Success is about making a difference

Known for being a real estate mogul and a philanthropist, Richard Ziman is a man who has always looked at the future. His passion for changing the world centers on education, and his mission is about passing on knowledge and creating things that last, even though buildings last a short time compared to this view of the future. For five full decades he has been defined by his admirable efforts to give back to the community in all shapes and forms. Even before he became a Real Estate Titan, Richard Ziman was investing in social causes. Investment in the world around you pays back dividends.

In recent years, things have come full circle, and now more young minds can learn about real estate at the UCLA Ziman Center for Real Estate—a powerful institute of learning funded by an endowment from Richard Ziman himself. He still sits on the boards of UCLA, as well as other universities, so that he can continue to pour wisdom gained from decades at the top of the real estate game into the next generations.

Every human has a moral imperative to make the world a better place, and this Titan lives up to that obligation. As a lifelong philanthropist, Richard Ziman has donated to many amazing causes from medical research to education around the world. Through education, anyone can be raised out of poverty and into a position where they can affect the world around them.

The Early Days

Long before the idea of real estate entered the picture, I planned to make my father proud by becoming a dentist. I attended the best dental school in the entire country, but I left after two days. After realizing the error of my choice, I decided to go to law school.

It was 1964 and a tumultuous time in the history of the United States, as the country was preparing to enter the war in Vietnam. Law school was tougher than I ever imagined. One professor in particular, to whom I will show mercy for by not mentioning his name, made my life a living hell—and I wasn’t the only one he targeted. He made our lives a nightmare, both mentally and emotionally. The entire class was sure that he was going to get removed because of his antics, but one semester passed, and then another. One bad teacher single-handedly assassinated my passion for the law.

There was only one thing I dreaded more than dealing with him, and that was the Vietnam War. I stayed in law school not only to avoid entering the military but also to please my father, who’d sacrificed so much in his life to give me this opportunity. I didn’t have it in my heart to quit on him. Instead, I decided to hit the books even harder and do whatever it took to find a way around this obstacle.

The moment I graduated from law school, I received a notice to report for the draft, which at that time was considered a death note. Once you report to your physical, you’re going to get drafted, you’re going to get sent to Vietnam, and you’re probably going to die.

I fought against this notice. I appeared before the draft board and explained that I would not go. Two good friends of mine had already been killed over there. I was now a lawyer and while I might not have my first job yet, there was no way would I possibly go to Vietnam to follow in my fallen friends’ footsteps. Amazingly, I never heard from the draft board again. To this day, I still don’t know why they never came after me.

At that time of graduation, I was lucky enough to receive three different job offers. I went to work for a major law firm called Loeb & Loeb for $500 a month. At the time, my wife was making more than double that, earning $1,100 a month as a teacher.

I was researching in the library for other lawyers day and night, watching my soul get sucked out of my body month after month. Eventually, I went to the managing partner’s office and said, “I don’t want to do this anymore. I didn’t spend seven years training to be a lawyer so that I could be a book gopher for somebody else.” He did not like it, but wanted me out of his hair, so he told me one of the other lawyers needed help on a merger deal and ordered me to go help him. This was just two years after I took the bar exam.

Following my manager’s order, I went to meet this lawyer. As I walked into his office, he told me he was heading off to Europe and wanted me to take care of a couple of real estate deals for him while he was away.

I’d never even taken a real estate class in law school except for entitlements, and I’d certainly never taken any business classes. But in that moment, I saw my opportunity, and I did what anyone would do in a situation like that: I faked it.

I said, “Sure, I can do it.” Then I quickly called everyone I knew to find out about title insurance, mortgages, deeds and trust guarantees, and purchase and sale agreements.

Opportunities

The hardest part is getting the opportunity. The knowledge is out there. Sometimes, opportunities will come your way, and you will be tempted to turn them down because you don’t know how to do what’s required yet. But you can always learn. These days, it’s even easier. You can find all the information you need on the internet. When I started faking my way into a real estate career, the fax machine hadn’t even been invented.

I found a way to adapt and overcome. I took all the necessary forms from this lawyer and miraculously closed both deals before the end of the year. I wasn’t even sworn in as a lawyer yet. I’d passed the bar, but I hadn’t yet taken the oath.

Within three years, I became a partner at that law firm. It usually takes seven to nine years to become a partner. I began to explode as a real estate attorney and, within a few years, I was the largest real estate attorney in the United States.

In 1969, I had a referral from a banking client to do a REIT. At the time, these existed in the law, but nobody actually did them. We then did a $49 million IPO, which was huge money back then.

We are so used to hearing of companies valued in the billions these days that we forget just what money was worth a few decades ago. There are now Silicon Valley businesses that have never sold anything—never made $1 in profit—but investors value them at a billion dollars or more. A $49 million deal 60 years ago was astounding.

A decade later, I was convinced that I was smarter than all my clients and decided to move away from the legal part of real estate. I figured that I knew the business and everyone in it, no way could I miss. I was very wrong.

On day one, I leased a 1000-square-foot office and immediately went into contract to buy a building in Carmel, California, that I was going to turn into a timeshare.

I also bought several high-rises and about 20 apartment buildings in a complex in the luxury neighborhood of Southfield, Michigan, outside Detroit. I planned to turn all those buildings into condominiums, which was my specialty as a lawyer in Los Angeles at the time. After this acquisition, I discovered that nobody in Detroit even understood what condominium conversions were.

As a lawyer, I had represented clients in Hawaii who did this, so I figured I would find a way. I borrowed $52.5 million to acquire all these apartments. The president at that time, Jimmy Carter, saw interest rates at 5.5 percent and decided that wasn’t nearly high enough. He raised them to 25 percent. So now I had a $52.5 million loan out with an interest rate that had just quintupled. I felt like my world was crashing around me. I tried to find a way to work out of that hole.

The next year, the federal government took over the very bank I borrowed all that money from. This provided an opportunity for some of my partners and me to purchase our own debt.

I purchased my own loan, eliminated my personal liability, sold off the apartments, went back to Los Angeles, and decided to just focus on office buildings.

I made a classic mistake because I thought I knew everything. I went wide. I went after different markets and different types of products at the same time. Bad idea! My past experience, relationships, and knowledge allowed me to borrow huge amounts of money, which only magnified the size of my mistake.

In 1982, I bought my first office building in Hollywood, California. I immediately flipped it and put a million dollars in my pocket. Suddenly, I knew where to focus my real estate ambitions. I bought office buildings and began to syndicate to rich friends in the San Fernando Valley, Orange County, and all across the state. By 1985, I owned 6 million square feet and controlled a company of 80 employees called the Pacific Financial Group.

If there’s one thing that can be learned from my story, it’s that everything that goes up can always come back down.

In 1989, two different things happened that threatened to bring my company to its knees. The first is that the Japanese came in and began to buy everything they could at a very low cap rates (very high purchase prices). Second, asbestos had become a very bad word.

One day, I was reading the right-hand column on the Wall Street Journal, and I discovered that Equitable Life Insurance, Prudential, and a couple of others would no longer lend to any building that had asbestos fireproofing.

That one little news item shook me to my core. I called my property manager and asked him how much asbestos property we owned. He told me that it was 25 percent of our properties.

The good news was that the Japanese were buying everything, so we sold to them. Tokyo was absolutely loaded with asbestos at the time, so they just didn’t care. Over the next 16 months, I slowly eased out of and sold all of my buildings that had asbestos.

We survived, but only barely. I went from 80 employees down to just 8, and we were in the midst of a massive real estate recession by 1991.

I began to buy mobile home parks, figuring that people would do anything to stay there and that the terms could be quite generous. The government helped, but eventually, that stream of money dried up.

In 1993, again reading the Wall Street Journal, I discovered that Los Angeles led the country in small business formations. I saw another opportunity to get back into the office sector, so I bought office spaces significantly below replacement cost (70 percent off). I bought two office buildings, one in the Valley and one in Beverly Hills.

Just as I began to get my feet back the earthquake of 1994 hit. I saw an opportunity. While everyone was running away, I began to run toward the danger and refused to back down. When everyone else is afraid to invest, that’s when you find the greatest opportunity.

A man I had done dealings with in the past—and honestly didn’t like very much—approached me and told me that they had a partner who was looking for the smartest, most aggressive buyer of office space in Southern California.

We’d had a rough deal a few years earlier, and I wasn’t exactly jumping at the idea of another headache. I was hesitant. I asked who he was working with, but he said it was a big secret. I had to sign a bunch of nondisclosures before he would even tell me who he wanted me to work with.

He convinced me that this was the biggest deal I would ever do. I was curious, and I decided to sign on the dotted line. His partner turned out to be Lehman Brothers.

They wanted to team up with me, but I wasn’t interested. Instead, they struck a deal for me and put up 95 to 100 percent of the required equity, took on the debt, charged a certain number of points, and then gave me more depending on how aggressive they thought the loan was.

By 1995, we had 4 million square feet in 20 properties. My contact at Lehman called me to say that they wanted to take their company public, but I was skeptical. Who ever heard of taking a real estate company public during a recession? Going public is very expensive, and it’s a very big financial risk.

In the end, they were able to convince me that it was the right decision, and we began the arduous preparation process. There had been no real estate IPOs for a couple of years, and there was a new rule allowing the tax-free formation of a limited partnership structure that allowed all the big old-time developers to convert their bankrupt positions into new vehicles, raise money by going public, and then go on to live another day.

The new law was passed in the early 1990s, and we were the first company to go public after its passing. Certainly, nobody was going public to start a real business at the time, but I had a feeling that we would find a way to succeed. We were exclusively based in Southern California.

We raised $430 million, paid off all of Lehman Brothers debt, and had another $430 million in public equity. With a little extra money from some other sources, we controlled $550 million in debt. We were the first of the REITs to have a bank line of that size.

With access to so much capital, we went on a buying spree. From September 1996 right up until 1999, we had 8 million square feet, and we added a transaction that added 5 million square feet to our portfolio in just that single transaction. Suddenly, we had 14 million square feet of property. By 2005, we had 20 million square feet of property under our control. We were the largest holding company in all Southern California.

Family Business

Meanwhile, I had always owned some industrial real estate. I bought my first industrial building at the age of 26, while I was still a lawyer. At that time, I brought my father into the industrial building world. He was a furniture manufacturer, which was just a small trade, and he was barely scratching out a living.

I started buying a few buildings here and there and working with my dad and my brothers. By 1995, we formalized that relationship into a family partnership between my four brothers and myself. My sister joined us later and now the five siblings, along with some of our children and grandchildren, operate that family business together. My little brother runs the assets from day to day.

The beauty of the real estate business is that you can give so many opportunities to other people. I was able to use my success in real estate to raise the rest of my family and give back to my father, who had sacrificed so much to give me opportunities, and whose love, dedication, and belief in me had kept me in law school when times were tough and I felt alone.

In 2001, as I was building this family business, I would call one of my father’s childhood friends, Howard Swimmer, whenever I had questions. He was a well-known broker who mostly worked in industrial real estate. I would ask him what I wanted to know, repeat his answers to my family, and they would think I was a genius.

Mentors

In my life, there were three primary mentors. The first was my father. He was a very street-smart immigrant and an amazing human being, and he died in a car accident in 1984. I miss him very much; without his dedication and mentorship, I would never have become what I am today. My mother passed away in 1998.

The second mentor in my life was Jon Kreedman. He was a great mentor and teacher. He was a real estate developer and a client. For every deal he did, he needed two more to later bail him out. He was the living embodiment of Murphy’s Law in the real estate industry. What could possibly go wrong in any deal always did for him on every third deal, and what could go right always did on the other two. He had a lot of bad luck and a crazy amount of success. Extraordinary events happened to him so often that it was a great educational process for me.

My third mentor was Arthur Gilbert. In 2001, he passed away as one of the largest individual art collectors and investors in the world. His art collection is now in London’s Victoria and Albert Museum, as well as in the Gilbert Trusts and the Gilbert Foundation. Upon his death he left an additional $42 million in cash, $65 million in real estate, and 400 bank accounts insured by the bank for $100,000 each. That shows what he thought about the stock market.

He appointed me, along with a partner, as sole trustees of this massive fund. The art, which was separate, became the largest gift ever made in the United Kingdom. He donated almost $500 million in artworks. Queen Elizabeth had knighted him, and this was how he repaid her. His work can be viewed now in the finest galleries in the world, visited by over 400 million people every single year.

The remaining trust controlled $150 million in the marketable securities and alternative investments. Through alternative investments, my partner and I elevated the trust to become one of the most sophisticated and respected foundations working in education, health, and cultural support. With 27 programs in Israel and 4 in Berkeley in the north, the rest of it is mostly in the south, mainly at UCLA, but also in The Hebrew University in Jerusalem. We also have programs at the City of Hope—a world-class cancer facility in suburban Los Angeles, where I was chairman for a time.

Finding the Perfect Deal

Different investments are useful for different reasons. Buying a home for $300,000 and selling it 8 years later for $3 million is a good deal. Buying a home for $89,000 and selling it 10 years later for a million bucks is a good deal too. It all depends on whether you’re making a deal for money or you’re buying real estate for your family and setting down personal roots.

There’s no one deal that’s the great deal to look for. Your goals for good investments should depend on your strategic position. Your goal in real estate is to have a lot of good deals. You’ll have some major scores along the way, and you want to avoid having too many bad deals. We’ve all got them, and you should expect them as part of this process. Without risk, there’s no reward.

I believe that there are four major factors to success in real estate. The first two are timing and location, but location is not as important as timing. That’s because it’s rare for someone to buy a bad location. If you’re buying a property, you should think the location is okay at minimum, but when you buy that property and eventually sell it or refinance it, it will be all about timing. When you buy will determine when you sell and how good you do.

The third factor is debt timing. Whether your interest rate is 3 or 7 percent, whether it’s a 60 or 80 percent loan, it’s all about the timing.

The fourth essential factor for success in real estate is to understand demand. Sooner or later, demand dictates everything. It will generate financing availability. It will fill vacancies and ultimately push up rents. When you have no demand, you run into vacancies, you can’t pay your mortgage, and then you’re in trouble. Every single issue is affected by demand, so be patient and analyze. Look at all the factors that generate demand. The availability of financing, the status of the economy, GDP growth in your city or state, job formations, inventory in the market—much of this information is in the Wall Street Journal. Look at any tax reform news, the stock market—put them all together, and that will tell you the demand. The greatest mistake you can make in real estate is not understanding about demand.

When a deal seems too good to be true, we make too many promises to lenders and investors and take on too much debt, and that can shatter us.

You need to have the right mindset. You need to believe in your own ability and believe that you are making the correct decisions. Be open to critics and be willing to learn from others. During downtimes, your mindset is crucial. When times get tough, it’s absolutely critical to believe in yourself.

Above anything else, always make sure you take care of your physical and mental health. You want to build deep, strong family, friend, and associate relationships. Pick a trade that you know you’ll be good at. Become involved in sports and outside activities that can help you interact in a social and charitable life.