▪ 7 ▪End of an Era,
Start of a Reign
DURING THE WAR period Webb & Knapp had been closing as many as three or four transactions a week. Since an acquisition or sale might take anywhere from a few days to several months to close, we always had two dozen or more active transactions in hand. After the war the number and especially the size of our operations increased. Our old range of $30,000–$150,000 a project jumped to $100,000–$1,000,000, with many transactions well above that amount.
For example, even before the UN operation got under way I had made a purchase, in conjunction with Messrs. Eisner and Lubin, two real-estate speculators who later were part of the UN syndicate with me, that in terms of acreage and total profit far exceeded our more famous East Side project. We had acquired six waterfront miles, practically the entire Hoboken waterfront, from the Stevens family, who had held it since 1784. The price was $7,250,000. Our syndicate put down 1.25 million dollars in cash. By pledging one hundred percent of the stock of the eighteen different corporations involved, including a small nine-mile switching railroad, we secured the additional six million dollars from Bankers Trust.
With the UN site the problem had been acquiring sufficient land to make it possible to bring about a change in midtown New York; with Hoboken, it was the reverse. We had to break the acreage into marketable units. We sold two of the piers to the Holland-American Line for something over two million dollars. We sold another segment to J. W. Galbreath, the realtor, for almost four million. Another couple of piers went to the East Asiatic Co. for 1.8 million dollars, and General Foods bought a building and property for $900,000. These sales put our investment group 1.4 million dollars ahead. Next we arranged a number of shifts and exchanges of stock and of real estate between our two partners and Webb & Knapp. The net result was that Webb & Knapp bought out Eisner and Lubin and took over the remaining waterfront. We sold various of these properties, to wind up in 1949 with 2.3 million dollars' profit to Webb & Knapp, plus properties with a market value of 1.6 million dollars.
Finding new buyers or new uses for old properties had become a Webb & Knapp specialty. In 1947, when we acquired the Wright Aeronautical plant in Paterson, New Jersey, at a public auction, we paid 3.2 million dollars and then profitably resold parcels of the property. Also in 1947 I bought the Terminal Warehouse Corp., a square-block cluster of old buildings in New York running from Twenty-seventh to Twenty-eighth Street between Eleventh and Twelfth avenues. The price was 1.8 million dollars. We tore down walls, put in new elevators and new handling equipment. With the old property now geared to volume operations, top accounts such as Macy's came in to lease valuable space. We eventually sold the business for nearly five million dollars' profit.
These new and larger transactions tended to take longer to consummate than many of our previous ventures. One transaction, for instance, that I particularly enjoyed was our West Side television-studio venture: it took three years.
In the fall of 1946 a broker offered to sell us the New York Riding Academy and a number of other buildings between Sixty-sixth and Sixty-seventh streets at Central Park West. The properties were owned by Metropolitan Life Insurance, and the price was a little over $700,000. I turned him down because this was essentially a residential area, and the West Side was declasse. We would rather buy land at higher prices and get a better long-term deal on Park Avenue.
A few weeks later, however, I happened to be going across town on the Sixty-sixth Street transverse through Central Park. A traffic tie-up had me stalled in front of the riding academy, and on impulse I parked the car and walked into the place. There were a number of costumed riders about, some taking the jumps, others doing flat riding. When I stepped through the door, however, my eyes were drawn to the beautiful high-vaulted ceiling, and I said to myself, "This is no residential site, and it's no riding academy. It is a television studio."
I went over to a telephone booth near the entrance, put in my nickel, and called the broker. "What price did you say you wanted for the riding academy?"
"Seven hundred and twenty thousand, twenty percent in cash."
"I'll take it."
As soon as the contract for the "studios" was signed, we wrote letters offering the property to CBS, NBC, and every other possible user of a TV studio. We promptly received return letters graciously acknowledging our kind offer, but nobody had any use for a television studio. That put Webb & Knapp in the hay-burner business. We bought 150 horses for rental purposes. We bought a lot of oats, we sold a lot of manure, but we did not sell very many rides, and at the end of each month we showed a net loss for our efforts. After a few years of this, and a certain amount of unhappiness on the part of the other members of the syndicate we had set up to buy the property, I was ready to admit that it was a mistake. We were too far ahead of the times.
I was ready to give up and call Fred Ecker of Metropolitan Life who had the mortgage, and say, "When do you want the deed delivered?" when the phone rang.
A twangy, upstate Yankee voice said, "This is E. J. Noble, radio man." I thought it was a radio repairman calling until he went on, "That barn of yours . . ."
"What barn?"
"You know, that thing on the West Side."
"Do you mean our riding academy?"
"I guess that's it. If you will take a big enough loss, we'll take it off your hands."
I then realized that the Noble who was speaking, and whom I later got to know pretty well, was the owner of Life Savers Corp. and of the radio network that became ABC. Noble was a brilliant man with a great sense of humor, but he was also one of the chintziest men I have ever known. If he had been just a little more astute, he would have sent some broker with his heels worn down and the cuffs off his pants in shreds, and they would have gotten the property at a bargain rate. But when Noble came on the line himself talking like a second-hand rug dealer, I knew that my hour had come: television was upon us. After due dickering I sold him the riding academy for $1,160,000. Three weeks later I sold one of the now equally valuable adjoining buildings for $120,000. That riding academy and adjacent buildings became the cornerstone of ABC's television arm and an important factor in their early success, because it gave them an excellent production capacity.
All around us the promise and opportunity Webb & Knapp had seen in the country before and during the war was now coming to fruition. Realizing this, we kept stocking up on new properties the way a retailer stocks up for Christmas. We became known as an outfit that had money or could find it and was not afraid to buy big. More and more brokers and principals took to bringing their best projects to us first, and I encouraged all comers. I never refused a phone call from a caller with a deal in hand. It was a policy that paid off.
For example, in 1947, Smitty Davis, a well-known Western broker, a highly successful buyer and seller of newspapers, magazines, and radio and television stations, walked into my office. Davis was a shrewd but jovial man who liked to make a splash and live it up. Eventually a prime occupational hazard, liquor, got the best of him, and he went all the way down the drain with it. His wife, whom he had taught to live on a rather grand scale, became a telephone operator, and he lost his beautiful homes throughout the country. But at his prime he was a freewheeling go-getter, and he had a fascinating proposition. He could deliver twelve thousand acres in the Santa Monica Mountains. This was the largest tract of undeveloped land within the extensive limits of the city of Los Angeles. With the fantastic building boom under way there, this property was bound to zoom in value. He invited me out to meet his friends Robert L. Smith, the publisher, and Manchester Bodie, the editor, of The Los Angeles Daily News; they controlled the property. Some years later Bob Smith also fell upon hard times, when he lost his paper through financial difficulties. There were no jobs open to him until I made him head of Roosevelt Field, where he worked for the last ten years of his life.
I flew out to the coast, and we drove out to the site, which extended all the way from Sunset Boulevard to the San Fern
ando Valley. Rising from sea level to a 1,900-foot elevation, the property encompassed several major canyons and part of Mulholland Drive. Standing on top of the highest peak, I could look one way and see downtown Los Angeles, as there was no smog that day. Looking out to sea, I could see Catalina Island, and to the other side lay the San Fernando Valley. My hosts said they could put this tract together for two hundred dollars an acre or 2.4 million dollars. I bought it, reserving a spot on the highest peak for myself.
Five years after our purchase of Mountain Park, we would buy an even greater tract of land, Indian Trail Ranch, in Florida. This great holding, lying eight miles west of the Palm Beach airport, covered sixty-three thousand acres. We bought control of the property at twenty-two dollars an acre. Not too long after, United Aircraft built a plant nearby. This raised the value of the land dramatically. We sold out at ninety dollars an acre. By the mid-1950's we had also sold out Mountain Park to Lazard Freres for eight million dollars.
Both the above properties have since greatly increased in value. Lazard Freres, in time, will gain four or five times what they paid us for Mountain Park. The Indian Trail properties may now be worth three hundred dollars an acre, but what we sold the properties for were good prices at the time and followed the Webb & Knapp pattern. We could not hold all our properties, because we would need the money to meet our tremendous commitments in yet another new field.
This new field was construction, which I moved into gradually and with no inkling of what a grand and passionate obsession it would eventually become.
Our first major construction project, 1407 Broadway, in spite of a first and most disturbing crisis, was phenomenally successful. At the time we bought into it, 1407 Broadway was a vacant, partly excavated lot. The original property and building became available when the two spinster, eccentric old Wendel sisters died. The property was sold to Louis W. Abrons, a successful builder and real-estate dealer who, back in the old days, when I was an associate of Leonard Gans, had offices in the same building as we did at 285 Madison Avenue. Abrons later sold his firm at the peak of both real-estate and stock markets to head a company publicly underwritten by Lehman Brothers called General Realty and Utilities Corporation. They raised some thirty-five or forty million dollars of paid-in capital and went about the business of acquiring, developing, and financing real estate and were in the second-mortgage market. Abrons in the early 1940's bought the Wendel property on behalf of a private syndicate. By the time the war came, this group had demolished the building and partially excavated the lot, but wartime shortages and controls put a stop to any further work. There the hole stayed until a shrewd broker named Sam Hirsch put his imagination and energy to work on it.
To explain what happened next, I must describe something about two major and related industries, the textile and garment industries in New York. The sales and administrative offices of most of the textile industry then located at Worth Street, which is just north of the Wall Street financial district but south of Greenwich Village and of Canal Street. The garment industry, centered between Thirty-fifth and Fortieth streets near Seventh Avenue, were the principal customers of the textile manufacturers. A continual seller's market could be maintained, because the industry was dominated by a small group of family-owned mills down South. Those mills that weren't family-owned were controlled by managers who were their friends. It was a close-knit social setup, both Yankee and southern. The members of these concerns had their offices and their own private club and dining rooms down at Worth Street. Some of those buildings, with their iron fronts and beautiful grillwork, are still there. On the inside they have some of the finest of paneling, wood-joiner work, fireplaces, traditional paintings, and period furnishings to be found in the whole city. These old-line textile people, long settled in a social and economic milieu pleasantly reminiscent of the 1800's, understandably were unwilling to move uptown and become modern. Notwithstanding this reluctance, a new movement had been getting under way in the industry. Many technically antiquated companies were backed to the wall and new groups of investors were taking control of them. Other investors were starting up completely new concerns. The old order, under assault, would obviously have to adapt by moving closer and becoming more responsive to its market—the garment industry. That is why Hirsch and others felt that the textile industry might be ripe for a mass move uptown.
The project remained in limbo, however, until 1948, when Hirsch called and said he'd like to see me. He showed up with the plans for a new building at 1407 Broadway and a list of tenants who had indicated by letters of intent or otherwise that they would be interested in coming in. Burlington Mills, United Merchants & Manufacturers, Springs Mills, and a great many others had tentatively signed. Abrons, who owned the site, wanted to get out, and was asking for 4.5 million dollars, or roughly one hundred dollars a square foot, which I thought was very inexpensive. Hirsch was only a broker, however, and what he needed was firm evidence of financial backing in order to convince possible tenants and long-term lenders that the project would go ahead. If he could get equity financing, it would in turn produce the primary mortgage financing. There seemed very little doubt that the project could be brought off—if we primed it with equity money. I asked him what he needed.
"I need a million dollars."
"Will a letter agreeing to put a million dollars on presentation of the papers do the trick?"
"It will."
I called in my secretary, and I wrote Hirsch a letter of commitment for a million dollars. In exchange he would do the work, take commissions, and get a twenty-five-percent piece of the deal. Of course, I didn't have one million in cash; Webb & Knapp's cash balance was under $400,000, but money was something I could always raise.
Later Hirsch asked if I'd mind whether somebody else came in on the deal. I asked who. "Bill Rosenwald wants to come in. He is one of the Rosenwalds of the Sears Roebuck fortune. His attorneys and some others would join, too."
I said that would be all right, and we had cut ourselves back to fifty percent. Later a second group, including Charles Meyer, the building contractor, one of the outstanding steel engineers in the country, joined us. Meyer's contracting firm, J. H. Taylor Construction, would do the building. The group headed by the Meyer family included some members of the Kuhn, Loeb firm and other relatives. By the time we got through with these additions, Webb & Knapp was down to twenty-five-percent participation, and the project went ahead. However, as the building came closer and closer to completion and final renting, I found that my relationship with some of the others was becoming unworkable. They were contentious and kept trying to block or alter my own leasing and selling arrangements. I decided the best thing to do was sell my share of the property or buy my way out of the arrangement, and I so informed my syndicate partners. Since it was an obviously sound project, I expected them to buy me out. I could use the funds elsewhere.
They made an absurd proposal: they offered to buy Webb &Knapp's quarter interest for $500,000, but said if we wanted to buy them out, it would cost us two million dollars for each one of their quarter-shares. Since there were three groups involved, this meant they wanted six million dollars for their quarter-shares but they would buy us out at only $500,000—twenty-five percent of what they'd sell to us for.
I asked "Are you sure you mean that?"
"That's exactly what we mean."
Then I said, "I'd like to have a meeting of the entire partnership so that we can resolve this."
Obviously, some of my more predatory Syndicate partners reasoned I was in a squeeze with other projects and needed the money badly. They thought they could take us. They were very prompt about holding that meeting. Our gathering of the clan took place at the law offices of Stroock & Stroock & Lavan on lower Broadway. At this conference I found my friends and their legal brains sitting around looking expectant but not saying much. With their eyes agleam, they looked like wolves waiting for the lamb to trot in and lie down so they could gobble him up. I was the officially des
ignated lamb, and to get the meeting under way I asked them to repeat their proposal.
"Well," they said, "we'll pay you $500,000 for your quarter-share. We will sell our quarter-shares to you at two million dollars a quarter-share."
I sat back in my chair, looked around the group for a while, and waited. They sat watching. I gave the top of the table a slap and said, "O.K., you've sold out. I'll take it."
For a moment there you could have heard the carpet beetles munching on Stroock & Stroock & Lavan's rugs; my taking up their challenge was the last thing my "partners" expected. While they were still stunned, I pointed a hand at the lawyers and said, "Go ahead, draw the papers now."
They said, "We want a deposit of a million dollars."
"Make it $500,000." They agreed to that because they figured I couldn't raise the money. This way they would get $500,000, or my stock in the venture, as collateral security for my guarantee—and they would be getting this for nothing. They were almost right, too, but I signed up.
Now I had the property but I just didn't know how to handle it, because all other Webb & Knapp projects had already been syndicated and resyndicated, so there just was no further cash on tap. A few weeks later, the day set for the closing, I still didn't have the money. I went to the meeting at ten o'clock, and my friends were there, waiting. I asked for an extension of time, which is a courtesy one normally gets automatically, but they refused it to me, so I put on my hat, saying, "I have all day to close; rest easily boys," and walked out the door.
The gun was at my head, and the timer to set it off had started ticking. I had already tried every conventional and a number of quite unconventional methods of finding capital, all with no success. Now it was time for the most direct approach conceivable. I went over to the Chase Bank, without an appointment, and walked into David Rockefeller's office. Partly because I had been of service to the Rockefellers as a consultant, but largely because he is a gentleman, David Rockefeller immediately saw me. I said, "David, I want to borrow six million dollars, and here's what I want to do with it and why it's a good deal. . . . " I explained 1407 Broadway.
Zeckendorf Page 10