Sam Zell's Bad Calls

The jury is still out on Tribune Co., but the Chicago real estate billionaire has a history of bad investment decisions

Despite his reputation for being a far-sighted trend-spotter, real estate tycoon Samuel Zell has had his share of investment duds. In particular, he has failed to detect when technology is about to overturn the old order, as it is today in print media companies such as Tribune Co.

In 1998, Zell made what he now acknowledges was his worst deal ever, paying $45.5 million for a 33% stake in what was the country's biggest pay-phone company, Davel Communications Group. He also became a director. Within a year, Davel began losing money as the spread of mobile phones undermined the coin-operated phone market; its stock became essentially worthless, trading for a few cents a share until a rival scooped it up in 2004.

Could Zell be repeating this mistake at Tribune, which he took over last December, and which is losing advertising and readers to the Internet? "I don't think the situation we're in today is similar," he said in an interview with BusinessWeek, "although the first six months seem frighteningly familiar."

More Miscues

The Chicago billionaire also got blindsided by the dot-com bust. He sank millions of dollars in the late 1990s into a couple of startups that were stringing fiber-optic cable in office buildings for high-speed Internet. In 2001 both companies imploded and went out of business.

Yet even as they were sinking, Zell's Equity Office Properties forked out $4.5 billion for the top office landlord in San Francisco and Silicon Valley, Spieker Properties. The value of these newly acquired assets tumbled almost overnight and turned Equity Office into a laggard among real estate investment trusts for years. "That was an example of Sam trying to catch a falling knife," says a former associate. Zell got nicked.

Among other duds: American Classic Voyages, a cruise-ship line that went bankrupt in 2001, costing Zell more than $100 million personally.

No Buck-Passer

But while he seems to have a short fuse when questioned publicly—he is prone to use profanity—Zell has taken the losses in stride, say those who know him. As long as Zell believes he was fully informed by his lieutenants before he makes his calls, he doesn't look back or point fingers if things go sour, they say. "He's very supportive," says the former associate. "He doesn't shoot the messenger. He doesn't try to push off the blame."

Mortimer Zuckerman, chairman of Boston Properties (BXP), agrees: "This guy has been through more business problems than I have by far," says Zuckerman—who, like Zell, has also branched out into the media business as owner of the Daily News and U.S. News & World Report. "Some go up. Some go down. He just deals with it."

Or as Zell puts it: "My head doesn't do a 180. I only look forward. I have no remorse about anything."

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