“Now hold your horses, Henry. There’s no commitment here, just a possibility. It looks like the acquisition we were working on will go through. That’s why Fm on my way to Los Angeles, after a stop in San Francisco to pick up a few of my people —”
‘When will you know?” I interrupted.
“This whole thing has a great deal to do with our internal situation. I won’t go into it now. But you remember our earlier conversation, Fm sure,’ I certainly did. His power struggle with Jordan. “I’ve called a board meeting for next week. It will be settled then.”
“I understand,’ I said.
“Look, I have to run. Good luck, my boy.”
“I can’t tell you how much I appreciate your trying to help me,” I said as we closed the conversation. So maybe things were not as bad as all that. I began to think about other options.
I met with Steve and Ari after my conversation with Phelan. Despite their concerns, I wanted to reassure them that we were not in any serious danger. “Look, guys, don’t forget we have a bunch of leases with rent increases. And we keep amortizing the mortgages. Both those factors enhance our strength.”
“And what else, kid?” Steve shot back. I was happy that his usual repugnant tone had returned. “We also have leases that are terminating and may not be renewed. As far as mortgages — Ari, give me the list, will you, please? We may not be able to refinance those buildings.” I frowned. “Henry, you talk like some Harvard Business School kid. Wet behind the ears.”
Good old Steve, I thought. Glass half empty. “Did you have a nice weekend?” I asked.
He gave me a dirty look. “As a matter of fact, no. It was a lousy weekend. But Fm sure yours was great.”
I didn’t answer, controlled a smile, and tried to sound sympathetic. “Sorry, Steve,” I lied, “not every weekend with family can be good. Anyway, let me tell you what I plan to do with MacDougall tomorrow.”
“Maybe Ari and I should be there,” Steve said. I shook my head. Absolutely not, I thought, but I refrained from being so emphatic.
“I told you he talked about having attorneys present, but I got him to change his mind. Better just one-on-one. After he lowers the boom, I’ll inform him about the new deal that’s pending. And to reduce the building loan, pledge any proceeds left over from future remortgaging. That’ll give him the ammunition to deal with his people — and the examiners,’ I liked my strategy. Reasonable and clever.
“What if he isn’t satisfied with the what-ifs’?” Steve said somberly. “They could kill us.”
I glanced at Ari. “For Christ’s sake, Steve, there are plenty of solutions. This is only round one.” I looked hard at him. He shrugged and glanced at Ari, who had apparently decided to remain silent.
We ended the meeting. A few minutes later Ari came by my office. “1 wasn’t going to say anything in there, Henry, but many of the leases mature in two or three years. Mortgagees won’t finance against such short leases. Not unless you want to go on personally.”
I told him I understood, but that the institutions we had been doing business with had not been demanding longer rental terms.
“It’s changed, Henry,” he said. “Especially with older buildings. The mortgage bankers’ convention I went to last month — everyone was talking about tightening up. Especially the insurance companies and pension funds. Money has dried up.”
“Israelis are supposed to be great optimists,” I kidded him. “Where’s your chutzpah?”
“Just want to caution you, boss.” He turned and started out.
“Thanks, Ari,” I said as he opened the door. “Oh, ask Dianne to step in, please.”
“Your pregnancy becomes you,” I said when she appeared. “How’s it doing in there? Nice to be sheltered from this harsh world for a while.” I stood up and watched the traffic moving on Franklin Avenue. The weather forecast was typical for this time of year: hot, humid, and a chance of thunderstorms.
“Dianne, what do I have to do this afternoon that can’t wait?”
“A few letters to dictate.” Her tone of voice was solemn and deeper than usual. Something was wrong. “I’ve drafted others that only require routine answers. No calls that can’t wait, except Craig wants to review the problems with your plane. Major engine overhauls, or something like that. Want to talk with him?”
“Are you concerned about my bank problems?” I asked. “Don’t be. I think I have things under control.”
“No, I’m sure you do,’ she answered. Then, “It’s something else.” I sat down at my desk and waited for her to continue. “My husband. George.”
“Have a seat, Dianne. What about George?”
She sniffled and seemed to be deciding whether or not to continue. “He’s talking about separating. We haven’t been getting along since I became pregnant. He didn’t want another child after the two from his first marriage. He knows how important children are to me.” She was close to tears.
“I’m sure you’re worrying for nothing,” I said. “He’s just getting adjusted to it — your having a baby, I mean.” I thought for a moment, and then said, “Make sure you find time to have fun together. Do things he likes.”
She began to cry. “He’s been spending a lot of time away.” I handed her a tissue. She nodded thank you and excused herself. I told her to use my private bathroom.
Everyone has problems, I thought. Dad used to say, “If you aren’t aware of problems, you’re brain-damaged.” Have to keep my head. There’s always a way out. Sometimes just refusing to go down. Look at the weekend. Could have solved all my problems there and then, but managed to land okay. Both engines out. Hell, Henry, if you can do that, you’ll work out Park Avenue, too. Keep remembering that. When the shit flies.
14
AFTER dinner at Primavera, I went home and settled down in my study to analyze the mountain of information I had gathered from Ari before leaving the office. I planned to offer MacDougall various possibilities.
Then I remembered I was supposed to call Karen. As I was about to pick up the phone, it rang. I grabbed the cordless receiver. I didn’t look to see if the call had come in on my private line. Only a very few had that number.
“Henry, it’s your father. I want to talk with you.”
“That’s funny, you don’t sound like my father. He has this deep, Wagnerian voice, a heavy German accent, and yours is …”
“I’m glad you’ve retained your sense of humor,” he said. “Now listen to me. Steven’s filed me in on everything.” I heard him sigh. “I’ve got three million in Treasuries. You can have them if It’ll help.”
His offer caught me unprepared. I couldn’t talk for a few seconds. Then I responded, “Dad, that’s exactly like you. But I wouldn’t touch your security for anything. Look, everything will work out. I’ve got a zillion solutions to offer Federated.” His T-notes certainly would help, but I wouldn’t ask him for them unless I was at the end.
“I’m the one who got us into this,” I said. “I'll find a way out.”
“Sounds very noble,” he said, “but fathers ought to be there for their sons. Mind you, Henry, you’ve become greedy and weren’t watching the signs. But at this point, that’s academic.”
‘I’m glad you’re with me. It makes all the difference. Good night, Dad.”
It was well after ten. Karen. “How did your dinner go?” I asked. I didn’t wait for a response. “I can just picture you. That spectacular body in some very fetching nightgown. A shorty, with ruffles on the bottom … woof!’
“You have the body right, Henry,’ she said, “but the nightgown’s all wrong. On trips, I take one of Grandma’s muslin numbers. Anyway, I’d suggest phone sex, except I think it’ll leave us more frustrated. But I’m thinking of all kinds of new moves.”
I wanted to climb into the phone and be beamed all the way to Albany. “We’ll practice when I see you,” I said.
“When you called just now,” she continued, “I was sitting here in bed, reading briefs. It’s quit
e interesting. The dinner was elegant, it really was. Albany has some great spots…. Henry, are you okay?” she asked, suddenly.
"I'll know after my meeting in the morning. I’m deep into reviewing. Oh, did I tell you? Phelan is acquiring a company and said they might take half of Three-Fifty-Five. That would save my ass.”
“You’re going to find mortgaging extremely difficult,” she said. “But you already know that, don’t you? Anyway, I’ve got a couple of hours of work on these briefs. Dinner tomorrow?”
“Fine. But no kosher Japanese. Too gastronomically confusing. My place. About seven?”
“Don’t expect me to be bright-eyed and bushy-tailed.”
"I'll take you any way you come.”
“I didn’t know you were into puns, Henry. Anyway, give them helltomorrow.”
I slept fitfully. In a dream, everyone was trying to escape. The others all made it, but I couldn’t find my passport. When I did, it was too heavy to carry. Time ran out. Those of us who got stuck — only me at the end — would be tortured. No matter how hard I tried, I couldn’t lift my passport. I woke in a cold sweat.
15
FEDERATED’S executive offices at 180 Water Street in downtown Manhattan were dignified and refined. The top two floors were connected by a graceful interior stairway. Paintings of the original Dutch Colonial settlement at its address were positioned on the walls. The bank prided itself on conservatism, yet Federated’s lending practices were anything but conservative. Even before the problems in real estate began growing. Federal and state banking authorities had begun to focus on the high percentage of speculative loans in Federated’s portfolio.
I had utilized the fact that I had been a Marine infantry captain in Vietnam to help establish a relationship with MacDougall, paying homage to his having been a career naval officer with the highly respectable rank of a three-stripe commander.
I waited a full twenty minutes in the reception area before MacDougall’s Manhattan secretary emerged to greet me. She looked trim, her tone a cross between matronly and motherly. “Fm terribly sorry, Mr. Martin, that you've been kept waiting.” I looked at her, displeasure on my face. “Mr. MacDougall has been in the president’s office for several hours. Even before I came in,” she said with a warm smile. “He asked me to have you wait for him in conference room B. Coffee? Can I get you a nice cup of tea?” I shook my head.
A few minutes later, John MacDougall walked in, stopped to size me up with his stare, said good morning, shook hands in a perfunctory manner, and sat down. I had decided it would be better to place myself at the head of the table, a strategy I used when I wanted to establish an atmosphere in which I would be perceived as dominant. It would have been smarter if I could have arranged for MacDougall to sit opposite me as equals, but I did not want him sitting at the end of the table and me on one side.
“Sorry to keep you waiting,’ he started out pleasantly. “Shawn — President Riley — and I had a number of matters to review,’ He cleared his throat and measured me again with his eyes, reminding me of one of my old commanding officers. “Now let’s examine our situation. I must tell you, Henry, your loan has received a great deal of attention recently. From the boardroom all through the administrative branch. And by the examiners.”
All of which meant, I thought, that he’d been catching hell from both the president and the board. A year earlier, the loan had been processed by MacDougall’s staff, with all the accompanying data, then presented to the loan committee, which had approved the amount and terms. The interest rate was negotiated at .75 percent over prime, floating. It had been challenged by the board, but MacDougall and Riley made the argument that Henry Martin could place the loan elsewhere at the same rate, perhaps even at a lower one. The normal one-point fee was cut to one-half, with the same argument proffered. Now, MacDougall’s judgment and competence were being brought into question. I knew that two critical concerns for most bank officers were their jobs and their pensions, in that order. And certainly it would be MacDougall’s ass before Riley’s. Undoubtedly, he was in danger of getting the boot if the Martin loan went into default.
I didn’t wait for him to continue; I had to take the initiative. “I fully understand the problem, John, I really do. Losing the Standard General lease changes the equation. It was strictly political, why the deal went elsewhere. I can get Jack Phelan to go into it if you want.”
“That won’t be necessary.” He leaned forward. “The fact is, there’s no executed lease, is there?” he asked in a flat, deliberate tone.
“No, there isn’t,” I said. “But let me lay out some thinking, because it’s not the problem it may seem right now.” I played that statement out slowly, hoping to dictate the way the conversation developed.
“I’ve been instructed to tell you that unless you can pay off the loan or reduce the face amount significantly, it will have to be called,” MacDougall said flatly.
I was shocked, and it must have shown on my face because he said, “I’m sorry, but it’s out of my hands,’ He waited for me to speak, then continued: “For whatever it’s worthy my situation here could well be in jeopardy. Parallel to yours, in a way.”
That’s fine, I thought. You’ll get your wrist slapped, maybe a golden parachute. But it could be the demise of a family company I had made into a commercial real estate investment power. “Look, John, I'd like nothing better than to replace your building loan with a permanent mortgage; obviously that can’t happen overnight. But it looks likely that someone is about to lease half the building.” I watched his face and saw a hint of a smile and a change in his attitude.
I was wrong. “With the loss of Standard General, surely you don’t want me to believe you could come up with another tenant so quickly. For half the building? What do you take me for, Henry, some kid straight out of business school?”
I had never seen this side of MacDougall. I almost expected him to hiss.
I held my own anger in check. “For your information, John,” I said firmly, hitting him with backup proof, “1 was on the phone with Jack Phelan yesterday. He was in his plane on his way to California to conclude the acquisition. If it goes through, Phelan told me that Standard General would take half the space. I can get him to confirm that, but it would be a little awkward since he told me in confidence.” I let my resentment register. Although that wasn’t very smart of me.
“You were in Vietnam, Henry. You can’t transport your men without boats, trucks, or helicopters. It’s this simple — your loan cannot be paid off. A lease would obviously make some difference, but you’re certainly not in control of whether that’s going to happen.”
He was pushing me into a corner, but I was not ready to capitulate. ‘You must have something in mind,” I replied calmly. I wanted to find out what he and the others had apparently decided. Then I could counter. Always let the other guy show his cards first. Often he is not thinking what you assume he is.
“You and your brother are on this personally,’ he began. “I don’t have to spell out what that means. We all know we can get a deficiency judgment, and—”
“Not easy to obtain,’ I interrupted. “It can take years.”
“Yes, you’re right,’ MacDougall said. “The point is, you clearly understand action must be taken.”
“How and by whom?”
“Let’s stop fencing,’ he replied. “There has to be a plan, not hopes and pipe dreams. Something that the bank and the examiners can accept.” He rose and walked to the other side of the room. “You’re quite resourceful. But let me warn you, the entire real estate industry is undergoing major change. We’re not your enemy, Henry, but our posture is very different than it was even six months ago.”
It was my turn at bat. I opened my folder. The summary page was on top. “The Martin Companies have many sources of income,” I began. “Buildings all over the place. Leases with automatic increases in them. Mortgages that can be refinanced. Our gross income goes up every year, and our net cash income increases
as well. Those leases can produce refinancings that can be utilized to reduce your loan.” My language sounded canned. “Also outside, non-real-estate investments.”
Again, his reaction was not at all what I expected. “First of all,” he said, “yearly increases are out. Tenants are renegotiating their leases. Demanding and getting reductions. And tenant improvements like painting, new carpeting, and repartitioning even though the leases don’t include them. Otherwise, they threaten to move out. Correct?”
He was. Some of our tenants were warning us that brokers and other landlords were offering to pick up the obligations of their leases with us as an inducement for them to move into their buildings.
“And,” MacDougall went on, “forget about refinancing your mortgages. You’ll be lucky if the institutions are willing to extend. Most want out. And you can bet it’s going to get worse. That puts owners in a very bad position.”
The conversation was going badly. Not the way I had planned. I would have liked to slug him in the mouth, just to get him to shut up.
Time for a tactical retreat. “But developers have done well during recessions, even during the Depression,” I said. “My company can weather any storm. I intend to pick up first-class buildings at distressed prices.”
“Time will tell, Henry. By the way, your brother’s and your personal balance sheets include various liquid assets, cash, stocks, bonds. We may have to talk about them.”
I let that statement go unanswered. “John, FU know about Standard General in the next few days. In the meantime, Fm going to see what else I can do. We own some excellent, well-located parcels of vacant land that can be sold.” I watched his expression. Still deadpan.
“You and I will meet again next Thursday or Friday,” he said. “Today s meeting was to make it clear where we stand and what we expect. Let me stress that we can be flexible, but only if it results in an elimination of the outstanding debt. Or a significant reduction.” MacDougall sounded like an attorney trained to deal with defaults.
The Ego Makers Page 13