They were turned back and listening now, and Blough said, "What do you mean by that?"
I said, "Think of this: when you were a boy, mastoid disease of the inner ear was very common—it was a threat to every child, and a most important specialty in the surgical profession. As a matter of fact, a hospital known as the Manhattan Eye, Ear, Nose, and Throat Hospital, of which I am a trustee, was built around the mastoid operation. It was the hospital to go to for mastoid, just as some other hospitals are the place to go for cancer, open heart surgery, or some other specialty.
"But the mastoid operation has gone out of style; penicillin has put it out of business. The number of surgeons familiar with this operation has been cut by at least ninety-five percent. The mastoid specialist has retired somewhere along with the horse and buggy. . . . God forbid there should be a sudden new kind of mastoid epidemic; you would have no people around to handle it. Nobody studies it anymore.
"In building, it's the engineers and architects who determine what materials and techniques will be employed on a job. In years gone by, all structural engineers studied structural-steel design—in great depth; it was a primary course. Today, the only fellows who do that are the bridge builders. Young doctors don't bother studying the mastoid operation; they have penicillin. In your case, the engineers have concrete. The schools are turning out more and more brilliant young designers in concrete, and this is a self-feeding thing. I'll grant you, steel can't go all the way out of business like the mastoid operation has. And your industry is so big and such an important buyer that you can persuade a lot of companies always to choose steel over concrete—but you can't persuade enough of them. You are losing the market!"
Up to this point I had encountered nothing but stunned silence, and I kept right on talking.
"What you've got to do is go out in the field and develop some imaginative uses that show how steel does jobs concrete can't even begin to match. I will name some for you right now. Steel is unexcelled for overpassing. It can be used in treacherous subsoil conditions. Steel is quicker to erect. Steel lends itself to a design change of pace, where, for a change of horizons, you may want an open auditorium at one point, a closed theater in another, or apartments or offices in juxtaposition. With steel you can create flying bridges at the upper levels of high-rise buildings. Steel has so very many advantages, that I don't believe you really need to lose relative position to concrete. But nobody is going to pull your chestnuts out of the fire; you've got to do it for yourself.
"And it will take ten million dollars," I said.
"Ten million for what?"
Pointing to the model, "That's how much we need to take title to this property."
Tyson said, "We're not in the banking business, we're in the steel business."
"You are in the steel business, all right, but you are archaic and reactionary, and it's time you fellows woke up. All you have to do is look over beside you and see the trail that's being blazed by the aluminum companies. The whole aluminum industry have gone out into open-field demonstrations of their product by going into real estate. Other industries are doing the same thing. But I didn't see the steel industry doing anything that counts. The cement industry is far more progressive. Gentlemen, you've got to take some steps to get in line and get up there with the best."
This frank discussion of what their best friends wouldn't tell them was new to my visitors, but if I was being harsh, I was also being sincere, and they knew this. They also knew I was the man who had put Reynolds and Alcoa into real estate and construction, so I spoke as far more than a visionary. We talked a bit more, and then they left. They left making no promises, but about ten days or so later they agreed to put up the ten million dollars we wanted to buy our land, and that got us out of our problems at 165 Broadway and points south. Finance Place was not built as we first visualized it. U.S. Steel designed a most conventional structure. The First National Bank of Chicago did later put up a building very much like our Finance Place conception. They wrote us a letter of apology, saying that this was purely coincidental, they had arrived at the idea on their own, but since our conception was written up in every technical journal in the country years before their project started, none of us took this protestation very seriously.
By now we were through with the Wall Street Maneuver. We were out of the woods with 165 Broadway, but the tie-in of one deal to another in a city like New York can, in time, spread out like a network of roots in a rose garden. From Broadway and Wall Street, we soon enough found ourselves adventuring at Sixth Avenue near Rockefeller Plaza, where we planned a giant new Zeckendorf Hotel.
▪ 20 ▪The Webb Begins to Tangle
THROUGH THE 1950's, midtown New York was going through an enormous office-building boom. And yet, in spite of this redevelopment between Forty-second and Fifty-seventh Streets, one key section remained untouched. Sixth Avenue, unaffected by its fancy new name, "Avenue of the Americas," remained a seedy fortress of nineteenth-century brick and brownstone buildings with busy bars, small shops, and restaurants on the ground floor and old apartments above. The side streets to east and west of the avenue on Fifty-first, Fifty-second, and Fifty-third streets contained a variety of nightclubs and restaurants, many once speakeasies during prohibition. These nightspots and tourist traps, like those in the Forties between Sixth Avenue and Times Square, were an established part of New York's night life. The only structures of any note on the avenue were parts of Rockefeller Center, whose buildings rose above their surroundings like well-trimmed hedges above the crabgrass.
All this has since changed. Sixth Avenue now boasts a collection of corporate crystal palaces rivaling anything on Park Avenue. It was Webb & Knapp that started the trend to corporate offices on Park Avenue. It was also Webb & Knapp that cleared the way for the first corporate beachhead on the west side of Sixth Avenue. We did so by assembling the land where the Time-Life Building now stands. I acquired this frontage from Eva Fox, widow of the ruined financier William Fox. Mrs. Fox and her two daughters occupied a cavernous old apartment on the Marguery block which we owned on Park Avenue. It was a dark, rambling place filled with oddments, side tables, anti-macassared chairs, and religious paintings featuring angels, devils, and endangered souls. One saw all this in dim light that was absorbed by heavy, red damask curtains. To step into the place was to step back seventy-five years in time and attitude. I stepped in as an agent for the future. I wanted to persuade Mrs. Fox to move so we could tear down the building for a Park Avenue office tower. Mrs. Fox's two daughters were studiously eccentric. Except when they went to the opera, I never saw either of them wearing anything except trousers and white shirtwaists. One daughter, Mona, dabbled in the occult and the other, Belle, was handsome and brilliant, but a very sharp and suspicious woman.
Eventually I became a friend and a help to the family. Their affairs were in great disarray, and their holdings, since their father's bankruptcy and death, had been under a cloud. I persuaded William Warren, dean of the Columbia Law School, and one of my directors, to advise them. Through brilliant work he was able to restore and improve their holdings. As an agent, I was able to buy some property for them. This also strengthened our relationship. By now, they had long since agreed to move from their apartment. But, even so, when I approached Mrs. Fox about selling her Sixth Avenue properties, she was most reluctant. It took great persuasion finally to get her to agree to sell some thirty thousand square feet for the record price of five million dollars.
Our arrangements agreed to, I brought Mrs. Fox a $500,000 check from the Chase Bank as a down payment. She took my check. She read it. Staring me in the eye, she then tore it into little pieces.
"Eva, what in the world is the matter?"
"The Chase Bank sent my husband to jail. This is another trick of theirs. You're just a collusive agent of theirs! I'm through with you, and them, and everyone else!" With this, she disappeared into the depths of her apartment.
It took me three days to get her to see me again. T
his time I brought a check from Bankers Trust. She took it. Sixth Avenue's west bank was now breached, Rockefeller Center would expand westward. Sixth Avenue was now certified boom country.
My next move on midtown Sixth Avenue, however, came courtesy of 120 Broadway, near the tip of Manhattan. One-twenty was the biggest building in the downtown area. Completed around 1940, before new zoning came into effect, it packed more square feet of office space over its landmass than any New York building put up before or since. This meant that when full it could realize great amounts of cash. The building was publicly held, with Wertheim & Co. as principal owners. We bought it for ten million dollars in cash, the market price of the stock, plus a bonus of 8.5 million dollars in Webb & Knapp debentures. These, the only unsecured debentures Webb & Knapp ever issued, were what would trigger our bankruptcy in 1965, but then the deal was all to the good.
Using the Hawaiian Technique, we were able, very profitably, to fraction off various parts of the property. Eventually, we wound up holding only the fee. This fee brought in $875,000 per year, with about $525,000 going to pay off a very low-interest mortgage, originally of fourteen million dollars, held by the John Hancock Life Insurance Co.
Meanwhile, back on Sixth Avenue, just to the north of my Time-Life assemblage, the Equitable Life Insurance Co. had acquired the west block of Sixth Avenue between Fifty-first and Fifty-second streets for a new headquarters building. Through agents they had also acquired and torn down all but one building on the block across the avenue. The plan was to put up a speculative office building on this land, but in 1958 things were being delayed by a holdout, Toots Shor's restaurant, which had a lease with seven years to run. Toots had scorned selling out for $750,000, spurned one million, and sniffed disdainfully at suggestions of 1.2 million. The Equitable's agents were preparing to build around Toots, wait until his lease was up, and then boot him out. But a new development took place: the New York State Insurance Department decided the Equitable was concentrating too much capital on one section of Sixth Avenue and was verging on speculation. It was one thing to build a headquarters building on one side of the avenue, but to put up a speculative building across the street did not look good to Albany. Insurance companies are not supposed to speculate. These quiet little talks with Albany meant Equitable would have to sell its fee or, at least, sell off a ground lease on its Sixth Avenue investment. If it sold its ground lease, somebody else would then assume the building risk, and Equitable would get an O.K. from its official consciences in Albany.
Meanwhile, I had come to the conclusion that New York very much needed a new hotel, no hotel having been built since the Waldorf went up. The Equitable's Sixth Avenue site, right next to Rockefeller Center, was a perfect location, good for business travelers and tourists alike. What is more, a hotel here would help maintain a touch of night life in the area. I called up the management at Equitable and asked what they might want for their assemblage. They replied it had cost them sixteen million dollars. They wanted a 5½-percent return on this investment, which comes out to $880,000. This was as expected, and I next asked whether it mattered to them if their income came directly from the Sixth Avenue property or some other safe property. They replied that where the money came from did not matter as long as it was safe income.
I then suggested a swap. We would give them the fee to 120 Broadway, it earned $875,000, and they in turn would give us the fee to the block of Sixth Avenue; 120 Broadway was a going business and very safe; they agreed to swap.
By this time, the John Hancock mortgage on 120 Broadway's fee was down to twelve million dollars. So that the Equitable could get an unhindered $875,000 from the fee, I would have to give them twelve million dollars to clear the mortgage. We raised this money, and more, through a visit with the Prudential Insurance Company.
When I explained to Prudential what we planned to do with the Sixth Avenue site, they agreed to give us a purchase and construction loan. All I had to do was buy out Toots Shor, and we were in business. Toots dealt with us through a very able lawyer named Arnold Brant. We bargained and argued until, on September 8, 1959, we all met at the Chase at nine P.M. for a closing, but the bargaining started up again. Finally, at three the next morning, we gave Toots a check for 1.5 million dollars, and he gave us his lease. Shor had never seen that much money in his life. That night we went over to "21." Toots laid down the check and said, "Please cash this. I need a drink."
Within a year, what with one thing and another, Toots was, as he put it, "Strictly c.o.d. again," but that is his style. By then, we had torn down his building and begun excavation for a great forty-eight-story, sixty-six-million-dollar Zeckendorf Hotel. In due time we had a 50-foot-deep, 200-by-450-foot hole in the ground reminiscent of our Court House Square excavation in Denver. We had also spent two million dollars in making this hole and were discovering that building-construction costs had taken off for Mars.
Our hotel's estimated costs, once figured at a maximum of thirty thousand dollars per room, had zoomed up to forty thousand. By now it was 1960. Webb & Knapp was spread thin over a variety of projects, all of which cried for cash. We just could not pull together the forty million dollars of equity money needed to flesh out our basic Prudential loan. I had to give up my hotel.
We went to Prudential, explained the situation, and suggested they confine themselves to a land loan. They were agreeable, but gave us our head to move either way. I knew the block could be used for an office building. Nevertheless, before abandoning the hotel idea, I decided to offer it to Conrad Hilton.
A meeting was arranged in the New York apartment of financier Colonel Henry Crown, Hilton's second-largest stockholder. Hilton, Crown, and some of their other people were present. Hilton, who had come up from Mexico for the meeting, was not well; he had a touch of grippe. I offered to turn the deal over to them for three million dollars, saying, "Gentlemen, I urge you to take over this hotel and build it. If you don't, you will lose New York and your preeminence in New York.
"As long as we keep working on this hotel, no other hotel will be built in New York. Having our hotel in the works is like having sixteen-inch naval guns trained on your enemies, because no insurance company will put a penny into a new hotel until they see whether this one really goes up. If our hotel is built, it will hold other hotels off for a time, because we will be launching two thousand new rooms. But if we ever drop our guns or unload them, you'll see a rash of hotels go up in this town. When that happens, Hilton, willy-nilly, is going to have to build here just to keep up with the parade. But you'll be late arrivals then, faced with newly entrenched competition."
Colonel Crown agreed with my analysis. He urged Hilton to step in. For the first time, according to those who know him, Hilton went against Crown's advice. He turned the deal down.
With the Hilton alternative closed, I had to try elsewhere. I knew I could sell to the Uris brothers for an office building, but they are not exactly internationally famous for fine office buildings. This site was right next to Rockefeller Center. It should have a fine building, and I turned to the Rockefellers. At that time Richardson Dillworth was handling such affairs for Laurance Rockefeller. It may be that the personal chemistry between us didn't work. Perhaps there were other reasons. In any event, even after I pointed out that Uris was a willing buyer and would be putting up a typical Uris office building, I could make no sale. I then sold out to Uris, not for three million dollars but for five million.
After this, the Rockefellers, now worried about the kind of building Uris might put up, bought a half-interest in the deal in order to have some control of the architecture. What resulted is the Sperry Rand Building.
As soon as our hotel project died, the Loew's Theatre people, who were diversifying into hotels, built the Americana Hotel on land we sold them, plus a rash of motels elsewhere on the West Side. As I had warned, Hilton a few years later had to come up with a new hotel in New York. He finally built one, in partnership with Uris and the Rockefellers, on Sixth Avenue between F
ifty-third and Fifty-fourth streets. His construction costs, it developed, were some thirty million dollars above estimates, but this hotel helped make Sixth Avenue just that much more valuable as real estate.
Early in the game, we were aware of what was happening and going to happen on Sixth Avenue, and we tried to acquire as much frontage there as possible. Every morning I used to ask one financier or another to hike up and down Sixth Avenue with me. I would say, "This will be the greatest boom town in the world, right here! You must help me finance it." But I could not get anybody to move with real strength at that time. We did buy on the east side of the avenue from Fifty-second to Fifty-third Street, where CBS now had its headquarters, and we acquired land between Fifty-third and Fifty-fourth, where the headquarters for Central Savings Bank are now located, but it was uphill work and only a portion of what we would like to have done.
Part of the problem may have been that we were already doing so much in so many other places.
By 1960, Webb & Knapp, with five hundred million dollars in construction under way in the United States and Canada, was beginning to feel the pull and tension on the finances of its multiple operations. Most of the projects mentioned in previous chapters, each with its particular moments of risk, crisis, and overhead costs, had either peaked or were obviously on their way to fruition. Denver's Court House Square, thanks in part to backing from Robert Young's Alleghanys' Corporation, was finally completed. We held the flag raising for the hotel opening in April. In Canada we had shopping centers under construction, as well as a housing project in Flemington, near Toronto, plus several industrial parks. At Place Ville-Marie, our nasty, five-million-dollar steel crisis had finally passed. With our new British partners, and their twenty-two million dollars aboard, we would top out the steel work in 1961 and open our doors in 1962. Century City and the two million we had put at risk there had been pulled home by our timely partnership with Alcoa. At Roosevelt Field we were putting up a new store for Gimbels.
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