What I learned from having lunch with Sam Zell

1. 0:00 – 1:01

   Setting Up the Sam Zell Lunch and Zeckendorf Episode

   1. DSDavid Senra0:00

      Okay, so this episode's gonna be a little different. What I'm gonna do first is go into detail about what I learned from having a two-hour lunch with Sam Zell. He sat directly across from me for two hours. I got to stare in his eyes and hear crazy, crazy stories, uh, that this, from his amazing, you know, more than six-decade career of being an entrepreneur. And then after that, you're gonna hear, uh, a normal Founders episode where I go into detail about what I learned from reading William Zeckendorf's autobiography. So, and that came about because as I was talking to Sam Zell, I was like, "Hey, uh, when I was reading your autobiography, Sam, you mentioned reading Zeckendorf's autobiography when you were a young man, and you thought it was very valuable. You got a lo- you got a good idea out of there." And I was like, "I bought the book after reading about it in your autobiography." And then he said to me, he's like, "Have you read it?" I go, "No, not yet." And then he said in his, like, deep voice, he's like, "Read it." [laughs] And so that was good enough for me. If Sam Zell tells me to read a book, then I will do, I will read the book. And so

2. 1:01 – 4:05

   Wanting to Be Like Zell at 81

   1. DSDavid Senra1:01

      that is what the episode's going to be about. So I wanna start at the end first, and then I'll talk to you about how this came to be and all the stuff, uh, a lot of the stuff that we talked about. So I get home after spending over two hours with him, and the first thing I say to my wife, this is what I mean by starting at the end. I was like, "I want that. I want that, to be 81 years old, still fired up about your work, still unbelievably curious around, about the world, traveling all over the world, still reading books, still listening to podcasts, still, uh, doing deals." One of the first things we talked about is, uh, this deal that he was doing. He just lit up, like completely in love with his work and, and life in general, and just unbelievably curious. He's got this, uh, famous quote that's, he says, like, "People sometimes ask, ask me when I'll retire." And he says, "Retire from what? I love what I do." And just his energy and his enthusiasm and his sheer, like, full zest of life. I got back and I was on, like, a high. Like, I was, like, high from the conversation, right? And so that's ex- I was like, "I want that. When I'm 81, that's what I wanna be like. I wanna still be fired up. I still wanna be, you know, working." Like, this idea where, you know, a- as entrepreneurs, like, our life and our work is really inseparable. It's not a job. It's not some, you know, even though it can be very difficult, it's not drudgery. It's not something that we do. Like, we do it because Sam has... [laughs] He could've re- if it was just about money, he could've retired, you know, 50 years ago, 40 years ago, whatever it was. He's not doing it for the money. He's doing it because he loves to do it, because he has to do it, because he wants to do it. And then the other thing that I told my wife, too, was like, "I know f- without a shadow of a doubt that I'm on the right track." This idea of, hey, we need to go back through the history of entrepreneurship. We need to read the biographies and autobiographies of the people that came before us to learn from them. I'm supposed to be, you know, like, I've read almost 300 biographies. I've been doing this project for seven years so far. You know, like, the business history guy, [laughs] s- so to speak. Uh, there was not one thing that I could bring up that Sam did not already know. This guy's, has deep historical knowledge about the history of business, real estate, entrepreneurship, any obscure person I could bring up, right? I, I pulled everything I could think of. I bring up a name. He knew the name. He knew the company the person owned. He had read the book. And so having the opportunity to have lunch with Sam Zell, and then a few weeks later have dinner with Charlie Munger, what you notice is the similarities. It's like, okay, Sam sold his company, you know, for almost $40 billion. It's like, you don't build a company and sell it for $40 billion and then learn all this stuff. Like, he was, had an insatiable thirst for knowledge and information that could be useful to his life and his career his entire life. He knew this stuff as he was building his company. Same thing with Charlie Munger. It's like he didn't, you don't become a multi-billionaire, then in your 90s decide, "Hey, I'm gonna start learning from history." It's like, no, they did this from when they were unbelievably young, and they never stopped. That is how I know that you and I are on the right tr- w- without a doubt, we're on the right track with what we're doing here.

3. 4:05 – 8:35

   How the Lunch Came About

   1. DSDavid Senra4:05

      Okay, so that was the end. Let me tell you the beginning and how this came about. And this goes back to something that I f- fun- I firmly believe, and I feel that po- uh, podcasts, podcasting in, in general is a miracle. Um, you really never, ever know who is listening. And so I get a DM from Rick Gersten, who has been friends, a close friend of Sam for, like, two decades. Sam has been a mentor of his and, like, really helped and guided and, uh, like, been an inspiration in his career. And so he, he, I, I get this, and I thought it was fake. Like, I guess just to start there, right? 'Cause you get all kinds of bizarre messages, um, like, when you have a podcast, obviously. And this came from a, like, a Twitter account where it's just like, there was no picture. There, [laughs] there was no content. They didn't follow anybody. It's just saying, "Hey, this is who I am. I also live in Miami. I run an, uh, an investment firm, and I, I was gonna see if you wanted to have dinner with Sam Zell and me in Miami. He's in Miami all the time, and it's..." He's like, "He's always hungry for information." And he's like, "I actually turned him on to Founders," which he loves, and he really liked the episode that you did on his, in, uh, on his autobiography. And so I responded. I was like, "This would be incredible. I would love to, absolutely." But I thought it was fake. Like, that was just like, there's nowhere in the world... Like, why would Sam Zell wanna meet me? I had read his biography. I'd heard him on podcasts. I watched videos of him. And first of all, I'll get into, like, when you meet him, it's like, he's the same dude, the same guy that you see on TV, the same guy giving interviews, same guy giving speeches. Like, that's him. And that's another thing that I found so admirable, and I found the same thing when I was meeting with Charlie Munger is, like, they are authentic to themselves. And I j- that's something I obviously try to strive to be, but, like, I just love seeing that because sometimes you see, like, the public persona is fake, and it's not who they are. And yet with Sam Zell and Charlie Munger, it's like, oh, you're the exact same person. And a lot of people have said that, like, when they hear me on the podcast and they meet me, like, "Oh, this is like having a, having dinner with you is like having, like, a three-hour long [laughs] Founders episode." And so I was like, "Okay, yeah, I would love to." And then I just forgot about it 'cause it's like there's, like, Sam Zell does not wanna meet me. Like, this is absurd. Like, I'm just some little podcaster, you know, reading biographies in his, in a room by himself. Like, why the hell would he wanna meet me? That's just so bizarre. And so then I, uh, then I wind up, like a week or two passes, and then Rick texts me and he's like, "Okay, he's coming to give a speech at this conference on this date. Are you available that day?" And first of all, I'm like, "Okay, it's Sam Zell. Like, there's nothing else in my fucking calendar," right? Like, this guy sold a company for $40 billion. Like, yes, I am available anytime and, and I w- I would even fly to anywhere in the world to meet this guy. Like, are you kidding me? And so anyways, now we have a date, we have a time. I still do not believe that this is going to happen. I was like, "No, this isn't gonna happen." And then a couple of days later, it's like, okay, uh, now it's set for this restaurant at this time. I'm like, "Okay, now we're getting really specific. Like, this is some kind of weird hoax you're doing. Like, this is pretty crazy." But I still didn't tell anybody about it because I didn't believe that it was actually gonna happen. And so on the day, um, on the day of, like, now we have a date and time, now it's the morning, so I'm like, "Okay, well, this, this might happen. Like, I'm supposed to go to lunch with Sam Zell." And then I was like, okay, as it got closer, I was like, okay, maybe it is a lunch with Sam Zell, but maybe, like, it's not gonna... Like, I'm not g- He's, he, maybe he invited a bunch of people and I'm like the token podcaster or something like that. There'll be like 25 people there. I won't actually get to talk to him. That's not what it was at all. It was just me, Rick, and Sam for, for two hours. It was incredible. And he s- and Sam sat right, like directly across from me. I looked him eye and eye, got to talk, I got to ans- ask him any question I wanted. It was absolutely incredible. But the morning of, I'm like, okay, I tell my wife, "Listen, I'm gonna share my location with you, uh, in case they kidnap me. [laughs] If there's some crazy shit happening here, I might get kidnapped. At least you know where I am." And so I drive, uh, to the restaurant at the time I'm supposed to be there, and, uh, me, me and Rick agree to meet, like, I think like 30 or 45 minutes or maybe even an hour in advance, and we wind up having this really interesting conversation 'cause he's got all these crazy, uh, interesting stories as well. He's got a really interesting career. And then he's telling me this, this story, and then, uh, he looks over my shoulder and he goes, "Oh, there's Sam." And I t- turn around and it's Sam Zell by himself. Like, I was just, like expecting like maybe an entourage or I don't even know what I was expecting, him to be carried in, carried in like a, like an Egyptian pharaoh or something. And so he shakes my hand, he sits down right in front of me, and the first thing I say, [laughs] I was like, "You're fucking Sam Zell." And he just laughed

4. 8:35 – 11:36

   Escaping Hitler and Castro: Information as Survival

   1. DSDavid Senra8:35

      and laughed and laughed. And so one of the first things I got to talk to him about was something that, uh, his family has, uh, in common with my family. If you read Sam's autobiography, uh, you know that his father, uh, it was a- actually very interesting. I think his father was like a grain trader, if I remember correctly. And so he had inside information. He knew, like, the, the stuff that was going on with Hitler was not good. And so his father escapes with his, his wife, Sam's older sister. Uh, Sam's not born at this time. I think his wi- his, his mom is gonna get pregnant on the way over 'cause I think, uh, they're in America for like 90 days by the time Sam is born. So what we have in common is the fact that they had to escape, uh, like, y- I mean, Hitler's way worse than Castro, but Castro's pretty bad too. And so they leave the, on the last train to Poland, and then the Nazis wind up b- bombing that train. They didn't know that. So what was interesting is how many people that Sam's father, he was trying to convince the rest of his family, like, "This is bad. We need to get out of here." And imagine how difficult a decision that is. Like, you've lived in this country your whole life. You have family, friends, jobs, and you're, you're... Somebody's trying to convince you, like you have to get up and leave. So it just takes like a different kind of person. And I was like, "Sam," like, "I, I, I had a very similar experience. My grandfather was the same age as your father when this was happening. He was married, he had a baby, and he just saw that bad shit was coming with Castro, and he wind up leaving everything. You know, he didn't have any money, came to a country, uh, he wasn't a citizen of, didn't even speak the language, and just literally has to flee to try to protect his family." And so I was thinking about that story before meeting Sam, and when you hear Sam talk and also in his autobiography, it's like this guy's obsessed with learning. He even says, like, in, um, I think he, he did, he did this fantastic episode on the, uh, Tim Ferriss podcast. Uh, Peter Attia actually interviews Sam Zell for the Tim Ferriss podcast, and he says, it's like, uh, like, "I just read and read and read. I'm never without something that I'm reading." He's constantly searching for in- interesting information. So one of the questions I got to ask him is just like, "I can't help but notice that your life, your family's life was changed because your father had access to valuable information, and yet, and I'm reading your story, and it seems like you did that all your life." And in his case, he, he applied it to the b- Like, is there, am I right to pick up on that? Like, your insatiable, hungry, like, uh, thirst for knowledge, you saw the benefit. It could, it, it could literally save your life. Not only could it stumble onto a, an idea that you can use that's helpful in your business, but like in your case, it literally saved your life. And he's like, "Yes, that's exactly it." And he's just been this voracious reader. Like, the crazy thing is, right, I'm-- This guy, like, for, it speaks to a lot, like the idea that Sam's, how, how valuable is Sam's time? Like, it, it's insane. Like, the, I got two hours of it. It's, it's just, I'm so thankful. Like, I, I got back and I was like, that is, uh, you know, a, a lunch he may not remember and I'll never forget. You know, 'cause I'm sure he meets a ton of people. He's got all kinds

5. 11:36 – 15:38

   Optimize for Freedom and Don't Accumulate Stuff

   1. DSDavid Senra11:36

      of, you know, contacts and business deals and everything going on. And I, so I really do appreciate the fact that, you know, I'll never forget this. Like, I'll remember it till the day I die. And w- uh, what's so interesting about it though is like he's telling crazy stories from his six-day, six-decade-long career about all different business deals, building companies, buying companies, uh, selling companies, just all kinds of fascinating, interesting stories, right? And you would bring up something and he would explain, like, "Oh yeah, that business that's happening today is like what this guy did, this..." You know, I'm making up names 'cause I wasn't taking notes while we, I, no one looked at their phone. Oh, yeah, it's actually funny. So one time he looked at his phone, uh, he was-- we, we were talking about one of the pieces of advice that he had, um, was, you know, listen, the, the wealthier you get, you're just buying, like, it's just nicer things of the same stuff that always happens. He's like, "You don't wanna own a bunch of things, 'cause then you have to take care of them. You know, you have to manage them," or whatever. He's talking about out-- in your personal life. And so his whole point is just like, you know, he o- he has a place in Chicago and he had a, a place in Malibu, and it was funny because you know how rich and famous you are when he wanted to show me pictures of his house, he Googled. He hands me his phone, and it was Google Images, and it said, "Sam Zell Malibu house." [laughs] And I was like, "All right, man, that, that's a goal of mine." [chuckles] I'm like, "That's pretty crazy." Um, but one thing he was saying is he's like, "Listen, you know, you don't wanna get caught up in that. You don't wanna own a bunch of stuff. You know, you're gonna make a lot of money in your lifetime, and you just realize, like, okay, now you have a house, and you just keep... Like, you're just buying more. It's the same things, it just gets a little nicer. Don't get caught up in that." And so his main thing that he said to me over and over and over again, his main piece of advice that, you know, we probably talked about in, like, six different contexts, was go for freedom. Optimize for freedom. I'm gonna read some of the notes that I took after. He's-- Everything comes down to freedom. I'm paraphrasing, obviously, right? He's like, "If you get the freedom, you can control what you do every day, and you'll love it. And if you love it, you'll be very good at it. And then the money will come with it. You have to love the day-to-day. Does not mean it'll be easy. That does not mean there won't be pain, but you have to love it." And he's like, "I never chased money. I chased freedom, and freedom got me the money." And his point is, is like, there's no point in being rich if you're not having fun. He says, this was very fascinating, too, um, you know, 'cause you can imagine the kind of people that Sam Zell talks to and meets, and he's like, "I meet a lot of rich guys, and they aren't having fun. I'm still having fun." Then he said he's still riding his motorcycle, and I know he's still traveling all over the world. And actually, this brings up another thing that Sam has in common with a lot of history's greatest entrepreneurs. Like, why do so many of the people that you and I study on this podcast... Like, think of Sam Walton. He knows he's dying, and he takes time out. He's got cancer all over his body, and he takes time out of the few precious ti- months he has, or maybe a year left on, on this earth, and he writes an autobiography, and he summarizes what he learned in 60 years of his retail for the benefit of future generations of entrepreneurs. We may compete to, uh, against each other while we're living, but in the end, like, they all wanna pass on what they learned for the benefit of future, uh, generations. And so that led me to something I was asking Sam. I was like, like, he flies in... Oh, so l- let me go back to this. He did say one thing. He's like, "Listen, you know, don't get caught up in owning a bunch of shit. It's just, like, you're just gonna keep buying nicer versions of the same stuff. Like, it's just not worth it. That's not what life is about." And he goes, "There's a true luxury in life." He's like, [chuckles] he's like, "There's one exception. Try to get the private jet." [laughs] He's like, "That makes a big difference." He loves his jet. He had, um, we had talked about this 'cause he had just given this speech at this really, uh, like, impressive conference, um, and he gave the speech and then went directly, uh, to, to lunch with me, which is such a silly... [chuckles] I can't believe that they, that, that even, that sentence just came out of my mouth, and it's actually real. I, I don't believe that. But, uh, I was like, "Oh," so we were talking about this. I was like, "Oh, so you didn't, like, spend the night here?" He goes, "No." [chuckles] He's like, "I fly in on my jet, I give a speech, I'm having lunch with you, and I leave again." And so he's

6. 15:38 – 19:42

   Obligation to Share, Curiosity, and Doing Deals Until He Dies

   1. DSDavid Senra15:38

      talking about, he was telling me, like, what he was doing. He's, like, flying to, you know, London to give a speech to a bunch of other entrepreneurs and investors. Flying all over the world doing this. He does this constantly. And I'm like, "Sam, why are you giving these speeches? You don't have to do this. Like, w- like, why are you doing this?" And what he said is exactly what you and I have discovered in all these autobiographies. He says, "It's an obligation." I'm getting goosebumps. "It's an obligation for me to share with other entrepreneurs what I learned." Think about how crazy this next sentence I'm about to tell you is, right? Because we're, you know, history shows that humans are terrible predictors of what we actually think will, will, will make us happy, right? And so he's like, "Listen, I hated writing the autobiography. It was very difficult, but I'm so glad I, I did it." And he says, "My favorite day of the week is Monday." And I was like, "Okay, why is that?" And he goes, "'Cause that is the ti- that's the day that me and my team go over all the inbound messages that we get from people that read my book, and they tell them how it changed their lives. The ideas they got, the inspiration they got." And it's exactly when you read, and you're gonna hear me talk about it in this episode, 'cause I've already recorded the episode. I'm, I'm doing this intro after. And I quote directly from Sam's autobiography, where he's sitting there talking about it. It's like, listen, uh, he was, this is 1971. Uh, Zeckendorf's book comes out in 1970. Sam is a 30-year-old man, already, you know, 10 years into this cr- uh, this real estate career of his, and he's like, "I, I read Zeckendorf's book, and I found a really valuable idea," and he tells you what it is. How cool is that? Like, that's exactly... It's the same thing. When, when me-- Like, when you listen to Founder's Podcast, when you're reading the biographies, you're doing exactly today what a young Sam Zell did. You know, he never stopped doing. He's still reading. I mean, one of the first things we, we talked about is some of the books he's reading. Oh, this is another crazy thing, and I'm sorry this is, like, disorganized. I don't have, like, uh, you know, I didn't write this out i- in advance. But what was fascinating was he's obsessed with podcasts. He's obsessed with information in general. Like, he's reading books, reading, uh, uh, you know, n- newspapers, magazines, everything, talking to a bunch of people, doing deals. You know, he says, "I'm doing deals." I, I, this is what I wrote down in my notes after, so I don't know if this is a direct quote, [chuckles] but I hope it is. He's like, "I'm gonna be doing deals." He's like, "I'm gonna be doing deals till I fucking die." [laughs] And I hope I'm that same way, too, man. I don't wanna retire. Like, why? Like, you find work that you love to do, you know, like, what, what did Coco Chanel do? Enzo Ferrari, Steve Jobs? What are Charlie Munger and Warren Buffett doing? They're still doing this. Charlie's 99 when I went to his house, and he could still tell you what's going on, still telling you different deals. Like, it's crazy. He's like, "Why would you ever quit?" Um, but what was fascinating is like, brings up the fact that he likes podcasts. He starts asking me questions like, "Why'd you start a podcast? How do you start a podcast? What's the business model like?" And then at one point I, I said, I go, "Sam, you've been d- building businesses and making millions, literally making millions decades before I was even born. I need to be asking you questions." But again, that ties into this just like insatiable level of curiosity that you're gonna find the, the top entrepreneurs have. It's like they're, they want to know about the world around them, and obviously some of that information's gonna flow down so they can use it in their business, right? But even if it doesn't, like he, this guy's not gonna get rich off of podcasting, [laughs] right? He could. He'd have to know what show if it was just him talking shit. Um, I'd listen to that. I'd listen to every single episode. But he's just insatiably curious, still reading books, still asking questions, you know, decades after y- ever needing to work again. And the best way to summarize this is a quote that I pulled from his interview on Tim Ferriss' podcast. "I'm con..." This is Sam talking. "I'm constantly adding and increasing my knowledge in every direction I can." And then there's two other things that I wrote down, uh, after I met him that was fascinating, 'cause you know I'm obsessed with Michael Jordan. Uh, episode 212, if you haven't listened to it yet. That book is a 600-page biography of Michael Jordan, uh, literally changed my life. And he, he says, he's like, "Yeah, I, I, I know Michael Jordan." He knew him when he was a young man. Jordan used to go to Sam Zell for advice, and I was like, "What do you think about Jordan?" And he goes, "Jordan is an extraordinary individual."

7. 19:42 – 22:13

   Michael Jordan, Edwin Land, and Work That Feels Like Play

   1. DSDavid Senra19:42

      The other thing that was fascinating is everybody knows that I'm obsessed with Edwin Land, right? I keep talking about Edwin Land over and over again. I'm like, man, like if Steve Jobs is studying Edwin Land, calling him a hero, patterning his, his, uh, his own work after h- after Edwin Land, we should really pay attention to him. You know, I've read five... I've read every single book I could find on Edwin Land. I've read five, five biographies of Edwin Land. Three of those I've read twice, and I think I've done like six or seven episodes on him. Sam Zell knew exactly who Edwin Land was, right? Where a lot of young entrepreneurs don't, and I think that's devastating, and they should. But not only did he know Edwin Land, he told me an Edwin Land story that I had never even heard, 'cause it turns out, check this out, in like the 1960s, I think this is when it was happening, Sam Zell went to law school with Edwin Land's patent attorney's daughter. His daughter was there and remembers the night that, in New Mexico, when Edwin Land goes and meets with her father to write down and to put on paper his ideas for the creation of a new industry, the industry that Edwin Land is literally going to invent, which is instant photography. I do wanna wrap this up with really what Sam was saying, like the main message. He's just like, he's like, "I optimize for freedom and I only do shit that's fun." And he was having fun forever. And if it's fun, if you enjoy it, like if you can find work that feels like play, which is an exact line that I learned from Naval Ravikant, but also I found in Michael Jordan's autobiography, that's exactly what he said. People, in m- in his autobiography, people are like, "Oh, they always talk about work ethic." They don't realize like, to me, it was play. And this is like, I was able, I, I had a bad work... His, his mom would talk, Michael Jordan's mom would say that like, you know, with, outside of b- out- outside of sports, he was actually kind of lazy, which was shocking. And his whole point, he's, he followed up on that. Jordan followed up on that. He's like, "Oh, what you see as work ethic, I just see as, as playing." And I feel there's a lot of, uh, there is a parallel between Sam Zell, you know, who's still on it seven days a week, still doing deals, still trying to find interesting things to, to work on, and interesting people to work with, and it's because he's, uh, optimized for freedom and he only did shit that was fun. And so there's one other thing, and then I'll wrap this up and we'll get into the episode, on Zeckendorf, which again, if Sam Zell is telling you to read the book, if you haven't read the book, I talk about this in the episode, especially if you're in real estate, no-brainer, you have to read the book. There's so much stuff in that book that you'll be able to understand that I won't because I'm, you know, that's not my industry, and it's just a fun book, like full of crazy stories. But I do wanna s- I, I pulled this transcript, 'cause right after I had lunch with Sam Zell, I went on, uh, Jim

8. 22:13 – 25:12

   Lucky to Be Born Here: Information and Survival

   1. DSDavid Senra22:13

      O'Shaughnessy's podcast, which is called Infinite Loops, and I pulled the transcript because some of the stuff I was like, "Okay, that was like fresh in my mind. I wanna make sure that I'm not missing anything." And I found something, and I've already like alluded to it previously. I'll wrap this up here. I'm just gonna read... I'm going to read this paragraph, and it's talking about something me and Sam had in common is that the fact that, you know, I think 18 members of his family died. I had a bunch of family members that never left Cuba. And his father, Sam Zell's father, would tell him over and over again, "You don't know how lucky you are to be born in this country." Right? And so, and that's the way Sam still feels to this day, and it's like I had that experience too. Uh, you know, when you're the son of a Cuban immigrant, like l- people literally, the Unit- uh, the University of Miami, this is, this is hard data to come by because if, it's not like people are announcing in advance that they're going to the shore of Cuba and sending their children o- on these rafts and hopefully they, they land in America. Because, because you're not announcing it beforehand, they ha- it's h- uh, it, they're, they have a hard time figuring out like how many people have died. You know, how many people didn't make it? Like you can go and look. I, I've seen this in person. I actually grew up meeting people that came over on rafts. Like a little kid, and you hear these stories, that's, that's going to impact your, the way you think about things. And so, uh, the University of Miami estimates, I think, somewhere like quarter million people, maybe 200 to 300,000 people, uh, died at sea. And so this idea where it's like y- you're raised, Sam Zell was raised by a father saying, you know, like, "You're very blessed to be born in this country where, you know, you're not, you don't have to worry about a Hitler or the stuff that we had to run from or the, the amount of r- just genocide that took place where we, where our family is from." And so I h- I, I heard that same story. Like, you know, "You're very, you have no idea how lucky you are to be..." And my dad's not an American citizen to this day, to this day, and I just happen to be an American citizen because decades before I was born, my grandfather had the, the foresight. He's like, "Oh, we gotta get the hell out of here," and I just happened to be born here. Something that, uh, Sam saw when he was younger, that his family was watching videos Uh, and when he was, like, six years old of, uh, all these, like, Jewish bodies in dump trucks, and it was just dead bodies that the Nazis had killed and then put in dump trucks. And when we were talking about this, this is what I referenced earlier. I said, "Sam, here's the weird thing." This is me now quoting myself from this other [chuckles] podcast. It's getting a weird here. "Your dad was voracious for information, and that saved his life. And yet, when you tell the story of you being a teenager, a young man, you were, like, 19 or 20 years old, and you were also voracious information." And I asked him, "Is that the same thing? Is that the same concept?" And it's like, "Oh, I know how valuable information is. It can literally save your life. And in an entrepreneur's case, the right information can literally build a fortune." And he's like, "It's the exact same thing." And so if you and I could ask Sam Zell for advice, I think his advice would be constantly add and increase your knowledge in any direction that you can, and I sincerely hope that the work that I'm doing on Founders Podcast helps play a role in your life and in your work.

9. 25:12 – 39:49

   Zeckendorf's Collapse and Early Life

   1. DSDavid Senra25:12

      "We were not meeting our obligations. For more than three years, I'd been maneuvering to keep a suddenly greatly overextended company from actually falling over the edge of the cliff. To this end, I had gone deep into personal debt. But on that Friday afternoon in May 1965, time ran out. 26 years of work was now moving down the chute. I told my driver to take me back to our Madison Avenue office. This is where I had started Webb & Knapp's climb, and here I would stay with it to its fall. In large part, it was a matter of my own personality. I like to build. I had ideas, all kinds of ideas that nobody else was willing to carry out, so I carried them out myself. We branched off in several directions at once." That is an entire story in one sentence and leads to his bankruptcy. "We branched off in several directions at once. We were buying land and properties, putting up individual buildings in various cities, creating a string of new shopping centers and industrial parks across Canada, and drilling for oil off the coast of South America. The secret of any great project is to keep it moving, keep it from losing momentum." That's actually good advice. "And this, for me, meant a constant flow of telephone calls and trips, often by company plane, to Montreal, Chicago, Washington, Cleveland, Philadelphia, Denver, and points west. In New York and in every town where we had interests, there was a constantly changing scheme of contracts, agreements, and trades to be kept in motion. I have never been afraid of debt. One day when the head of the Morgan Bank stuck out his hand at a gathering of bankers and said to me, 'Bill, you look like a million dollars,' I said back, 'I'd better. I owe you three million.' At that time, we all laughed, but in May 1965, no one was laughing. Webb & Knapp had been wiped out." And his reaction might surprise you. "Once we had completely gone under, there was almost a welcomed stillness. For month after month, we had been working to raise cash to make one last deal to fend off or pay off creditors. Now all action ceased. Even our phones were disconnected. I could no longer act for the company. I became, in effect, a bystander at a wake and an official non-person, a role both unfamiliar and unenjoyable. A number of people who used to call on me vanished. Quite a few people who I tried to call were suddenly not available. Only my creditors were ever anxious for a chat. I learned that there was betting that I would choose to end the drama samurai style, by committing suicide. There were moments when my depression was absolute, but killing myself was something I was not about to do. Only my personal assets, not my brains, were in hock. I still knew how to make money for people. Moreover, with the fantastic pressures of Webb & Knapp's last few years off my back, I was beginning to feel like a man suddenly released from solitary confinement. My conscience was now clear. For the present, I was busy and relaxed. Marion," that's his wife, "Marion and I saw more of each other. We went out to plays, and we traveled. We spent our summer in France. I had turned over our home to creditors, but we had acquired a quiet place, and we were happy. We were planning another trip. In the spring of 1968, Marion flew to South America for a month. From there, she would fly to Guadeloupe in the Caribbean. I flew down to Guadeloupe to meet her there. I arrived two hours before Marion's plane was due. The scheduled arrival time came and went, but no plane landed. A few moments later, the announcement came over the loudspeaker. The plane had crashed. The sensation from then on was one of being in a dream from which I couldn't wake up. After Marion's death, I declared personal bankruptcy." Wow, what a start to this book. This guy goes from being the greatest real estate man in New York, and maybe the entire country, in the '40s and '60s, to blowing up his company after 26 years. Then a year later, his wife dies in a plane crash, and then two years later, in 1970, he publishes this book. So that was an excerpt from the book that I'm gonna talk to you about today, uh, and the one Sam Zell told me that I had to read, uh, one that Sam Zell talks about in his autobiography that he read when he was a young man. And he's actually around 30 years old when he read this book, and that book is Zeckendorf: The Autobiography of the Man Who Played a Real-Life Game of Monopoly and Won the Largest Real Estate Empire in History. And so before I jump into his early life, something I was thinking about this morning before I sat down to talk to you, 'cause this book is over 50 years old, and what is interesting is, I'll, I'll go into more detail on this later, but there's [chuckles] so many times where... What makes this book so fascinating is not only this guy had an incredible career. He's got a lot of good ideas about building businesses and a lot of bad ideas that you and I definitely need to avoid, right? But he also knew everybody. Like, there is, uh, four or five, maybe 10 different well-known historical figures that are historical figures to you and I today because they've all passed on that are alive in this book And there was just something that hit me real heavy this morning where this guy's been dead for, I don't know, 40 years. Uh, I think he died shortly after the book, uh, was published, and it's uno- Like, we can't talk to him. We can't interview him. And what I realized is, like, reading this book is, first of all, to have a one-sided conversation with somebody that went through one of the most unique life experiences and work experiences that, that has ever lived, and it's also a form of, like, being able to interview or to ask him questions because you, you'll understand if you read this book, and I hopefully I can c- convince you to buy it and read it. I mean, if Sam Zell tells you to read it, I think that's good enough, right? But, um, what happens is by the time you get to the end, like, you know who he is. Some of... I told you before in some of these cases where you and I go over these books, like, sometimes you feel it's like, "Wow, I know who this person is," and sometimes they're still kind of, uh, like, they're more of, like, a, a figure that's far away, where I feel like Zeckendorf by the end of the book becomes, like, this old friend of yours, and you just live through... It's like you gather around or you're like his grandson. You gather around, and he's just recounting the story of his life to you, and by the end, you, you feel like you definitely know who he is as a person. And the reason I bring that up is because that feeling is a good feeling. I... My life is better off for having read this, like, spent the last week going over a bunch of written material, uh, on Zeckendorf, and I feel like getting to that end, that completion is, first of all, it's not something that we see in modern-day life. Like, every single thing if we're, especially we're on our devices all the time, like, those are just never-ending feeds. Everything we're looking at, whether you're scrolling Netflix or scrolling, you know, Instagram, it never ends. Where you get to the end, there's a completeness to this where it's like this is over. The time I spent with Zeckendorf will be long-lasting. So I'm not sure why I was thinking about that this morning or where that idea or feeling came from, but anytime that, that happens, I'm sure to tell you about it. So I'm gonna jump right into his early life. We don't spend much time there 'cause we get right into [laughs] we get right into this guy's insane career. But there are just a few sentences. You know, there is, you know, two or three chapters on his early life. I just pulled out a few sentences that I think give you, will give you an idea exactly who he is. And so he says, "By the time I was eight or nine years old, I had discovered that if I acted up enough, I could get thrown out of Sunday school each weekend and spend the day fishing." What may be the greatest quote about entrepreneurs ever came from the book that I covered last week, which just comes from Yvon Chouinard, and he says, "If you wanna understand the entrepreneur, study the juvenile delinquent." And if you sit there and actually think about what Yvon is think, uh, what is saying, like, that's exactly what we're seeing here. It's like you'll understand the way they think if you look at the juvenile delinquent. Talks about his dad. Uh, "My dad was a cultured, quiet, and kindly man who did not believe in strict authoritarian controls, and I was his only son." So what he's telling us is his parents, and he's gonna say his mom did as well, his parents let him follow his natural drift. "Mother also let us grow in our own way." And Zeckendorf is the rare high school and college dropout, and then he has a great line about this. "I did not finish high school. Most of the courses bored me completely." So he takes, like, uh, their version of, like, I guess what we'd call, uh, today in America the GED. Uh, so you drop out of high school, but you can take, uh, an exam. If you pass the exam, you get, like, the equivalent. So he enrolls in college. He says, "At age 17, I entered New York University." And then he has a great line here. "Though I now hold four honorary degrees, I was a college dropout. Classes were dull and a waste of time. I was anxious to be in the real world of business, so I quit college." So then he's in his early 20s, and he starts working his first job in the real estate industry for his uncle. Uh, there's actually a really good description. I'm gonna tell you, uh, I think that there's actually a better description in this, uh, this article that was sent to me by a listener who knew I was doing, uh, this book. And so it's called, uh, Zeckendorf: Revisiting the Legacy of a Master Builder. I'll leave the link down below. You can read it in, you know, five minutes, but it's just going and reflecting back on his career many decades after he passed away. And so I read the article, and then I just pulled out some quotes, and I wanna give you this overview now before we go into the rest of the book because I think it gives you, like, colors it in beforehand and kinda will make the ideas that you and I talk about later, uh, stick even more. So first it says, "A glance back at the life of the developer William Zeckendorf Sr. is proof that there are no new ideas under the sun." That is a main thesis of this podcast. When I was sitting here thinking, I was like, I went and looked up. I was like, "Okay, this, this book came out in 1970." If you read Sam Zell's autobiography, he says it was around 1971 when he picks up the book. That means Sam Zell was, like, in his early 30s. So maybe he was around 30 years old when he first read the book. And later on in this book, we'll get into what Sam Zell said about the Hawaiian technique, which is, like, the main idea that he took away from this, this, uh, book that he got from Zeckendorf that he used not only in his real estate career but also his business career as well. But what I was thinking is like, oh, he's doing... This line, "A glance at the life of developer Zeckendorf is proof that there are no new ideas under the sun." We are doing the exact same thing now together that Sam Zell was doing 50 years ago when he was a young man trying to learn from the great people that came before him, looking for ideas that he- help them in their work. I just love that idea. And then this, another quote from the article. "No question he was the greatest real estate guy New York has ever seen. He dominated the nation's, uh, real estate industry from the 1940s through the early 1960s. In a climate like today, he would've been worth a trillion dollars." [laughs] And then this is the part that I wanna read to you 'cause the description, it's a summary of where we are in this book where Zeckendorf's about to tell you and I about this, his first job and why he had to leave 'cause he felt his uncle was screwing him over. "Early on, Zeckendorf's uncle challenged him to fill a half-empty building at 32 Broadway, which the firm had just purchased. By the time the uncle returned from a European trip, Zeckendorf filled all but two small offices, but instead of praise, his uncle demanded to know when he would rent the remaining spaces. Zeckendorf quit the next day." And, and this is the punchline. "If he was gonna make any money, uh, any real money in real estate, he decided he would have to do it on his own." And just two more things from this article. This is the anti-advice. This is the advice where I feel if we're sitting down and we're having this one s- con, sided conversation with Zeckendorf, he's telling us, "Hey, avoid this." Uh, "Zeckendorf's employees were having to sneak him down back elevators to avoid the growing number of cr- creditors banging on the front doors." This is the early 1960s when everything starts to unravel. And really, the anti-advice, uh, that I got from Zeckendorf would be what Charlie Munger says, like, your job in life is to get in a great business and then stay there. And Charlie's point here is like, "I could tell you that advice. You're just not gonna do it." Uh, it's so hard to build a wonderful business. You're not going to be assaulted from the outside. Most, most likely, you're the one that's actually going to screw it up. It's, it goes against human nature to get into something good and actually stay there. And so this is the description of the business that Zeckendorf had. He had it. It was in his hands. If we were to take the assets that Webb and Knapp had in 1961 and value them at today's values, this article is being written in the, uh, early 2000s, so maybe like 2007, I think. If we were to take his assets, uh, in 1961 and put them in today's values, uh, they'd be worth between $25 and $30 billion. So all he had to do was sit still. And this is a description of him. He had to do every deal that came down the pike. Whatever the deal was, he wanted to do it. That's not an exaggeration. I try to keep track of every single weird... This guy did not contain himself just to real estate. I'll get into some of the stuff he buys. One of the, [chuckles] one of the funniest things, I've been telling stories to friends today or this week. I was like, "Dude, I'm reading this book about this guy." He's like in his 30s. He's working for Webb and Knapp. They're like, "Oh, we like this club." So they buy a nightclub, right? And then he uses it, he uses the nightclub as his office. It's like if today me and you buy a club, and then we're like, "Hey, we have to have a meeting," and our office is essentially in like the VIP room of the club every night. [chuckles] He's just, and he has like this phone set up. It's just, he's a hilarious guy. But the point was is like he'll just do all kinds of deals, uh, which, you know, we'll, we'll obviously go into. So it says, uh, whatever he, whatever the deal was, he wanted to do it. So talks about the fact that that was his first, uh, his first job working for his uncle. I really just wanna pull out, I don't wanna go into much detail there 'cause I'm just looking for ideas that you and I can use in our business, right? And so this was very fascinating. This is his sales technique. His, his uncle gives him the job, and then takes off to Europe. And so he's like, "Okay, well, how do I fill a half-empty building? I have no experience." And so then he just goes to every single building. This guy's relentless. Every single building on Wall Street. "I tackled the job by taking the elevator to the top floor of every building on Wall Street. Then I would work my day, my w- my way down floor by floor, canvassing each office on each floor. I would march in with a bold statement, 'I understand your lease is expiring, and I'd like to show you a space at 32 Broadway.' Of the prospective tenants I approached, one out of five would come over to 32 Broadway to have a look. One of every five that looked would take a lease, but that was enough." And so he gets back, and he f- he does the calculations, like how much money he made his uncle. He was paying him $25 a week, so his uncle doesn't give him any praise, but he also, the reason he quits is because he's like, "Why? I'll, okay, $25 a week. I'll bump you up to $40 a week." And, and Zeckendorf's like, "What are you talking about?" That did it. The commission to an outside broker, uh, would've come close to $25,000. I told Sam what he could do with his $40 a week, and I left. And that right there is what I wrote on this page. An entrepreneur is born. Even when technically he's a junior partner and he's w- he's working for somebody's company. He's got founder mentality. He acts like an entrepreneur all the way through, and eventually he's in complete control of the company.

10. 39:49 – 47:57

    Spending, Debt, and Lessons from the Depression and James J. Hill

    1. DSDavid Senra39:49

       Another anti-advice on him. This is something that's gonna come up a lot, and I'm gonna repeat myself because it's the main theme of the book. This guy cannot stop spending money. As soon as money hits his pocket, from the time he's a young man until he's older, he just spends and spends and spends it, and then he is addicted to debt, which obviously leads to his downfall, unfortunately. And again, I'm not trying to criticize this guy. We're trying to learn from him. I think he's extremely likable. Like, this is one of my favorite books. I cannot believe the stories that are in the book, and you'll just fall in love with the, like, his gregariousness. He's a promoter. I feel like he's the wise old man telling us, "Hey, don't t- don't do this." Even if he says if he could do it all over again, he would just do the same, but he would do it bigger. So I don't even know if he learned his own lesson. So he says, uh, he's doing a bunch of deals. "My commission on th- on the sale of this building came to $8,000." So he was wise to be an entrepreneur. Why would I take 40 bucks a week? I do one deal, I make $8,000. Now, here's where he messes up. "I was 23 years old and I never had so much money before. It made me uncomfortable, and I thought we had better spend it quickly." So he takes this, uh, it's gonna be his first wife, but he's just dating her. There's not m- they're not married yet. Actually, they get married, and then he's like, "Okay, I have $8,000. I need to spend it immediately." And he goes and takes this, like, long-ass honeymoon to Europe, and he goes to Paris, and he meets all these other high rollers, and he gets back. He's got no money, and that's not good because this is the 1929 crash [chuckles] and the Great Depression. And so there's, there's a few interesting things of, like, what he's doing during the Great Depression. I do wanna pull out something here, because this doesn't... There's parts of this book, so obviously if you're in real estate, you probably already know who Zeckendorf is. I would imagine you've already read the book. If not, obviously pick it up. There's a lot of things in here that you will understand that I won't understand 'cause real estate's not my business. But he has these just drastic examples of, and I guess real estate's really no different than other asset prices that ha- that we see in these, these dr- uh, these, like, uh, financial panics, where he, he's detailing all these crazy deals that are happening because all these people are over-leveraged. And I'm like, "Zeckendorf, you noticed this when you were a young man. Why didn't, like, how could you not avoid the same fate?" So he talks about the p- the, the people that own the Ritz Carlton Hotel, and he says, uh, what was happening is the people that were not leveraged, the people that had a bunch of cash, no debt, he said they were cornering and squeezing. These are the words that he used, right? And so one example, he says the Ritz Hote- Hotel, which cost $25 million to build, sold for $725,000, and it had $100,000 worth of liquor in it at the time. And he goes into such great detail. That's when I wrote, I was like, "I wonder why he didn't learn this lesson." Like, he was addicted to leverage. He's so close because he starts working, his big break, he works for the, the Astor family. These are the descendants of John Jacob Astor, which we'll get to in a minute. He was actually the first multimillionaire in, uh, US history. He, he points this out on the same page. He says, "The non-borrowers," right? The people that owned it free and clear, which we're gonna get into. This is just absolutely insane. The non-borrowers, such as the Astors, who owned all their properties free and clear, could ride through almost any storm. And so when I got to this part, another real estate guy that I did a podcast on, which was fascinating, uh, this guy named Francis Greenburger. It was episode 243. He became a billionaire because he's one of the first people to do co-ops in New York City. I think this is, like, in the 1970s. But he has a line in th- his autobiography, which I thought was fascinating, and he says, "This ruthless industry..." He's talking about real estate, right? Everybody's like, "Oh, it's so easy to make money in real estate." And Greenburger's like, "No, it's not." "This ruthless industry has created far more bankruptcies than it has billionaires." That is a great line. "Saying no is the most important judgment you could make." So that is Francis' advice to us. What I... The reason that came up is because, you know, there's a lot of real estate billionaires, a lot of people that make a lot of money in real estate. But the pages that I'm on, when they're in the Great Depression, they are... Francis is right. Th- this ruthless industry is creating far more bankruptcies than it does billionaires. And so even during the Great Depression, he never left the real estate industry. He just kept working in it till he died. So at this point, he's a young man. This is what he's doing. He's a New York City real estate broker. He made his living, uh, by two ways. One, he was a negotiator for property owners trying to salvage their estates by renegotiating mortgages, and he also was busy scouting out increasingly scarce buyers for properties that the banks and insurance companies were doing their best to unload. Says, "Though I didn't always earn it..." This is the point. This is why I'm reading this to you. "Though, though I didn't always earn it, I managed to spend close to $20,000 a year during the pr- the Depression." So, so he'd spend 20,000 even if he didn't make it. You see? [chuckles] We're seeing a, uh, reoccurring theme already early into the book. "By the standards of the 1930s, we were af- affluent, but we were often broke." And so he is married. He's also this wild party, like, crazy guy. So as we can imagine, he's... This isn't gonna last very long. He's gonna go through his div- uh, this is his first wife, so he's gonna get divorced. "My personal life, though, was not nearly so successful as my, as my business career. It was becoming increasingly obvious to both Irma and me that we were mismatched. I thought of little else but working and then having a good time. We drifted apart, and I began to find other women increasingly interested, interesting, and a divorce seemed the only reasonable conclusion." And so then Zeckendorf goes back into his poor money managing, [chuckles] managing habits, unfortunately. "My road to affluence was erratic. I was often in debt, sometimes little more than two steps ahead of a sheriff, and forever scrambling for some way to turn an extra dollar. Whenever I did get a little money, I put it, I tried to put it to work. I led an active social life. I was especially fond of restaurants." This is the n- the, not the last time he's gonna say he's, like, having a hard time paying his bills. This is... I'm only 30 pages into the book, and this has already happened so many times that I wrote to myself. I feel I should quote James J. Hill here. Uh, what's so fascinating about sitting down and talking to Sam Zell is that every single person, this is not an exaggeration, every single entrepreneur from history that I brought up to Sam Zell, there's not one thing that I could te- Like, he knew who everybody was, even these obscure people. So I brought up, uh, in the flow of commentat- conversation, we were talking about something with J.P. Morgan and James J. Hill and the railroads and everything else. So I bring up James J. Hill. He knew exactly who he was, had read his biography, knew the name of his company off the top of his head. There was no notes in this entire time. No one looked at their phone the entire time. And so the, the reason I bring that up is because J- like, Sam Zell knows who James J. Hill is. Charlie Munger knows who James J. Hill is. Warren Buffett knows who James J. Hill is. This is who I actually heard. Like, I, I think I was listening to them either talk or I was reading their shareholder letters, and they're like, "Hey," they, they always... I think it might've been in Poor Charlie's Almanac, actually. They talk about the operators that they really respect and admire, and they kept mentioning this James J. Hill guy. So who the hell is James J. Hill? And so I wound up reading a biography on him. That was, uh, episode 96, I think. But the reason I, I got to this part, I'm thinking about everything that's went on in this book. I was like, one thing that stuck out in my mind, and I hadn't read... It says I read the James J. Hill back in 2019. This quote from James J. Hill I never forgot, so I wanna read it to you, 'cause what, unfortunately, Zeckendorf is not, uh, never, is not learning in the 1930s, and, you know, obviously he had a hard time learning his, his entire life. James J. Hill understood in the 1800s, and this is what he said. "Uh, if you want to know whether you are destined to be a success or a failure in life, you can easily find out. The test is simple, and it is infallible. Are you able to save money? If not, drop out. You will lose. You may na- you may think not, but you will lose as sure as you live. The seed of success is not in you." If you wanna learn from one of the hardest, most formidable entrepreneurs to walk the face of the planet, listen to episode 96. I really need to do, to read that, that book again. I, I, I, I don't think... You know, I'd only did 96 podcasts at that point, so I don't know if I did a, a disservice. Like, uh, I have a lot more practice now. Three times as much practice, so. But man, and, and read that book. That, that guy was absolutely incredible. He was the only entrepreneur that ev- if I'm, if I recall correctly, he's the only entrepreneur in history to ever successfully, uh, build a profitable railroad without going into bankruptcy first. The less successful, the less formidable railroad operators were actually easy prey for J.P. Morgan. It was interesting 'cause J.P. Morgan and James Hill would hang around with each other. They didn't really like each other, but they were kinda like frenemies and they would do deals and stuff. And so it's like financial success and financial, like, uh, fortress of cash, and a profitable company, which James J. Hill had, was like kryptonite to J.P. Morgan, 'cause J.P. Morgan would, [chuckles] he would, he would take over these, these crappily run companies, these over-leveraged companies, these people with, you know, C and B player entrepreneurs. And he did this

11. 47:57 – 59:42

    Joining Webb & Knapp and the Astor Break

    1. DSDavid Senra47:57

       so often and made so much money that they didn't call it reorganization of the railroads, they called it Morganization. So moving back to this story. He's doing, he's got about 12 years of just experience. He's got, like, this middling success. He's not really figuring things out, though he does have this good network. He knows, uh, the buildings and knows a lot of people, but he's not making a ton of money. And so essentially, like, where we're coming in this book is, like, he is 33 and frustratingly unsuccessful. Says, "The many dozens of business projects, schemes, and coups with which I struggled, although they ate up time and energy, did not seem to be getting me anywhere. In, by 1938, I felt..." Listen to this. I think every entrepreneur has felt this before. "I felt that all I was doing was scrambling up straight walls." Imagine if he would've quit here. And so he does a good deal with this other... There's a private partnership called Webb & Knapp, and he winds up, uh, we'll, we'll get into he, I think he fills up one of their buildings. And so he says, "When the rep- reputable, but if not very profitable firm of Webb & Knapp offered me a partnership, I accepted." So Webb & Knapp is the company. It's private. Eventually, he's gonna take it over. He's gonna buy out his partners for, I think, $5 million. We'll get there later in the book. Takes it public. That is the vehicle that he uses and it builds up, uh, and dominates, you know, for, for, in the '40s and, uh, all the way to early 1960s. But this idea. And again, I think, uh, learning from history is a form of leverage, right? 'Cause at 33, he is frustratingly unsuccessful, middling success. Think about a 30-year-old Sam Zell picking up this book, learning from using the, the life experience of Zeckendorf as leverage. Zeckend- or Zell was already at 30 further ahead than Zeckendorf was at 33. Obviously never went down the same path, like, uh, has sold his company for almost $40 billion. One of the most successful entrepreneurs to ever live. But just, I love this idea. Like, I... You know, seeing Sam Zell, he was 81 when I met him, and y- that's what he looks like. Like, you, like, that's a, an older, wise man, right? But that's not the Sam Zell that picked up this book. That always blows my mind when I, like I... People probably think I'm some kind of weirdo. [chuckles] Like, I go back and stare at, like, pictures of what they looked like when they were young, when they were the one, the version of themselves that built the success that the older versions of them get to enjoy. That's what you and I are doing right now. I just love that idea. I can never, um, I never stop, uh, I never stop thinking about it. So really when you think about Zeckendorf, he's a master salesman. This is what he was doing and how he came into Webb & Knapp. "In 1937, I had been the broker in the sale of an office building, uh, to Webb & Knapp. That, the, the next year when several major tenants moved out, the building began to lose money. Webb & Knapp asked me to bring in some new tenants. I was able to repopulate the empty floors rather quickly." Sounds like what he was doing for his uncle, you know, 15 years earlier. "They invited me to join the firm, and I accepted." What I... This is why I'm reading this sec- section to you. "What I brought with me to the company were 13 journeyman years of experience in the buying, selling, financing, and renting of New York real estate. I was familiar with almost every block of property in town. I also brought energy and personal drive. If some of my partners were rich, I was ambitious. I became the chief enthusiast." And he takes his enthusiasm to the club. [chuckles] I'm just gonna read this to you 'cause I just thought it was so funny. Uh, "We had a part-ownership of a nightclub. It turned out to be great fun. I had my own corner table with a phone, and for five years, I did as much business there as from my Madison Avenue office." I just love the fact this guy's in his 30s in Manhattan doing, uh, business out of a nightclub every night. That's just hilarious. And so this is the part of his life that's really important. If we were watching the movie, you'd pause right here, and you're like, "Oh, he's starting to figure it out." He's starting to figure out how to create value, but he's still low on money. But as long as he's focused on creating value, he'll get the money. And so at this point in the story, it's also obvious [chuckles] why this guy went bankrupt. So it says, uh, "We started drawing on our own modest capital." Webb & Knapp does not have a lot, bunch of money. Uh, "We began to do a bit of buying and selling of other people's properties where Webb & Knapp did not have the financial weight to swing a deal alone." So they don't have their own money, so what do they do? They syndicate. And so this is also something that, that Zeckendorf was really good at. He built a bunch of relationships and so, you know, he plays... I think he c- he says at one time in the book he played, like, instead of musical chairs, he played, like, musical banks. Um, so he, he would take money from, you know, all different kinds of banks, insurance companies, uh, wealthy families. Also would syndicate with people wanting to put money into real estate all over the country. And so this is the first, uh, mention of that. "We syndicated our projects with other investors, but my personal financial situation was unchanged. The check for my son's first term at school was returned with the notation insufficient funds, and my tailor was waiting payment for my last two suits." And so this middling success may have never changed if he didn't get his first big break. This is where he's going to work for the descendants of John Jacob Astor. That is the first multimillion dollar, mul- multimillionaire in the United States. When Astor dies in 1848, he was actually the richest man in America. Now check this out. So he dies in 1848. He had made money in, like, fur trapping, and then took that money and started buying a bunch of real estate in New York. So he dies 1848. Almost 100 years later by 1942, his family, his descendants owned $50 million of New York real estate free and clear. No debt. So 100 years later, and that's 50 million in 1942 money. Imagine what that real estate would be worth today. And so Zeckendorf and his firm are the ones that are actually gonna organize, reorganize all their properties. They're gonna sell off some. And this is where he's learning the, the, the value of brands. The ma- uh, a great brand is like magic. That applies to a family name just as it does to a company name. And so it says, uh, once they get the deal, it says, "On June 1942, we were engaged as exclusive consultants for the reorganization of the Astor's holdings. The next morning, the New York Times printed on the front page the story. The front page coverage made us overnight the most important real estate firm in America." First he goes into, like, the non-rational aspects of real estate and brands in general. "I soon learned that there was an invisible but tangible aura about the Astor properties that made them attractive." Remember this part for the very, very end, 'cause he experiences the reverse. So the Astors are, like, unbelievably valuable, has a great brand name. Eventually, Webb & Knapp, the brand name gets so bad, people just essentially waited for him to, to, to starve. Uh, it'll make more sense when we get there. But it's the reverse of what's happening, uh, in, early in his career. So he says, uh, they had an aura that the Astor properties made them attractive. If the great Astor Estate had owned them, they must have extra virtues because old Astor had been so shrewd. And so he goes to sell off some of these properties, but this is what I meant about he's really good at reacting to changes on the board. What does that mean? This is post-Hitler controlled Europe. A number of refugees who had come to Hitler, or had come to United States from Hitler controlled Europe Uh, these new buyers were far less interested in the total price of a property than what the actual down payment would be. A low down payment gave them maximum leverage for the inflationary rise in values that they were anticipating. So what did he do? Changed, he's increased the prices, right? Got more for the actual price, but l- uh, lowered the down payment. "I sold for very low cash down payments, but steep prices." Uh, on a sales price of, say, a million dollars for a property, that would have sold on the cash market for $400,000. So this might go for $400,000 if you had all cash. He's gonna charge you a million 'cause you don't have all cash, but you only have to pay $50,000 or less as a down payment. Then he didn't stop there. Then I would take the mortgage. Uh, "I would then turn to the mortgage companies and sell off my paper. When they asked what we wanted from them in cash, I would suggest $660,000. I would immediately follow this with the announcement that Astor would accept a second mortgage for the remaining $284,000 of the million d- million dollar price." I hate using numbers in audio, but I think if I read through this, you'll understand what he's doing here. "The fact that Astor would take a subordinate mortgage served as a psychological guarantee, making the mortgage buyers courageous enough to take our paper. Having then converted our paper mortgage into cash, we then went forth and bought more blue-chip properties at cash discounts, and then we repeated this process." If you read the book, we are on page 48 and 49 when they go into great detail about the numbers and what he is doing here. So that was his first good idea. His second good idea was the fact that he refused a flat fee. He wanted to bet on himself. "When we made our initial proposal regarding the management of the Astor Estate, I had refused a f- a flat fee. I explained that when we delivered, that he," which is the, the guy. What is his name? His name. This is, there's so many Astors. This is Vincent Astor that he's dealing with. Uh, that Vincent Astor, uh, could pay us what we were worth. If we didn't deliver, he didn't have to pay us anything. At the end of the first year, ooh, he, he enormously, uh, enorm- he tripled, essentially tripled, uh, the earnings from, uh, Astor's assets. So it says, "At the end of the first year, uh, he kept asking us to present him with a bill, and I finally did so for the amount of $350,000. When I presented my bill, Astor said, 'Pay him and send him a bunch of pl- a bunch of flowers for me.'" And then this is the third and maybe most important good idea that happens at, in this section and why I have so many highlights on just two pages. Because he realizes, so what you'll realize, like he's an outsider, right? Did not grow up wealthy. Dealing with one of the most weal- one, one of the most wealthiest families h- in the planet. And then he's like, "Wait a minute. I can play with these guys." When I got to this section, I thought of this, this quote of Larry Bird, uh, that I actually made a video of and play on loop. Kind of crazy, but, um, it's like a 20-second clip of Larry Bird that I play for like two or three minutes straight because I like what he says, and I'll tell you what I... I, I brought it up in the past, but let me tell you what he says. So he says, "My relationship with Astor gave me my first close look and contact with a world which becov- because of its wealth and exclusiveness, fascinated and attracted me. However, this world was not always, did not always capture my res- my respect. I found Vincent Astor quite amiable, sometimes humorous, but not very bright. If he had not inherited his great fortune, he probably could not have done much on his own. He lived in a very narrow, self-satisfied, but not particularly brilliant circle." And so there's a great line I thought of when I, when I got to that. "People muddy the waters to make them seem deep." When you're on the outside, it always looks more difficult. And so, uh, Larry Bird was reflecting back. He went to like this tiny little school for college. Goes into the NBA, and everybody's telling him like, "Oh, you, like you're not gonna be... Th- this is a different level. You can't hang with these guys." And Zeckendorf's like going, almost like going from amateur levels to the pros, and he gets into the pros. He's like, "Wait, I can actually hang with these guys." And so Larry Bird says, "Oh, they said you never played against a UCLA or a Notre Dame or an IU." They said he won't be able to get his jump shot off in the pros. He won't be quick enough. He won't be able to rebound. And he says, "It took me three days after rookie camp. I found out, hey, this league is nothing. I can play in this league, and I will dominate in this league." And so what Zeckendorf is realizing in real estate in the 1940s, Larry Bird is realizing in, in basketball in the late 1970s, early 1980s. I thought this was actually an interesting idea he had on the dangers of over-negotiating. And so sometimes he would just call. If he, if he knew what he was going to, wanted the property for, if he could, if they said, let's say he wants to pay, you know, $750,000 for a property, and they say, "I'll sell it to you for 750," he's like, "Okay, I'll just take it." He did not, he, he thought you were doing yourself a disservice. Like just you know what the value is, you know what you'd pay, and if they say that, don't try to keep negotiating down. "I don't try, I didn't try to bargain. I hate to bargain. In my judgment, a property is w- if, if in my judgment a property is worth the asking price, I see no reason to try for less. A lot of shrewd dealers think this is foolish, but I notice that others tend to lose more business and to poison relationships by trying to refine an already good bargain beyond a reasonable point. There is a much better flavor left in everybody's mouth when such haggling is avoided. I wanted the property, their price seemed reasonable to me, and so we were in business."

12. 59:42 – 1:09:26

    The Slaughterhouse Deal and the United Nations Site

    1. DSDavid Senra59:42

       And so then he's got an entire chapter on what was his most important deal he ever did. This is this thing called, he was gonna call X City. Winds up becoming, uh, the location of where the United Nations is, um, in Manhattan. And this is a wild thing. This is why I love reading history because, you know, obviously New York City is one of my favorite places to visit. And just this idea where [chuckles] if you were living there in the 1940s, like you could go d- to like a, let's say you wanna go see a show, you go to a theater. You come outside, and there'd be like a truck, uh, hauling cattle, uh, because the theater district was right next to all the slaughterhouses, and the smell, as you could imagine, [chuckles] is not good. And so he has this deal, and as he's putting together this deal, which is gonna go on multiple pages, I really think, I went back through all the highlights, and this is gonna happen over like six or seven pages. And I was like, you know what? This is really how Zeckendorf's mind worked, and this is where I think he had his most talent. Like the stuff that this guy had in his mind, and you could argue maybe he didn't have it, you know, full grasp on his mind considering like his business got so complicated it got away from him. But he was just able to hold all these different ideas And he winds up buying, like, 75. It's something like, I wanna say 75 different properties. And just the way he did it. So let's just jump into it. Uh, the slaughterhouses had been there for so long that they seemed untouchable, and so they're owned by this company called Swift and Wilson. Since the Swift and Wilson meatpacking companies who own the slaughterhouses held an irrevocable, uh, and profitable franchise to operate in Manhattan, there seemed little hope of ever getting them out. So it was unpleasant for the people that are visiting there. He's like, "Hey, can we do something with this?" So he winds up meeting a real estate broker who says, "Hey, I'm actually married into the Swift and, uh, uh, Wilson family, and if you can get a buyer at $17 per square foot, we're willing to sell." Uh, so it says, "Dunbar had..." That's who he's dealing with. "Dunbar had approached us first." This is really, really important. This is something that pops up over and over again. You gotta figure out how. If your, if your business is, is getting look at the best deals first, whether you're buying companies, making investments in early startups, whatever it is that you're doing, you gotta figure out how to get the best... You see the best deals first. This is something that, um, like, obviously Charlie Munger and Warren Buffett have mastered. Uh, Sam Zell, and when we had lunch, he was talking about the fact that he was invited into certain deals because of how well-known he was in Chicago in, like, the, in the 1980s, which was a fascinating story. And the same thing is happening to Zeckendorf here because this previous association with the Astors, people are like, "Oh, the Astors think that Webb and Knapp and Zeckendorf is the guy." So essentially, they, they outsource their decision-making to other people. I guess the more, more, uh, main point here. Dunbar had approached us first. Thanks to Webb and Knapp's growing reputation, we were getting more and more such first offers. And so then we get into how his mind works. I thought to myself that at $17 per square foot, the property would cost $6.5 million. But with the slaughterhouses gone, I was sure the price could jump to 50, 75, or maybe even as high as $100 per square foot. So he's paying 17, which is expensive now, but he's like, "Okay, that's expensive for what it is now, but not what we can turn it into." That's why he ta- always con- refers to himself as an entrepreneur, finding ways to increase the value of, of what he's working on. Then there were the value-depressed properties around the slaughterhouses, right? You're not gonna have many people that want [chuckles] to deal with the smells and all the stuff that comes with that, which would also rise in value from a two and $5 per square foot base. So I said, "Let's kee..." He's telling Dunbar, "Let's keep this off the market for a while." And this is the deal he puts up. He never has any money. Just never. Like, this never... [chuckles] What he's about to do here, he does over and over again. Uh, we would put up a million dollars for a one-year option against the total $6.5 million price, okay? So he, he's putting up a million. They want 6.5 million. He's like, "I'll give you a million." At the end of the year, we have to pay the remaining $5.5 million. He doesn't have that money. In the meantime, the packing companies would quietly make arrangements to relocate, and the arrangement between us would be kept secret so not to precipitate a price rise land rush in the area, which is what he's gonna go do. Then he's gonna go around and buy all these other properties, right? The next problem was where to find $1 million in cash. So not only does he not have the 6.5 million, he does not have the 1 million, [chuckles] much less the other 5.5 that he's gotta come up with in 12 months from now. He gets the $1 million because he says, "I solved that $1 million problem by forming a syndicate," remember we mentioned this earlier, "consisting of ourselves, the Chicago financier, and two New York real estate speculators. Now that we have the slaughterhouse option in hand, we needed as much of the other land surrounding them as possible." And so that's why he hires these three or four, uh, different properties, brokers, and say, "Buy this up on the low. We don't want, you know, people to find out what we're doing. They'll jump in advance of us." We picked up about 75 properties, an average of $9 per square foot. Remember, he thinks, "Hey, this might be worth 50, 75, $100 square foot, square foot." These individual purchases were financed by local banks and insurance companies. So he's doing all this. He's calling it X City, but he doesn't actually know what it's gonna be. So the next thing we determined was what should we do with the parcel of the land that we assembled? And this is where the randomness of life comes in. Suddenly, a new, totally unexpected possibility developed. In 1946, the United Nations had been plagued and perplexed by the problems of finding a permanent home, and it suddenly clicks with Zeckendorf. He's like, "Oh, it occurred to me that we actually have the ideal site for the UN." And so Zeckendorf was plugged in with not only the business community, but also politicians. Uh, th- this is hilarious. This is what I wrote. Doing big deals while drunk. He's at this party. He's drunk on, [laughs] he's drunk on a ton of champagne, and the guy that's negotiating for the United Nations is there, too. So they wind up hammering out this deal, and he's like, "Listen, I paid $6.5 million for the slaughterhouses. What would you offer for them?" And the guy's like, "Would you sell it for $8.5 million?" And he's like, uh, he's like, "Yeah, deal." And then he goes, "I had a lot of champagne by that time." So he wakes up the next day not realizing. He's like, "Did that really happen?" Which is hilarious. And he gets a call, and he says, "Yeah, they're gonna give you that, uh, $8.5 million to the UN, and they're gonna take your property." And then he says, "The property was being purchased!" I couldn't believe it. And then he s- uh, then he leaves the office, and he goes, "I carried my hangover home." And so I think it's obvious by now this guy's default aggressive. He's full... Like, he's got one speed, and he's always on. His partners get really uncomfortable with this. His partners actually, at Webb and Knapp, they wanna break up, and so this is where he's gonna buy them out, which is fascinating is the way he frames this 'cause the chapter that, where this is going on, it's called End of an Era, Start of a Reign. And so their first suggestion, like, we should just, you know, liquidate the business. We'll sell off all their assets, and then we'll divvy up the cash. And so he says, "At first, I was upset by my partners' decision to liquidate." This is gonna re- uh, remind you, uh, and I of one of our favorite aphorisms. Problems are just opportunities in work clothes. At first, I was upset by my partners' decision to liquidate. My partners felt that Webb and Knapp should assume a more conservative and more comfortable role. I, on the other hand, was bent on a new program of speculative growth. I began to see in their departure not so much potential trouble as a fantastic opportunity. I bought my partners out for over $5 million. And so to get that 5 million, he doesn't have the 5 million, as we already know by now. So he's gotta go deep in debt. And he says, "I was the sole owner of the company. I was also deeply in debt, but never, except for rare moments, have I ever had my head very far above the financial water, and never have I let this trouble me." And for, I mean, that [chuckles] it's interesting, like, that he says that 'cause, you know, obviously that, that kind of thinking's gonna lead to bankruptcy eventually. I was still dissatisfied. I wanted to do more. So he's like, "Okay, well, how am I gonna pay back the... I wanna not only pay off this $5 million, but I wanna expand." So he does this reverse merger with another holding company, and that's how he gets Webb and Knapp to be public. He says, "I now had a publicly listed company." I now had a vehicle for my ambition and started on phase two of my career. And when he says phase two, he means that. I've read a ton of books. This is the first time ever. So once he's a public company, he starts the book again with a prologue. So there's three, there's three parts to this book. Every single time, there's a prologue where it's like, okay, this is a line of demarcation, like this is a change in my life. I don't think I've ever seen this before. And so he starts off telling us what part two is going to be about. This is actually a great metaphor, what he's about to say here, and I think it works with relationships and it works with biographies too. So it says, "Just as a man living in a mountain valley sees and is closely aware of only a few of the nearest great peaks above him, so it too is it with a man comfortably settled at some modest elevation in our own society. If he begins to climb," he is describing himself. "If he begins to climb, however, he will soon notice from his new perspective that there are actually a great many peaks on all sides around him." This is really, really important. "What is more, once he has reached a high enough altitude, he will discover something else. He will see that many of the greatest peaks are interconnected by high ridges or narrow plateaus. At this new level, they are readily accessible, each one to the other." Right? This is about relationships at the top. "Part two of this book is an account of my travels and dealings among some of the denizens inhabiting the elevations and peaks of American society." Why is that important? Because these people have resources and power, and they make things go so much faster. The importance to me of being on the heights was that in an hour I could achieve what previously would've taken a year or more of effort to perform. And so one example of that is when he was trying to, to figure out, uh, to close the deal w- with the UN. Like it's, h- it helps if you can call the mayor of New York. And then he gives advice on how to actually attain and to g- to scale up to these peaks. One way to succeed is by aiding and supporting the position of others through new or ingenious ideas or projects. This usefulness to others is in large part the reason for my own acce- uh, my own success. To me, the best path to wealth is what Henry Ford said, "Money comes naturally as a result of service." The focus should be on making the lives of other people better, and then you'll be able to capture some of that value. Money comes naturally as a result of service.

13. 1:09:26 – 1:14:14

    Mountain Peaks, Service, and the Hawaiian Technique

    1. DSDavid Senra1:09:26

       And so let's go back to this idea that to read this autobiography is to have this one-sided, you know, 10 or 15-hour conversation with Zeckendorf. And what Zeckendorf does wonderfully is he doesn't hide who he is. He knows he's unapologetically extreme, and he just has to follow his natural drift. So he's 50 years old, and he says something like, you know, we're about 10 years from him going broke, or bankrupt rather. And he's like, "Listen, I could have settled back as a multimillionaire and a property holder." That's it. I'm made in life, I'm rich, own some properties, just chill out. But with all... With so many useful things waiting to be done, I no more knew how to settle down to mere money counting than a bee in a clover knows how to doze in the sun. I lived and loved a hyperactive 16-hour day. And it is this point when he is 50 that he comes up with his greatest idea. This is known as the Hawaiian technique. There is a ton of detail, 'cause this is gonna go over. If you buy the book in the index, just go to Hawaiian technique and you can actually, um, you can actually like go right to the sp- I mean, I read the whole book, but I think buying the book and just reading the, the like six or seven pages, whatever this is, on the Hawaiian t- technique are so, um, important. I actually found great, um, summaries of it. So first I wanna go to why I'm reading this book and to begin with. This is where before I met Sam Zell in person and at lunch, I had read the au- his, uh, autobiography obviously, and I had bought the book. Um, and so obviously I mentioned I had bought the book and he's like, "Did you read it?" And he's like... And I was like, "No." He's like, "Read it." And so [chuckles] that's how we arrived at where we are right now, right? And so I wanna read to you from Sam Zell's wonderful autobiography, which if you're listening to this, I assume you already read or at least listened to the podcast I did on it. It's episode 269 if you haven't, but I'd buy the book too 'cause it's absolutely excellent. And so this is what he's saying. He's gonna describe, he doesn't call it the Hawaiian technique, but this is what he's talking about. And so this is what Sam Zell says. Remember, this is around 1971, so Sam would have been around 30 years old. Around the same time, uh, I had read the book Zeckendorf: The Autobiography of the Man Who Played a Real-Life Game of Monopoly and Won the Largest Real Estate Empire in History. It reinforced the approach of viewing the whole through its individual pieces, but at, but for a different purpose. Zeckendorf was perhaps one of the greatest real estate developers of the modern era. Zeckendorf's autobiography was packed with colorful stories, but what fascinated me most was his strategy. Zeckendorf viewed assets as a sum of parts, so he could increase the value of the whole. Various parts were more valuable to different buyers, so Zeckendorf could maximize the value of his holding overall, in effect making one plus one equal three. For example, One Park Avenue in Manhattan, which the marketplace had valued at $10 million, was ultimately worth 15 million in Zeckendorf's hands. He calculated everything separately: the building's title, the land, the leases, the individual mortgages. I thought this was brilliant. I adopted the approach both inside and later outside of the real estate industry. And so at the time I was rereading my highlights from Sam Zell's autobiography. I had somebody by the name of Daniel K. Ludwig on Twitter send me a message. Now this is hilarious because if you ask like the random entrepreneur on the street that doesn't listen to the Founders Podcast, they're not gonna know who the hell Daniel K. Ludwig is, even though he was at one time the richest man in the world. You and I know him by the term the invisible billionaire. It was episode 292 and episode 68. And so this anonymous account on Twitter named Daniel K. Ludwig sent me this message. It was interesting. He says, "Zeckendorf, both Zeckendorf and Ludwig are my heroes." But Zeckendorf went bankrupt in the end, being over-leveraged, whereas Ludwig's foundation and operations are still running. And so he had sent me a summary of the Hawaiian technique. And so there's three paragraphs on this to add to what Sam Zell just told us. In fact, some of Zeckendorf's financial maneuvers anticipated some of the highly aggressive financing in the recent real estate market. For example, for example, there was his Hawaiian technique, which he claimed in his autobiography to have discovered while fishing on a Hawaiian beach. The theory had to do with breaking up a property into various components, which is what Sam Zell just told us, right? Its ground leasehold, its fee position, its operating leasehold, and a residual position, and seeking out various investors for each. Zeckendorf thought about the idea of diversifying investors, finding investors who are not just bankers or insurance companies, but actually going out to the public to find local investment. And this is how Zeckendorf wraps up the section on Hawaiian technique. The Hawaiian technique was so flexible that it became a very powerful tool. The Hawaiian technique became the principal tool of the web and nap expansion. And so then I have to tell you about this absolutely bizarre encounter with Howard Hughes. There's a bunch of people in the book, uh, that I've done podcasts on that are these eventual historical figures that are still alive. Howard Hughes is the first

14. 1:14:14 – 1:23:21

    Howard Hughes, Joseph Kennedy, and the Cutthroat Lesson

    1. DSDavid Senra1:14:14

       one, and this is the longest section because he's just such a bizarre person, and I thought this story was hilarious. Uh, Howard Hughes was an indu- is an industrial genius and paradoxical man and has been phenomenally successful. He has produced some disastrously costly movies. He's also known as a famous Hollywood Don Juan who collected and discarded beautiful women the ways boy- the way boys collect and discard model airplanes. For the past 20 years, he has also managed to live as a traveling recluse. He deals with his various company managers only intermittently through obscure intermediaries, midnight phone calls, or summonses to secret out-of-the-way meeting places. He, Zeckendorf, is going to be summoned by Howard Hughes. Just, this is the most bizarre, the, the most bizarre story in the entire book. And so through one of Hughes' friend, and you can use that word loosely, this, this guy named Spiros. Spiros is, like, as much of a friend to Howard Hughes as Howard Hughes could have, right? Uh, Howard's, like, thinking of, "Okay, I'm gonna d- what if, like, what's the price? Like, can I sell off everything I have?" And Zeckendorf's really interested in that. He teams up with, uh, some of the Rockefeller families. And so they're like, "Okay, there's, like, this super secret w- way you have to meet Hughes." And so we're gonna pick that story up here. Rockefeller and I flew out to Los Angeles, and we met Spiros. We lunched at the Beverly Hills Hotel. Uh, we found ourselves programmed into a script that only members of various underground organizations like the CIA could take seriously. At precisely 1:30, Spiros was to get up and take a taxi cab to a predetermined place where he would be met and then taken to the rendezvous. At 1:50, Rockefeller and I were to go to a certain intersection where a man wearing a red shirt [chuckles] would contact us and drive us to the rendezvous. The meeting was then to be attended by Spiros, Rockefeller, and me. So they get in the car. After a time, we found ourselves in a seedy section of town. We soon stopped in front of a flop house. The building was now being patrolled by four or five young, neatly dressed men with crew cuts. These were Hu- Howard Hughes' Mormon entourage. They escort everybody into the building. They go to the top floor. Our escort rapped on the door with a distinct pattern of knocks. The door opened, and there stood Howard Hughes. He had a three-day growth of a beard, wore a V-neck shirt, soiled trousers, and dirty tennis shoes. It only gets weirder in conversation. They start talking. He says, in the most casual way, he asks, "So what do you fellows want?" Since it was Hughes who had approached us through Spiros, and since polite indirection had done nothing for me in previous meetings, I decided to be blunt. "Howard, you know damn well what we want. We didn't come 3,000 mire- miles to admire your old trousers or because we like this part of town. We came here to buy. I was told that you were ready to sell." And so this goes on for a while. Zeckendorf tries to close him. He's like, "Listen, I have in my hand a cashier's check." Then this is the f- the interesting part. He tries to hand him the l- the letter, uh, the guaran- letter of guarantee and a cashier's check, and then he freaks out. He's like, "Don't ask me to touch it." And so he's, like, afraid of bacteria. And then they go back and forth for a while, and then, then Hughes says, uh, "I will not take this." "Why not?" "It's not enough." "What is enough?" "I won't tell you." "Do you want to sell?" "Under certain circumstances." "What circumstances?" "If the price is right." "What is the price?" "The price that you might offer me. If it is enough, I will sell." Then Zeckendorf asks, "Are we $50 million apart?" Hughes said, "No." "Do you mean it's less?" He said, "No, I mean more." For a man who supposedly wanted to get down to serious business, Hughes was acting like an original coy mistress. But I kept trying. "Are we $100 million off?" "Are you offering it?" "No, I'm asking you." He said, "I told you I won't tell you." "All right, I'll find out. I'm offering you 450 million. Will you take it?" "No." "Howard, what do you want?" "I won't tell you." "Howard, take it or leave it, 500 million." He said, "I'll leave it." And then it gets even weirder. Uh, Hughes says, uh, "I'll tell you what we'll do. I don't wanna talk anymore today. We'll all go down to Las Vegas, and we'll talk down there." And so this is the plan Hughes comes up with. And then as if we were 10-year-old members of some secret membership club, four grown men, who among them commanded or could influence a significant share of American wealth, sat there as Hughes programmed a properly secret rendezvous. And this is what he wanted them to do. We were to meet Hughes at midnight at a semi-abandoned airport on the outskirts of Los Angeles. He would fly us to Las Vegas, but it w- but would arrange that we would be driven to town in separate cars. Once in Las Vegas, we must go directly to our rooms. Under no circumstances were we to leave them during daylight when we might be seen and start rumors. And what's even weirder is they all flew on the same plane as if they couldn't talk on the flight. Instead had to do this, like, weird rendezvous. So as you could imagine, this deal never, uh, wind up working out. And this went on for page after page after page of just bizarre interactions with Howard Hughes. So then there's this interaction with a New York family called the Reids. They own, at the time, uh, a New York competitor to The New York Times. It's called the New York Herald Tribune. And what, what Zeckendorf realizes here is this play that Joseph P. Kennedy is trying to do against the Reids, so JFK's dad, the one that made the Kennedy family rich. I read a biography of Jo- Joseph P. Kennedy years ago. I think it's episode four of Founders, and it's, like, 700 or 600-page book called The Patriarch. It's absolutely... It's-- The book is actually incredible. But this section made me think of one of my favorite scenes from Game of Thrones. I just re-watched, over the last few months, the entire series of Game of Thrones and would take notes on lines or, or, or insights to human nature that appeared. And so there's something in this, uh, in the last season of Game of Thrones. I've mentioned it before on the podcast. I just wanna bring, bring it to your attention again because it's something I also see in the history of entrepreneurship. And it's this cutthroat, which is this guy that came from the outside, the outskirts, and thr- his name is Bronn in the series, and through the series, we see him constantly, like, climb his way up. And so at the very last season, he was hired by Cersei Lannister to kill her brothers, Jaime and Tyrion Lannister. He goes, the cutthroat, Bronn, goes and says, "Hey, my s- your sister wants you dead. You told me a long time ago if anybody ever, uh, hired me to kill you, that you'd always pay me more. I want you to give me, if you guys win this war, I want you to give me this castle and this land called Highgarden." And so there's a discussion where Jaime says back to him, "Highgarden will never belong to a cutthroat." So that starts what is one of the most important, you know, sayings or paragraphs in the entire series. And Bronn is really talking about, like, how wealth is built. And he says, "No." He says, uh, "Highgarden will never belong to a cutthroat." "No? Who were your ancestors? The ones who made your family rich? Fancy lads in silk? They were cutthroats. That's how all the great houses started." And so we know about JFK, RFK, the Kennedy family dynasty, and everything that turned, that, that happened after it. But Joseph P. Kennedy was a cutthroat, as we'll see here. The Reids were then the owners of the New York Herald Tribune. "Early in the fall of 1956, I received a call from Mrs. Helen Reid. 'Bill, I need your advice. Would you recommend that I sell my plant,'" where her, her newspaper is, "'for $1.75 million and then lease it back?' I said, 'That depends on the terms of the lease and how badly you need the money.'" So the Reids are in a, they were at o-one point affluent. They're in a bad financial spot. "'The interest would be 8%,' she said. Since at that time money was averaging between 4% and 5%, I told her it was a low price for the property and a very high rate of interest." So he sees, okay, that's a weird deal. Why would somebody be offering this? You know, she built a newspaper. She's probably not, like, some kind of financial genius. And so Zeckendorf's gift is being able to read between the lines. He's like, "Okay, well, that's a very low price for your property and a very high rate of interest." "So then I asked her, 'Who are you selling to?' 'I don't know who I'm selling to.'" And then he says, "Who's the real estate broker?" "It's John J. Reynolds." He knows that John J. Reynolds is the real estate broker that Joseph P. Kennedy uses. He also knows because he's, he knows everybody in the, like, the, the important figures in American business, uh, at this time in history, right? "'In that case, Helen, uh, I'm going to ask you a very simple question. Would you sell your newspaper to Joseph P. Kemen- Kennedy for $1.75 million?' 'What do you mean?' she said. I said, 'He's your customer.'" And this is the, the cutthroat part of it, right? "'He is giving you just a little less money than you need to force you to go broke. He has set the interest rate just a little too high to make sure that you do. Not only will he have your plant, but he will also have your paper, all through a very low-cost real estate purchase.' She says, 'Do you really think that?' He says, 'I don't think it. I know it.' 'How do you know that?' she asks. 'Because that's the way Kennedy does business.'" And so that insight by this fictional character, Bronn, in Game of Thrones is something I see over and over again. "Who were your ancestors? The one that made your family rich? Fancy lads in silk? No, they were cutthroats. That's how all the great houses started." What's so fascinating to me is this book is almost 300 pages, and yet the entire downfall, because I think it is so painful, and I think that's exactly what he says, he says the, the, the downfall could be an entire 'nother book. It's only, like, the last, like, 10 pages. And so this is where it's like these are all notes to myself.

15. 1:23:21 – 1:30:03

    The Downfall: Indigestion, Reverse Brand Aura, and Never Despair

    1. DSDavid Senra1:23:21

       It's like, "David, do this. That's a good idea." Or, "David, avoid this." And you just see the same thing happen over and over again. I'm gonna go through a couple of the reasons, and it just starts to unravel. Like, his business got too much, d- uh, way too complex. But a couple weeks ago, I, I read the bi- the autobiography of David Packard. And, you know, back in the 1950s, he said something like, "More businesses die from indigestion than starvation." And it's amazing how many times that is proven to be true. Zeckendorf's business went bankrupt not from starvation. It went s- it bankrupt by indigestion. "By now it was 1960, and Web and Nap, Nap had spread thin over a variety of projects, all of which were crying out for cash. Part of the problem may have been that we were already doing so much in so many other places." That is another sentence, uh, on ano- another page. He just said, "Listen, we're r- by 1960, we're super spread thin. We got a ton of projects. Most of them are draining our bank account. They all need cash." So and he, then he says, "Well, part of the problem is that I'm doing too much in too many other plac- places." The distracted do not beat the focused, right? What does Steve Jobs tell us? Focus is saying no. Unfortunately, Zeckendorf saw every deal, and he just took it. And when I'm thinking about this, I'm also thinking about the difference between, like, avoiding, like, who are the people that successfully avoided Zeckendorf's fate? Obviously, I've been s- eyeballed deep in Munger and Buffett lately, and I just remember what they say. It's like you always have a fortress of cash. So then we go back into this idea of, like, more businesses die from indigestion than starvation. "Like buds on a prize rosebush, all these and dozens of other projects had not fully profitably blossomed as of yet." So what does he mean? I got dozens, dozens of projects with money tied up, debt on those things, and they're losing money every month, every year, and it's just draining, draining, draining. So then what do I do? I go out and borrow more money, then Can't pay some of the creditors, and this all, th- this house of cards, unfortunately, is gonna fall. And he says, "We borrowed more and more and more. We took first, second, and third mortgages and any other kind of in, of debt possible." That is a crazy sentence. Then he gets into bad deals. He winds up backing this thing called Freedomland. And part of the problem with Freedomland is, one, this guy's no Walt Disney, as we're about to see. But you're also jumping on a trend. So what do I mean there? The idea of Freedomland was a, as a fallout from the explosive success of Walt Disney's fabulous Disneyland. So it says, "C.V. Wood had worked with Disney on Disneyland. He had convinced himself and a number of other people, including Zeckendorf, that Disneyland's success was really a matter of Woods rather than Disney's idea and management." And the difference between Disneyland, which is fabulously successful, and Fr- [chuckles] a product of Walt Disney, right? And Freedomland, the product of C.V. Wood, is as follows. "Year after year, till it closed, it siphoned away Webb & Knapp's funds and credit for a total drain of $20 million." And this is a series of events that lead to the beginning of the book, where he actually goes bankrupt. "I have not the space in this book, nor the heart at this time, to go into a detailed description of the last days and final foundering of Webb & Knapp. I was and still am too close, too intensely and emotionally involved in those events. It is a tale of minor ventures devised to stave off disaster while we prayed to put together one or more major projects that could finally begin to pull the company back together. Exactly when we moved from a hopeful position into a desperate one, I cannot say. If any alarm bells rang, I did not hear them." When I got to that section, in the back of my mind, there's two quotes that we've learned on the podcast recently. "Wisdom is prevention," Charlie Munger. The wise people don't solve problems, they avoid them. Wisdom is prevention. And then on episode 275, Paul Graham, "Be hard to kill." Unfortunately, Zeckendorf was not able to prevent this, and he was easy to kill, as we're about to see here. "An ag- unexpected combination of trends and events, coupled with our own actions, caused us to founder. We had losses rather than income on our books during these stretched-out periods. Instead of producing income, we were burning away our financial resources instead. Our hotels drained away cash we didn't actually have. Freedomland was running at losses. Roosevelt Field was not making any money. We held numerous other properties. These later were sold off as best as we could, but now was running into an ironic," this is what I mentioned earlier, "an ironic reverse of what went on during the first years of my career. In the 1940s, when we were handling the Astor Estate, the very fact that we owned a property, that we owned that property, gave it a certain name and glamour which appreciated its market value. But in the 1960s," so this is a good, the difference between a great brand name and what's happening is his brand name is soiled. It means it's signaling to the market something else, right? "The, uh, the very fact that we owned a property gave it a certain name and glamour which appreciated its market value. But in the 1960s, that a beleaguered Webb & Knapp owned a property was a signal to some potential buyers to hold back or bid low in the expectation that in our eagerness for cash," the opposite of having a fortress of cash, which Munger and Buffett and Zell have, right? "In our eagerness for cash, we would hold a fire sale. The sharks, sensing the distress of our situation, kept circling. The fall of Webb & Knapp, when it came, was an upsetting, ego-devastating event. But in a way, it was also a relief. I was like a man let out of jail. The ordeal was over. The increasing pressure of the three years was finally off. I had no intention of beno- bemoaning the past. My son Ronnie and I and a handful of old employees set up a new company, uh, called General Property Corporation and went into business. Within a year, we were making money. The Zeckendorfs were alive and well and very much in the real estate. We were severely limited in capital, but we had brains, experience, and contacts. In good time, I have come to realize that since the fall of Webb & Knapp, I have been privileged to live and to savor a second life and a second career. How many other men get such an opportunity I do not know, but I am grateful for mine. The job now is to select among the possible choices and get to work." I really like his perspective at the end of the book. It reminded me of Mozart's personal motto, which was, "Never despair." That is where I'll leave it. For the full story, I highly recommend, and Sam Zell recommends as well, reading the book. If you buy the book using the link that's in the show notes on your podcast player, you'll be supporting the podcast at the same time. That is 298 books down, 1,000 to go, and I'll talk to you again soon.

Episode duration: 1:30:04