7
TRUMP TOWER
The Tiffany Location
IT WAS NOT an auspicious start, my meeting with Franklin Jarman.
From the time I took an apartment in Manhattan in 1971 and began walking the streets, the site that excited me the most was the eleven-story building at 57th Street and Fifth Avenue that housed Bonwit Teller. The main attraction was location, but in addition, it was on an unusually large piece of property. In my mind, that combination made it perhaps the greatest single piece of real estate in New York City. There was the potential to build a great building in a prime location.
Bonwit was owned by Genesco, a company founded in the late 1950s by a gentleman named W. Maxey Jarman, who built it into a real high-flying conglomerate. Maxey started off with a shoe company, and then he began buying other shoe companies, and eventually he moved into retail stores, purchasing Tiffany and Henri Bendel, and Bonwit Teller. But then, in the mid-1970s, a tremendous battle began to take shape between Maxey and his son, Franklin. They were both strong guys with their own ideas and they both wanted control. It became so bitter that they finally came to blows at a stockholder meeting. Since I am so close to my father, I found the whole thing hard to believe, but the bottom line was that Franklin finally managed to push his father out and take over. And so, in 1975, it was Franklin I called to discuss my interest in Bonwit.
At the time, I really had no track record. I was trying to get the Grand Hyatt off the ground, and I was still fighting for my convention center site, and nothing had yet gelled. But for whatever reason, Franklin Jarman was willing to see me. We met, and I told him straight out that I would love to buy the Bonwit Teller store and building. I knew this was a tough sell, so I tried to find ways to make the deal sound more attractive. I suggested, for example, that I would build above his store, and that he could keep it open during construction. That’s not really feasible, but the point was that I would have done almost anything to get that piece of property.
Even before I’d finished my pitch, I could see from the look on Franklin’s face that he thought this was perhaps the most preposterous thing he had ever heard. When I was done, he said to me, very politely, but also very firmly, “You’ve got to be crazy if you think there’s any way we’d ever sell this incredible site.” We shook hands and I left, believing that under no circumstances would I or anybody else ever purchase this property. It was a dead issue.
Even so, I didn’t give up. I began writing letters to Franklin Jarman. First, I wrote to thank him for seeing me. A couple of months later, I wrote to ask if he might reconsider. When I got no answer and a few more months had gone by, I wrote again and said I’d love to drop by and see him again. More time passed, and I wrote another letter, suggesting a whole new way to make the deal. I was relentless, even in the face of the total lack of encouragement, because much more often than you’d think, sheer persistence is the difference between success and failure. In this case, Franklin Jarman never budged from his original position. But as it happened, the letters I wrote eventually did have an impact.
Almost three years passed after my first meeting with Franklin. During that time, Genesco began to experience very serious financial problems. I didn’t give any of it a second thought until one evening in June 1978, when I picked up Business Week magazine and read an article about a management change at Genesco. The banks, trying to save the company from declaring bankruptcy, had insisted that a new chief executive be put in charge. The man’s name was John Hanigan, and he was something of a turnaround artist. He’d just successfully saved AMF-Brunswick, which had been ready to go down the drain. His specialty was something called pruning, which is just a nice way of saying that he took companies apart. In other words, he’d sell, sell, sell the assets, get rid of the debt, and pay off the banks. The key, for a guy like Hanigan, was that he came to companies without any emotional attachment to its people or its products. As a result, he had no trouble being ruthless. He was a tough, smart, totally bottom-line-oriented guy.
At nine sharp, the morning after I read the article, I called Genesco, and I got Hanigan on the phone. He’d just begun his new job, but to my surprise, he said, “I’ll bet I know what you’re calling about.”
“You do?” I said.
And he said, “Yeah, you’re the guy who has been writing all those letters about wanting to buy Bonwit Teller. When would you like to meet?”
“As soon as possible,” I said.
He said, “Can you be here in half an hour?”
It just shows you that sometimes making a deal comes down to timing. Somebody else might have called him a few days or a few weeks before me, and the whole thing could have turned out differently. Instead, I went to see him, and we had a very good meeting. It was clear that the company needed cash very badly and very quickly, and that he had no reluctance about selling Bonwit, or any other asset, for that matter. It was like a giant garage sale. By the time I left, I thought there was a good chance we’d make a deal very quickly.
Then something funny happened. Jack Hanigan suddenly refused to take my phone calls. I must have called him ten or fifteen times over a period of the next several days, but I never got through. I figured that some other bidder had come along, and that in any case I was in trouble. I asked Louise Sunshine to speak to her friend Marilyn Evans, whose husband, David, owned a shoe company that he’d sold to Genesco several years before. He’d become a fairly large stockholder in Genesco, and that gave them some clout. Marilyn said they’d speak to Hanigan on my behalf, and almost immediately he called me back. I never found out what the delay had been about, but Hanigan suggested we have another meeting. This time I brought my lawyer, Jerry Schrager, and we were able to make a deal. It was really quite simple. Genesco owned the Bonwit building but not the underlying land. For the land, they had a lease with twenty-nine years left to run. I agreed to buy the building and their land lease for the sum of $25 million.
In my mind, that was just a first step. In order to put up the building I had in mind, I was going to have to assemble several other adjacent pieces—and then seek numerous zoning variances. That’s often the situation in New York real estate, but in this case I was dealing with an exceptionally prestigious, visible site, which meant every move I made was going to be unusually difficult, and very carefully scrutinized.
My most immediate problem was trying to keep the deal secret. I was convinced that if anyone got wind of the fact that the Bonwit site was up for sale before I signed a contract, I’d never make the deal. Once the Bonwit store went on the open market, everyone in the world was going to be after it, and the asking price would go right through the roof. That’s why, after I’d shaken hands with Jack, I said to him, “Listen, I’d like to draw up a quick, simple letter of intent that says that I’ve agreed to buy the property for $25 million, and you’ve agreed to sell it—subject only to the drawing of reasonable documents. That way, neither of us can walk away from the deal.” To my surprise, Jack said, “Well, that sounds reasonable.” Now Jack is a very smart man, but he wasn’t a New York guy, and he didn’t realize how hot this property was—so valuable that even in the middle of a depression, there’d still be people lined up to buy it.
Jerry and I drew up the letter of intent right then and there. Jack read it, and the only change he made was to stick in a clause making the sale subject to approval by his board of directors. When he handed it back to me, I said to him, “Listen Jack, I can’t live with that clause. In three or four weeks, you might tell your board of directors not to approve the deal, and that would defeat the whole idea of this letter of intent.” Then I asked whether he needed approval from the board of directors to sell the store. He said he didn’t, and I said, “Let’s just take this one clause out.” He gave it a little thought and finally he agreed. I left the meeting with a deal—and something on paper to confirm it.
Once I had the letter of intent from Jack Hanigan—but before I had a contract—I went to see a man named Conrad Step
henson at the Chase Manhattan Bank. My father had always done his business with Chase, and so I figured that was the best place to go first for the $25 million I needed to make the Bonwit purchase. I explained the deal to Connie—that I was buying the Bonwit building and their land lease, which had twenty-nine years left to run, and that I hoped to put up a great skyscraper on the site. Immediately he said, “Unless you own the underlying land, that’s not a long enough lease to justify financing.” In other words, he was reluctant to put up money for me to purchase a site that twenty-nine years later—when my lease ran out—could be taken over by the owner of the underlying land. But I’d taken that into consideration. I said to Connie, “Look, I’ve got two alternatives, and I think either one could work.”
The first one, I told him, was to do a very inexpensive conversion into an office building, with retail on the ground floor. Because I’d be paying such a low rent through the remainder of the lease—$125,000 a year, which was peanuts, even then—I was confident I’d be able to pay off my mortgage and still make a nice profit over the next thirty years. But Connie wasn’t totally convinced, and even I considered the first option my worst-case scenario.
What I really wanted to do, I explained, was to purchase not only the building and the lease but also the underlying land. Then, I said, I could build a big building without risk of losing it at lease expiration. When I told Connie that the owner of the underlying land was the Equitable Life Assurance Society, he got excited for the first time. That, we both agreed, gave me a leg up, since I already had a great relationship with Equitable. They’d put up a big percentage of the financing for the Hyatt, and by this time the hotel was under construction, things were going very well, and everyone was feeling terrific about the deal.
The next thing I did was to set up a date to see George Peacock, the head of Equitable Real Estate. It was September 1978, just a month since I’d first sat down with Jack Hanigan. George and I met and I told him I was in the process of purchasing the Bonwit lease, for which Equitable owned the land, and that I saw a chance to forge a partnership that could be very good for both of us. I would contribute my lease, I said, if they would contribute their land. Together, as fifty-fifty partners, we’d build a great new residential and office building on this incredible site.
Equitable could have chosen simply to hold on to the site until the Bonwit lease ran out, and then own it outright. But the downside, I pointed out to George, was that then they would have to settle for a meager annual rent from a lease negotiated long before the value of New York real estate had begun to escalate. I also told George that my other option was to renovate the existing building and earn a more modest but still decent profit over the next thirty years. In truth, I was no longer certain that I could get financing for such a deal, but I didn’t want him to think that a partnership with Equitable was my only option. Then he’d just feel free to drive a much harder bargain with me. Fortunately, George took to the idea of a partnership almost immediately. He was skeptical that I’d get the zoning necessary to build the huge building I had in mind, but he’d also seen what I’d achieved with the Commodore. By the time I left his office, he’d given me a commitment—subject to my delivering on my promises. Once again, I found myself juggling provisional commitments.
My next move was to use my first two commitments—for the Bonwit lease and the Equitable land—to try to get a third, from Tiffany. Specifically, I wanted to buy the air rights above Tiffany, which was directly adjacent to the Bonwit site at the corner of 57th and Fifth. By purchasing those rights I’d get something called a merged zoning lot, which would allow me to build a much larger building. Unfortunately, I didn’t know anyone at Tiffany, and the owner, Walter Hoving, was known not only as a legandary retailer but also as a difficult, demanding, mercurial guy. Even so, I’d always admired Hoving, because everything he’d ever touched had turned to gold. When he ran Lord and Taylor, it was the best, and when he ran Bonwit Teller, it was the best, and so long as he ran Tiffany, it was the best. I’d seen him at parties, and he was a man with impeccable manners, perfect white hair, beautifully tailored suits, and an imperial style. If you were casting a movie about the president of Tiffany, Walter Hoving would get the part.
I decided to be very direct. I called Hoving on the phone and introduced myself. I was very polite and very respectful, and he agreed to see me. By this time Der Scutt had done a scale model of the building I hoped to build, as well as one for an alternative building, in the event that I didn’t get Tiffany’s air rights. I brought both models to the meeting. I said to Hoving, “Look, I want to buy your air rights, because that will allow me to build a much better building that you yourself will like much more. By selling me air rights, you will preserve Tiffany forever. No one will ever be able to build over it, and therefore no one will ever try to rip it down.” The other reason to sell, I told Hoving, was that if I didn’t have his air rights, for technical reasons the city would require me to put in lot-line windows—tiny little windows with wire mesh, which would look absolutely horrible, rising up fifty stories directly over Tiffany. With his air rights, on the other hand, I’d be permitted to put in beautiful picture windows on the side of the building overlooking Tiffany.
At that point I showed Hoving the two models—one a magnificent building, which is essentially the design of Trump Tower today, the other my hideous alternative. “I’m offering you five million dollars,” I said to Walter Hoving, “to let me preserve Tiffany. In return you’re selling me something—air rights—that you’d never use anyway.”
Hoving had been at Tiffany almost twenty-five years. He’d built it into an incredible success, and naturally he took great personal pride in his creation. I was playing to that, and it worked. He immediately liked my concept. “Look, young man,” he said, “I am going to make a deal with you at the price you’ve suggested. I just hope that you do as nice a job as you say you will, because I want to be proud of it. In the meantime, I have one small problem. I’m going away with my wife for a month, and I won’t have time to devote to this until I get back.”
Immediately I started to get nervous. I said, “Gee, Mr. Hoving, that’s a big problem, because if I have your air rights, I can build a totally different building, and that’s the basis on which I’m going to seek my zoning variance. If for some reason you change your mind while you’re away, I’ll have done a great deal of architectural work and zoning work which I’ll just have to throw out.”
Walter Hoving looked at me as if I’d insulted him. “Young man,” he said, “perhaps you didn’t understand. I shook your hand. I made a deal with you. That’s that.” I was speechless. You have to understand where I was coming from. While there are certainly honorable people in the real estate business, I was more accustomed to the sort of people with whom you don’t want to waste the effort of a handshake because you know it’s meaningless. I’m talking about the lowlifes, the horror shows with whom nothing counts but a signed contract.
With Walter Hoving, I realized, I was dealing with a totally different type—a gentleman who was genuinely shocked at any suggestion that he might renege on a deal. He also had a way of talking down, so that he actually made me feel a little guilty for even suggesting that anything could possibly go wrong in our deal.
As it happened, Walter Hoving went away, and no sooner had he left than Philip Morris made a deal to buy the air rights over Grand Central at a price far in excess of what I’d agreed to pay for the Tiffany air rights, which were in a much better location. Then, during that same month, several more air-rights deals were made, also for very big numbers. Quite simply, New York City was recovering, and the real estate market was beginning to go through the roof. I knew Hoving was honorable, but I couldn’t help worrying about how he was going to feel when he heard about those other deals.
Several days after he returned, we met to talk over some points in our deal. Sure enough, even as we sat down, two of his executives began to try to talk him out of making the deal
by pointing out what had happened in the market. I was upset, but I could see very quickly that Hoving was even more upset. “Gentlemen,” he said, “I shook hands with this young man over a month ago. When I make a deal, that’s the deal, whether it’s a good one or a bad one. And I trust I won’t have to explain myself again.” That was the end of that.
Later, I heard that Hoving went even a step further. During this same period he’d apparently decided to make another deal, much bigger than the one with me: to sell Tiffany to the Avon Corporation. I thought Avon was a rather second-rate buyer for a classy store like Tiffany. On the other hand, they’d offered to pay such an inflated price that I couldn’t blame Hoving for agreeing to sell. However, as one of the conditions of its purchase, Avon wanted Hoving to agree not to go through with the air-rights deal with me. Hoving, I heard, stood totally firm. If Avon had a problem with the air-rights deal, he told their executives, then they didn’t have to buy his store. They dropped the demand and bought the store, and my deal went through.
Walter Hoving was just a totally honorable, totally classy man. That’s exactly what made him such a brilliant retailer, and it’s why Tiffany has never been the same since he left. I’ll give you a small example. Hoving had a policy at Tiffany that when his best customers came in, they could pick out what they wanted, sign for it, and be billed later. It was very simple and very elegant. No sooner did Avon take over than their team of accountants started instituting new policies, including the introduction of little blue plastic Tiffany credit cards. That was fine, except that all of a sudden Tiffany’s best customers were told that they, too, had to use the little plastic cards. It was not only stupid, it was self-defeating. You want your best customers to feel special.
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