Eli Broad Biography
Net Worth: $6.9 Billion
Wealth Origin: Real Estate, Insurance
Hometown: Detroit, Michigan
Education: Bachelor of Arts/Science, Michigan State University
Mr. Los Angeles
Although Eli Broad may not be the most common household name billionaire, there’s a good chance that in some way he has quietly impacted your life. For instance, let’s begin with the roof over your head; Broad is responsible for launching Kaufman and Broad, a housing development company that has constructed homes, townhouses, and other living quarters at incredible scale from coast to coast.
Then there was his life insurance company, SunAmerica, at one time the single biggest sponsor of NBC Sports, which later sold to AIG for $18 billion. Before we get ahead of ourselves here, keep in mind that he started off making only $67.40 a week after graduating college.
At prestigious universities, such as UCLA, his name is settled firmly alongside towering architectural marvels – The Broad Art Center, for example. Following a generous donation to his alma mater, Michigan State University, there now exists an Eli Broad College of Business, the Eli Broad Graduate School of Management, and Eli and Edythe Broad Art Museum.
He took his paintbrush to the vast metropolis known as Los Angeles, overseeing the development and fundraising necessary to build the iconic Walt Disney Concert Hall, erecting a gilded Broad Art Museum, and, back in 1979, positioning himself as founding chairman of the Museum of Contemporary Art, Los Angeles. In total, Broad has already pledged over $1 billion to Los Angeles art institutions, and after signing the Giving Pledge, ultimately plans to donate 75% of the fortune he has amassed to charity.
His personal art collection features priceless Van Gogh’s, Picasso’s, Warhol’s, and infinitely more timeless artists. You’d think, considering the humble beginnings he overcame, he’d be overjoyed with his life, yet those closest to this billionaire describe a man who is merely satisfied.
Broad has exiled himself from entire realms of human feeling, explains a profile in Los Angeles Magazine. The sole pleasantry he’ll engage in is the weather – the beauty of a Southern California morning or a Basque country afternoon. His neighbor and former business colleague Sanford Sigoloff calls him a “precision clock, set by date book and items of interest.”
Broad’s parents were both Jewish immigrants from Lithuania. They didn’t have much as they began their new lives in New York City and, desperately needing money, the couple opened, of all things, a Christmas store. Born in 1933, some of Eli’s earliest memories consist of stocking shelves, selling cards, and helping with last-minute gifts for two months out of the year. “My parents worked long hours right up until Christmas Eve, when everyone else was with their families,” he shares. “All of a sudden, what started as a strange idea became a major part of getting our family through the Great Depression.”
About 1940, his father moved them out of their modest walk-up apartment in the Bronx to Detroit, Michigan so he could operate a five and dime store. It was in the motor city that Eli launched his first business at the age of thirteen. Having learned the stamp trade from his Uncle Misha who lived upstate in Peekskill, he devised a plan to begin selling them via magazine ads. The inspiration came after he noticed Chrysler International, an automaker, was marketing two-pound boxes of stamps that had been snipped off envelopes they received from around the world.
“That was the moment I had to ask, ‘Why not?’ I could already imagine the obstacles and objections I’d have to overcome: the office workers at Chrysler asking me what the heck I was doing wandering around their headquarters, my parents asking why I needed to go to the offices of one of the Big Three automakers, and other stamp collectors not wanting to do business with a kid,” Broad explains. “But there was no really good reason why not, why it couldn’t be me, as long as I had the idea and the money – and the follow-through.”
Barely a teenager, Eli took a streetcar alone to Chrysler, nervously strode into the building, asked for directions to their mailroom, and when there, gave a man two crumpled dollar bills for a box of stamps. He was amazed that at no point did he receive even the slightest trouble – maybe more importantly, he realized his fears should never get in the way of trying something new.
In the end, he made $10 off his initial $2 stamp investment, and as the money kept rolling in, by 16 years old he was able to buy a 1941 Chevy on his own for $200. “It was old and beaten up and the tires were worn,” he remembers. “But it ran. It was the ride that stamps bought.”
Eli Broad struggled at Detroit Central High School, the world didn’t yet have a name for dyslexia, but he was sure he had it. Teachers became frustrated with him as, according to them, he asked too many questions. Lacking encouragement, Eli grew disenchanted with academics altogether and stopped paying attention in class; instead, shifting more focus to his after school job selling women’s shoes. As a result, his grades teetered.
With graduation in the Spring of 51′ fast approaching, he figured he’d apply to colleges throughout Michigan – hoping to study law. “It just seemed like the thing to do. I had let myself slip into autopilot, just going along,” Broad reveals.
Michigan State University rekindled a love for learning in the once disheartened young man. Nearly astounded by it, his professors didn’t mind the barrage of questions coming from his corner of the classroom, rather, they encouraged it!
“In 1952, during my sophomore year, I had a particularly fine economics instructor, Walter Adams, who would later become president of MSU and write many books. He was only 11 years older than I was, and he could hold the attention of a bunch of teenagers like nobody I’d ever seen,” he recalls. “I credit Mr. Adams with interesting me in accounting. It was a perfect field for me because I was good with numbers.”
Imagine that, a dyslexic accountant. In addition to his knack for analyzing digits, if he switched his major from pre-law to accounting, he could finish school earlier and get to work sooner. Motivated by just the idea of entering the world of business, but still having to pay his own tuition, Broad sucked it up; he muscled through numerous jobs, among them, working as a drill-press operator at the Packard Motor Company, selling garbage disposals door to door, and making deliveries for drugstores.
The hard work paid off, in 1954 he graduated cum laude with a bachelor’s degree in accounting, plus a minor in economics, from Michigan State University.
“‘Why not?’ I thought, as Professor Adams inspired me to make one of the most important choices of my life. That was the moment when asking ‘Why not?’ became a lifelong habit,” Broad proclaims.
Eli Broad Meets His Wife, Edye
He had just graduated from college when he managed to get Edythe Lawson’s phone number from a friend of his. Her father was a chemist and mother, a homemaker, so when Eli called for the first time, mom had a front-row seat to the encounter.
“I called out of the blue and asked her to dinner,” he says, reflecting on the uncertainty of her reaction. “She had no idea who I was and couldn’t even remember my friend.” Edythe’s mother must have sensed something purposeful in the tone of this young man speaking over the telephone – she pressured and convinced her daughter to say yes!
“I drove to her house one Saturday night and hoped that she wouldn’t slam the door after seeing my big ears and goofy grin. Lucky for me, she didn’t,” Mr. Broad recounts with relief. Only a few dates later, he proposed to her, promising her his vision of a great future: their own home, two kids, two cars, and maybe a vacation once a year to Florida.
At just 21 and 18 years old, Eli and Edye forever intertwined the destiny of their lives when they were married in 1954.
Eli Broad Career
Eli Broad became the youngest person to ever pass the CPA in Michigan – acing it on his first try. Therefore, securing a job at a local accounting firm wasn’t difficult, however, Broad was. He took issue with making only $67.40 a week.
Surely his preferred description is “unreasonable,” when he wrote the biography of his life, he unapologetically titled the memoir The Art of Being Unreasonable. “As the youngest CPA in Michigan’s history, I started demanding a raise,” he explains. “My boss didn’t like that – or my refusal to drop the subject – and I was fired. Asking your new boss for a raise because you did something he couldn’t do is an example of being artlessly unreasonable.”
Thus, his career working for other people came to a swift end.
His own Firm
After getting canned, Broad wrangled together a number of clients and started his own financial services firm. He avoided having to pay overhead such as rent by sharing office space with Edye’s cousin’s husband, Donald Kaufman, and doing his accounting.
“Within several weeks of settling in, I was bored and restless. I had a few clients and I was teaching night courses at the Detroit Institute of Technology, but I still didn’t have enough work to keep me busy,” Broad says. “I wanted more money and more excitement.”
The only thing he knew how to do was accounting, and there existed no bone in his body which desired to return to school and pursue a new profession. Kaufman, his suite-mate, ran a business building homes. That line of work intrigued Broad so much he applied to a real estate developer and got rejected.
That’s when he asked himself, “why not start my own homebuilding company?”
Kaufman & Broad
Confident in his fiscal background, Eli Broad believed he could outperform many of the “not that smart” people who were making boatloads of money from the industry. They didn’t pay enough attention to their finances, he thought, a keen eye for numbers would be his advantage.
“Building houses was not complicated, and I knew I wasn’t going to have to build them anyway,” he reveals. “I would just have to manage subcontractors and suppliers and find a partner who knew his way around the field – which is exactly what Don Kaufman was.”
Strategy in mind, Broad explained the plan to his wife and she encouraged him to go for it! Edye even helped arrange for her father to put up Eli’s portion of the operation’s starting capital, which amounted to $12,500 at the time.
At the end of 1956, Kaufman and Broad was launched in Detroit, Michigan – Eli, still a young man, at 23 years old. He took note of home models that were being built outside of his region, particularly blueprints that didn’t include basements, and concluded he could price his home’s 20% cheaper by axing the basement, and instead, offering a carport. This would make the monthly mortgage payments for what would later be dubbed an “Award Winner” model less than the cost of rent on a two-bedroom garden apartment.
Being so young, Broad found it initially difficult to convince veteran contractors to get on board with his cost-efficient building process. In addition, he planned on paying them at the end of the next month from the time their work was completed. So if they finished on the 15th, they would get paid 45 days later – not a common industry practice. Those extra weeks would give Kaufman and Broad enough time to sell a property, collect cash, and pay construction costs without having to take out loans.
“We never took out construction loans, which were very expensive. We didn’t have any financing costs,” he says, before revealing how he got contractors interested in working with them. “I appealed to their interests. If they stuck to my plan, our company would grow rapidly and they would have more work – even during the winter months, when building traditionally slows down. They took a chance with us, and the gamble paid off.”
Within the first year, they built 120 homes! By 1959, Kaufman and Broad began getting into the contract housing business and developed elderly housing and college dormitories as well as new homes for the armed forces and public housing agencies. According to Funding Universe, sales tripled from their first year in business to $5.1 million, and net income improved to 7 percent of sales.
Sensing that Detroit’s housing market was too dependent on the automotive industry, Eli Broad took his business model to Arizona at the end of 1962, ultimately building 300 entry-level priced homes in Phoenix and Tempe. 1963 saw the company expand into Southern California with the development of an attached townhouse community in Orange County. Kaufman also chose to retire that same year, leaving Broad in complete control of an increasingly flourishing corporation.
When he first arrived in Los Angeles, an awkward, intense thirty-year-old, the New Yorker retrospectively determines that, for a young man bent on recreating himself, there was no better place to be. Kaufman and Broad had gone public on the American Stock Exchange in 1961 and in 1969 became the first homebuilder to be listed on the New York Stock Exchange.
“We had a pretty fancy P/E ratio in the 1960s, about 40 times earnings, and a market cap of over $1 billion when $1 billion was an awful lot of money,” Broad penned in an Inc Magazine autobiographical piece. “We convinced Wall Street that we were countercyclical, that we weren’t like a lot of those small homebuilders that would go broke after every cycle.”
Strategic acquisitions of local and regional builders enabled the company to enter markets such as San Francisco, Chicago, New York, and other cities in the northeast portion of the United States. Pursuing international ambitions, in 1967 they became the first U.S. homebuilders to begin developing housing models in France.
By the early 70s, Broad was growing tired of running the day to day KB Home operations and in 1974 opted to step down from his role as CEO with hopes of dedicating himself to the arts and education. A year later, however, he’d be compelled to return in order to steer the company out of a turbulent recession. All the while, there was this insurance company he had purchased back in 1971.
“It’s important to pay attention to the lessons of history and know the realities of your industry. In other words, don’t believe the conventional wisdom you create about yourself,” he explains. “So while investors bid up Kaufman and Broad’s stock, we bought a small life insurance company to help stabilize earnings during downturns in the housing market.”
Sun Life Insurance
Sun Life was originally founded in Baltimore, Maryland in 1890. The company developed to be regarded as a consistent, reputable, but somewhat sleepy life insurance firm by the time KB Home bought them out for $52 million in cash and stock.
“I looked at the industry to see where we might find a niche. Other insurers – most of them bigger and better known – were introducing new kinds of life insurance policies,” Broad recounts. “I figured they would do well selling those products, and we would just lag behind if we tried the same.”
Eli Broad Reimagines an Industry
Understanding that many of the same spend-happy baby boomers who bought Kaufman and Broad home’s would one day require retirement funds as they reached old age at a rate most generations never could, Eli Broad figured he’d help them prepare for their elderly future. “That’s when I thought to introduce fixed and variable annuities – which actually were mutual funds in life insurance rappers,” he says.
With variable annuities, Sun Life made money on fees while the policy-holder decided how to invest and received the returns from and assumed the risks of their investment. With fixed annuities, Sun Life promised a particular rate of return while handling the investment and risk themselves.
For further clarification, CNN Money explains that a fixed annuity provides more security of principal than a variable annuity, but has limited upside potential. When you invest in a variable annuity, you accept more short-term volatility in that the value of your investment will fluctuate with the stock and bond markets. But you have a shot at higher returns.
“I decided we would adopt a banking mentality at Sun Life. We promised a certain rate of return to our customers on their policies, and we would earn a higher rate of return from our investments,” says Broad. ” We focused our energies on our investments, which began to grow at a faster rate than other insurers’ and earned 2 to 3 percent more a year than our competitors.”
Sun Life split from KB Home in 1989, in order to create two separate companies; Broad chose to go with the Sun Life team and leave KB Home in the hands of Bruce Karatz. As their insurance business began taking off, hoping to create a fresh brand image, executives decided to change the company’s name to SunAmerica in 1994. They also went to work on an aggressive marketing campaign that included establishing themselves as the biggest advertiser on NBC Sports.
Selling to AIG
Following a stellar 25% five-year earnings-growth rate, SunAmerica was the eighth largest seller of variable annuities and raked in $2.1 billion of revenue in 1997. The next year, in what amounted to the second-biggest acquisition the insurance industry had ever seen, SunAmerica sold to American International Group (AIG) for a staggering $18 billion.
Even after the sale, Eli Broad planned on sticking around, more than eager to continue growing the business.
“I stayed on the AIG board for a number of years. And then I got lucky. One day, I said to Hank [Hank Greenberg, AIG CEO] that 90-some-odd percent of my net worth was in AIG. I wanted to diversify,” Broad admits. “Hank said, ‘You’re a director; you can’t sell stock.’ So I got off the board and put the stock in The Broad Foundations, a pair of nonprofit organizations that focus on education, science, and the arts.”