The list goes on and on. In Washington, D.C., we were finally building the first of our Town Center apartments. In Chicago we were putting up the two ten-story apartment towers of our townhouse-apartment project at Hyde Park. Park West Village, a seven-tower complex, was under way in New York; so was Kips Bay, and Lincoln Towers was in the planning phase. We were meanwhile getting ready to tackle our Lower Hill project in Pittsburgh and our Society Hill towers and townhouses in Philadelphia.
Our Gulf States Land company was developing a mixture of properties and projects, including our slag-recovery program and oil properties.
Like buds on a prize rosebush, all these and dozens of other projects had not fully, profitably blossomed as yet. It would take generous watering, careful pruning, and delicate spraying to bring them forth, but it was obvious that when they did blossom it would be a glorious show.
To keep our prime projects going, we sold off other properties, brought in new partners, and borrowed millions. The sell-off of properties in order to raise cash accounted for our premature sale of the Chrysler Building and 112 West Thirty-fourth Street, as well as our Mountain Park acreage in Los Angeles, Mile High Center in Denver, and many more of our finest income properties. In this way we gained capital for new investments. Our expectation was to more than make up this temporary loss of present income through great future income. Besides, I had a record of generating impressive amounts of income from deal to deal.
It was our new partners, the British and Alcoa, who brought in the most important money to specific projects, but as urban development ate up more and more of our cash, we borrowed more and more on our properties and prospects. We took first, second, and third mortgages and any other kind of indebtedness possible. It was about this period that the press picked up a quote of mine they used again and again: "I'd rather be alive at eighteen percent than dead at six percent." It was perfectly true. Nonetheless, with some of our finest properties sold off, our income was less secure and our debt and interest burden was growing.
On the bright side, our hotel chain was, in 1960, doing handsomely. I was convinced that New York's hotels were in for a boom. Spreading affluence, the rise in travel, and the introduction of jet aircraft all augured well for business and tourist travel. In New York we acquired a core group of six hotels—the Astor, Commodore, Manhattan, Taft, Drake, and Chatham. At one time or another we also owned the St. Regis and the Gotham. In Chicago we had the Sherman and the Ambassador East and West. Webb & Knapp at one point was the biggest hotel operator in the country. Hotels, like aircraft, can make spectacular profits if they run full. In 1960 our hotels were operating at a cut above the average occupancy rate, and there was promise of more business yet to come: the World's Fair was due. Naturally, we mortgaged and leased out these promising properties to the hilt in order to raise cash for the company.
The only project and property which we already had a few qualms about in 1960 was Freedomland Amusement Park, situated on the three hundred acres of Baychester swampland we had acquired in a swap for Ohrbach's store. We got into Freedomland the way the United States got into Vietnam, back-sideways, without really intending to, and only to clean up the mess somebody else had left behind.
The idea of Freedomland, as fallout from the explosive success of Walt Disney's fabulous Disneyland, was wafted eastward by one C. V. Wood. Wood is a promoter's promoter, a terrific, enthusiastic idea man who could sell snow to Eskimos. Wood had worked with Disney on Disneyland. He was at some point eased out by Disney, but not before convincing himself and a number of other people that Disney land's success was really a matter of Wood's rather than Disney's ideas and management. Wood put together a masterful presentation of his Freedomland idea. The idea was to create a star-spangled amusement park, an America-in-miniature, to which hordes of Easterners would flock. It was a great idea, beautifully presented. Sober outfits such as Paine, Webber, Jackson & Curtis lined up to help underwrite the show. Rather early in the game the project proved to be over-promoted, overexpensive, and underfinanced. Too late for us to do much about it, it turned out to be misconceived, grievously mislocated, and utterly mismanaged, but Webb & Knapp, at the outset, was perfectly safe. We were merely the landlords. We didn't have a penny in the project. All the publicity and traffic Freedomland generated was bound to increase the value of our real estate. How could we lose? We leased them the land.
After a time it turned out they didn't have money to pay their rent. We accepted stock in the business in lieu of rent. Meanwhile, some of the underwriters had backed off, and the company was in hock to the contractors who were building the shows. The builders and suppliers were threatening to close things down before the show even started. Freedomland still seemed like a good promotion: to get our money out, we put more in. We took forty percent of the company's stock and advanced them money to pay off a few million in due bills. This process continued: we ended up owning Freedomland. Show-business productions tend either to make it big or to flop very expensively. Freedomland, with its enormous fixed costs, never got near the break-even point. Year after year, till it closed, it siphoned away Webb & Knapp funds and credit, for a total drain of maybe twenty million dollars. There was one silver lining. Freedomland attracted attention to our acreage, and we did, after closing Freedom-land sell the lease to the land to Abraham Kazan's United Housing Foundation. Co-op City, with its seventy-five thousand inhabitants, now rises over the site of Freedomland. Freedomland, however, with its promise of a better season next year, seriously debilitated our firm at a crucial time.
For a time, in 1962, it seemed we might once and for all clear ourselves of excess debt and stabilize operations. The British investors who had previously joined us in Place Ville-Marie through Trizec Corp. now joined Webb & Knapp in the United States through the Zeckendorf Property Corp. Like Trizec, Zeckendorf Corp. was essentially a fifty-fifty company, half-owned by Webb & Knapp and half-owned by the British group with Alcoa owning 10 percent of the stock. The new company's properties consisted of Lincoln Towers, Park West Village, Kips Bay Plaza, Society Hill, and Lower Hill, as well as Southwest Washington—our urban-redevelopment projects that were still under way. It also consisted of United Nations Plaza, the Alcoa luxury development we had under way on the East River, as well as Century City, our Russian Hill property in San Francisco, our air rights to the New York Central yards on the West Side of Manhattan, our Baychester land, and various other pieces of real estate, including 165 Broadway, which we later sold to U.S. Steel. In return for rights in these properties, our partners supplied some 42 million dollars in capital and credit. As part of the deal, the British also acquired five million shares of Webb & Knapp stock and put three men on our 12-man board of directors, which consisted of four outside directors and five Webb & Knapp officer-directors.
As one of the British group then stated, "We hold the jewels of the Webb & Knapp empire." This was quite accurate. In nature, however, jewels are created under conditions of intense heat and pressure. The Webb & Knapp jewels were not yet fully formed. Before they did finally form, some of us would be burned, but that is another book.
▪ 21 ▪The Demise of Webb & Knapp and the Rebirth of William Zeckendorf
I HAVE NOT SPACE in this volume, nor the heart at this time, to go into a detailed description of the last days and final foundering of Webb & Knapp. To do so properly would take a separate book and, perhaps, another author. I was and still am too close, too intensely and emotionally involved in those events to give a proper blow-by-blow account. From 1962 on, as we sailed into increasingly difficult weather, the Webb & Knapp story is that of a ceaseless series of sharp tacks, sudden jibes, and difficult reaches by an increasingly waterlogged ship. It is a tale of conferences, exchanges, and minor ventures devised to stave off disaster while we prayed to put together one or more major projects that could finally begin to pull the company back together. But exactly when we moved from a hopeful position into a desperate situation, I cannot say. I was doing what I had a
lways done. If any alarm bells rang, I did not hear them. In 1962, as we created the Zeckendorf Property Corp., things were serious as usual but very hopeful. There was new money in the company, not as much money as we wanted and needed, but as much as we could get. With shrewdness and a bit of luck, we would make it home to a safe port.
When you cross the ocean on a steamship, you will notice that on some days, though there may be a prevailing wind, the ocean waves may actually come from five or six different directions at once. As these waves move by and through one another, they sometimes cancel each other out. At other times they augment each other and can create high crests and low troughs in the ocean. When the proper combinations of waves come together, these peaks and valleys on the ocean's surface can be enormous. To a passenger in a modern, high-speed steamship, such waves are merely an interesting phenomenon. To the skipper of a low-in-the-water sailing ship, however, the sudden appearance of the wrong combination of waves in such a gusty sea can spell disaster.
Something like the above is what could be said to have happened to Webb & Knapp. An unexpected combination of trends and events, coupled with our own actions, caused us to founder. Any two or three of these developments, we could have ridden out, but the total combination and sequence of happenings swamped us.
That a great many of our urban-redevelopment projects, as in Southwest Washington, were running late and costing us money was by now an old story. Less obvious, but in the end more painful, these projects had fallen out of phase with local markets because of their delayed construction cycle. Though in case after case we had been among the first to see the demand for quality housing in city cores, the delays we ran into in our pioneer efforts, and our own financial difficulties, permitted a wave of follow-the-leader builders to finish rival structures about the time we came to market. This competition meant great difficulties in getting adequate first rentals for many of our projects. As a result, we had losses, rather than income, on our books during these stretched-out beginning periods.
In New York, a third great wave rose to augment our problems. The city passed new zoning regulations having to do with the height and necessary setback of new buildings. The long-range effect of this new zoning was to create more plaza space at the street level, and this was highly desirable. However, construction costs per square foot of rentable space would be higher for the new structures than for the old, tiered construction common in New York. The immediate effect of the new ruling was a rush into construction by every speculative builder with a plot to build on. Everyone raced to get his new buildings up under the old rather than the new, regulations. For the next few years, as more and more new buildings were finished, a glut of so-called luxury apartments developed in the New York market. Almost trampled in their own stampede, new-building owners offered two and three months' rent, trips to Europe, and any other incentive they could think of to get a few tenants signed up to help meet mortgage requirements. This glut in the New York market came to a peak just as the bulk of our own New York redevelopment projects came to market—and it hurt. It turned out that Webb & Knapp, instead of producing income for their developers, was burning away their financial resources instead.
Meanwhile, on another flank, the coming of the jet age was indeed changing American travel patterns, but not at first in the ways some of us had anticipated. The jets brought much more travel business to key American cities. I think they were a background factor in the continued growth of New York as the corporate capital of America. But the jets, because they were so fast, actually cut back a bit, at first, on New York's hotel business. It turned out a businessman could fly in from Chicago or St. Louis, do his business, and fly back home in the same day instead of staying in New York overnight. About this time, too, the Internal Revenue Service severely tightened its interpretations of expense-account items in businessmen's budgets, and this also hurt the hotel business. When the World's Fair did come, it was not the success New York had hoped for. Highly publicized racial demonstrations at the commencement of the Fair scared away a modicum of would-be visitors. Any one of these developments was incidental. Cumulatively, their effect on our hotel operation was calamitous. When hotels are full, as New York hotels are at this writing, they are money machines. When they operate below capacity, they drink away cash like a jet gulps fuel, and in 1962–1963 our hotels drained away cash we didn't actually have. Freedomland, meanwhile, was running losses, and Roosevelt Field was not making money. By 1963 Webb & Knapp was suddenly awash and, in fact, breaking up in rough waters. To keep just the Zeckendorf Property Corp. above water called for millions of dollars in cash and credit. Webb & Knapp, losing money elsewhere, could not meet this need. Fortunately, Alcoa, originally a minor partner in Zeckendorf Property Corp. and a partner with us in Century City, had cash in depth. We had brought them into real estate. They had faith in the long-term prospects of our projects, plus deep pockets and other income against which to write off losses. In the fall of 1962, Alcoa bought parts of Zeckendorf Property Corp.'s holdings with future conversion rights that would make them one-third partners in Zeckendorf Property. Zeckendorf Property Corp. was designed to be insulated from Webb & Knapp proper. It was tacked on somewhat like the prow of a modern tanker is attached to the rest of the vessel. But as our losses continued to mount, the strains of keeping the two companies in association were more and more evident. Webb & Knapp board members representing the British group became more and more unhappy. Finally we decided to break things up, each group to go its own way.
In the summer of 1963 Webb & Knapp, as its share of Zeckendorf Property, took unto itself five of the less-developed Zeckendorf Property Corp. holdings. These included Southwest Washington, Baychester, and air rights over the New York Central yards in west Manhattan. Webb & Knapp then severed itself from the Zeckendorf Property Corp., which changed its name to Covent North American Properties, Ltd. This severance was very much like the breaking up of a ship into parts. The British and Alcoa drifted off. The British, to their later sorrow, I suspect, sold out to Alcoa. Alcoa, in due time, wound up with some wonderful money-making properties.
Meanwhile, back with what remained of Webb & Knapp, we tried to make our own way to a safe shore. We still had substantial holdings. Our principal assets were our position in Gulf States Land and Southwest Washington; but we held numerous other properties. These later we sold off as best we could, but now I was running into an ironic reverse of what went on during the first years of my Webb & Knapp career. In the 1940's, when we were handling the Astor estate and our own accounts, the very fact that we owned a property gave it a certain name and glamour which appreciated its market value. But in the 1960's, that a beleaguered Webb & Knapp owned a property was a signal to some potential buyers to hold back or bid low, in the expectation that, in our eagerness for cash, we would hold a fire sale. I resisted this downgrading in every way possible. The sharks, sensing the distress of our situation, kept circling closer but remained wary; there was still strength in Webb & Knapp, and always the possibility of a surprise move from us. For instance, I had sold 165 Broadway to U.S. Steel. We sold over seventy-five million dollars' worth of other properties. We also initiated the sale of the Savoy Plaza Hotel to General Motors, which they would use as New York headquarters. We had first offered them a tower on Times Square, but they chose the Fifth Avenue and Central Park location instead.
The GM deal was actually an offshoot of Webb & Knapp's last great real-estate effort. We had conceived plans for developing a great double block, a master block, from Forty-fourth Street, overpassing Forty-fifth Street, to Forty-sixth, on the west side of Seventh Avenue. The tower would encompass the Paramount Building and our old Astor Hotel site. When finished, it would be another Place Ville-Marie, with shops, arcades, and tremendous pedestrian traffic at the street and subway levels. I had the key land elements lined up, numbers of interested lessees in waiting, and Colonel Crown committed to finance the basic deal. Papers were drawn up ready for signing; all that remained wer
e a few details. My son, Ronnie Nicholson, and I met with the Colonel. I was planning to go to Mexico for a few brief days of vacation and asked, "Now, is there any question about this, Colonel? If there is, I don't want to leave here."
"No, the boys and I will straighten out anything that comes up, and there's really nothing to do; we have an agreement: we divide the profits up, after I get my money back, and you're putting up $100,000 of your own. . . ."
We shook hands, and I left. And during the short time I spent in Mexico, Crown changed his mind. When he did so, he killed any hope of a masterful, sensible development in Times Square, because property there is now going piecemeal. I tried in every way to salvage the project, and came close, but it never quite worked out. Webb & Knapp, shortly after that, was tumbled by the Marine Midland's calling in our old 165 Broadway notes, which I mentioned in the beginning of the book.
▪ Epilogue
THE FALL OF Webb & Knapp, when it came, was an upsetting, ego-devastating event, but in a way it was also a relief. I was like a man let out of jail. The ordeal was over. The increasing pressure of the last three years was finally off. I had gone down honorably, fighting to the last minute to save my company. I had no intention of donning sackcloth and ashes or of bemoaning the past. My son, Ronnie Nicholson and I, and a handful of old employees, never even moved out of 383 Madison Avenue. We leased back our old offices, bought back some of our own furniture, hung up our shingle as General Property Corp., and went into business. Within a year, we had control of our office building again, and as consultants, as packagers of and participants in various projects, we were making money.
The Zeckendorfs were alive and well and very much in real estate. True, we were severely limited in capital, but we had brains, experience, and contacts, and we kept making new contacts.
Zeckendorf Page 34