Zeckendorf
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Everywhere, jobless men, unable to maintain payments on their homes, saw those homes foreclosed. As the Depression took hold, more and more tenants moved out of apartments to cheaper quarters or moved in with relatives. Meanwhile, businesses either decreased their office space or, as they went broke, moved out. You could walk the empty corridors of some Manhattan office buildings to find floor after floor with only one or two tenants in occupancy, and often no tenants at all. As a result, building owners were unable to meet their mortgage payments. Thousands more automatic foreclosures followed.
Curiously, the laws of the land tended to abet and foster the spreading chaos. The inheritance laws and inheritance taxes were determined by what a building had cost to build rather than what it could be sold for. With prices dropping quickly, many elderly people were panicked into selling at distress prices. In order to save their property from being entirely wiped out by taxes based on their boom-time values, these owners rushed to unload their holdings as quickly as possible in a dropping market—thus helping depress prices even further.
It turned out that it could actually be a serious liability to own a free and clear asset. Generally, major pieces of property tend to be held and sold (or borrowed upon) in two forms. First, there is ownership of the ground or land, which is called the fee (a term which goes back to medieval days and the concept of fiefs). This fee might receive its income from the buildings upon it, an arrangement usually covered by a lease, giving the leaseholder the right to use that land, to put buildings on it, and to rent out all or part of the buildings through various subleases. One can own either the fee (the land) or the lease (the right to use the land or buildings on the land), or one can own both the fee and the lease to a property. If a ground, or fee, holder has permitted a building to be put up on his land under a long-term lease, he can and normally would dispossess a tenant who could no longer meet his payments. But during the Depression (and under the tax laws of the day), if the ground owner repossessed his building, he would have to pay income tax at the ordinary rate on the pre-Depression value of the building. Since taxes were based on what the building cost rather than on what it could be sold for in a depressed market, the taxes resulting from dispossessing tenants sometimes were five times the actual value of the building. This strange situation provided those who could ride out the storm with some special opportunities. The General Realty and Utilities Corp., a newly formed investment group underwritten by Lehman Bros., held the lease and picked up the fee of 444 Madison Avenue from the Gallatin estate for a song. They simply suggested turning back the building to the estate. This was, in a sense, a legalized form of blackmail; if the estate did take over the building, the government would send it a tax bill for the assessed value of the building. This bill would be many times the value of the land and could ruin the estate. There was a good bit of this cornering and squeezing going on. The Ritz Carlton Hotel, which cost at least twenty-five million dollars, sold for $725,000 with $100,000 worth of liquor in it. The Murray Hill Hotel went for something on the order of $683,000. The Pierre Hotel, whose fee was owned by the Gerry estate, was another prime example. The Gerrys owned the ground at Sixty-first Street and Fifth Avenue, which they leased for $450,000 a year net to the hotel owners. Considering this $450,000 income at a five-percent return, that ground was worth nine million dollars. The hotel building had cost in the range of twenty-five million to build. But the whole package, ground and building, was sold to Mr. Getty, the oilman, for 2.5 million dollars and in turn sold by him ten years later for almost ten times that amount.
The tax laws have since been changed. Buildings are now taxed at their market value, but this is no comfort to those who were wiped out during the Depression. Even those who, by quick action and adroit maneuvering, managed to preserve their fortunes on the business front could, if they owned a co-op apartment in New York, be completely overwhelmed on this flank. Co-op owners were mutually responsible for the property they jointly owned. If enough members of a co-op went broke, the load this imposed on the remaining solvent members could be enough to pull these people under as well. The regulations governing co-ops were eventually changed to permit limited liability to members, but for many years the antiquated laws and the lingering effects of the Depression made real estate a ripe field for those with the money and the stomach to take unfair advantage of the situation.
For all of their tragedy, however, these were also times of change and excitement, and there were moments of ironic humor. For instance, we had an elderly maid, Anna, who was a little hard of hearing. Anna had lost her savings when the Bank of Europe, a small East Side bank that was patronized mostly by people of Czechoslovakian background, had closed without notice. From then on Anna hoarded her small salary under her mattress. I called her in one day and said, "You mustn't do that anymore, Anna; it's not good for the country." I explained to her that the President had spoken out many times against hoarding. "Put your money in the Bowery Savings Bank," I said.
"Oh, no, no more banks for me."
"You put it in the Bowery Savings Bank, Anna, and I'll guarantee you against its loss." The irony of my guaranteeing the Bowery Savings Bank when I could hardly pay Anna's salary was delicious, but it shows the psychology of credit: she accepted my guarantee before she would accept the Bowery's, and did as I told her.
It happened that I had an interest in a second mortgage that was subordinate to a first mortgage the Bowery Savings Bank was in the process of foreclosing. Under the law, all parties of interest must be given notice in such a foreclosure. One night I overheard a conversation in the vestibule between Anna and a caller who said he wanted to see me.
Anna asked, "What do you want to see Mr. Zeckendorf about?"
"I am from the firm of Cadwalader, Wickersham and Taft. We represent the Bowery Savings Bank."
Hard of hearing though she was, Anna heard the words Bowery Savings Bank, and her ears were up as he continued, "They are foreclosing . . ."
She did not know what he meant, but she heard the dread word "closing." "Yes, yes."
"I came here to serve Mr. Zeckendorf."
Anna heard him say he came to save Mr. Zeckendorf.
I stepped into the vestibule and found a weeping Anna, her arms around the young lawyer, saying, "Oh, please, save me too!"
Sadly enough, it was often the sound, debt-abhorring investor who was most cruelly hit by the Depression. Generally there are three categories of real-estate investors—those who borrow nothing, those who borrow the maximum, and those who borrow conservatively. The nonborrowers, such as the Astors, who owned all their properties free and clear, could ride through almost any storm. Predictably, those speculators who borrowed the absolute maximum on their projects were among the very first to get wiped out. And yet, it was the conservative investors who ultimately suffered the most.
Speculative builders, who were mortgaged to the hilt and beyond it, were the first to cave in—and the first to have court-appointed receivers take over the mortgage or bond holders. When a receiver takes over a property for the mortgage holders, he is not faced with the costs that faced the previous owners; he is accountable only for real-estate taxes and payroll. This means his total costs are sharply cut and he can greatly reduce rents for the properties he runs in order to make them attractive to tenants. Furthermore, being in a sense a political appointee, he may (especially in a time of chaos) want to make a career of his appointment. If this was the case, the worst thing that could befall such a receiver would be to make such excellent profits that his property soon recovered and he was no longer needed. The best thing that could happen to him would be to receive just enough income to pay the minimum charges needed to keep his particular ship afloat, while maintaining his own and his lawyer's fees. When the new management cuts rents, it is in unfair competition with the building next door, which has to carry the weight of a conventional mortgage and rents. As a result, those buildings in receivership soon send their conservatively mortgaged neighbors to the cle
aners as well, and that is exactly what occurred in the 1930's.
My admirable friend Henry Mandell lost the Parc Vendome and other fine properties through early foreclosure. The Uris brothers, though they came back to figure among New York's most active builders, were wiped out; they went through bankruptcy personally and corporately. The Tishmans, another family of builders whose structures are now all over New York, were practically washed out. Dave Tishman, by a tremendous personal effort, and by hanging on long enough—until the insurance companies finally realized there was no real profit in wiping people out—was able to save himself.
By the late 1930's, property-burdened banks and insurance companies were offering foreclosed holdings at truly phenomenal bargain prices. At the lowest ebb of the Depression, for instance, the Mutual Life Insurance Company of New York sold off forty-two East Side midtown dwellings for twelve thousand dollars apiece—and lent the buyers the money for the purchases. Today these buildings are worth $230,000 to $300,000. Mutual Life of New York, by ordinary accounting methods, was at that time probably insolvent. Their real-estate investments, mainly in New York City, had next to no market value and insufficient income to support the mortgages Mutual had put on them. To keep things from completely falling apart, Shields, the company vice-president in charge of mortgages, would readily make mortgage loans that virtually ignored the matter of adequate payments needed to pay back the principal. He would renew existing mortgages indefinitely on the theory that the rise in value of the land would eventually be great enough to recover any principal. In the meantime, the company would at least be earning interest on its loans. Shields was right, in the long run, but in the long run we are all dead, and he died before his point could be proved. The company's new administration altered course drastically. In the early 1940's Lou Douglas, whose grandfather was mining engineer for my grandfather's Copper Queen Mine, came in as president of Mutual Life. He did an excellent job, but with a policy radically different from Shields'. Heretofore, Mutual Life had invested largely in New York City real estate. Under Douglas an embargo was put on any New York purchases. Instead, to raise cash the company sold off a great many assets, including its railroad bonds, at bottom market prices and began seeking investments around the country. As a result of this investment policy, Mutual is now a very strong company, and the stop order on New York investment has long since been lifted, but for a time they were the softest insurance company in town.
As a New York City real-estate broker, I made my living on two fronts. On the one side I was a negotiator for property owners trying to salvage their estates by renegotiating mortgages with banks and insurance companies. Meanwhile, I also kept busy scouting out the increasingly scarce buyers for properties that the banks and insurance companies were doing their best to unload. Early in the Depression Irma and I had moved from our first apartment at Ninety-fourth Street and Lexington Avenue to occupy an entire floor at 44 Park Avenue. Under normal circumstances we could never have afforded such a place, but I was occupying it in return for help I had given to a friend. Though I didn't always earn it, I managed to spend close to twenty thousand dollars a year during the Depression. By the standards of the 1930's we were affluent—even if often broke.
My personal life, while at least as hectic, was not nearly so successful as my business career. Irma and I had had two children, William, Jr., and Susan, but over the years it was becoming increasingly obvious to both Irma and me that we were mismatched. From my earliest days I have loved football games, late-night bridge and poker sessions, and marathon parties. I thought of little else but working hard and then having a good time. Irma, on the other hand, was a woman of deep cultural interests and intellectual yearnings. She was disdainful of many of my cronies and their activities. She had many friends of her own, and in deference to our marriage, I abandoned much of my old life, entered into hers, and attended and enjoyed the opera, the theater, and dance performances. This was a life hitherto unfamiliar to me and something for which I am still grateful, but it seemed to me that Irma was too much in awe of or, perhaps, too enthralled by some of her more pretentious friends. These people by their near-worship of "culture" robbed culture and themselves of real meaning or relevance. Irma and I were both willful, and the differences between us in outlook and needs eventually led to a complete breach. We drifted apart. I began to find other women increasingly interesting, and a divorce seemed the only reasonable conclusion. This took place in 1934. Immediately after the divorce she married the noted music critic Irving Kolodin. We have remained friends, and Irma's delightfully chipper mother is still very much a favorite of mine.
As a combination bachelor and family man, I took a small apartment in the Hotel Lombardy on East Fifty-sixth Street. My parents had an apartment there as well, and until the time of my father's death in 1938, I regularly breakfasted with them. My father and I went to his whist club at least once a week, and I made it a point to try to see my children at least once a day. The children stayed with me during the summers, and one year, thanks to Depression prices, I picked up a thirty-foot, gaff-rigged sloop for one thousand dollars. It was a beamy, comfortable boat, with hospitable below-deck space, which we moored at a club on Long Island Sound. One summer we lived in the clubhouse, the next we rented a nearby apartment. I kept the children in good private schools, but my road to affluence was erratic. I was often in debt, sometimes little more than two jumps ahead of the sheriff, and forever scrambling for some way to turn an extra dollar.
Whenever I did get a little money ahead, I tried to put it to work. One such project, with my friend Sam Silver, was the conversion of the old Chatham-Phoenix Bank on Fifty-seventh Street near Third Avenue into the Sutton Theatre. We had put all the money we had into that theater, but at the first faltering, a Manufacturers Trust bureaucrat named Harry Frey closed us down and turned the refurbished property over to someone else.
Another project, one that did work, was the conversion of three coldwater tenements on Eighty-fourth Street between Lexington and Third avenues into a single apartment house, which, though long since sold off by us, is still making money for its owners.
As a young, sometimes affluent divorce, I led an active social life. I was especially fond of fine restaurants, and a favorite dining spot was the fabulous Ritz Carlton Hotel. If it still stood today, that hotel would be declared a national landmark, but Harvard sold it to the Uris brothers, who replaced it with one of their wedding-cake office structures. Outside New York there were a number of excellent restaurants, such as the Round Hill and the Beaux Sejours on Long Island, which served the finest duck in America. However, the finest place was the Bird and Bottle in Garrison, New York. This was an eighteenth-century mansion owned by a wealthy drug manufacturer who kept a nearby cattle and dairy farm. The mansion was beautifully preserved, for it still had its original broad-beam and hand-pegged floors, and was furnished with period furniture. There were numerous open fireplaces and liveried serving men at table. There, at a private dinner by a fireplace, one could get delicately seasoned black-bean soup or shrimp bisque, black-angus steaks, the like of which I have not seen to this day, plus fruit pies in season with thick natural cream one could cut with a knife. Everything was served in pewterware. Walnuts and port followed the dinner, and the port was served in a decanter that played a song as it poured. As the Depression wore on the Bird and Bottle degenerated into a tearoom, but at its peak it was the most wonderful restaurant around. The only place that could compare with it was the old Stage Coach Inn in Locust Valley, Long Island, which flourished during the late twenties and early thirties and served such a massive stirrup-cup cocktail that a man could drink only two, or possibly three, and still walk around.
During the racing season groups of us would drive to Saratoga for weekends. There, after the day's races, discreetly operated gambling casinos took care of your evening time and money. The old United States Hotel, with its grand porch and fine rooms, luxuriously accommodated us, some with wives and others with dea
r friends. A bachelor once more, I frequented these places as often as I could, and often when I shouldn't.
One pastime I had virtually given up by the late 1930's, however, was bridge. Through Dr. Maurice Louis, a friend of my father's, I had become a familiar at the New York Bridge Club. I was good enough to occasionally find myself playing with such bridge notables as Mike Gottlieb, Lee Langdon, and Oswald Jacoby. The stakes at these games ran a dollar a point, which I could not afford, but a number of club members used to syndicate my bridge game (the way some investment bankers later syndicated my real-estate projects). I enjoyed the company and the minor glamour of these tournaments, but when I found myself waking up at night and replaying a hand, I decided I would either have to take up bridge full time or drop it. The same was true of gambling, which similarly fascinated me. Henceforth, I reserved my main energies for real-estate transactions, where I substituted speculation for gambling.
Meanwhile, the many dozens of business projects, schemes, and coups with which I struggled, although they ate up time and energy, did not seem to be getting me anywhere. During the Depression, I remember once looking at the $200,000 worth of life insurance I carried, wondering if I might not be worth more to my family dead than alive. But such thoughts were rare and brief.
By 1938 I felt that all I was doing in the brokerage business was scrambling up straight walls. When the reputable if not very profitable firm of Webb & Knapp offered me a partnership, I accepted.