Sam Zell used to joke about his father making a life-or death decision at 34 years old. He never made another mistake. Zell, founder and chairman of Agricultural Real Estate, was inspired by his father’s confidence.
His father brought his mother and sister to America from Japan via the German-Polish border. His father believed that the streets of America were paved with gold and full of opportunity, for more than 40 years.
Zell was the son of an immigrant and saw the United States as a mixture of golden streets, shadows, and opportunities. It also shaped Zell’s view of risk and reward.
“I’ve always operated on the thesis that if whatever I do is profitable, I’m pretty well protected,” says Zell. “The real question is when you initially make the decision — when you initially take the risk — do you understand what the downside is? Do you have enough staying power to, in fact, be able to succeed in an environment that meets your downside definition?”
A first step into risk
Zell’s first foray into real estate happened by accident. His college roommate told him that his landlord was building new properties while he was in law school. Zell thought running an apartment complex couldn’t be that difficult.
“I had plenty of faith in my own, what I call salesmanship,” says Zell. “I could rent them and most important of all, I was a student, and it was student housing. I thought I could relate. In return for running and maintaining the building, this friend of mine and I each got an apartment.”
Zell wanted to pursue a career as a lawyer despite his first success in real estate. He graduated in top 25% of his class and applied for 44 jobs. During an interview with a large corporation, the interviewer told Zell he wouldn’t hire him because he believed Zell would be gone in three months.
“[He said] you have entrepreneurial talents and that’s what’s going to drive you,” Zell recalls. “If you can be successful, your talents will be much more appreciated in the entrepreneurial world.”
All about supply and demande
In the late ’80s, Zell purchased an agricultural chemical company that was closing. His business partners filed for bankruptcy and purchased a nitrogen plant. They also bought a Canadian potash company.
“We rolled the three elements together and basically created a process where we covered all three steps of fertilizer production, and we eventually provided and sold fertilizer,” says Zell. “We sold the company to the public first, then we sold out to International Minerals and Chemicals, which is called Mosaic today.”
Zell believes that agriculture is just like any other industry. It’s all about supply and need. In the world market, the amount of available farmland is not growing, so as an investment, farmland isn’t a bad choice. Zell says, however, that farmland can be emotionally attached to it, making it difficult to see it as an investment.
“I think that emotional attachment makes prices perhaps higher than they might otherwise be,” says Zell. “When interest rates are 0% or 1%, a 2% return may not be great, but it certainly is plausible. You must be able generate more. Farmland’s problem from my perspective is just inadequate cash flow and income to justify rising asset prices.”
One of the most overlooked assets, in Zell’s opinion, is what he calls the generational space. There is a lot of opportunity for modernization and new ideas as businesses shift leadership from one generation into the next.
Zell believes that even though there is a need for new ideas many old ideas will continue to be relevant as the generations change. Although many workplaces were affected by the pandemic in recent years, Zell believes there is one thing that will keep good businesses afloat. It is motivation.
“It’s about motivation,” says Zell. “It’s about creating a community. The most successful companies have had cooperation as a strength. I don’t know how to motivate my modem. I haven’t found anybody else who has.”
Source: Successful Farming
