Zeckendorf

by William Zeckendorf

  "Around sixty million."

  "Well, you're out of your mind. The studio properties alone will cost several million to demolish."

  "But I don't want to tear them down," he said. "We'll turn over all the land around the studios, but we want to keep seventy-five acres for Twentieth Century."

  That rang the bell. I quickly said, "If you would be willing to pay a decent rent for the studio stuff, maybe we could do something."

  "How do you mean?"

  "Well, if we buy the property we'll want to lease your studio property back to you for one and a half million dollars a year in rent."

  "That's not too bad," said Spyros.

  "In that case, we'll take it," I said, and we had a deal in the making. After a good bit of horse trading, we settled on a fifty-six-million-dollar sales price, but what I had realized as we first talked was that I really wouldn't be paying that much. I was actually paying only thirty-one million, because that 1.5 million rent, at six-percent interest, would be worth twenty-five million dollars to some insurance company. Of course, we would still have to raise thirty-one million dollars, which in 1958, with Webb & Knapp spread thin across America, was a staggering amount. But if we took it in small bites, maybe we could do it. We finally settled on a 2.5-million-dollar down payment and various sequential payments, rights of extensions on time, and so on. The essence of the deal was that Webb & Knapp would acquire the property, not in one lump, but in separate parcels over a ten-year period. What I had in mind, of course, was selling off parts and portions of the property to different investors. If the Hawaiian Technique could work for fractional parts of and rights in a building, why not a super-Hawaiian Technique for Century City?

  We had much fun trimming, tacking, and sculpturing that deal, and when it was finally done, Spyros put on a proper Hollywood show. We met on the site of Twentieth Century's studios. Spyros, of course, had a bevy of starlets in attendance, a number of old-time movie greats, and several current stars present by "invitation." He had set up a reproduction of the Zeckendorf Store in Tucson, where my son and I had our picture taken, and he had a prepared speech. Spyros is a jovial man, but was born equipped with all the wariness of millennia of Greek traders; he is as hard as nails when it comes to a trade. He is also damnably persuasive. One of his directors once told me, "He speaks in the gravel voice and uses such broken English that we can hardly tell what he is saying. He is so earnest, though, that the directors vote yes without being sure just what he wants." Well, in the Century City deal Spyros had pulled off something nobody had thought could be done. Production costs on the movie Cleopatra had sucked Twentieth Century dry of cash, but here was a multimillion-dollar injection on the way. It was a great coup, but Spyros, a trader to the end, was complaining all the way to the bank. In his speech, he said, "Here is a Jew, Zeckendorf. He comes out here and outtrades me, a Greek. He steals the finest piece of real estate in all America." At this point the contract was not yet signed, but Spyros went on in the past tense, saying what a great deal we had pulled and that it was only through cunning and skillful flattery that we got the terms we did for the greatest piece of property in the world.

  Then it was my turn. I had no prepared remarks, but I did have an opening. I said, "I am flattered by Mr. Skouras' remarks on my astuteness and how I am stealing this property: if, and when, I sign the contract, which yet remains unsigned. But I want to set the record straight:

  "If I recall correctly, the United States paid Napoleon fifteen million dollars for the Louisiana Purchase, which includes five states and most of Texas. We paid just over seven million dollars for Alaska. We paid ten million dollars for the Gadsden Purchase, which picked up half of Arizona and southern New Mexico. We gave the Danes twenty-five million dollars for the Virgin Islands. Now I am paying almost as much as all these for 263 acres on the wrong side of the tracks here in Brentwood. . . . I wonder who is doing the better trading."

  Spyros gave a great roar of laughter. Actually, we were both pleased with ourselves, with each other, and with the deal. We signed, and Webb & Knapp was under way with Century City.

  For the vital, 2.5-million-dollar down payment we first put up our own cash, then brought in Lazard Freres by borrowing against other property of ours. Lazard Freres had the option of a "put" to us. "Put" is a financial term; it means that at any time of their choice Lazard had the right to walk out of the deal and we must give them back their 2.5 million dollars. In any event, we turned over the down payment to Spyros in April, 1959. Our deal began to cook through the rest of that year and the first part of 1960, but it didn't get done before we began to run out of gas. Colonel Crown, to whom Spyros had first peddled the property, was interested in joining; so were other developers and money men, but nothing was moving quickly. Meanwhile, the time for closing the deal and making a second 3.8-million-dollarcash payment had come and been twice postponed. Lazard Freres, anxious about its down payment, decided to call for its 2.5 million. At that time I was much committed to building a new Zeckendorf Hotel in Manhattan. This hotel was going to take up all the cash we had on hand, and I had to make a choice: either we could drop the hotel or fade at Century City. The very fact of our entry into Century City had done much to bring this project from the realm of fantasy to the world of the probable. People could now see that this was an area of great potential. So what I did now was arrange a sale to another developer. First, over a series of negotiations with Spyros, we agreed on new terms for the project: it would now be an all-cash deal for forty-three million. Then, in May, 1960, I sold our contract to buy the property at forty-three million to developer Marvin Kratter. We sold this contract for 4.5 million dollars but kept twenty-five acres for Webb & Knapp. Short of cash, we were bowing out, but only part way, and at a good profit. Kratter stood to make a lot of money from the further fractioning of the land, but, all things considered, I was content.

  A month after this agreement, however, Kratter became suddenly afraid of taking on such a great commitment and, at the last moment, walked away from the deal. Now, to my horror, Webb & Knapp had another time bomb on its hands. Lazard Freres had called for their money; we had to have 2.5 million for them by August. A further 3.8 million dollars was now due on the Century City contract. If we did not come through with something pretty soon, we stood to lose the land and the down payment Twentieth Century-Fox already held.

  A number of sources turned us down but hung around hungrily to see what we might do and what they might pick up cheaply in case we slipped. Somehow, somewhere, I was going to have to pull a solid-gold rabbit out of a hat I didn't own, or Webb & Knapp would be out of business.

  Now, it happened that earlier in the summer, at a businessmen's luncheon, I had met Frank McGee, top man at the Aluminum Company of America. We got to talking, and I said, "You fellows are sure falling behind the times; you are doing nothing in real estate."

  "What do you mean?"

  "Well, Reynolds is going into the housing business to demonstrate products; so are others. But the biggest aluminum company in America hasn't done a thing."

  "Well, we might be interested someday. If you have something good in mind, let me hear from you."

  Of course I had in mind the forthcoming "put" from Lazard. I said, "Frank, don't say it if you don't mean it."

  "Oh, I can't commit myself, but I'd be glad to hear from you."

  "I've got nothing in mind right at the moment, but if something should come up, I'll call you and come down to see you to tell you about it . . . if you wish. But don't fool around. I don't want to waste your time or mine."

  "That's all right, no harm done. Come on down sometime."

  A couple of weeks went by, the commitment to Lazard was coming close. The Kratter deal flowered and died, and I decided, "Well, I'll make my pitch." I picked up the phone, called McGee in Pittsburgh, and said, "Frank, remember that conversation we had some time ago?"

  "Sure."

  "Well, I've got something."

  "Fine. Let me know s
ometime when you'd like to come down."

  "I'm letting you know now."

  "When do you want to come?"

  "Tomorrow."

  "Tomorrow?"

  "Yes."

  "Well! That's kind of short notice."

  "I asked you if you were serious last time, so this is not short notice. If you are busy, I'll come the next day."

  "No, I'll find time for you."

  "Good. The reason I want to come down tomorrow is that I have a date for lunch with Westinghouse, and I can come over and see you before lunch."

  He said, "What time?"

  "Ten-thirty."

  So at 10:30 I arrived. I was ushered into Alcoa's executive suite on the thirty-second floor. McGee had a very large office, but it was well filled; most of Alcoa's top officers were there. McGee sat on a divan with his legs crossed, and after introductions said, "Well, tell us the story."

  I had brought a map of the site and gave them an idea of what one could do with 263 acres of open land in Los Angeles. "The price," I said at the end, "is forty-three million dollars, but it need cost only eighteen million."

  "Why do you say that?" asked McGee.

  "Well, as you remember, Fox is leasing seventy-five acres back for its own use at a million and a half rent, and that million and a half can be sold for twenty-five million. So if you want to sell that off, your exposure is only eighteen million. With that eighteen million you can get the best of the land. I recommend that you take this deal.

  "It will mean a great deal to worldwide public relations of Alcoa. Apart from that, you will make a lot of money in real estate. You will spend eighteen million dollars for land, plus another eight or ten million in developing the land with roads, utilities, sewers, bridges, and other things. Then you are going to sit back and make a big land profit. Because if you take the eighteen-million cost, plus, say, seven and a half million in expenses, this brings you up to twenty-five and a half million. For this expense you'll have six million square feet left, but it will be fully developed for land use, at a cost of roughly four dollars a square foot.

  "It is easily conceivable that that land could be worth, in time, fifty dollars a square foot; you might even have a fifty-dollar-a-square-foot profit."

  McGee listened to all this and more, and sat there, then said, "When do you want an answer on all this?"

  "Today."

  "How can we give you an answer on a thing like that today? This is so revolutionary!"

  "Well, Frank, if you won't give it to me today, I'm going to have to go somewhere else. I told you before I came down here that you shouldn't ask me down unless you really meant to do business. That doesn't mean that you are committed to buy this deal, but I thought you wanted to give it serious consideration, and that means immediate consideration.

  "Why don't you fellows think it over. I'm going to have lunch over at the Westinghouse Company, and I can be free this afternoon after lunch. I'll come back."

  McGee said, "All right, if that's convenient."

  "I'll be here," I said.

  At 2:30 I came back, and the same group were all assembled. Nobody was saying a word; McGee sat on the same divan. I tried to seat myself near the center so I could keep my eye on everybody; then McGee began to speak in a quiet monotone. He talked endlessly. Actually, it was not a long time; it only seemed that way. He talked and talked, and of course I had to assume that he was explaining why they would not go into real estate, because what he was saying was that Alcoa had never varied from the pattern laid down by the founders of the company: this was to confine themselves and their capital entirely to the production and sales of aluminum.

  He said, "We build ships, but we use them for our own cargoes. We just came through with an agreement to build a power dam, but that is to make aluminum at the site of our bauxite production in Surinam in Dutch Guiana; we'll put out 150 million dollars for that dam. We understand financing aluminum extrusion plants. We can understand putting money into our own office building where we occupy fifty percent of the space, but we don't understand going into real estate. Nevertheless, we are going to do this."

  He said this last in the same monotone, and kept on talking. It was like President Johnson's famous 1968 announcement that he would not run for another term; one heard it but did not grasp it for several seconds, and by then wondered if he had heard right in the first place. No one in the room besides me had even seen the Twentieth Century property, and they had no full idea of the multitudinous things that had to be done. They just committed themselves right there in that room.

  "Now," McGee said, "what do you want us to do?"

  I said, "A check for two and a half million dollars."

  "Who do you want it payable to?"

  "Webb & Knapp."

  He called over to the treasurer, saying, "Matt, you got two and a half million anywhere?"

  "Yes."

  "Give Bill a check. What are you waiting for?"

  Now, we didn't have a contract, not a scrap of paper, and I had never met any of those men before in my life except for McGee, and I didn't know him very well. I got the check and I took my leave as quickly as I could politely do so, went downstairs in the elevator, got to a telephone booth, and called the office. With my son and the others on the phone, I said, "Fellas, we just got a great deal, we are out from under Lazard and we are off and running in a wonderful deal with Alcoa."

  Earlier McGee had asked me what basis I would want to go on. I said, "You put up two-thirds of the money, and we'll put up one-third of the money. We'll take two-thirds of the profit, you take one-third of the profit. You get your money . . . we all get our money back before profits are divided." And that was the original basis of the deal. It was the beginning of a relationship which, without exception, without a single incidence, was the finest relationship any company could wish to have with another.

  Eventually there will be close to a billion dollars' worth of improvements in that area, and the rise in value has been so great and so evident that Alcoa doesn't have to invest any more of its own capital; it can find plenty of banks and insurance companies to give it all the mortgage money it needs, with no liability to the parent company. The land is presently worth more than forty dollars per square foot and will continue to accrue in value. Alcoa can eventually expect to make at least a quarter of a billion dollars on this one property, and it will long stand as one of their finest investments and as a great contribution to architecture and building.

  The dominant stockholder group in Alcoa were the Mellon interests. I got to know General Richard Mellon during our Pittsburgh venture. Some years after, returning to the United States aboard the S.S. France, we chanced to be shipmates. He remarked that the purchase of Century City was one of the greatest milestones in the company's history, and one of which they were very proud. It was indeed a milestone, for this first step led to others. Alcoa became partners with us in our greatest urban-redevelopment projects and eventually took them over completely. They also took over all of Century City; we sold out for fifteen million dollars, this money going to our British partners during Webb & Knapp's time of troubles.

  The Twentieth Century-Fox deal was one of the first efforts of the entire Zeckendorf-family team. My son, my son-in-law, Ronnie Nicholson, and I worked on it, beautifully backstopped on the legal side by Maurice Iserman. Spyros, of course, played the lead role for Twentieth Century. Working with him were Don Henderson, the treasurer, and Joe Moskowitz, also a financial man, who was also much involved in the purchase of film properties. Their lawyer, Otto Kagel, was a practical man and a deal-maker rather than a deal-breaker, which is what some lawyers try to be. Henderson was also simpático, and Joe Moskowitz was the bulldog at the gates.

  Getting Twentieth Century to come down from the original fifty-six-million-dollar, ten-year deal to a forty-three-million-dollar, all-cash contract took an extraordinary number of sessions. We met in New York. We met in Los Angeles. We bargained in offices. We bargained in supper clubs wh
ile watching good-looking starlets swish by the table. Throughout all these sessions, short, round, cigar-chewing Joe Moskowitz, a cartoonist's caricature of a Hollywood mogul, kept a perpetual bargainer's scowl on his face and questioned anything and everything in suspicious detail. I got so sick and tired of watching his grimacing that at some point I called across the table, "Well, let's see first . . . Hey, how does Laughing Joe Moskowitz feel about this?" Up till then Joe had never so much as smiled. Now he burst into a laugh. I called him Laughing Joe from then on, and no matter how he tried, he could not help, at the least, smiling back. This helped our sessions and set a precedent; "Laughing Joe" will go to his grave with that name.

  At about the same time as our early Century City negotiations, we became involved in yet another potentially fabulous conversion of city-side acreage to urban square-foot values. This next deal was in Cuba, which, having replaced Mexico as Marion's and my vacation headquarters, provided us with fun, games, and a touch of adventure.

  Before Castro's takeover, Marion and I often went to Havana for long weekends. It was a joyous town for tourists. The Habañeros were a friendly, accommodating people. The Tropicana and Sans Souci, in quality of food and service, and the spectacular precision of their shows, all outdoors in the glorious weather, were the two best nightclubs in all the Americas. Besides the clubs and beaches, there were gambling casinos, the horse races, and jai alai. I never played the horses but religiously went to the jai-alai games. Through betting on these games I was able to earn my expenses on every Cuban excursion except one. I earned my way in jai alai, not by gambling, but by recognizing that the game was rigged.