Zell: Is the Grave Dancer Finally in Grave Trouble?

It’s probably the biggest grave Sam Zell has ever danced on: the Tribune Co., with its newspapers, broadcast media, the Cubs and other interests. Strictly speaking, it isn’t a grave — plenty of the company’s properties make money — and it isn’t a real estate play. Still, real estate promises to play an important role by providing some of the much-needed liquidity that the company will use over the next few years to pay down parts of its debt, which totals about $12.5 billion. As one “Sam-ism” puts it: “Liquidity equals value.” But will selling off Tribune Co. assets, including media such as Newsday (already sold) and real estate such as the iconic Tribune Tower and Wrigley Field in Chicago (yet to be sold), be enough to deal with its debt, given the company’s downward spiral? It’s something of an open question. Just last week, Tribune Co. reported a net loss of about $4.5 billion, as ad revenues continued to crater. Most of that loss was represented by a $3.8 billion writedown to reflect the decline in value of the newspapers still owned by the company. The company’s major real estate assets include the Tribune Tower, a 40-story, 940,000-square-foot building on North Michigan Ave. that’s one as the best-known structures in a city that’s known for its building design. The company, through the 2000 acquisition of the parent company of the Los Angeles Times, also acquired the former Times Mirror Square, a 750,000-square-foot complex of buildings in Downtown Los Angeles. Office building sales are sluggish in both Chicago and Los Angeles, so assessing buyer interest, as well as how much either of the properties might fetch, is problematic. Still, Zell has let it be known that the properties are on the market, and they would probably end up being sizable sale-leaseback deals. Equally hard to assess is the value of another unique piece of Tribune real estate, Wrigley Field. The Illinois Sports Facilities Authority, a state agency, offered about $400 million to buy Wrigley earlier this year, but no agreement was reached. The question of how to pay for renovations to the storied old ballpark, dating from 1914 — and more importantly who will pay — lingers over any potential buyer of the property. Of course, there are other non-real estate assets to sell, including some of the other newspapers, though as yet Zell has called the Times a “keeper.” The company’s TV and radio holdings seen as drivers of any bottom-line improvements that the company is likely to make, so their sale is not likely. Zell has been in the communications business before, and scored spectacular successes at it too, with some parallels to the Tribune situation. In the early 1990s, he acquired a large stake in Jacor Communications, bought hundreds of radio stations in highly leveraged deals, and sold the company to Clear Channel in the late 1990s. Zell himself made about $1.3 billion on that deal — with only about $70 million of his own money invested. “It sounds that Sam has relatively little skin in the game, and tremendous potential upside,” a real estate executive familiar with Zell told CPN about the Tribune Co. “He has no aversion to the risk, because there are a lot of ways for him to create value. Is that the right answer for employees of the company? Maybe not, but that’s a different matter altogether.” The executive pointed out that if profits increase, and the Tribune Co. manages to pay down much of its debt, Zell’s return on the deal would be extraordinary. All in all, it wouldn’t be safe to bet against Zell pulling it off, despite the Tribune Co.’s debt load, since he wrote the playbook on making large returns on this kind of turnaround.