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What the 'Grave Dancer' Does with His Own Money

By Dr. Steve Sjuggerud
Tuesday, October 9, 2007

Sam Zell – known as "The Grave Dancer" in the investment world – recently told a private audience what he's doing with his own money. One of my colleagues, Sean Goldsmith, was in the room.

Sam, if you don't know, built the largest collection of privately owned real estate in America (Equity Office Properties). He recently sold it... at the very peak of the commercial real estate market.

He built the empire through his willingness to buy assets when everyone else hates them. So naturally, he was willing to sell assets when folks were paying any price for real estate. While his name isn't as well known as Donald Trump's, Zell trumps Trump's net worth by billions of dollars.

What do you do with your capital after you've cashed in almost all of your U.S. real estate? Zell told the audience that he's invested money all over the world.

He told the story of a 100,000-square-foot warehouse in Laredo, Texas. The tenant, Nokia, offered a 7% cap rate (the percentage of your initial investment after expenses are paid). He then found another 100,000-square-foot warehouse in Monterrey, Mexico – 100 miles away – also occupied by Nokia. That warehouse had a 14% cap rate. So, now he's the biggest warehouse/distribution property owner in Mexico.

By making moves like these, Zell calls himself a "professional opportunist."

Currently, Zell sees opportunity in big emerging markets. So he's producing low-income housing in Mexico, China, and Egypt. The locals are lining up to buy these $10,000 houses, and Zell is racking up 25% margins. Zell reported that the sales office for his Mexico operation, Homex, is open 24/7. It literally sells homes at 3 a.m. Zell says his career has been all about supply and demand, Right now, in Mexico, it's all demand.

Zell was peppered with questions and had spicy answers...

When asked for his thoughts on gold, Zell said coolly, "All I know is that gold has a depletion effect on my balance sheet due to my wife's activities."

When asked about the credit crisis, he said it's not that bad. He recently told a Michigan audience, "We're not really in a credit crunch. I think we're in a confidence crunch." He said investors were "flippant" in recent years, and that has changed. But he didn't seem concerned.

So what else is Zell buying? He's about as contrarian as it gets. He bought real estate when it was down and out in the 1970s... and he's buying newspapers today. Many of the nation's largest newspaper publishers are down more than 50% from their highs.

I think Zell is right about staying international with his real estate holdings... as two of my favorite real estate buys right now are in China and Japan. You can check out my favorite opportunity here.

As a final note... while Sam Zell is known as the Grave Dancer for his investment savvy, he'll quickly remind you that "he who dances closest to the graves always has to be careful he doesn't fall in."

Good investing,

Steve





Market Notes


THE COMMODITY BULL MARKET YOU NEVER HEAR ABOUT


For most of 2006, we bombarded readers with information about the coming bull market in food... namely corn, soybeans, and wheat. We even sent Tom to Iowa, the Saudi Arabia of corn, to get the full story.

The story? After years of depressed prices, grains are entering a bull market. Food now competes for fuel when America allocates harvests. A richer Asia is bidding up the price of food. Now look at these returns in just the past year: Corn, up 40%... Soybeans, up 65%... Wheat, up 75%.

In addition to Iowa farmland and equipment producers, we mentioned the world's largest seed producer, Monsanto, as a way to profit from a grain rally. With its dominant position in seeds, herbicides, and new food technologies, we labeled Monsanto the premier agricultural "hedge fund with a stock symbol." The stock has soared since then.

The legendary trader Ed Seykota once claimed he could decide to purchase an asset by sticking the chart on the wall and looking at it from across the room. If the uptrend was apparent from that far away, it was strong enough to buy. As our three-year chart of Monsanto shows, the grain rally is one of those "I can see it from across the room" charts.



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