Rockefeller thought the idea sounded fine. He asked me to take it up with John Scully, and if he thought it was a good safe thing for the bank, Chase would go along with us.
I went over to John Scully, Vice-president in charge of real estate, and Scully looked and listened and said, "I think this is O.K., Bill." He picked up the phone and called Rockefeller to give the loan his blessing. I had explained to Rockefeller that I needed the money that day. From my side of the table I heard Scully say, "All right I'll do that," and he ordered me a check for six million dollars. It takes a little while, even for the Chase, to handcraft a six-million-dollar check, but now the ticking that had been sounding in my head since ten o'clock had stilled. As for the men waiting in a Broadway back room for my money, they could sit. I made a few phone calls on other business, then at five o'clock in the afternoon went over to that closing. Stepping into the room, I walked silently up to the table. I reached into my coat pocket, let my check for six million dollars waft softly down to the table top, and said, "Gentlemen, drop your stock on the table."
The men who had been trying to pulverize us, men who didn't need to make their money that way but could not resist the temptation to do so, received an excellent return for their efforts: I met their price; they more than quadrupled their original investment. But they and my other syndicate partners who had gone along with this one-sided bargaining session now had to sit back and watch us turn 1407 Broadway into the most lucrative real-estate venture in New York. My first job was to pay off the Chase, and we did this, but over a period of many months we brought in so many tenants and we so fractionalized and sold off the various aspects of 1407 that we ended up, depending on how you count these things, with up to thirteen million over and above the six million dollars paid back to the Chase. We sold the lease and later leased it back. We sold the fee and later leased it back. Then there were an outer lease, an inner lease, and various sandwich leases which I shall explain elsewhere. Meanwhile, the building kept filling with tenants. This is what happens with a bold project, where, in the first instance, you make some sacrifices to get your first key tenants. Then, because you have a fine building, and because it catches on, rents go from a discount to a premium in value. The early leases, as they mature or as tenants decide to expand in a successful building, later take on yet another increment in value, and 1407 today may be worth thirty million dollars. Inflation, like a rising tide, comes to all ships, but 1407's value rise was based on concept and execution. Our success at 1407 later led us to another fine venture, 112 West Thirty-fourth Street, but by that time Webb & Knapp would be a quite different kind of company.
In 1948, when the 1407 Broadway project started, we were a partnership, albeit a fatter partnership, than my partners had returned to after the war. Our total assets in 1945 were 6.6 million dollars; by 1948 they were twenty-five million. Our net worth was 5.6 million dollars, and gross income from operating properties was 3.2 million. Almost everything we owned, with the exception of the Club Monte Carlo, was making money, and the Monte Carlo situation was about to change.
The Monte Carlo was one of the finest nightclubs in town. I had a policy of changing the decor every season, at great expense. Both the food and service were excellent. We had two orchestras and a regular clientele, but costs were high and nightclubbing as a way of life was beginning to fade, not only for many New Yorkers, but for me. I still had my corner table but was finding it more of a blight than a pleasure. At every visit a continuous procession not only of friends and acquaintances but also of total strangers (and occasional diners, complaining that their steak was too rare or too well done) was in perpetual parade around our table. Marion got so she hated the place because it was impossible to have a quiet, uninterrupted meal. I was coming to a juncture in life where a part-time office and unofficial court in a nightclub was neither so much fun nor fitting. Yet, though it had begun to lose money, I would not think of closing the club down because of pride in the place and also because of a sense of loyalty to our employees. Then, in June, 1948, we were threatened with a strike by the bartenders' union. At first I didn't believe our people would strike; our relations were excellent. And because of their pay and their tips, ours were probably the richest bartenders in town. I decided that if our men did strike, I could only answer by striking our colors—in a very special way.
At five o'clock on a Wednesday afternoon, when we got word that the bartenders were indeed going out, I went down to the club. From there I called the union leadership and asked permission to talk to the men. Under the law I could not address my employees without the union's approval, and they asked what I wanted to say. I replied that I wanted to praise the union and its leaders.
"You want to tell them about us?"
Since they were a little incredulous, though inclined to be pleased, I said, "That's right," feeling very much like Marc Antony. They agreed to an oration, and the union leaders and our bartenders and all our other employees on the premises came into the side dining room, where I had once signed over the East Side slaughterhouses to the UN. I gave a short speech:
"The first thing I want to tell you is, we are believers in unions, in organized labor, and in the right to strike. Everything you are doing is right, and your leaders are right. They have told you to strike because we don't pay you enough. All of this is a product of American society, all of this is part of democracy. It is also a matter of democratic privilege that the employer has the right to try to run in the face of the strike. He also has the right to lock out the strikers, which is the opposite from the right to strike, but we wouldn't do a thing like that. Now, with all deference to your union leaders, who figure you men can get more money by striking for it, we are not going to pay—because we can't afford to. If we can't afford to pay, under the democratic capitalistic system, we have to go out of business. We said we wouldn't lock you out, but we won't stand for a strike, and we won't run any scabs. So you don't have to worry about the strike anymore or parading around outside. This place is now closed and will never open again.
"But let's all have a glorious finish. Tonight is yours. You waiters, busboys, chefs, bartenders, everybody. We will let no outsiders in. You can invite your wives, your girl friends. The hat-check girls can ask their boyfriends. The music will play until four in the morning. Anything you want to eat or drink is on the house."
They had the wildest night that's ever been had in any nightclub. None of the public was allowed, and we closed at five or six the next morning. We closed for good, in a blaze of glory, and we got publicity all over the world for that, so much so that when Marion and I took our first long trip to Europe that summer, when we went to the great nightclubs on the Continent we were greeted like royalty at a restoration. The European nightclub owners, captains, and waiters alike thought it the greatest thing in the world for a man to close a place as I did. When we had left for Europe, our own captains and waiters had come down to the boat begging us to reopen the club, but I said no. I'm glad I experienced running the Monte Carlo, but I feel about it the way a man does with eight daughters: he wouldn't take a million for one of them or give two cents for an additional one.
We had a vacation of at least six weeks. It was my first real break from business since the start of the war. We went to Paris, naturally, and then traveled about the countryside sampling three-star restaurants, tasting the air, and testing the wines of the Loire and other districts. I had developed an interest in wines, which this trip served to increase. Eventually I became a Chevalier de Tastevin as well as master of what is possibly the best wine cellar (for burgundies) in America. My personal attitude on wining is to let the future generations worry about their own top vintages. We owe it to ourselves to drink our fair share of the best available to us. I enjoy the best vintage possible at every meal now, as I did on that special trip in 1948.
After weeks of luxurious lazing by the sea and a weight gain of ten pounds, I came back to New York, sated with rest and full of ideas. I was eager for
new challenges—and found them waiting.
My partners met with me and said they had decided to liquidate the business. They wished to sell off our assets, pocket our cash, and go our separate, coupon-clipping ways.
▪ 8 ▪Good-bye, Partners; Hello, World (1948–1952)
AT FIRST I was upset by my partners' decision to liquidate Webb & Knapp. For one thing, I liked my partners and enjoyed working with them. Also, we had a team of experienced employees who were used to my ways and worked at my pace. Outright liquidation of the firm would both dissipate its momentum in the marketplace and break up our work force. Besides, since the appreciation in value of many of our properties was just becoming evident, their forced sale would be like sending green peaches to market; we would have to sell at a discount.
Gould, however, had become ill with tuberculosis and wanted to get out of business altogether. Sears, who was independently wealthy, had no great ambitions or desires in real estate; he was more corporate-oriented. Then, too, both men, though equal partners with me, must at times have felt all the frustrations of passengers in a fast-moving vehicle they could not control. Like the rear men on a bobsled, they were appreciated for the extra weight and lean they provided, but since ninety percent of Webb & Knapp's business was interconnected projects of mine, they were discouraged from fiddling with the controls. Finally, by temperament my partners were investment managers (Webb & Knapp's original business had been the management of properties) rather than investor-speculators. Though highly appreciative of our gains, they felt Webb & Knapp should assume a more conservative and more comfortable role. I, on the other hand, was bent on a new program of speculative growth. We all knew that eventually I would win out, which, in part, is why they decided to get out. But once all this was clear, I began to see in their departure not so much potential trouble as a fantastic opportunity. I would buy them out and go on from there!
I bought my partners out for over five million dollars. To raise this money, Webb & Knapp went on a selling spree, and I went one million dollars into debt. The whole thing took little more than a year, and the company kept growing throughout.
Many of our activities during this period, such as the sale of the riding academy to the ABC network for television studios, were propositions whose time happened to have come. Others, such as our sale of the Club Monte Carlo property to Astor for 1.26 million dollars and the sale of 383 Madison Avenue, which housed Webb & Knapp headquarters, to Metropolitan Life for seven million, were part and parcel of the liquidation effort needed to pay off my partners.
From the very moment I decided to buy out my partners, I determined not to allow this situation to create a hiatus in Webb & Knapp activity. I kept the company moving at an even faster pace in order to pay off the partners and also to recoup the costs of this purchase through a series of bigger and better ventures. Thus, between September, 1948, and November, 1949, at which point my partners were out of the business, Webb & Knapp sold 22.5 million dollars of real estate, plus 2.7 million dollars of joint-venture properties and over 3 million dollars in securities for a total of more than 28 million dollars. Most of this money went to pay off mortgages. The bulk of the remainder was immediately reinvested. For instance, in order to sell our headquarters building to Metropolitan Life, I had to put 3 million dollars into modernizing and air-conditioning the property. The continuous demands on Webb & Knapp for cash for such investments and for new purchases sometimes led to difficulties. At a critical moment in the maneuvers necessary to arrange buying out of my partners, it was Marion who helped me keep the deal viable. With time running out on our original arrangement, I had not yet been able to raise the agreed-on cash. After consultation, my partners informed me that for $250,000 beyond the sales price they would give me a thirty-day extension. If I could wrap things up in that time, they would not go ahead with a liquidation. If I could not raise the necessary cash, they would liquidate, and I would be penalized the $250,000. Marion urged me to go ahead with the deal and offered $250,000 of her own money.
As it turned out, I did not need Marion's offering. The Wall Street firm of Lazard Freres had offered to provide me with three million dollars in cash in exchange for two-thirds of the shares of Webb & Knapp, with my buying back these shares in six months' time at a one million-dollar profit to Lazard Freres. I decided to accept this high-cost arrangement, and while visiting Charlie Stewart at Bankers Trust, told him of the agreement. He said, "That seems a little steep. . . . Maybe we can manage something a little more reasonable." From Stewart, Fred Ecker of Metropolitan Life, and Jim Lee of the Central Savings Bank I was able to arrange a great series of sales, leasebacks, and loans by which my partners received their respective monies, as well as the liquor left over from the Club Monte Carlo, and bowed out of the real-estate business.
Webb & Knapp's next major project was the creation of 112 West Thirty-fourth Street, which stands midway in a long and busy block between Sixth and Seventh avenues. More important, it lies between Macy's on Thirty-fourth Street and Gimbels on Thirty-third. I began assembling this property lot by lot in 1942. It was one key property which I was careful not to discard during the sell-offs I made to raise the cash to buy out my partners. One particularly difficult maneuver in our getting the property together involved takeover of a city-owned firehouse on Thirty-third Street. The city was magnificently indifferent to a sale of the property until, through extensive persuasion among local politicos and functionaries, and at a cost of $375,000, I arranged a swap. For $375,000 we built a new, much larger, more efficient, and better located firehouse on West Thirty-first Street. Into this new station the city moved the men and equipment from their old station and from another station on Twenty-ninth Street. As a result of the swap, we got what we wanted—a key property. The city got a better firehouse (with a recreation room and solarium for the fire fighters), as well as the possibility of income from the sale of the Twenty-ninth Street firehouse. Everyone ended up better off than they started.
We eventually acquired 74,270 square feet of property between Thirty-fourth and Thirty-third streets, 36,340 square feet of this land now being in one piece. I always expected we would sell the property to some department-store group, but a series of discussions with Sam Hirsch persuaded me to try something else.
To understand what we did, one has to realize that New York City, where you can buy anything, is really a giant, Oriental bazaar in concrete disguise. It is the greatest such bazaar in the history of man, and, true to the type, it is a marketplace where birds of a feather and merchants of a type flock together—the money lenders and speculators in one section downtown; publishing, TV, and advertising men in midtown; and the cloth merchants in between. Nowhere is this segregation more evident than in the garment district. Textiles, for example, are at 1407 Broadway. Men's clothing, women's coats, and women's dresses are nearby. If buyers from department stores in Iowa, Georgia, or Colorado wish to buy $14.95 dresses, they can find ninety percent of the industry that makes such dresses in or near one building. The $25–$30 dresses will be similarly located near each other. The garment district, to a store buyer, is the equivalent of a blocks-long counter display, with the goods spread out in regular, if overlapping, categories.
At that time, the children's-wear industry, though concentrated near one or two buildings, was somewhat scattered. Hirsch felt it might be susceptible to a mass relocation, and I decided to make this new location 112 West Thirty-fourth Street. We began lining up clients, and met with almost instant success. In fact, every time we turned around, we had to redesign the building to make it bigger. We eventually changed the plans five times, to wind up with the biggest and tallest building that city regulations would permit.
At a time when retail space on West Thirty-fourth Street was worth two thousand dollars per running front-foot in annual rent, I took a tremendous amount of this space off the market to give our building a luxurious, seventy-five-foot-wide lobby. Then we cut into the second floor to permit this lobby a fine, f
lared ceiling, and lined the walls with matched Siena marble. This imposing entranceway set us back at least $150,000 per year in rents we might otherwise have received. Local realtors and retailers walking by the building shook their heads in disbelief at this waste of salable space, but only because they would not raise their eyes above ground level. I recognized that we could afford to lose ground income if, by giving tenants a prestige building, we could ask for rents fifty percent greater than those in the immediate vicinity. This is what we did, and by losing $150,000 in ground rent we gained at least $400,000 a year in office rentals—and had a fine building. Based on its current leases, that building is now worth some fifty million dollars.
Since retailing is so important on Thirty-fourth Street, we did devote the remainder of our ground area to store space, but with a very special kind of store. We designed a passageway for pedestrians between Thirty-third and Thirty-fourth streets, which in that area means between Macy's and Gimbels. Pedestrian traffic tends to be drawn to, and generated by, two or more well-placed major stores in much the way electricity is generated and made to flow between the opposing poles of a dynamo. Once we opened up a passageway between Macy's and Gimbels, pedestrians immediately flowed to and through it by the hundreds per hour. In due course, in Roosevelt Field, the prototype of the American shopping center, in Denver and in Montreal, as well as in other cities, we would make use of this principle of human physics, but Thirty-fourth Street was the first application.
The tenant we sought for this ground-floor property was F. W. Woolworth Co., who, when I pointed out that getting a store between Macy's and Gimbels was like getting a license to print money, were immediately interested. The Woolworth negotiators, however, balked at the minimum guarantee I was asking for the lease.
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