▪ 19 ▪Wall Street Maneuver
ALTHOUGH PRIVATE BUILDING complexes, urban-redevelopment projects, and massive land deals constituted the visible bulk of the Webb & Knapp empire, we had never given up our original business of assembling properties and packaging deals. In the 1950's and 1960's we continued buying and selling lots and buildings as we had in the 1940's, except, where we had once dealt in thousands of dollars, we now dealt in millions. We were the most noted and trusted dealer in the business, and it was through a reputation built up over the years that we were led into the single greatest project or series of projects of all, the Wall Street Maneuver.
In 1954 I was invited to a special meeting at the old Chase Manhattan Bank headquarters at 18 Pine Street. Arriving there, I was led down a paneled corridor to a deep-carpeted conference room where David Rockefeller and a group of his distinguished colleagues were gathered. I stepped into the room with these distinguished gentlemen, and we began to discuss the Chase's dilemma within a general Wall Street dilemma.
The Chase, like every other New York bank, was growing. Its offices were inefficiently scattered through eight separate buildings in the area. Their immediate problem was: should they build a new building downtown to bring everything under one roof or should they abandon their downtown holdings in favor of new quarters in midtown?
The Chase, like every other major financial institution downtown, was living with its hat on, ready to jump uptown. Mid-Manhattan was enjoying an office-building boom. More and more important corporate headquarters were being established in the midtown section. Nothing had been built in the financial district since the Depression. The decision was in balance. No one wanted to make the first move. No one wanted to guess wrong about what the other boys might do; so no one was doing anything. All it would take was for one major bank to make the leap, and the others would follow. The result, for midtown Manhattan, would be phenomenal congestion. The result in the old financial district would be nearly disastrous. Values would drop. By just how much values would drop would be anybody's guess. The deserted stock markets and investment community would come under pressure to move. In time, residential construction would creep into the area, but first there would be a period of relative decay.
When the gentlemen from the Chase said that they would like to preserve their thirty-seven-million-dollar investment in the area, I replied that while this saving was important, the real question was, could the Wall Street community be saved? If it could be saved, this would call for a truly bold maneuver. When everyone nodded, I said, "The whole community can be saved only if enough major banks agree to stay here, if not all of them, then a substantial number."
"Agreed."
I said, "The trick will be to stabilize Wall Street. You can't do it alone, but you can start. You have to start in a way that the others will follow. What you need is a musical chair, a place to move into
"There is only one logical musical chair open and available to you"—I pointed out the window—"and that is the Mutual Life site on the corner. Guarantee Trust was going to build a new home there, but they changed their minds and are restoring their old building at 140 Broadway.
"The Mutual Life site is under negotiation for sale, and you have no time. You have to bid for it today."
Somebody interjected, "What are you talking about, today?"
"Today is the day."
"What is the price?"
I said, "It is $4,670,000."
"We'll have to take that to the board."
"There is not a man in the room who cannot commit the bank to a maximum loan of fifty million dollars. Anyone of you can lend the limit without consultation from your board. I'm not talking about ten percent of your maximum lending power, just one percent. Your whole future is at stake; you can't wait to go to your board with a silly thing like that. Here's what you do. I suggest you call Guarantee Trust and verify that they are about to sell off the property."
The call was made and it was verified that Guarantee were about to close.
All this time David Rockefeller had been quietly directing the meeting. He did this sotto voce, because that is his manner and because many of the older men in that room were more powerful than he within the bank, but it was David who personally guided Chase's gamble on the stabilization of Wall Street. The Chase now owned a musical chair. I undertook to liquidate their surplus buildings and to persuade other banks to stay downtown by providing them with proper quarters.
Some of the Chase properties adjoining the Mutual Life site became part of the new project, but I promised to get the thirty-seven-million-dollar book value of all their properties from sale of the remaining properties. We wound up getting sixty million. It was these other properties, which the Chase would vacate, that would create the open chairs in the game of musical banks I was planning.
To find the next player in the game, I called Harold Helm, chief of the Chemical Bank, and said, "Harold, I would like to see you and your colleagues for an important discussion of a relocation idea."
He said, "Fine. When?"
"At your convenience."
"Let's say tomorrow at ten."
"I'll be there."
The next day Harold Helm and three other heads of Chemical were waiting for me at their offices on 165 Broadway. I sat down, put the flat of my fingers on the edge of the table, and said, "The idea is that you should move to 18 Pine."
Helm said, "That's the Chase Bank."
"Yes."
"We move there, let them go uptown, and we're left holding the bag!"
"No, Harold, you move there, and we will have it written into your contract that you are not bound to that property unless the Chase puts up a building that does not cost less than sixty million dollars in the immediate neighborhood. They have committed themselves to buying the Mutual Life site to do this."
The Chemical Bank agreed to a deal in principle, and now we began talking price. The Pine Street building, I told them, would cost 17.5 million dollars. This was acceptable, but in part payment they wanted us to take two properties that were surplus to their needs. One was on Williams Street and the other across the river in Brooklyn Heights. Now we were in the used-bank-building business, but that is what makes deals. I agreed, took the proposition to the Chase, and our first step was set.
We had successfully popped the first olive out of the bottle. Everyone was delighted at how smoothly it had gone. Then, two weeks later, I got a call from Helm: "I'm sorry, Bill, but the deal is off. We are on a very short lease here at 165 Broadway; we have three years to go. The Chase won't get their new building up for at least six years. Our landlord is a very tough guy named Norman Winston, and he won't give us a lease of convenience. In fact, he is aware of the situation, and he wants to hit us for a twenty-one-or thirty-year extension, or it's out in the street for us.
"This puts us in a terrible bind," he continued. "Should we stay here for twenty-one years? That wouldn't be very good. Should we go uptown? Should we do something else? We don't know yet, but we can't make that deal with the Chase. We'll have to move before they can give us 18 Pine Street."
I said, "Give me a little time, I'll see what I can do."
Ten days later I called Helm: "I've got you a lease of convenience."
"How did you do it? We couldn't."
"Well, I just did it."
"How?"
"I'm your landlord."
I had gone to Winston and bought him out. We had to pay more than the building was actually worth, but I figured a wash on one deal might be overcome by profits on others, and we went ahead.
The next place in the mosaic was 40 Wall Street, the tallest building in the financial area, a typical product of the crazy, hectic financing of the 1920's. It was built with speculative bond issues, the common stock thrown in for free, and very ingeniously dovetailed out of three properties. There were actually three fees. One fee, or piece of the land, was owned by the Chase, because it had originally been the site of the old Manhattan b
ank, which the Chase absorbed. Another fee was owned by the Iselin estate. The third fee belonged to the building corporation that put up 40 Wall Street. The ground rent payable to the Chase for its ownership of one of the fees was $500,000 per year. The Chase had a bank and offices in the building, for which they paid one million dollars a year in rent. The Chase wanted to be relieved of paying that rent and also wanted to get back the cash value of $500,000 land income. I promised the Chase that at current rates of five-percent interest I would get them ten million dollars for their fee. (Actually, by the time of the sale, interest rates had climbed to six percent.) That $500,000 income was worth only 8.35 million dollars, but I had said ten million, and I kept my word. The next job was to get our money out by selling that fee to someone else. Now, selling only part of the fee of a great building would be very difficult to do. There was only one way to turn the trick: we would have to pour in more money in order to buy the other two fees from the Iselin estate and from the publicly held company that owned and leased the building.
The first move was to buy from the Iselin estate. My contact here was Graham Mattison of Dominick & Dominick. He had once been a member of the firm of White & Case. The trustee of the Iselin estate was Robert Youngs, chairman of the Louisiana Land & Exploration Company, who was also a one-time White & Case man. Mattison brought us together. I met Youngs in Paris for dinner. We supped at the Au Caneton, a fine restaurant near the French stock exchange, and there we sealed an agreement. Next came the job of buying up the shares of the third company. Most of the two classes of bonds and bonus stock of this company was in the hands of Wall Street secondary-money types, scavengers who had picked up the property during the Depression. We gradually bought up close to half of the shares from the larger holders, then opened market purchases for the balance. We knew that we could not get more than two-thirds of the stock, but under New York State law, if two-thirds of the stockholders of a company vote to sell the assets and liquidate, they can do so. When we had two-thirds, I moved for liquidation that would put the property up at auction, with the highest bidder taking it. I knew we could outbid anyone, because two-thirds of almost anything we bid was our own. We had a lawyers' holiday, however, getting this thing through. Every strike lawyer in town, and some lawyers that were not supposed to be strike lawyers, hurried to get his oar in, in hopes of getting a little extra money through an out-of-court settlement designed to buy his cooperation. Finally, however, the court gave us the right to auction, and the affair was held in the main hall of the Wall Street Club, which was a tenant in the building. We won our auction, against competition, at a price where the old bonds were paid off one hundred cents on the dollar and the stockholders got twenty-two dollars per share for bonus stock it had cost them nothing to acquire. Our total cost of this acquisition was ten million dollars to the Chase, 4.25 million to the Iselin estate, and some 17.75 million for the remainder of the property, for a total of thirty-two million.
The Chase was now free to move out. Meanwhile, there was an excellent building at 15 Broad Street which the Chase would also be emptying, and I had to find a buyer. I called on Henry Alexander, president of Morgan Guaranty Trust, explained what we were trying to do with this total Wall Street maneuver, and how the ideal part for Morgan would be to take over 15 Broad.
Henry wasn't buying. He said, "We're not real-estate people. We already have this beautiful little corner here. We play a special role in finance; we are not big, but we are powerful and influential, we have relationships. Furthermore, we don't want to be big and don't need the space."
I said, "Henry, you are going to get married."
"What?"
"Someday you are going to merge with another bank, a big one. When you do, this property will be in the nature of a dowry coming with a bride; you will be able to make a better deal with your new partner."
"Morgan will never merge."
"Well, that's just my prediction," I said, but I kept pointing out to Alexander the advantages to Morgan of the new property, and eventually they decided to buy it for 21.25 million dollars.
Five years later I called Alexander and congratulated him on Morgan's coming merger with Guarantee Trust Company. He said, "You know, I've often thought of that conversation we had and how right you were."
"I wasn't right Henry, I was wrong."
"How so?"
"You're not the bride."
Having moved the Morgan and having moved the Chemical, I was beginning to run a little low on possible tenants for the vacant slot we would have for a bank at 40 Wall Street. In fact, this situation was becoming crucial.
Metropolitan Life was interested in 40 Wall. Fred Ecker said they'd buy it for twenty million dollars.
I said, "Fine, we'll lease it back at six percent, and that means we now have only twelve million in the building in the form of a leasehold."
"But," Ecker said, "you'll have to find a tenant to replace the Chase Bank. That million-dollar-a-year rent is too important for us to take it on speculation."
I went down to see my friend Jeff McNeill at the Hanover Bank and said, "Jeff, how about moving over to 40 Wall?"
"What about my buildings here at 60 and 70 Broadway?"
"Jeff, you know we are the biggest dealers in slightly used bank quarters in America; we take them in like secondhand cars."
"My book value is six and a half million dollars."
"What are you telling me?"
"That's what I've got to get."
"Oh, Lord, that's a terrible rabbit warren. God only knows what we will do with it when you get out."
"Bill, I can't give you anything better than that. If we take the lease over at 40 Wall for one million a year in rent, that's the deal."
We argued a little and bargained a lot, but on basic price Mc-Neill was unshakable; he had to get book value for his buildings, so finally I said, "You've made a deal," and we shook hands.
McNeill made a memo of the meeting. I never make memoranda—I try to use my own memory and rely on people's word. Sometime later the bank drew up preliminary papers; I looked them over, and the price read 6.8 million dollars.
I told Jeff he'd made a mistake in the papers.
He said he was sure they were right.
There had been a lot of conversation that day, and it was entirely possible he was right. I told him if that was how he remembered it, it was O.K. with me. The business of drawing up the papers then went on, but after a few days I got a call. It was Jeff McNeill: "Bill, I got that memorandum out. You were right. It is six-million-five, and I'm changing it. And I'm telling you right now, you are a wonderful sport."
The Hanover then passed title of the building to us, took back a mortgage and a lease of convenience. That gave us three years to move the property, but there were problems. The buildings were old, there were three different floor levels in what were actually three buildings. In fairness to the Hanover, they were beautifully maintained, but the interiors were a Minotaur's maze of offices and hallways that only the Hanover or somebody like them could use. What's more, they were down at the end of things, near the tip of Broadway. The Wall Street area was still shaky. Number 2 Broadway had not yet been built, and few companies would want to move in down there at the perimeter. The only logical and possible buyer was the Irving Trust Company, whose offices at 1 Wall abutted the Hanover properties.
The Irving Trust already had a beautiful building, a well-designed, soaring tower. This great tower was not efficient; because of its great height and small ground area, it was really a test tube; you were running up and down all the time. So I tried to sell Irving Trust on the idea of buying the Hanover buildings, using them, or putting up a new structure on the site. They showed interest from time to time as I talked with them, but I was asking something over nine million dollars for the properties. There are no secrets on Wall Street, so they knew we had paid over 6 million for the Hanover properties and balked at my figure. I took the position that our cost had nothing to do with what we woul
d sell for. After all, I still had the problem of selling off our lease at 40 Wall. I still didn't know how I'd get out of 40 Wall. If we sold the Hanover properties at cost and had to take a loss on selling 40 Wall, we would be in trouble. Nobody cares too much whether it is profitable or not for the other fellow, but I had to look out for our interests. We were not a nonprofit foundation dedicated to putting out our capital for the benefit of the banking industry. Finally Irving Trust offered us seven million, then seven and a half million, and I was advised to take it, but I said no, I was asking nine and I was going to get nine.
"How are you so sure you will?" I was asked.
If the Irving Trust had already crossed a certain bridge in their own minds and were planning to go uptown, I could offer them the properties at a fire-sale price and not get a nibble. But when they began bidding 7.5 million dollars, I knew they had crossed a different type of bridge; they were not going uptown. I knew then they would have to pay the nine million or change their policy, and 1.5 million dollars was not enough to force a change in that kind of policy; 1.5 million in the total land cost might have constituted five percent of the total cost of a new building and I felt this was pretty good ground on which to stand pat. I stood my ground, and we got nine million.
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