations or better management to increase their value and rental income.

Timing played a crucial role in Zell's success. While it is difficult to time the market perfectly, staying informed about market cycles is vital. Be prepared to buy when others are selling and consider selling when the market is hot. This strategy requires patience, as real estate is often a long-term investment. Be prepared to hold properties through market cycles to maximize returns.

Lessons learned by studying the investor's career called The Grave Dancer have helped form the cornerstones of the approach I use for the Real Income Report.

What You Can Do About It

We are still trying to determine Hurricane Helen's impact on the commercial real estate markets. While none of our Big Five REITs have reported excessive exposure damage, the overall losses across the Southeast will be enormous when it is all totaled up.

It is also likely to have an impact on insurance costs in the hardest-hit parts of the country. Smaller operators in the region could also have a hard time coping with the costs of recovery and lost income from damaged buildings.

During past storm recoveries, we have seen increased M&A activity in storm-damaged areas.

On a positive note, we did see a slight increase in reported commercial real estate loan volume in the third quarter. Even as fears about the impact of the Hurricane and the port strike cast some clouds over the markets, buyers and dealmakers are returning.

The Grave Dancer would be proud.

Stock of the Week

Today’s Stock of the Week is a real estate investment trust (REIT) specializing in the acquisition, ownership, and management of single-tenant industrial properties across the United States. STAG’s primary focus is on warehouse and distribution properties, which have experienced significant growth due to the increasing demand for e-commerce and supply chain optimization.

The company operates under a relatively simple yet effective business model that capitalizes on both the stability of industrial real estate and its potential for rapid growth. Let’s take a look…

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