Read The Very, Very Rich and How They Got That Way Online
Authors: Max Gunther
The Very, Very Rich and How They Got That Way (24 page)
“I’m ready to make you an offer today,” I said. “What time should I come by?”
That afternoon I walked into his office and offered to buy 249,042 shares – a controlling number – at $12 a share.
“The offer is good for 24 hours,” I said. Then I handed him my own check for $100,000 to bind the bargain. He said, “Give me 48 hours.” I agreed. The offer was accepted, and all that stood between me and the Waldorf was three million dollars.
I went to some outside fellows. I said, “Look, would you put in $250,000 in a deal with me on the Waldorf? I don’t offer it to you, but I may want to offer to it you.” They said yes. So I figured I could raise enough to buy it.
I tried to stick to my practice of stopping work at 6:00 P.M. and dancing every night and playing golf. But final negotiations to get the money cut into my recreation. In fact, the only thing I didn’t miss was mass each morning at St. Patrick’s Cathedral.
Now that the money was being raised, the Hilton board of directors said, “No, you don’t either. As long as you have gone this far, this hotel is going to belong to the Hilton Hotels Corporation.”
So then the corporation did put up the money that was still needed?
Yes, they did.
You had an even greater struggle getting the money to build your first hotel, the Dallas Hilton, didn’t you?
Yes, I did. I almost went broke on that one. It was in 1925 and was the first hotel that I had built.
I told the owner of the land that I wanted to build a million-dollar hotel. I told him that instead of buying his land, I wanted to lease it for 99 years.
He shot back, “I’m not Methuselah. I won’t live for 99 years.”
But I told him, “If I don’t pay, you get not only the land but the building.” When he had agreed to that and the amount of the lease, then I let him have the big charge: “And I’d also like the lease to have a clause saying I could float a loan on the real estate.” Did he yelp! But I finally got it.
But I just didn’t have the experience or the knowledge. There are a lot of things you have got to think about. And though I raised the million, it wasn’t enough. So I ran out of money.
Then, to get out of that jam, I went back to the owner and said, “Look, if you finish the building and take over, I’ll give you much more and lease it back from you.”
He was quite well-do-do, but he was against it. So I talked and I sold. Finally he said, “All right.” That is how I got out of that one.
Do you think you have an intuition about the good locations for hotels?
I think I have sufficient knowledge that I can decide where is a good location and where not to build a hotel. Now, this one [pointing to the nearby Beverly Hilton] I knew was a good location. It would make me so damn mad, later, thinking of it. That used to be a cabbage patch there. And I kept saying to myself, “There is where you should build a hotel. Why don’t you get busy and do it?” And I finally did it, but almost too late.
I was almost too late because somebody else was about to grab the land. You know, somebody else could see things, too.
But you moved more quickly?
I just went and said, “I want to make a deal,” and I made a deal.
Didn’t you have a similar type of problem with the Statler chain? Hadn’t William Zeckendorf of Webb and Knapp already made a bid on it?
Yes he had.
How did you swing that one?
I had been thinking about the Statler hotels because I knew that they were not getting along very well internally, that there was a lot of friction. I had a friend who was vice-president – God rest his soul, he is gone now – Jimmie McCabe, a wonderful man.
One day a number of citizens were invited on a trip over the Grand Canyon on a new plane of United Air Lines. I said, “I believe I will sit with Jimmie McCabe.” During the trip he said to me, “Why don’t you go ahead and buy the Statler hotels?”
Mr. Zeckendorf had already entered into negotiations for it?
Yes. They had put up a million dollars. Mrs. Statler was trustee for quite a few shares in the corporation that Mr. Statler had left Cornell University. And she was also trustee for a couple of the children.
So – I think it wasn’t any later than the next day – I got on the phone to Joe Binns in New York, who at that time was our vice-president. I said, “Where is Mrs. Statler?”
“Well,” he said, “She is here, but she is getting ready to leave.”
I said, “Hold her there; I want to see her. I will leave immediately.” I was in California.
He called back and said, “She will wait here for you.”
There were three trustees, as I recall, and I figured, “Well, you can’t fool around here. If you want these hotels, you have got to act quick.”
I said to Mrs. Statler, “Will you support me on a bid? I will give you a bid that will be much better than the bid you have now for the hotels.” She said, “I will,” just like that, very sweet.
She was ready to listen to another hotelman?
Yes. She had a feeling for the tradition of the hotels, and she wanted to see a hotelman running those hotels.
Zeckendorf had offered a good price for them but he had put up only one million of the $110 million offered.
So, instead of putting up one million, I put up seven million.
They had to take my offer. As trustees they couldn’t take a one-million-dollar offer when they had a seven-million-dollar offer.
This was the earnest-money part of it, right?
This was a cash deposit guaranteeing that I would go through with the deal, but I offered the same total price.
The total deal was $110 million, all cash?
Yes. It was the biggest real-estate deal, I believe, ever made.
Mr. Hilton, I know you had a terribly rough time during the depression. You lost one hotel after another. You borrowed to the hilt. What made you continue?
I wouldn’t give up. In the first place, I wouldn’t give up because that isn’t the way I am constituted. And I figured that I would be able to work this situation out sooner or later. At that time hotels were going broke all over. In fact, I think the record shows that about 80% of all hotels in America went broke.
And at one time I was $500,000 in debt and nothing coming in. But I worked out of it.
What are some of the principles that you have employed in operating hotels besides looking for waste space and building
esprit de corps
?
One of the principles that I insist on – which I think works, judging from the letters that I get – I must have my hotels in first-class condition. I want the guest, when he comes in there, to see a nice room, a clean bathroom; so I insist on that.
I have found that you will not complain about what I charge you for your room if I give you something that is pleasing to you when you enter that hotel. But if I give you an old, worn-out carpet, for example, you are not going to like it, and you are going to be unhappy.
I have learned, also, that each hotel must have a personality geared to its location, that you must be accurate in forecasting demand, that you can save with mass purchasing, that you need promotion and selling and training.
I gather from reading your book,
Be My Guest
, that your family, particularly your mother, had considerable influence on you.
Yes. I recall that every now and then, when I was particularly successful, somebody in the family would kind of knock the air out a bit. I came home one time and told my mother, “You are looking at a man with hotels now valued at forty-one million dollars.”
She retorted, “You don’t look a bit different to me, except you have got a spot on your tie.”
It was apparent in reading your book that three touchstones in your life have been your faith, hard work and vision. What personal qualities do you think are essential to success in any line of endeavor?
Well, I’ll tell you. Something that I have strictly adhered to is to have integrity, never under any circumstances to deceive anybody, to have your word good.
Under no circumstances deviate from that.
In operating internationally, what procedure do you think is best to follow? Or does it vary with each particular country? I know you have some partnership arrangements with governments.
We like to make deals where we have the government in with us; then we don’t have any trouble. We have tried, insofar as our international hotels are concerned, to say, “We will operate this hotel. You build it, you furnish it; we will provide the operating capital, we will provide the staff, and from then on you won’t have any work. And we will divide up the profits, two-thirds to you – one third to us.” That is what we try to do.
How did you arrive at that two-thirds – one-third?
We just figured it was a fair deal, and it has turned out fine for them and for us.
7 Copyright © Nation’s Business – the Chamber of Commerce of the United States. Reprinted by permission.
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Conrad Hilton made his name known by decorating the world with huge buildings, great dazzling structures whose gloss and glitter made them stark monuments to money. Merely strolling into a Hilton hotel for a humble glass of beer somehow makes one feel richer, as though the effluvium of wealth exuding from the walls is somehow absorbed into one’s wallet by osmosis. Now we’ll look at a family group that achieved similar fame and similar wealth by an entirely different route.
The Levitts – a father and two sons – erected buildings that were precisely the opposite of Hilton’s. The Levitts specialized in small, single-family houses that were deliberately designed to be as inexpensive as possible. They invented ways of doing this more effectively than any builder in the world had ever done it before. Their family name – and the associated name “Levittown” – became famous throughout the United States and through much of the Western world.
There are architects, sociologists and others who complain that the Levitts created aesthetic and social monstrosities, caricatures of suburbia, great, bleak, barrackslike tracts of look-alike homes that came to be inhabited by think-alike people. There have been congressmen who grumbled that the Levitts got their start as shameless war profiteers, launching their fabulous business largely on a cushion of the taxpayers’ money. The Levitts have never lacked for critics. But whether or not these criticisms are valid, two facts can hardly be argued with: The Levitts built houses for people who could not otherwise have afforded to live in neighborhoods half so pleasant. And, giving sound value for money received every inch of the way, they made themselves very, very rich.
The only member of the fabulous trio who still survives is the older son, William, a short man with a faint resemblance to actor William Powell. He sold the business in 1968 for some $92 million worth of ITT stock and today, in his middle 60s, enjoys the life of an elderly international playboy, equipped with a 237-foot oceangoing yacht and a glamorous French wife. But all the world’s pleasures tend to bore him from time to time, and once in a while he comes back to see how things are going at Levitt and Sons. He can’t keep his hand out of the building business. He dreams of grandiose new ventures. His biggest dream – perhaps the biggest ever dreamed by any man, anywhere – is that of going out into the wilderness somewhere and building a complete, self-contained, perfectly organized city from the ground up.
He might actually do it. The very, very rich tend to find themselves restless in retirement. Their money itself doesn’t bring them total enjoyment. What they enjoy is the game of getting it.
The Levitt empire was founded in 1929 on New York’s Long Island. Abraham Levitt, an obscure middle-class citizen, had started a career as a lawyer but had found that profession not to his taste. Looking for something else to do, he became aware that some Long Island home builders were growing moderately rich. New York City was growing rapidly, and Long Island’s bedroom communities were filling up with people. Each town was expanding centrifugally. As the central area filled, builders would buy cheap land out on the fringe and put up new houses. That fringe would fill, and the builders would extract their profits and move out to the next fringe.
Abraham Levitt decided to build a house. His older son, William, was just then graduating from New York University with business and economics courses under his belt. Father and son went into the building business together. They built a house, quickly sold it for a good profit, thereby improved their credit rating, borrowed bank money and bought several more fringe-area lots. Levitt and Sons was on its way.
Abraham’s other son, Alfred, four years younger than William, was just starting college. The family building business intrigued him so much that he wanted to quit college and plunge in with his father and brother. But Abraham insisted that he complete his formal education. Alfred consoled himself by studying architecture.
The family business grew slowly and erratically through the depression. There was nothing particularly noteworthy about Levitt and Sons at this stage. It was just one of thousands of small building outfits scattered all over the United States. It was basically similar to all the others. As
Fortune
was later to remark, the building business in those days was “the shame of American capitalism.” It was the only major industry that hadn’t figured out how to gain the economies of mass production or big-scale corporate organization. All home builders in America were small builders, putting up one or two houses at a time.
As early as 1935 Abraham and his two sons were talking about this “shame” without seeing any clear way to do anything about it. Abraham was the social thinker of the trio. He liked to talk about inexpensive housing as a kind of moral debt that capitalism owed to the people. Bill was the aggressive, driving businessman and the risk taker. He believed it would be possible to build homes on a mass-production basis, sell them for about one-third less than comparable homes built in the conventional way and still come out with a pleasing profit. Alfred, the architect, worried about the possible shoddiness of mass housing. He concluded in the end that excellence of design could be built into mass housing very cheaply, since the architect’s and landscaper’s fees could be divided among many houses instead of being reflected in the price of just one.
But money was tight in the mid-1930s and the Levitts’ credit standing was shaky – as was almost every builder’s – and all the talk about cheap housing was only talk.
Levitt and Sons built many houses in the 1930s – but built them in the standard way, one by one. They were sound houses, and they were cleverly situated in neighborhoods where land values are still rising today. Some early Levitt homes cost $10,000 when new and today fetch prices in the range of $70,000 to $80,000. But those were not the homes that made the Levitts rich.
Early in World War Two the Levitts suddenly got a chance to try what they had been dreaming about. The U.S. government wanted somebody to build 1600 houses at Norfolk, Virginia, for war workers. The houses had to be cheap, and they had to go up fast. The government put the project up for competitive bidding.
Few other builders in the country, if any, had been dreaming the same mad dreams as the Levitts. Most builders, in bidding on the Norfolk contract, based cost and time estimates on their previous experience in putting up one or a few houses at a time. Levitt and Sons, instead, took a wild gamble. For years Abraham and his sons had been talking about mass production, and they had arrived at some vague notions of the amount of money that might be saved by this method. The method had never been seriously tried, certainly never on the scale of 1600 houses. There was no past experience to draw on. For all anybody knew, the Levitts’ dreams were pure nonsense. All the same, Levitt and Sons submitted a bid based on the idea of mass production. It was the low bid – so far below the second-place bid, in fact, that government procurement officers at first thought it must be a typographical error.
“No,” said Abraham when one of the officers phoned, “it’s no error. That’s our bid.”
There was a long pause while the officer collected his thoughts. Finally he said quietly, “Good God, man you’re going to go bankrupt.” And he hung up.
The Levitts did not go bankrupt. To their delight, the reality turned out to be even better than the dream. They bought lumber and other materials in huge volume at low prices. They cut the lumber by machine, all at once, instead of having individual carpenters saw it by hand. They signed up electrical and plumbing contracts at low rates because of the enormous volume of work involved. And in the end they not only walked away from Norfolk with a tidy profit, but they finished the project several months earlier than they or anyone else had thought possible.
The firm of Levitt and Sons had at last found itself.
After the war, as other builders watched popeyed, the first mass-produced Levittown arose on Long Island. The Levitts started by buying several thousand acres of potato fields. Then they duplicated their Norfolk trick on a scale about ten times as big. In the five years 1947 to 1951 they built 17,450 assembly-line homes on that vast tract, plus some 2000 other homes on smaller tracts elsewhere. The staggering five-year total of nearly 20,000 houses had a value of something like $170 million.
The Levittown homes sold in the price range of $8000 to $10,000. (Resale values today: around $35,000). These prices were so ridiculously low that Levitt and Sons hardly had to do any selling. Buyers literally lined up to sign contracts. In the end Levittown, New York, became a community of 75,000 people.
It was a feat that dazzled the construction industry. For centuries builders had been laboriously erecting houses one by one. And now, suddenly, a builder had come along and erected an entire town.
There were many critics who didn’t like what the Levitts had done. Some didn’t like the way Levittown looked. “It’s a huge suburban slum and will get slummier as it gets older,” grumped one prominent architect. It didn’t. The fact that most of the homes have quadrupled in value since they were built indicated Levittown is still considered a desirable address.
Other critics didn’t like the huge amounts of money Levitt and Sons piled up. Some congressmen were particularly unhappy over the fact that most Levittown homes were sold – and the Levitts’ profits made – on the basis of government-guaranteed mortgages.
This wasn’t the result of any chicanery by the Levitts. After the war the national shortage of housing had been so severe that the Federal Housing Administration, the Veterans Administration and other agencies went to great lengths in efforts to help builders build and buyers buy. The government offered to shoulder some of the builders’ risk, supply some of their needed capital and absorb some of the buyers’ interest payments in various attractive deals. The Levitts, like other builders, simply took advantage of these gifts from Washington. Later the same Congress that had authorized the gifts took Levitt and others to task for accepting those gifts.
In a Senate hearing in 1954 Bill Levitt shyly admitted that his company had made a gross profit of about five million dollars on the first 4028 Levittown houses. The senators gasped with pious horror. But Levitt and Sons had not in fact done anything that any smart businessman wouldn’t do.
Old Abraham Levitt died in the late 1950s. The two sons carried their company to new heights. They built other Levittowns, in Pennyslvania and New Jersey. When Alfred died in the middle 1960s, Bill became sole owner of the giant company and enlarged it still more. The public seemed to be shying away from large tracts of look-alike houses; so he now spread his operations into smaller tracts scattered all over the country and overseas. By the late 1960s he was operating on two new Long Island sites, three in New Jersey, three in the area of Washington, D.C., and others in Florida, Puerto Rico, the Chicago area and the suburbs of Paris.
The assembly-line techniques were still paying off. While the national housing industry sank morosely into its own private depression in the late 1960s, Levitt and Sons built and sold more dollars’ worth of houses every year. By 1968 the company’s sales were running at a rate of about $150 million a year – roughly the value of the original Levittown.
Levitt and Sons was now a large, juicy company. It attracted the hungry eye of Harold S. Geneen, a conglomerate builder in the style of Jim Ling. Geneen was chairman and president of International Telephone and Telegraph, and it seemed to him Levitt and Sons might be a lively addition to ITTs diverse and growing family. He made an offer.
To Bill Levitt, the sole owner, ITTs proposal offered an ideal way to change his huge but non-liquid equity into cash. He accepted and walked away with some 898,000 shares of ITTs common stock, then worth about $92 million on the New York Stock Exchange. Putting this stock together with his other investments and properties, he was worth considerably more than $100 million at the age of 61.
U.S. antitrust lawyers later decided the ITT-Levitt merger had not been such a good idea. ITT was given until August 1974 to divest itself of the building company. Nobody inside or outside the company seems quite sure how the divestiture will be accomplished or where Levitt and Sons will go afterward. There is some guessing around Wall Street that Bill Levitt, still in robust health and full of energy and perhaps bored by his retirement, might want to buy back a controlling interest in the company he helped bring into the world. He might want to use it as the vehicle for some of his grandiose city-building dreams.
“He hasn’t told us what he wants to do, and as far as I know, he hasn’t told anybody,” said an executive recently at the company’s modern headquarters at Lake Success, New York. “We don’t know where we’re headed. The company will stay alive whether Bill Levitt comes back or not, of course. But I hope he comes back. It might be exciting to ride through the 1970s chasing his visions.”