What exactly did Sam Zell do in the 1970's to acquire $4b of real estate?
I read Sam Zell's book, "Am I Being Too Subtle", and under the chapter titled "Gravedancer" he describes the following situation:

\- It's 1973, real estate supply and demand is getting way out of balance due to easy money development

\- Sam stopped buying, started hoarding cash for the end of the boom cycle

\- 1974, market crashed hard, assets were priced at $.50 on the dollar

\- During the time, financial institutions didn't have to mark to market if they could justify getting back to par in five years

\- Sam did the following

1. Cut a deal with lender to restructure the debt in a way that the asset could currently handle and would get the lender back to par within 5 years. 
2. Purchased the deal for $1 down (or so he says), with a limited guarantee on the interest for three years
3. Used an in-house management company focused on distressed assets to make necessary improvements to the property and performance

\- Through 1977, Sam acquired $4B of real estate with little money down. He ended up making a killing. 

**My follow up question is, who did Sam Zell buy these assets from?** Was it the previous owner or the lender? If they bought REO from the lender and restructured, I would assume the lender would have, at some point, had a default and therefore would need to write down the asset on their books. If it was the owner, how did they find so many assets where borrowers/owners were willing to step away from all of their equity so that the lender could be made whole?
[{"id": "iux6zm8", "text": "What did he do?  He was rich enough to buy housing on credit during a downturn.", "replies": [{"id": "iuyxrwc", "text": "It wasn\u2019t his money. It\u2019s Pritzker money", "replies": [], "depth": 2}], "depth": 1}, {"id": "iuxchhn", "text": "I know a guy who did this with Wells Fargo after 2008.", "replies": [{"id": "iuxmbwb", "text": "Do you know where the guy sat in the capital stack? I feel like I am missing a key component but I can't put my finger on what it is.", "replies": [{"id": "iuy817g", "text": "big ballz?", "replies": [], "depth": 3}, {"id": "iuyd6fi", "text": "Personal guarantee was enough to get the deals done.", "replies": [], "depth": 3}, {"id": "iuym0jl", "text": "I know nothing about zell, but in my experience, it's better to buy the paper, not the REO.", "replies": [{"id": "iv0a4oy", "text": "Why is that?", "replies": [{"id": "iv0qau3", "text": "You can turn an NPN non performing note into a performing one usually by knocking on the door and asking them wtf is going on.  You can also do cash for keys to get them out; buying at auction, you usually can't inspect and you just don't know what you're walking into, and with REOs, the bank sat on them for 2+ years and they're just damaged to all hell.  EDIT: And if you own the paper, you control the process, so you can mitigate the timeline.", "replies": [{"id": "iv4ayyn", "text": "Ahhh, this all makes sense. Thanks for all of the detail.\n\nWhere does one buy NPNs?", "replies": [{"id": "iv501zq", "text": "Usually bank relationships.  They want to dump them.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "iuyyoe3", "text": "I\u2019m not sure. I don\u2019t think it was on personal guarantee. It\u2019s been a while (years) but i remember it was more like he did them a favor by taking it off their hands.  This was in Phx metro which was massively inflated at the time. \n\nShit answer I know but it\u2019s been about 7 years since I\u2019ve spoken to him.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iuxz6zs", "text": "I've tired buying or bought a bunch of office buildings that he had previously owned, 10-20 yrs prior.  From the records, he was killing it on almost all of them.  Think, buying for $500k  reselling for 5x,10x,20x a few years later.\n\nI always felt like he was one of the first guys to do foreclosures at scale and because of that, he had very little to no competition.  Combine that with a guy who wasn't just very smart but super street smart, was willing to go big, and you get Sam Zell.", "replies": [{"id": "iuyirk6", "text": "The lack of competitors back then was a major factor.  Now it\u2019s impossible to make the kind and volume of acquisitions during a downturn because there are a lot more well connected vultures out there all looking to get their beaks wet.", "replies": [{"id": "iuz2nsd", "text": "Sam chickened out and turned down the opportunity to buy massive pools of defaulted home mortgages during 2009 since he didn't understand or didn't have the ability to handle these portfolios.\n\nHedge funds came in and bought out these portfolios and did 1 of 2 things.\n\n1 offered a home loan modification and get it performing to resell the loan for massive profit.\n\n2 foreclosure on the property and either sell manage as a rental.\n\nSam didn't think there was enough economy of scale to manage portfolios of houses, which is true in a normal market, but not at the massive distressed prices being offered to him.", "replies": [{"id": "iv0qpsg", "text": "I believe Sam was also a bit cash short then because he had made some purchases like the Tribune during that time period.  He spent his cash in an area he didn't really understand and that took him out of the game for the 2008 crash.", "replies": [], "depth": 4}], "depth": 3}, {"id": "iuz3rud", "text": "There are tons of cultures when money is cheap, there are few true vultures around with hard money when the tide goes out.\n\nThis is where people like Sam Zell and Warren Buffett are defined by sitting on cash when markets are going up 20% a year aka getting frothy.\n\nSam was grave dancing during the Oil crash in 2014-2015 when oil went from 100 to 40. Sam Zell was buying oil bonds of some oil companies, but I didn't research which ones or how that turned out.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iuzb1mq", "text": "To answer your various questions based on your facts ( didn't read the book) here are the answers.\n\n1. He would buy a portfolio of non performing (default) loans from lenders for big up front discounts, but also promise to pay the loan in whole in less than. 5 years. He would pay interest only (not principal) and have a balloon payment at the end of 5 years to pay off the initial principal balance in whole so banks don't have to write down the loan loss. He could do this and guarantee interest payments based on the massive amount of money he put aside as proof of net worth and liquidity to cover those interest payments. This is why you can't do this. Essentially he is assuming a modified loan for minimal money down.\n\nThis loan structure is a form of arbitrage. It allows him to eliminate principle payments that the prior owner would have been obligated to pay for the next 5 years. This allows him to foreclosure and own the property at a maximum value of 80% of prior appraisal since loan principal is typically constrained to 80% or less of appraisal that was made during inflated values. Plenty of property loans were probably sold for far less than that, but banks could keep the loan on the books at 100% of loan amount since Sam is paying interest and promising to pay back principal in whole in 5 years once the rental market recovers. *This ignores some financial accounting calculations regarding changes in loan duration for stopping principal payments, but adding in a balloon payment.\n\n2. The rental market and apartment values crashed due to a big spike in unemployment in 1975. Apartment vacancy is highly correlated to CHANGE in unemployment and inversely correlated to rent growth. The economic cycle was much shorter in the 1970's so vacancy was expected to decrease and rent growing again was expected within 5 years to pay off the existing loans in whole.\n\n\"United States Unemployment Rate - October 2022 Data - 1948-2021 Historical\" https://tradingeconomics.com/united-states/unemployment-rate#:~:text=Unemployment%20Rate%20in%20the%20United,percent%20in%20May%20of%201953.", "replies": [{"id": "iv0lgpa", "text": "This is the correct answer. Banks packaged everything from SFH, office, industrial, retail, ect and sold them for pennies on the dollar. This happened with SFH in 2008 as well but not so much the earlier product types. Unrelated, during 2008ish people would get them under contract for say .46 and flip them to someone else at .76 which would make you 30% in a very short time. We are talking about billions of dollars and it adds up after a few banks doing this.", "replies": [{"id": "iv0lhp7", "text": "\nHello! You have made the mistake of writing \"ect\" instead of \"etc.\"\n\n\"Ect\" is a common misspelling of \"etc,\" an abbreviated form of the Latin phrase \"et cetera.\" Other abbreviated forms are **etc.**, **&amp;c.**, **&amp;c**, and **et cet.** The Latin translates as \"et\" to \"and\" + \"cetera\" to \"the rest;\" a literal translation to \"and the rest\" is the easiest way to remember how to use the phrase. \n\n[Check out the wikipedia entry if you want to learn more.](https://en.wikipedia.org/wiki/Et_cetera)\n\n^(I am a bot, and this action was performed automatically. Comments with a score less than zero will be automatically removed. If I commented on your post and you don't like it, reply with \"!delete\" and I will remove the post, regardless of score. Message me for bug reports.)", "replies": [], "depth": 3}], "depth": 2}, {"id": "iv1kddn", "text": "Really great stuff. Thank you", "replies": [], "depth": 2}], "depth": 1}, {"id": "iv0c7oq", "text": "I'm currently underwriting, just toured, and plan to offer with a week an REO office building that some modern version of this might work for. Anyone know how I find out about general \"modern\" lender motivations related to non-recourse REOs and the legislation around these? Or just someone that I could chat with that sits in one of these lenders seats?", "replies": [{"id": "iv145vf", "text": "Let us know what you find out if you go down this path.  We are smallish REPE shop with a handful of office properties (performing well) and looking to add strategically.  Haven't acquired REO previously but starting to look this direction or buying paper when/if opportunities present.  Talking to banks we have relationships with to get ahead of and curious how others are looking at right now.", "replies": [{"id": "iv43nxi", "text": "Will do. Happy hunting out there!", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iv0lmiz", "text": "Today there is a lot of money on the sidelines. A lot of High Net Worth folks, Ultra high net worth folks, and funds are waiting for cheap stuff to become available from banks. This was not the case back then. \n\nAlso, I feel that when banks were less concentrated, it was far more simple to negotiate kind of thing based on local conned and relationships. Now it\u2019s a good bit more regulated and bureaucratic (though one hopes more stable). Ask, back in the day these banks did wild wild stuff.", "replies": [], "depth": 1}, {"id": "iv0thqz", "text": "If you're big enough, and he was back then, you can still buy \"Tape\" from lenders", "replies": [], "depth": 1}, {"id": "iy6a4qz", "text": "Sometimes previous owners and sometimes PIPE deals.", "replies": [], "depth": 1}]