What had first opened many doors for us was that I was buyer for a fifty-million-dollar empire, the Astor estate. I suspect that even without the Astor background I would have pulled Webb & Knapp to the forefront of the industry, because the opportunities for growth were readily available, but the Astor connection saved us time and made the path more pleasant. In Houston, Texas, for example, I discovered a most genial and abiding Texan affection and respect for money, especially if there was a possibility of their getting some of it. Since I was offering top prices for town real estate, I found I was readily granted the status of honorary ambassador. My first contact there was with a man named Hester who turned out to be the finest real-estate man in Texas, and a charmer until he had a few too many drinks; then he would turn surly, insulting to women, even his own wife, and nasty to his best friends. When sober, however, Hester was the kindest of humans, and although I'm not sure which is the real Hester, I presume it is the sober one. Hester was real-estate man for Houston's tycoons. It was through him that they put their syndicates together, and it was through him that I met various oil, cattle, and banking people such as Jim Abercrombie, Bob Henderson, Bill Smith, and their unofficial chieftain, Jesse Jones, the multimillionaire, lumberman, oil man, U.S. Secretary of Commerce, federal-loan administrator, and, as such, dispenser of billions of dollars in U.S. peacetime and wartime investment loans.
Texas' inordinate share of wealthy individuals, like Saudi Arabia's excess of Cadillacs in its automobile population, is not necessarily a sign of extraordinary diligence and perspicacity among its peoples, but of happy accident—in the form of great oil deposits. Plus, in the United States, the passage and continued political defense in Congress of the 27½-percent tax-depletion allowance. This 27½-percent tax allowance on oil revenues has, for over a generation, had an effect not unlike that of daily funneling of hundreds of millions of dollars in foreign aid into an area. Not only have the citizenry in general benefited, but, as happens with all massive aid projects, many individuals both within and outside of the area acquired extensive fortunes plus the confident self-esteem which an excess of money in the bank gives to us all.
Among the many fine people I met out there, Jesse Jones and his Houston associates formed a particularly shrewd and far-sighted fraternity, for, as I shall point out later, they did great things for their city and region. Though I sought major investments in Houston, I was never able to bid successfully against the deep pockets of these local satraps. These gentlemen tried to keep not only their investing and lending close to home but also their spending. It was courtesy of this group that a few years later I was to witness a most wry and utterly deadpan display of rich men's gamesmanship.
I was a guest of Billy Reynolds of Reynolds Metal on Derby Day in Louisville, Kentucky. Early that morning we were gathered with a selection of local notables, a great many of them track stewards. In order to prime us for the strenuous day ahead, mint juleps had been served at nine o'clock. At 9:30 Jesse Jones called from Houston. He and a few friends wanted to come up for the Derby but did not have a box; could anyone help him out? Of course, every single box had been taken months before, but the race stewards' throats turned dry at the thought of all that Texas money lying idle in Houston when it could just as well be flowing into the coffers of the Louisville track. So, after a few thoughtful sips at their mint juleps, a group of stewards matched straws, and the loser gave up his box to Mr. Jones. A properly thankful Jones promised to arrive at the head of a party of twelve.
The Houston crowd got up there in time for the Derby. Thirteen men filed in instead of the twelve that had been expected, but for the kind of money they represented, no Kentuckians were about to feel either offended or superstitious. All through the race the track stewards kept eyeing Jones' box waiting for the big spenders from Texas to file out and place their bets, but not a man moved. And it wasn't until after the race was over that the Kentuckians found out why: the thirteenth man in the Houston box had been a Houston bookie.
Because Webb & Knapp was buying all over the country, I found myself stitching a crisscross pattern of trips across wartime America. Airplanes were smaller, fewer, and often preempted by military or government officials. Gasoline was rationed, so travel was by train. And World War II was the railroad industry's last great moment. Streaming smoke and soot, trains rolled between one city and another with passengers sharing their seats in shifts. There were waits of two or three hours for a seat in the dining car, and the club car, a stand-up cocktail party for strangers, invariably ran out of liquor. And yet, for all the uncertainties and delays of wartime travel, I enjoyed those trips, especially the longer ones. Those crowded trains taught me many things about the country, other people, and myself.
They also introduced me to the "courtesy" networks, where, for example, a banker in San Diego would help me out with a hotel reservation, and when he came to New York, I, in return, could supply him with tickets to a hit play.
I was often able to get theater tickets through my friends Lee and J. J. Shubert. We met when, as agent for Astor, I sold the Shuberts a number of midtown theater properties. Lee Shubert was a keen-witted and jolly man with the face of a Sioux Indian. Although twenty years my senior, Lee had become a close friend whom I enjoyed sharing confidences with. Marion and I had dinner with him and Marcella Swanson regularly. Lee's relationship with Marcella was a novella in itself. He met her when she was a fifteen-year old member of a skating team known as "The Swanson Sisters." Their romance blossomed as she matured, and that romance lasted throughout their lives. They maintained separate households, but we all thought of and accepted Marcella as Lee Shubert's mistress. We assumed their relationship was not bound by any legality, until, in 1948, the papers announced that she was suing for divorce. For all their separate homes, they had been secretly married for many years.
Some three months after this scandal in reverse and their divorce, I stopped by to see Lee in his office. He explained to me that they had been married since 1936 but he was used to an unbridled existence and could not stand the pinch of the marriage harness, hence the separate homes. He looked rather glum, so I asked, why they didn't get together again.
"No . . . we're through."
"Well, why don't you let me give a small dinner just for the four of us at home?"
"No, no," he answered. "I wouldn't want to do that. Besides, she wouldn't . . . care for that. She would never come."
"Suppose we find out?"
Contrary to Lee's expectation, Marcella jumped at the idea. They arrived separately, Lee late as usual, and although they were a bit uncomfortable and strained with each other, we had a pleasant enough dinner, and Lee escorted Marcella home.
Two weeks later Shubert called me from Miami. "Marcella and I are down here having a second honeymoon. We're married again and we're going to try living together as well."
One reason for Lee's long-time skittishness of formal marriage ties was his proclivity for extracurricular activity. In his time, he had struck up warm, if brief, friendships with numbers of aspiring young actresses, and he kept an old straight-backed chair in his office which he would not part with and which, with a wistful shake of the head, he would, from time to time, give a reminiscent pat. The young ladies he had interviewed for parts had sat across from him in that chair.
In a valiant effort to defy time, Lee underwent countless sunbathing and masseur sessions, dyed his hair, and avoided his true contemporaries, whom he thought ossified. His career, however, dated back to the turn of the century, and he had a wealth of anecdotes about people in and about the theater. One of his best was about John Jacob Astor, Vincent Astor's father. In New York, as in London and Paris, from the 1890's through the 1920's it was fashionable for wealthy stage-door Johnnies to besiege their lady loves with flowers, affectionate notes, and invitations to wine and dine away the hours until dawn. One particularly lovely young thing, after a protracted siege, had accepted the attentions of John Jacob Astor. My friend Lee, who sometimes
had an avuncular interest in his charges, as well as a personal one, was aware, in those days before Actors Equity, that diamonds are a girl's best friend. He asked this not-quite-innocent miss whether she was acquiring any insurance against either the disaffection or demise of her elderly protect. The young beauty replied, "Oh, yes, he's very kind to me. I get $1,727 every time I see him." Why exactly $1,727, puzzled Lee? It seems that the first time she had granted her favors to her admirer this was the sum total the grateful man had on him. Since he was a gentleman and multimillionaire, he could never henceforth offer less to his young protégeé. But that was in another era. After a severe Depression, stage-door waiting had not only lost its panache, but was bad public relations. Styles had changed.
My own style of life had also changed. I was now a transcontinental traveler and an active trader. In time, as I became more familiar with various cities and regions, I found I could do a good deal of my buying from my New York office. My memory of a city or a quick look at a map and photographs, together with a quiz of a local broker or banker, would enable me to determine accurately what a property was worth and what kind of mortgage we could get.
Throughout this period, my work for Astor took up only half of my efforts. The properties we bought for ourselves we might hold on to for a number of years (their income was always welcome), but trading was our greatest interest. Once we had "proven" a property by signing a high-grade tenant to a good lease and by refinancing the mortgage, we were happy to sell it off at its newly established value to local investors and then move on. I also learned the needs of buyers or tenants, such as Woolworth's or Allied Stores, and when we spotted something they should like, I would buy it and then turn it over to the most likely tenant. Even in these relatively simple deals the transaction often became complicated.
All in all, from 1942 through 1945 Webb & Knapp handled some ninety purchases and seventy-five sales. The profit margin of any one of these transactions ranged from zero to several hundred thousand dollars. The average range was from thirty thousand to fifty thousand dollars. As fast as we made money, we put it back to work (with leverage), but we grew as quickly as we did only because we were also able to make good use of the existing tax laws.
As I pointed out earlier, one of the tragedies of the Depression was that various tax laws, which had seemed sensible and equitable enough in normal times, turned out to work special hardships on owners and investors during the Depression. Ironically, once the real-estate situation began to improve in the 1940's, other tax laws similarly conceived and intended for normal times readily served as tax shelters to those who could see and take advantage of them. One such device, the tax-loss carry-forward (with some modifications) is still much in use. The tax-loss carry-forward gives a company that has suffered losses during a certain period a tax allowance in order to help it recover and remain, over the long run, a healthy, taxpaying entity. Any profits it may make for a certain number of years are declared to be tax-free until such time as its total profits equal its previous losses. Therefore, by properly merging a winner (a money-making company that would normally pay taxes) with a loser (a company that had racked up capital losses and therefore had a tax credit), the resultant combined company would utilize the tax credits of the "losing" company to save the profits of the "winning" concern.
In 1943, for instance, we bought a number of New York commercial properties which formed part of the Havermeyer estate from the trustee, the Bankers Trust Co., for $440,000. In a few years' time we were able to sell the properties with a profit to us of approximately $530,000. If the property alone had been all that we bought, it would have been simply just one more profitable deal, but what we acquired was more than the properties. We had purchased all the stock as well, and therefore the actual companies that owned the properties. On the company books these properties had an aggregate, pre-Depression book value of 3.6 million dollars. When, after a complex series of paperwork exchanges, we sold off the properties at more than we paid for them, but at less than their book value, the residual companies wound up with a capital loss of more than two million dollars showing on the books. As a result, this two million-dollar book loss became a two-million-dollar tax credit. This meant that the next two million dollars in profits, which we were able to make through the residual companies, would be tax-free. Through a number of such carefully chosen purchases of stock and sales of property, I kept Webb & Knapp a tax-sheltered concern throughout the war and for part of the postwar period.
I was neither the first nor the only businessman to recognize and make use of this and similar opportunities in the tax structure. Later, Royal Little, a shrewd Yankee entrepreneur-industrialist, through his imaginative use of tax-free foundations and tax-loss carry-forwards, would so effectively and notably shelter his Textron empire from taxes that great portions of the law were rewritten.
We bought property largely outside of New York City because real estate in New York was moribund. From 1939 on, throughout the rest of the country factories were being built or reopened to supply the Allies and our own rapidly expanding armed forces. Soon most were on double shifts. But this resurgence was industrial rather than financial, which is to say that the money did not come from Wall Street. New York, the financial and office capital of the nation, hopefully watched and waited for its own resurgence, but, as regards real estate, there was almost a ten-year lag. As a result, New York overbuilt in the 1920's, remained underoccupied through the late 1940's. Whole floors in modern office buildings were used as employee recreation areas. Even prestigious Rockefeller Center was, as late as 1946, forty-percent unoccupied.
When we bought outside New York City, we were merely putting our money where America's growth was strongest. From time to time we took some flyers in foreign real estate, as in the case of Mexico City, but only because in my enjoyable new role of transcontinental bon vivant, Mexico was where I sometimes happened to be.
Marion and I first went to Mexico in 1943. At that time Mexico was not the well-traveled tourist center it has since become. Mexico City was a great capital and sophisticated urban center, but it was still almost purely Mexican. The floating gardens of Xochimilco, which the fast-declining lake has since left mostly stranded, were then floating paradises. Farther south, in Tampico, I hunted on the Tampico River and its nearby lakes, where after a gun was fired, the drumming wings and loud calls of brilliantly colored birds taking to the air made it impossible to hear anything else. And at that time, Acapulco, though a famous resort, was still a relatively small town with a character of its own rather than the high-rise, hotel-and-tourist-dominated place it has now become.
On our first day in Mexico City, Marion and I visited the ruins at Teotihuacán, in the middle of the great valley of Mexico. We visited the enormous Temple of the Sun and Temple of the Moon, with their flanking structures, gathering places, outdoor theaters, and temples. The Toltecs had a way of life quite different from ours. We think of them as primitive, but the design of the buildings and site is bold, balanced, and beautiful and surpasses much of what has been created since.
That first experience of Teotihuacán has left me with a sense of how the proper combination of mass, space, and setting can complement each other. It was to enormously influence what I consider to be the most important work of my life.
Marion scampered with her camera to the top of every pyramid she could get to. It was not till late afternoon that, elated and pleasantly tired by places and thoughts new to us, we returned to the Hotel Reforma. There, after washing up, we stopped in the lounge for a before-dinner cocktail. The bartender sent over two tequila martinis for our inspection. They were something new, but quite tasty. We downed them. A friend called over to me. I turned away from the table to speak a few words to him, turned back to Marion, and she was gone! She had collapsed and slipped soundlessly out of her chair. Mexico City's notorious high altitude and the excitement of the afternoon had combined with the tequila to hit Marion's bloodstream with all the power of a dozen
sister martinis from north of the border. While various old-timers nodded knowingly at this latest tribute to altitude and the national drink, we beat a smiling if slightly shaky retreat to our rooms. Marion almost immediately recovered, but we had supper (mourning dove with wild rice) sent up to our rooms. Later, now fully warned and fully fortified, we sallied forth again to pay our homage to the local Bacchus.
In our hotel was Mexico City's finest nightclub, Ciro's, which was operated by A. C. Blumenthal, an expatriate New Yorker. We made Ciro's our night headquarters, and sooner or later anybody of consequence among local or visiting revelers would make an appearance there. Wartime Mexico City, like Geneva, Zurich, and Lisbon, was one of the world's key espionage centers. The city boasted a full quota of spies, covert and not so covert, as well as counterspies, would-be spies, and volunteer counterspies of all shades and price tags. Since in Latin America it is as difficult to keep a secret as it is to learn the full truth about anything, the town buzzed with rumors and details of plots which, sooner or later, we all heard about.
All through the forties we often vacationed in Mexico. Since I can no more resist a real-estate deal than a smile at a pretty girl, each trip to Mexico saw me toying with a venture there. Although I began some preliminary negotiations, the business mores, local rules of the road, and diversity of the under-the-table dealings made those negotiations different enough so that it meant I had to keep a constant eye on my projects, or else things all too easily went awry. For instance, one spot where I did see desirable properties was in a tiny little place just a few miles south of Acapulco called Puerta Marquesa. It was then a tiny Indian fishing village, but I could tell it would flourish as a second Acapulco. It was eventually developed by some wealthy local politician and has become one of the most valuable pieces of real estate in the country, but I did not buy there because of restrictive local laws, which prohibit foreign ownership of coastal land and of large land holdings of all types. Often local citizens are used as front men to get around this law, but I decided against this gambit, for it would have been too vulnerable to permit a massive and truly forceful development of the area.
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