Tribune Company Bankruptcy Doesn’t Affect Sam Zell’s Berkeley Apartments

By Richard Brenneman
Wednesday December 10, 2008 - 06:35:00 PM

Berkeley’s biggest landlord is having trouble with one of his other businesses: the Tribune Company, publisher of the Los Angeles Times, Chicago Tribune and other media, which filed for bankruptcy protection on Monday. 

Sam Zell, who engineered the takeover of the Tribune Company, also controls Equity Residential, which bought the Gaia Building and six other Berkeley apartment projects from developer Patrick Kennedy and UC Berkeley professor/developer David Teece. 

In a press release last Wednesday, Zell blamed the bankruptcy on a “perfect storm—a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt.” 

The housing firm is not affected by the newspaper company’s troubles. 

Both the real estate market and the newspaper business had fallen on hard times since the Chicago developer made his purchases, though he managed to leverage his media empire by financing on the backs of employees, who have subsequently been repeatedly downsized. 

Zell’s purchase of the Tribune Company also included Wrigley Field and the Chicago Cubs, but they are not part of the filing submitted in the U.S. Bankruptcy Court in Delaware. 

The Chapter 11 filing allows the company to remain in business while it undergoes restructuring. 

The filing lists $7.6 billion in assets and $13 billion in liabilities, with most of the latter generated by Zell’s takeover. 

Some of the debt holders are companies which themselves have been hard hit in the banking industry turmoil, including Goldman Sachs and Citigroup. 

The purchase was leveraged through an Employee Stock Ownership Plan, or ESOP, which left the plan holding the shares but Zell in control. 

Sometimes known as “the Gravedancer” for his history of buying up troubled companies and turning them around, Zell has been called the gravedigger by some Tribune Company employees. 

Zell leveraged his takeover of the company with a $225 million promissory note and $90 million in warrants that committed him to buying 40 percent of the company stock from the ESOP in the future. 

Creditors forced the bankruptcy filing by refusing to refinance existing loans, according to several media accounts. 

In a letter to L.A. Times readers Monday afternoon, publisher Eddy Hartenstein said, “The decision to restructure our debt was predicated by the dramatic and unexpected operating conditions we've encountered this year. We have experienced the perfect storm—a precipitous decline in revenue and a tough economy has coupled with a credit crisis making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted.” 

Massive downsizings have hit newspapers across the country, including the East Bay, where publisher Dean Singleton’s Bay Area News Group—East Bay has downsized repeatedly, leaving some of his smaller papers with a third of the editorial staff they had before the layoffs began. More layoffs are reportedly in the offing. 

In the years since 9/11, newspapers have witnessed declines in circulation and advertising, with readership and ad rates plummeting since the recession began last December. 

Journalists have created websites with names like “Newspaper Death Watch,” “Paper Cuts” and “Fading to Black” to chart the collapse of the industry. 

The decline in ad rates has also impacted the Internet, including the sites created by print media as refuges from their dwindling paper incarnation.  

Zell’s financial plight also figured in the indictment of Illinois Gov. Rod J. Blagojevich, who demanded the firing of several members of the Chicago Tribune editorial staff as his price for helping the company with financial assistance in its efforts to unload a key asset, Wrigley Field. 

Sale of the legendary field and the Cubs are two cash-raising options for the embattled publisher. 

The writers had produced editorials critical of the governor, and federal wiretaps captured Blagojevich telling a deputy governor that Zell should be told either “Fire those fuckers” or face the loss of state aid for the stadium sale. 

The most sensational charges in the indictment didn’t involve Zell or his papers, but the gubernatorial appointment of a new senator to fill the impending vacancy left by Barack Obama’s elevation to the White House. 

A Senate seat, the wiretaps recorded the governor as saying, “is a fucking valuable thing, you don’t give it away for nothing.” 

Blagojevich and Chief of Staff John Harris were the only figures indicted.