A taste for distressed assets

He's about 5-foot-5 and has a bald dome and a beard like an Amish farmer. He revels in the nickname he gave himself years ago: "the Grave Dancer."

At 65, Chicagoan Samuel Zell is still apt to arrive at a cocktail party by motorcycle and walk in wearing blue jeans and a Chicago Bears jersey. He thinks like an economist but can talk like a dockworker. He has vacation homes on the beach in Malibu, Calif., and on the slopes in Sun Valley, Idaho, where people say he skis like a maniac. He's also a paintball fanatic who Forbes says is worth $4.5 billion.


Zell has a lot on his plate. On Wednesday, in the second-biggest leveraged buyout in history, he sold his Equity Office Properties Trust commercial real estate empire for $23 billion to Blackstone Group, a New York private equity firm.

Now he's reportedly in the hunt for Tribune Co., the Chicago owner of the Chicago Tribune, Los Angeles Times, The Sun, and other newspapers and TV stations, along with the Chicago Cubs baseball team.


Zell, the son of Polish-Jewish World War II refugees, is all about buying at the bottom. He's the Grave Dancer because of his history of snapping up distressed properties - assets so out of favor nobody else would look at them. He specializes in real estate, but has owned companies as diverse as Schwinn Bicycle Co. and Chicago's Midway Airlines.

One Zell acquaintance joked that there would be a conflict of interest if he got involved with Tribune, because he also holds a minority stake in the Cubs' cross-town rival, the Chicago White Sox.

Zell pulled off a signature "vulture-capital" deal in Los Angeles in 1991, spending $280 million for bankrupt Carter Hawley Hale, parent of Broadway department stores. He sold the still-struggling retailer to Federated Department Stores Inc. four years later for $373 million. An even bigger coup was a Zell-led investment group's 1996 purchase of Two California Plaza in downtown Los Angeles for about $80 million, less than it had cost to build the 52-story tower four years earlier - and about one-fifth of what it's thought to be worth today.

Does Zell see Tribune as another distressed asset? "If he's interested, he sees value there," said Gary E. Mozer, managing director and principal of George Smith Partners Inc., a Los Angeles real estate investment bank.

Zell himself wasn't saying. He did not return a call for comment Wednesday. Tribune also declined to comment.

Stan Ross, chairman of the USC Lusk Center for Real Estate, said that Zell, in his bottom-fishing days, never bought junk.

"The ones who were distressed were the owners or the banks, not the properties themselves," said Ross, a real estate accounting specialist and former vice chairman of Ernst & Young who has known Zell for years.

One of Zell's talents has been finding "motivated sellers," Ross said.


Tribune's attempt to sell itself in an auction has been something of a bust, with the two main bids coming in at values that some analysts consider below where the stock is trading. Tribune shares closed down 3 cents yesterday at $30.92.

One offer, from California's Chandler family, Tribune's largest stockholder group with 20 percent of the shares, would spin off the 23 TV stations to non-Chandler shareholders. The Chandlers would be left with the 11 newspapers, presumably to be sold off piecemeal at a later time.

News Corp. Chairman Rupert Murdoch, in a call with analysts Wednesday, confirmed his interest in joining the Chandlers' bid. He said he hoped to save money by merging back-shop operations of Tribune's Newsday with his New York Post.

Another complex offer, from Los Angeles billionaires Ron Burkle and Eli Broad, a former real estate magnate who knows Zell - would keep the company together but would involve borrowing heavily to pay Tribune shareholders a $27-per-share dividend.

Gannett Co., the nation's largest newspaper chain, has continued to show an interest in Tribune despite its failure to submit a formal bid. The company has considered taking a stake in Tribune, rather than an outright purchase, said one person familiar with the auction, who added: "They're still circling around, but I don't know that their proposal has any legs."

The person, who asked not to be identified because the process was confidential, described Zell's proposal as "not yet as fully baked" as other offers and "even more complicated than Broad and Burkle's" bid. The Chicago Tribune reported Wednesday that Zell had proposed taking an ownership stake in the company and having the company obtain loans to pay out a big dividend to shareholders.


According to the person who spoke Wednesday, Tribune intended to give Zell's proposal a full hearing, but there was trepidation about such a late bid because the process has dragged on since mid-September.

The seven-member special committee of Tribune's board that has been overseeing the auction is slated to meet early next week to resume deliberating over the proposals.

"The question for the board will be: Are you prepared to spend a few more weeks chasing something that may or may not be something you want to do when other offers are more teed up?" the source said. "Everyone is pretty focused on coming to a solution."

Thomas S. Mulligan and James Rainey write for the Los Angeles Times.