Part 4: Moving To Midtown

Atlanta, 1974

What do you mean the economy is bad? I forgot who it was but one day somebody told me no one was buying land anymore. Similar to 2008, the Arabs realized in 1974 they had us by the gonads because our country depended of their oil for our transportation needs.

After the Yom Kippur war in 1973 the price of gas rose from 29 cents to about 75 cents a gallon if you could buy it at all. Our buddies in the Middle East cut the supply by so much that long lines at gas stations became the norm. Gas was rationed. We had alphabet days where if your name began with a certain letter you could buy or not buy gas on a particular day of the week.

And just like today we were selling fighter planes and AWACS to the Saudi's at cost.

All the Ag land that had quadrupled in value in the late 60's early 1970's had deflated. Nobody would live far out of town because fuel prices were too high.

The land bubble had burst. Investors began defaulting on their installment sale payments. Land went back to the original owners through foreclosure. Guys who had given up their insurance careers to jump into real estate went back to where they had come.

I got a call from my old trainer, Terry Fine. You got to get into income properties, boy, Terry had insisted. Terry was perhaps the worst money manager I have known. But he had a knack for knowing exactly where to be at the right time. He had made a lot of money selling hippie clothes on 10th Street because he was one of the first to exploit The Movement when midtown became the Mecca for pot smokers and acidheads in Atlanta. He made lots money but then lost it all when he tried to expand without any expertise in management of people, multi locations or cash.

Terry did inherit a lot of hip clothes from the failed stores. Next for him was the land business. He picked a county that seemed like the racially heated town in To Kill A Mockingbird. Forsyth County had for decades been averse to outsiders messing on their turf. The story was that a black man had raped a white girl in Forsyth in the early part of the 20th century. The black guy was lynched and all black people living in the county were run out. The saying was, "the sun better not set on a (black person) in Forsyth County." Terry realized that Forsyth was directly north of Fulton County and a new road called GA 400 was under construction through the north-south axis of the county. In 1971 when land prices in Forsyth were still hovering around $1,000 per acre, Terry began trekking around Forsyth pastures in wide lapels, bellbottoms, and high platform shoes, remnants of his most recent venture.

He syndicated land deals to his old buddies and fraternity brothers. When the market hit the wall he failed to be up front with his investors. He should have fessed up to his partners. He should have said the market had collapsed but that did not mean the land was worthless. They would have to wait a matter of years to realize the profits. Interest payments would have to be made but the criteria for the investment was sound. Instead he would borrow from the liquid accounts to pay the debts of the deals that had no money.

Ultimately his former friends learned what he was doing. He not only lost the land deals but also lost the confidence and trust of people he had grown up with who could have been the core of investors for years into future. Bad news is one thing investors need to be able to handle. Sometimes things do not happen when they are projected to hit pay dirt. The quality of the investment remains; in fact it can continue to enhance but not on a consistent schedule. So another quality investors need is to understand not to invest money if liquidity is a must.

I have learned not to rely on old buddies or family members for investment dollars. Familiarity makes the investor/developer relationship less than professional. Too many of these folks remember you in your wild college days or as a kid. They think they are doing you a favor or giving you a gift to invest with you. Consequently they hold you too responsible for events the developer cannot control.

My investors and I are mutually fortunate to be in deals together. Money is much easier to find then good investment properties. But trust and confidence must be earned through honesty and commitment. I have grown to love my investors. They are wonderful people with whom I have developed fabulous relationships. I am very grateful for their confidence and trust. I have earned these accolades. I have close relationships with my investors but they were conceived through professionalism.

After the Forsyth deals fell apart, Terry had begun investing in the area of his former retail business. During the 60's the Atlanta area north of North Avenue and south of Brookwood Station had fallen into a disheveled section of hippie neighborhoods, vagrants and low class businesses. Office buildings that had thrived in the 50's and been neglected in the 60's. Old apartments and houses that once been nice addresses had become flop houses and drug bins.

Perhaps one development changed that condition: Colony Square. Developer Jim Cushman assembled a tract at the northeast corner of Peachtree and 14th Streets in the late 60's. It was one of the first live, work, play and stay environments in Atlanta. Two large white high-rise office buildings were the centerpieces of a high-rise condo, interior retail and hotel complex.

Despite eventually losing the property in foreclosure, Colony Square ignited the boom that continues 40 years later in the area we call Midtown.

Terry Fine was among the first to follow Cushman in the area. By 1974 he had found a few new investors. They had purchased several properties in the 14th Street/10th street corridor. Terry was back on his feet. He had bought a nice home in Ansley Park, perhaps the nicest intown Atlanta residential area. He opened a real estate company, 14 West Realty, in a small office building at 57 14th Street.

He wanted me to run the commercial brokerage operation. He had hired a few newbies to go out in the mid town area to list and sell real estate. He wanted me to train and motivate these guys much the way I had been tutored at Barton/Ludwig. Although I needed to learn the quantative properties of net operating income and rates of return, the mechanics of listing were the same as the land business. However one big difference was that these properties were priced by the square foot not by the acre like a parcel of land. An acre consists of 43,560 square feet. In 1974 Midtown prices for parcels with some sort of dilapidated improvement averaged around $2.00 per foot or about $87,000 per acre. The same type property sells for about $300 per square foot in 2008, or over $13 Million per acre. Terry was on to something huge but unfortunately again his shortcomings trumped his visionary skills. Life at 14 West during 1974, the year I matriculated in midtown was like living in a great soap opera. Business deals, politics, scandal, girls, divorce were all along the path that my education was to proceed

The office, an upstairs suite at 57 14th Street was a square shaped space. The executive offices looked north out through large windows one story down on to 14th Street. Around the west side were four small agent offices. Two secretaries sat near the front door facing the creepy elevator that struggled to traverse the three floors of the building.

The secretaries were both attractive young women who feasted on Atlanta professional athletes. Short skirts seemed to offset any problems Terry had with their coming into work somewhere between 8:30 and 10:30 on any given day. The receptionist took very long lunches one or twice a week with a very muscular Falcon guard. The other girl knew several of the Braves. One might find one or another in the office as the business day was winding down.

The girls got most of the work out despite their preoccupation with sports. They prepared the documents on one of the cleverest deals I was ever involved. Warehouses built in the 40's and 50's have littered the area near Howell Mill Road and 10th Street near the Atlanta Water Works. On one of the side streets a 50,000 square foot old brick structure was the location and property of Stamm Carpet Sellers. Stamm was a family business that by 1974 was well past its business peak.

I met with Mr. Stamm on a few occasions to discuss his real estate and his liquidity needs. I suggested that he allow me to list his building for sale. His company would agree to lease the building back from a Purchaser for 20 years. Stamm would also agree to a triple net lease: the tenant would be responsible for the payment of all expenses on the building including taxes, insurance, roof and all maintenance.

A net lease is an excellent incentive to the investment community. Anyone without any real estate expertise can own an absolute net leased property because the owner does not have to do anything except collect the rent. However the prospect of collecting the rent from this faltering business was risky, to say the least.

It was during the period I had this listing that I met David Witt, one of the brightest RE men I have known before or after this deal. David was and remains an executive with Selig Enterprises, a long time family owned Atlanta real estate empire.

David had been working on a piece of the Omni Hotel/Arena assemblage. Tom Cousins was in the process of acquiring the land for the original indoor multi purpose sports arena and contiguous convention hotel. The Omni would be home to the Atlanta Hawks basketball and Flames hockey teams. The site consisted of very old warehouses served by rail on Marietta Streets at the Viaduct.

One of the sites was an old broom factory owned by an acquaintance of David Witt. However they did not want to sell their property without finding an acceptable exchange piece. A trade would allow the family to defer capital gains tax on the profits from the sale.

The Stamm warehouse became the answer to their problem. Initially the precarious financial outlook for Stamm made the deal seem remote. The Marietta Street owners were not real estate professionals. We did not want them to invest in a property for income that could be difficult to collect. David, a creative person, knew of a government-underwritten program known as CLIC, Commercial Lease Insurance Corporation. CLIC would insure commercial leases much the same way Mortgage Guaranteed Insurance Corporation (MGIC) insured home loans.

David was successful in obtaining CLIC insurance on the Stamm lease. We were then able sell the Broom Factory to Cousins and sell the Stamm property to the Broom people. Real Estate was so full of fun and profit. A great memory I have from that deal was the closing with Cousins. All the parcels for the Omni had to close at the same time in order to ensure that the entire tract was acquired. There were many transactions being concluded simultaneously which took three or four full days and late nights to complete. The top law firms and accounting firms in town were handling the closings. I had a small part in the total transaction. But to be there and experience the pace, the complexity and the genius of those involved was a big thrill for a 24 year old who had only flown on an airplane a few times.

Epilogue: Stamm defaulted on its lease obligations; filed bankruptcy; CLIC paid the entire lease obligation to the new Stamm landlord. CLIC as a result of this deal ceased its operations.

While the Stamm deal made money for all the players except the Federal Government, the guarantor of CLIC, one of my favorite deals was one that did not close.

The Fox Theatre is one of the most beautiful buildings in Atlanta. The Moorish structure was built in the late 1920's. In addition to all its movie debuts and concerts, it was also the first air-conditioned building in the City. However the building faced destruction in 1974. The Stembler family, owners of the real estate and Georgia Theatre Company, had mediocre movie receipts but valuable property.

The family planned to accept an attractive offer to purchase the property. I phoned the owner's representative to persuade them to save this landmark. The owners did not want to demolish the building but wanted to realize its high value.

My idea was to keep the Fox but develop around it or on top of it. This would require the resources of a major player. Southern Bell owned the adjacent property. I thought the two could somehow be connected.

I had recently finished reading the autobiography of the great New York City real estate mogul, William Zeckindorf. He loved landmark properties. He had owned the Chrysler Building and La Enfant Plaza. He writes in the book that he always took phone calls because the caller might deliver his next deal. Zeckindorf the elder had passed away but his son had rejuvenated the business after their company went BR when banks called his loans in economic collapse of the late 1960's.

What the Hell? Like father like son, no? I called Mr. Z, Jr. to offer him the Fox Theatre. He took the call. He was very friendly but cautious. He had never heard of the Fox Theatre but his interest piqued when I mentioned we might be able to build a new Southern Bell Tower as part of the deal. How did I know Southern Bell might participate? I did not but I did have a call into the regional manager.

Zeckindorf said he was very interested if I could get Southern Bell. He could probably tell from my voice I was very young (not to mention nervous). He suggested I also talk to the City to see if it would support this project.

To me the City was Maynard Jackson. Jackson was the newly elected and first African American mayor of Atlanta. I would meet with His Honor to secure his support for this important project.

I was too naïve and stupid to realize what a great deal this was. Nor did I realize that the City (Mayor) would want a local developer (a/k/a large contributor) to do the deal.

My next steps were to set up separate meetings with Southern Bell and the Mayor. Getting to see somebody at the phone company would be easy. Most of those guys sit in the office all day passing the time. They are happy to meet with somebody. It makes them look busy. The difficult appointment to get would be with the Mayor. That was why I called the phone company and had one of my trainees get a meeting with Maynard.

Phone skills are paramount in any sales job, particularly real estate. In important matters, the phone should only be used to make an appointment. A salesman has to be face to face with the prospect. It is too easy to get somebody off the phone ("Oh there is another call, I will call you back," etc, etc,). While I met with the telephone man, getting in to see the Mayor was difficult. My agent must have called the Office of the Mayor 30 times in one day. I cannot recall if I threatened to fire the agent if he did not get the appointment but maybe.

After a day or two we had arranged a meeting in Mayor Jackson's office. The purpose of the meet was to convince the City that we could save the Fox from the Wrecker if we could get Bell South's new Corporate headquarters and the venerable old Fox building to be part of the same development. If the City would reach out to Southern Bell and Zeckindorf, the Fox could be saved.

Mayor Jackson was a big man. He had been President of the Atlanta City Council during the single term of the last white mayor of Atlanta, Sam Massell. He was huge in size and huge in power. He was accused of cronyism all of his professional career but as the first African American mayor of Atlanta, he appointed his friends to high places and passed out business plums to his friends and contacts. Some of the biggest prizes he handed were airport concessions. In all fairness, the spoils system and valuable contracts have always been the province of those holding the scepter.

I had seen him on TV but meeting with him in his City Hall office revealed a man larger than he looked on the tube (usually the opposite is true) He had a bright glowing countenance. His cowboy boots with his double-breasted suit were particularly memorable. He had by his side a gentleman surprisingly introduced as his security chief (did they think we were possible assassins?). I had never met or heard of Eldrin Bell before but he was to become a major figure in Atlanta. He served as police chief, chief of staff to the Mayor before seeking and winning a position on the Fulton County Commission. Today he is Mayor of Jonesboro, GA. Eldrin had on cowboy boots too.

We got directly to the point. The Mayor said he had heard of Zeckindorf. He was otherwise politically non-committal. He said he wanted to save the Fox and wanted whatever was in the best interests of Atlanta. He promised his support and hurried me out of the office. The meeting may have lasted a full 15 minutes.

I knew I would never hear from him again on this but did not realize that he truly liked the idea. He was so in favor of it that he assembled Southern Bell, Georgia Theatre and a big local developer who happened to be one of his major contributors. Today the AT&T Tower and the Fox Theatre share a site where the grand old structure still stands probably safe for generations to come from planned demolition.

My not receiving a check from the Fox Theatre deal did not cause the demise of 14 West. Terry's financial mismanagement and marital diffusion took the company from its founder.

Terry had syndicated six or seven properties in midtown. Several of the partnerships involved older homes around Piedmont Park. They were modest homes purchased primarily for their location and land value. Although not elegant properties, they were old enough to have interesting architectural features from the 1930's.

Properties like these were fun to tour and examine. Terry, Terry's wife and Terry's new partner enjoyed many afternoons gallivanting around yuppie midtown in blue jeans exploring these charming real estate investments.

Terry had convinced his new partner to leave a lucrative advertising career to come work and invest with him in the real estate bonanza about to explode again in Atlanta. However the boom would not be in farmland this cycle but in intown areas ripe for redevelopment and renovation.

Partner had been involved in some popular ad campaigns familiar to the Atlanta market. His former company was one of the top young ad agencies in the growing media market that Atlanta was becoming. Partner has been an energetic worker accustomed to working long hours creating and marketing media ads for large Atlanta clients. He saw the daily operations of real estate companies as primitive outfits continuing to operate with old South gentility.

A transplant from the Manhattan vulture world could have a field day against these backwater cracker barrel squatters. He had the know-how and the relentless drive and energy. Terry had the properties and Partner's father- in-law had the investment dollars.

Terry had driven his hooks very deep into this fellow. He had convinced Partner to change careers and had sold to him and his wife a house in Ansley near Terry and his wife. And he had put Partner in three or four deals with cash put up by the cute wife's father who also had guaranteed the bank notes securing the property.

Terry now had about 8 properties that he owned and managed. These properties were producing minimal rent compared to the operating expenses and loan payments. Unfortunately he had represented to his investors that the rents would be adequate to sustain the properties until the underlying land value would be realized in a sale. The profits from the sales of the properties would be huge, he promised.

Terry was correct in his assessment of the future value. However there was no way these properties could carry themselves. He had bought them on land value. The value of the rental untis based solely on income was far less than what he paid. Consequently at the end of the first year after paying the taxes, maintenance costs and the highly leveraged loan payments, a substantial negative number would have to be funded to keep the properties operating.

He should have told his investors the truth. These properties were like buying raw land. The properties would all need annual infusions of dollars to carry them but the number would be offset some but not much by the collection of rents. If they had been able to hold on to the properties for only about five years, better yet ten years, the return on investment would have been 200% to 800% despite the negative carrying costs.

But soon into the investment Terry had to scramble to keep the properties going. If one account had dollars and another one did not but had immediate bills, he would borrow from one to pay the other. Naturally this could not last long and soon he could not pay the debt on them. They went into default. He waited much too long to disclose the plight to his investors including Partner and the father in law.

By the time he did tell them what was going on, the investors had lost confidence in Terry and in the investments because it was Terry who had painted the picture of prosperity.

Partner was livid and in shock. He had put his wife's father in deals that were not only collapsing but the lenders were now in pursuit of him to collect on the personal guarantees.

Father in law was much more upset to learn from his daughter that the prodigal son-in-law had been having an affair with Terry's wife. These afternoon jaunts looking at charming real estate had resulted in unfortunate synergism. In addition to the real estate foreclosures two divorces were in action.

Before the marriage crises hit, Terry and partner had engaged in some horrendous shouting and screaming in an office where even civil conversations were difficult to keep private. Some days I would arrive at work to find papers and cabinets in turmoil after Partner had ravaged the office during the night in hopes of finding criminally incriminating evidence against Terry.

Morale (not say morals) was non-existent. It became impossible to work at 14 West any longer. It was only matter of a few more months before Terry lost the building to the bank. A residential agent who had been there for a short time bought whatever there was to buy including the name. For twenty years or so until it was sold, the agent made 14 West a successful residential broker for in town homes.

I do not know for sure what happened to Partner. He left Atlanta without his family presumably went back into advertising in another city. Terry divorced. He moved to California where he started again in real estate and living the west coast culture. A few years later he moved back to Atlanta. I met him for a drink at a bar near River Bend apartments where he had rented. Terry showed up in the parking lot on roller skates. He said he was sure the river area of Atlanta would be the next Venice Beach.

Me? I had three years under my belt. Now it was time to take the Broker's Exam so I could be on my own.

Next installment coming soon.....