Spencer Heath Archive

Item 2043

A popularizing story which Heath paid to have written for a chapter in his then forthcoming volume, Citadel, Market and Altar. But he was disappointed in the result and did not use it. The latter part, however, shows much of Heath’s own hand.

Spring 1950

 

 

THE  ROMANCE  OF  REALTY

A TALE OF ONE CITY

NEW YORK

 

 

 

*   *   *

 

 

 

Senates and sovereigns can confer
no compliments and honors like the
presenting of a worthy thought

and presupposing
its intelligent consideration.

 

                                                             — Emerson

 

 

Spencer Heath,  11 Waverly Place,  New York 3,  New York

 

A PRELIMINARY VIEW

This is the story of community services, of how the actual owners of New York City came to organize themselves in corporate form and, after merging their separate holdings of the basic realty, protected its fifteen million inhabitants and their productive enterprises against governmental excesses and political extinction and thus earned city-wide income (from the increased Realty value) whereby to provide further vital public service and thus earn further public income with which to service more public capital. It is the story of how they increased the earnings from their public services and continued to make further profitable investment in the public welfare. And it is the story of how they welcomed further participation in the public corporate ownership and earnings and thus carried self-supporting free enterprise into the field of public services and established, finally, a widespread voting democracy as the basis of their ownership and administra­tion. — And thus the city of New York, organized as a business supplying public services, became a magnificent exemplar for the whole free world.

Only twenty years ago Joseph Riegel came into possession of the Meyer properties in Mid-town Manhattan. This estate had been in litigation for the eleven years preceding, and according to press accounts the value of old Max Weyer’s assets was between four and six million dollars. However, when all the outstanding debts were paid and the cash bequests under the finally probated will were also paid in full, as specified therein — Mr. Riegel, as residuary legatee, found himself in possession of little besides the real property remaining in the estate.

This consisted of eighteen old-law tenements, four and five stories in height, housing a total of one hundred and seventy-four tenants; a one-story building or “taxpayer,” occupied by three stores; and an adjoining vacant lot with a frontage of 59.2 feet. The tenements yielded a monthly rental income of $6,264 or, on an annual basis, $75,l68. The annual rental of the stores was $2,920. The vacant lot, of course, earned nothing and was actually carried at a loss. It could not be used even as a park­ing place because the half-finished foundations of a new building, abandoned when Max Weyer died, obstructed any utilization whatever. The only thing that had been done under the protracted management (or rather, unmanagement) of the estate under court-appointed trustees, was the construction of a seven-foot fence trimmed with barbed wire.

The gross annual income of the estate was, therefore, $78,088. Out of this, total taxes in the amount of $l6,834 were being paid during the current year; payments to interest and principle on the various mortgages on the properties amounted to $29,200; and maintenance, management and other running costs would be, on the average of such costs over the previous three years, $25,000. These combined expenses came to a debit total of $71,034 — leaving a credit total or net income of only $7,054. Expressed as a percentage of the Weyer estate’s equities in these properties, as determined by competent appraisal, this net return amounted to exactly l.43 percent!

     Mr. Riegel was, at that time, the executive vice-president of Eastern Supermarkets, Inc., a chain of ninety-two stores located in Pennsylvania, Maryland and New Jersey. He had risen to that position in a somewhat unusual way. The secret of his success, to put it simply, was an absorbing curiosity about the mechanism of the market. As a mere youngster in his last year at college he had wandered, while visiting at the home of a friend in Richmond, Virginia, into a retail store that was oddly labeled and still more oddly run — a unit of the “Piggly Wiggly” chain established by Clarence Saunders, a self-taught merchandising genius. He promptly grasped the principle of this new type of retail opera­tion. No clerk can possibly guess exactly what or how much a customer will buy as well as the customer himself if a sufficient variety of goods is displayed in such a way that the customer can come to his own decisions and pick it up himself.

After making an impressive record of growth the Saunders chain collapsed because the founder, trying to make the most of a good idea before others began to copy it, added store to store with such speed that many of his units were either too small to stock a sufficient variety of merchandise or inadequately staffed. The lesson of this failure, as Mr. Riegel saw it, is that con­venience is an ingredient of price_. On that basis, he drew up the first plans for the comprehensive type of supermarket operation that has grown so amazingly in the past decade. Because of their size, such markets are unaffected by the factors which brought Saunders to grief. And because people will go a long way if they can satisfy their need for goods in one locality, as under one roof, a supermarket can actually create realty values, attracting people and business where none existed before or, as Mr. Riegel put it, a competent supermarket operation depends less on street traffic than any other type of retail business. All you have to worry about is accessibility. If there are good roads, a good market will fill them with traffic,

In merchandising circles Mr. Riegel was known as a vigorous proponent of the idea that capital should be specialized and concentrated in the particular type of services being administered in the enterprise. The phenomenal development of Eastern Super­markets was largely due, he told the agent for the Weyer properties upon his arrival in New York, to the fact that every cent of Eastern’s capital was invested in setting up and stocking the facilities through which the most goods could be moved to the consumer at the lowest cost.

“I don’t know how this principle can be applied to the management of real estate,” he concluded, “but now that I have these properties on my hands, I’m going to look into the question and find out.”

What he found did indeed give him considerable food for thought. As the map showed, his properties lined both sides of the street, north and south, from Second to Third Avenue. The “taxpayer” and the adjoining lot were on the north side, abutting on the corner building at Second Avenue, which was also on the estate. A walk through the area revealed that the only sign of concern for the appearance of the neighborhood was an occasional window-box in which a string or two of ivy struggled for life.

Automobiles lined the curbs from end to end, packed tightly together enclosing the sidewalks from access to the street and reducing their function to that of paved footpaths leading east and west to the avenues where, no doubt, the tenants of these properties shopped, sought amusement and found transportation to carry them still farther away.

The battered, unpainted and chalked-over fence near Second Avenue was the last straw. It seemed to indicate that every other building on the street would also be torn down shortly. Standing before this fence, it occurred to Mr. Riegel that it was in fact a billboard advertising what the landlord of these properties actually sold to the tenants: bare shelter, at a price just above the margin of insolvency. The whole operation was a strictly marginal business, with the owner sitting on his equities as the costs of maintenance rose against such rental income as he was able to collect in the circumstances. As the former continued and cancelled out the latter, his equities would evaporate. Sooner or later, if this went on, the whole estate would have to be put on the block, no longer as improved property, but merely as encumbered land.

He decided to talk to some of his tenants. They complained of the lack of paint, missing lights in the hallways, insufficient heat and a variety of other grievances of a minor kind. Nobody asked for anything that would cost a substantial amount of money; if they did so, it might raise the rents. They suggested that they were already paying as much as they could afford. Unlike most landlords, Mr. Riegel took this last suggestion with a grain of salt. His merchandising experience had taught him that wherever there is a free market, people can always afford to pay the market or competitive price of any service or commodity. They could always afford to pay the landlord whatever he might be able to make his services worth.

In New York City, forty-dollar apartments and one hundred and forty dollar apartments of comparable size can be situated on the same street — in fact, adjacent to each other. In the single block westwards toward Lexington Avenue, rents increased as much as five times the average ($36.00 monthly) paid by tenants of the Weyer properties. Suppose the nature of a landlord’s services be analyzed: what is it, precisely, that he is selling to his customers? Certainly it cannot be so and so many square feet (or cubic feet) of living or working space, for the same amount of space in the same building will earn higher or lower rentals according to the character of its location. Farther down the street, this situation was repeated, but on a different basis: average rentals were about $85.00 monthly, with a maximum, in preferred locations, of over twice that.

Nevertheless, so far as access to the opportunities and amenities of the city were concerned, there was little difference; at most, it came to a block and a half in favor of the higher rent area, should a tenant wish to use the Lexington Avenue subway. On the other hand, the Weyer block was just as close to other forms of transportation and even nearer to a public school. Obviously Mr. Riegel’s tenants paid less because their apartments were less fit and convenient for living in. His rent roll showed it.

Had it not been for the fact that the Weyer properties lined both sides of the street and presumably gave him opportunity to develop his holdings as a unified area linked by a common frontage, Mr. Riegel would have withdrawn altogether. However, this unique situation offered a challenge to his ingenuity as a merchandiser. He decided to see what he could do as a purveyor of services no less basic than the commodities — foodstuffs — sold in his super­markets. He set down one condition at the start. The current net income of the properties was about $7,000 per annum, or less than 1½ percent of the valuation when last appraised. He would plow that income and any additional income received during the next two years back into the estate. If at that time the financial position of the properties was sufficiently improved to attract further outside investment, he would continue the experiment. After two years, then, the decision was to be made by the banks; it would be out of his hands.

Mr. Riegel began by playing his trump card. He owned both sides of the street, yet his tenants had no access to it. It was, in fact, a hazard to them and their children because of the auto­mobiles parked along the sidewalks day and night, so that those who tried to cross to the other side of the street were compelled to squeeze between the parked cars and step out into the stream of the traffic before they could see whether or not the road was clear. A survey showed that only twenty-eight of the one hundred and seventy-four tenants owned cars. There was room for thirty-two to thirty-five automobiles in the open area to the rear of the “taxpayer” or store building, and convenient access to it could be secured by paving a driveway along the west side of the adjoining vacant lot. Mr. Riegel promptly took steps toward providing his tenants with “housing” for their automobiles. At the time this was done, Mr. Riegel also leveled the old foundations and got rid of the board fence with its barbed wire trimmings. He then notified the tenants that parking space was available to them, off the street, at the rate currently charged by outdoor parking lot operators along the river front a quarter of a mile away. Furthermore, Mr. Riegel announced that there was sufficient overflow space available to take care of automobiles belonging to guests of his tenants on a twenty-four hour basis. The attendant on duty during the day was instructed to accept no payment from any user of the service; all charges, both for tenant and guest parking, were entered against the rental account of the user (or his host) and collected monthly along with the rent for the apartment. The nature of this procedure was further emphasized by a sign over the driveway, “COMMUNITY SERVICES, INC. — PRIVATE PARKING.”

Mr. Riegel then asked the Police Department to post his street as a play area, with a two-hour daytime parking limit, on the ground that he had gone to considerable expense to provide off-street parking facilities for both tenants and visitors. That being the case, he argued, there was no reason why the street for whose upkeep he and his tenants were being taxed should be converted into a free parking lot for residents of other parts of the city. To his surprise, the simple logic of this statement had little effect upon the officials with whom he talked. They admitted that his request was fair enough but they indicated that there ought to be some consideration of the “general welfare” and not mere local “convenience” to justify the Department posting the street. In other words, could Mr. Riegel tie his proposal to a general vote-getting issue of some sort?

     Seeing his puzzlement, the more political-minded lieutenant in charge came to his help by suggesting that perhaps some children had been run over in that very street, or if not exactly there, then perhaps on a street of the same kind nearby. In any case, the children of the city had to be protected — and much as he sym­pathized with Mr. Riegel’s proposal personally, the official reason for closing the street would have to be that it would reduce accidents generally! The city government would thus see to it that “underprivileged children” were shielded from the hazards of traffic the same as the children of the better heeled families who lived uptown.

Later on, Mr. Riegel realized the profound implications of this experience — his first meeting, as a landlord, with the political authorities. At the moment, he was more concerned with the effect of the new parking regulations and, as a part of the same picture, with the effect of the new landlord-service charges on his tenants. He wrote a letter to each one of them which said in part:

 

“You may have wondered why your landlord has gone to the trouble of spending time and money to make the street on which you live more accessible”(and that means more useful) to you and your children, The reasons should be perfectly clear . . .

“When you pay rent to me, you are buying the right to make the most of living in the apartments on my property and of the entire place where you live, and of utilizing all the conveniences available to you in its location. You are paying me for more than shelter. Every penny of your rent over and above the worth of occupying a shack in the wilds, which amounts to practically nothing, buys the services which make your residence in this city of

opportunities possible. It is my business to provide as much of these services and opportunities as I can. I hope to do it at a sufficient profit to support still more services. In the same way, it should be the business of the city government to give full value in services rendered for the taxation which they collect from me out of your rent.

“Just as you expect from me all of the services that your rent, minus the taxes I pay, can buy, so both of us ought to expect from the city the same full value for the taxes we both pay.”

 

The response to Mr. Riegel’s courageous statement of the realities of the landlord-tenant situation was immediate. Somehow, a copy of it got into the hands of Mr. Peter T. White, president of the Midtown Savings Bank, who had it inserted in the “Letters to the Editor” column of the New York Times with his own comment, which said in effect, “Here is a landlord who knows that he has a job to do — and is doing it.” The Times itself commented editorially on the same day, referring to the current Staten Island paving scandal (the three asphalt plants in that borough were owned by members of one family, which also had a monopoly of the supply of other road materials — sand, crushed stone and gravel — to the city) and the harbor pollution problem (no money in the city treasury for the construction of sewage treatment facilities and none to be expected unless the state legislature raised the municipal debt limit). The Times remarked that if local realty owners understood their own interest and responsibilities as well as Mr. Riegel did his, such malfeasance would be eliminated in short order.

A week later, one of the evening papers carried a story with “before” and “after” illustrations of the changes that had been brought about under Mr. Riegel’s management. The things which most impressed the writer were that, in the first place, he had practically doubled the width of the street between his properties by providing an off-street parking area. Now mothers and children could actually walk across it without danger to life or limb. In the second place, now that the solidly massed lines of parked automobiles were gone, the Department of Sanitation was able to use motorized equipment to clean away the accumulation of dirt and rubbish: the street was, said the writer, as spick and span as Central Park West — and he inserted photographs to prove it. Finally, Mr. Riegel was making money out of these improvements. In the beginning, he had provided parking space only for those tenants who owned cars; now other tenants were buying automobiles because they were assured of a convenient place in which to keep them.

Under the rent control laws in force at this time, Mr. Riegel’s tenants had the option of remaining under the old rentals, as frozen during the war emergency by the GPA, on a continuing monthly basis, or they could optionally pay 15% more and secure an annual lease on their apartments. Throughout the city, very few low-rent tenants chose the second alternative, though it was a common fact that in the better neighborhoods the situation was exactly the reverse. The reasons for this were obvious: people who had been paying for a higher standard of service knew that in the general inflation of costs, the maintenance of that standard could not be assured otherwise and regarded the granting of a lease as a fair quid pro quo. Surprisingly, Mr. Riegel’s tenants behaved in the same way, though not, perhaps, for the same reasons. The improvement in the neighborhood was so dramatic that they simply wanted to be sure of keeping their apartments. Over two-thirds of them (or, to be exact, 114 tenants) negotiated leases at increased rentals, and the added income accruing to their progressive land­lord, together with the profit from the parking lot operation, made for a clear 14 per cent gain above the gross rental income of the previous year.

Here was something one could talk to a banker about! Nor was there anything to halt the development at that point. It could be carried further. If such results could follow from providing the tenants with space for parking their cars, still more would follow from the provision of an off-street facility in which their children could play. Thus grew the idea of a “tot lot” on the vacant property adjoining the taxpayer building. A few items of play­ground equipment costing less than two hundred dollars, a chain-link fence with a sturdy gate, three loads of sand: with these, Mr. Riegel was able to add another notice informing his tenants (and their now somewhat envious neighbors around the corner) that there was a COMMUNITY SERVICES, INC — PRIVATE PLAYGROUND.

The utilization of the playground opened up still more possibilities. To this center, the mothers and children came and went; so did the owners of the automobiles parked behind the adjoining “taxpayer.” The stores in that “taxpayer” could be designed to serve that traffic, as are the “convenience enterprises” one finds off the lobby or just outside any large hotel. However, in order to do this, Mr. Riegel was again compelled to approach a government agency, the City Rent Commission. And there he was stumped.    The occupiers of those stores were, respectively, a shoe repairman, an electrical contractor and a plumber. The shoe repair business was the only one which served the people living in the area. The electrician and the plumber used the stores as stock­rooms, kept them locked most of the day and did their work else­where. Surely the people of the neighborhood would be better served by shops which catered to their needs. On grounds of “convenience and necessity” — as the legal phrase runs — Mr. Riegel asked for permission to improve the retail facilities on his property. Specifically, what he wanted to do was to convert his “taxpayer” into a neighborhood service center, which would consist of a news-soft-drink-candy store and a combination tailoring, pressing, dry cleaning store with automatic washing machine service (“laundro­mat”) in the rear of the same shop. As for the shoe repairman, his service fitted into this frame and should be allowed to remain.

Mr. Riegel was turned down cold on the ground that while these changes might be convenient, they were not necessary. This decision came in the form of an administrative order, according to the usual bureaucratic rent-control procedure. He could appeal if he chose but only to a board with a different name and probably the same blind attachment to the book of rules on which the lower agency had based its action. He bethought himself of Mr. White, the president of the Midtown Savings Bank, who had commented so favorably on his first moves to improve his property. Mr. White suggested that Mr. Riegel bring up the question at the next meeting of the Real Estate Board of New York. Why not give the more alert realty owners of the city an idea of his progress in raising the income and consequently the value of his property?

At this meeting, one of the most significant events since the first land-owners of Manhattan bought the island from the Indians occurred. After giving a detailed account of what had been done to increase the value of the Weyer estate by the application of an enlightened management policy based upon the conception that a landlord is really selling services, both private and public, to his tenants, Mr. Riegel made a statement that rang out like a declaration of independence. “I own the Weyer properties, Yet they are worth precisely nothing to me or to anybody else unless they are made to be worth something to those who inhabit them. They, the tenants, and their movable properties, businesses and incomes are the market from which realty income and values are drawn. When I entered the supermarket business, it never occurred to me that anybody could even object, much less pass a law that would prevent all effort to increase the value and extent of my business by providing better services to my customers. Yet I find this to be so in the field of real estate, where the landlords dispense the fundamental values of civilization — the net advantages of community living — fairly and without political favoritism or chicanery and on the basis of free exchange for equal values received.

“It may seem to you far-fetched, perhaps downright odd of me to speak of civilization when most of us are wondering how long we can hold onto our present equities. But that is exactly the trouble with this business. We do not realize the basic importance of the proper administration of real estate to the people occupying the community as a whole; and because we have neglected their interests — and thereby our own — the politicians are taking over in their own fashion more and more of that function. Obviously, our tenants, so far as they are permitted to do so, pay us the worth to them of whatever we ourselves provide. It should be equally obvious that they pay us also for putting them in possession of whatever public benefits or services (if any, above dis-services) the circumstances affecting our neighborhoods afford to them. In this connection, we should realize also the tragic truth that our tenants automatically dock us out of our rents for all the vexatious and unwise restrictions the politicians impose upon them. And yet we are all of us actually compelled through taxation to pay the costs of these public injuries upon our tenants and thus upon ourselves!

“Now let me refer again to my own experience. I am, as I have told you, a merchandiser by choice — and to speak frankly I became a landlord by chance. I was also favored by other circumstances. Max Weyer assembled his properties in a solid block because he wanted to be able to manage them himself. And he did so with great success. That was the way business was carried on in his time. He met his tenants face to face and between them they made the best of what each had to offer. He gave them as much as their rents could buy in an open market and they paid him as much as the services he purveyed were worth. As a professional merchandiser I would assume that considering the rapid growth of his real estate holdings he must have given his tenants a little more than they could have bought for the same money elsewhere, though I have no specific evidence of just how he managed to do it.

“He met his tenants face to face. Let us not forget that. He conducted his business by open agreements openly arrived at, with no third party standing between buyer and seller. The function of government in those days was to see to it that agreements voluntarily made, without coercion on either side, were fairly observed. Government was the guardian of contract because it seemed the simplest common sense that every man, whether buyer or seller, tenant or landlord, knew more about his own affairs and what accrued to his own advantage than anybody else. That is still true. It has always been true. But today the politician, particularly in the field of real estate, prescribes the terms of agreement and even arbitrarily adds further clauses to the contract after it has been made.

“Price-fixing is an old problem in the supermarket business. We had to cope with various forms of it for many years and in time we learned how to lick it. We bought in what was left of the open market and we put our own label on the merchandise and we sold it at a competitive price, a price that would bring still more business to our stores. We stopped thinking in terms of a fixed margin of profit on each transaction. We looked for a satisfactory annual yield on the given quantity of capital invested in our merchandising operation. We were, of course, very much more satisfied to make a net profit of, say, 2 percent on each transaction if we could turn over our capital four or five times a year. That’s what we aimed at, and we did it. We proved to our own satisfaction and I am sure to the satisfaction of our customers, for they came to us as fast as we could open up new facilities to take care of them, that what was good business practice for us was similarly good business for them.

Now how in the name of heaven can you offer to do anything whatever to improve your business, the real estate business, if you are compelled to operate under a total price ceiling? You’ve tried to cut costs to the bone but the inflation of the costs you cannot cut has moved even faster, and meanwhile the condition of your properties, like mine, has gone from bad to worse. We’ve arrived at the point where we find ourselves collecting as much rent as we can — under the law; of repairing or decorating our buildings as skimpily as we can — under the law; and of furnish­ing as few services or as poor a quality of service as we can get away with — under the law. No wonder so many of our tenant-customers think that we are collecting a monthly ransom from them rather than a fair rent, or a fair price, for the services and opportunities which their occupancy of our properties affords.

“We must break out of this vicious circle and get back into business. When the price ceilings on rental properties were revised to allow my tenants to pay me more if they voluntarily chose to do so, two-thirds of them seized the chance to raise their own rents! Never underestimate the intelligence of your customers. They know a bargain when they see it. Women whose interests center in the home, are the greatest comparison shoppers in the world; when they find a buy they like to crow about it. One of the functions of every housewife is to act as her family’s purchasing agent and she is just as anxious to get more for her husband’s money as he is to raise his wages. She can generally find the time, too, to talk to other housewives about her achievements along that line. My tenants have managed to make themselves thoroughly envied by their neighbors on the next block.

“What I am now confronted with is a particularly acute form of the problem that all of you who own rental properties in chang­ing neighborhoods have had to face. If we were operating in an open rental market it would correct itself. But we are not; and under present rent ceilings many a small businessman, paying to us an uneconomic rent, holds on to his occupancy of a location that has become less and less suited to his kind of business. This is another case of our being compelled to carry the expense under current laws, of an injury done to ourselves as property owners. We are in effect forced to subsidize a facility which denies, in that location, some service which our residential tenants have a right to.

“The basic issue of rent control is a national problem. It must be fought out in Washington, and by the National Association of Real Estate Boards in conjunction with the many industries — a substantial cross-section of the American economy — which supply the materials that enter into the fundamental activity of our civilization, the building and maintenance of the places we live and do business in. Meanwhile, it is up to us to do what we can on the local level. Specifically, I should like to propose that you join with me in an effort to demonstrate to the New York City Rent Commission that we can cooperate to break down the artificial distinction between convenience and necessity whereby the routine-minded junior lawyers of that bureau invariably justify any and all regulations. I’m sure it’s no news to you that whenever a landlord meets a tenant head on before that Commission the landlord’s request is denied on the ground that his convenience is of less importance than the tenant^’s necessity.

“The fact that a landlord’s “convenience,” seemingly adverse to one tenant, works to the advantage of a hundred or more of his other tenants, is constantly overlooked. Can we not join forces and form a committee of the whole, right here and now, to locate alternative facilities or premises for shopkeepers who do not serve our tenants as they have every right to be served? I offer you an electrician and a plumber. I am looking for a candy store man and a laundromat operator. The rental of my two stores is price-fixed at about eighty dollars monthly. Anything up to a hundred dollars will serve as a test case; and any premises that you know of for less will, of course, make the job that much easier. Do you know of two stores in the midtown area, perhaps in a thinly residential or a non-residential section, that are suit­able for such use? We may be lucky enough to be able to effect an even, or nearly even, exchange. Does anybody know of a struggling candy store man who is trying to do business where a plumber should be?”

Mr. Riegel waited for an answer; instead he got a round of applause, mixed with friendly laughter. Several members in the front row rose and came forward to shake his hand. The chairman abandoned his gavel and joined the group forming around Mr. Riegel at the table. Meanwhile, conversation and comment became general throughout the audience; within a few moments it was impossible for anyone to make himself heard without raising his voice. Mr. White, who had sponsored Mr. Riegel’s appearance at this meeting, finally succeeded in conveying to the absent-minded chairman that it was high time to call for order. When quiet was restored, he asked to be recognized.

“Mr. Riegel,” said Mr. White, “does not need to be told we are thankful for his message. He has heard our thanks. But he has put a question to us. I suggest that we try to give him an answer.”

Mr. Samuel Ross, of the management firm of Gottschalk and Williams, rose to say that while he had no doubt that an exchange of business occupancies such as Mr. Riegel described could be worked out on paper, his experience with the City Rent Commission had convinced him that it would be an extremely difficult job to unfreeze the established procedure. Mr. John Wolker (of Wolker-Evans, Inc.) agreed with Mr. Ross, but added that it should be remembered that the City Rent Commission had never been approached by a landlord with a proposition favorable to tenants. Mr. Theodore D. Erskine, editor of the Real Estate Journal, spoke most warmly in support; he said he was able to assert, as a working newspaperman, that while a frontal attack on the procedures of the Commission was bound to fail because its officers were highly conscious of their role as defenders of the presumably helpless tenant, Mr. Riegel’s proposal was of a different sort. Presumably, he could get the support of a number of his residential tenants. Was that true?

“I am sure that is true,” said Mr. Riegel, “and I will under­take to secure the signatures of at least as many of my tenants as negotiated leases with me on their apartments at voluntarily increased rentals, that is to say, more than a hundred of them.”

“In that case,” said Mr. White, “it seems to me that we ought to proceed as promptly as possible. If we can confront the Commission with a mass of evidence proving beyond any doubt that a substantial number of tenants and their landlord are agreed on the necessity and convenience of a change of occupancy in adjacent business premises, and we offer further evidence that the present occupier can move to other quarters as well and even better suited to his business, we may very well get a favorable decision. Such a decision will be of the utmost importance to everybody here. We will have achieved the recognition in administrative circles_, in administrative law, of an identity of interest between land­lords and tenants. Frankly, gentlemen, I cannot conceive of an achievement which is more important to us at the present time. I offer you the facilities of my office as a clearing house_. We should in fairness proceed with Mr. Riegel’s case first, since he first raised the issue, but there is no reason why the rest of us should not be prepared to follow through after he breaks the ground.”

A few further suggestions were made from the floor, some of them involving specific information of apparently suitable premises; but the discussion was closed at the suggestion of the chairman, who remarked that a careful selection of the data for this test case would be necessary. Would members forward such information as they had to Mr. White within, say, the next five days? This was assented to by all and the meeting adjourned.

Two weeks afterward Mr. Riegel applied to the City Rent Commission for certificates of eviction covering the electrician and the plumber. They duly appeared and raised perfunctory objections to any move. When confronted by the mass of material assembled by Mr. Riegel, Mr. White and the members of the Real Estate Boards including the addresses of alternative locations, the plumber had nothing to say. The electrician said he had been thinking of installing a radio and television repair department in his store. Was he capable of making such repairs? No, he would have to hire somebody. Had he taken any actual steps to hire such a person? No, he had not. Certificates of eviction were therefore issued on the landlord’s showing of convenience and necessity, to take effect after ninety days.

The result of this decision was widely noted, and in the minds of many realty owners the success of Mr. Riegel in organizing his COMMUNITY SERVICES, Inc. became associated with the relocation of retail businesses, service establishments and the like in such a way as to enhance the convenience values of adjacent residential tenancies. A standing committee of the Real Estate Board was constituted to clear the sort of information voluntarily handled by Mr. White on the first occasion, and before very long its help was being requested by more business tenants than land­lords. Finally, a small professional staff was retained by the committee to conduct traffic studies and neighborhood surveys in areas from which the volume of applications was particularly great.

As chairman of this committee Mr. White continued his interest in its operations, but as was to be expected in a man of his broad background in the financing of real estate he became increasingly concerned with matters of general policy. With the other members of the committee (Mr. Volker, Mr. Erskine, Mr. Riegel and Mr. James Sargeant, the head of the professional staff) he undertook the preparation of a report of its activities through the first year. During the final revision of this document it became apparent to him and to the other members of the committee, as they tried to summarize the significance of its accomplishment, that the distinction between the private and public services com­prising the use-value of real property was just as artificial as the distinction between convenience and necessity. Whether such services were paid for out of the public treasury and administered by the appointees of politicians, or were supported by private interests and administered on a voluntary, profitable and efficient basis, they were the same in kind; and the difference lay, essentially, in the quantity, the efficiency, and in the self-multiplying character of private enterprise in this field as in any other.

With the concurrence of his fellow-members Mr. White wrote a supplementary report that was to have immense consequences.

 

Mr. White^’s Report

Because political management is supported by compulsive rather than by voluntary payments consented to in a free market, it is bound to be wasteful, vexatious and uneconomic, and the property we own loses some further portion of its value, both present and prospective, with every extension of political administration. Suppose we put it this way: if we turn the servicing of our properties over entirely to the politicians, to the city machine or to receivers certified by it, would we expect them to make us a profit? No. We would quite rightly expect to lose every penny of our present values — and we and our tenants would then be called upon to finance growing deficits as well!

Nevertheless, that is exactly what is happening to all of us at once. We can do something about it now, as the report of the first year’s work of the Relocation Committee proves; but that report also proves something else. Prior to the operations of this Committee the real estate industry was unable to cope with political opposition by offering a con­structive program of its own. As individual property owners we were helpless to disprove the political theory that the landlord’s profit is an injury to the tenant. Through united action we have shown the public that our industry is at least no different from any other; we have shown that the tenant’s profit is the source of our profit, and we have further shown the public that we have a direct interest in the more efficient utilization of the site-values as well as the housing or occupancy valued which, in the last analysis,  comprise the net worth of our lands and buildings. If we now resolve to carry forward the success we have already achieved, if we take the next step and organize our separate equities on the basis of their fairly appraised values, our influence upon legislation and public opinion can become incalculably great.

It is no longer merely a question of overcoming the inertia or resisting the rapacity of the office holders. Officialdom is on the march and private property and private freedom is on the wane, — all for want of any competent organization of the community property to make money in the modern and legitimate manner by merchandising public protection and public services to the public as our customers. Yet it is open to us to combine our equities and thereby achieve an irresistible concentration of power to promote those services on which the value of real property depends, at the same time strengthening our status as individual owners.

Indeed, we can transform our titles and by making them freely negotiable as listed securities achieve, in addition to efficient management, an ever-wider distribution of the ownership. From a political point of view that is an objective of the first importance. But above all ours will be the only organization affecting public policies whose private interest is completely tied up with the public interest — is, in fact, identical with it. Our basic interest, as a corporate group, will lie in the service of our public.

Private property and private freedom are indivisible. In

this connection, let me quote the comment of a man who observed

the working of the institution of private property in land when

this country was young and civilization, as we know it, had

been but recently established here. These are the words of an

Indian chief, living near Buffalo in 1839, more than a hundred

years ago:

Here we are, surrounded white men, who found their prosperity on individual property in the soil, and yet they prohibit us, as a tribe, from dividing our lands among ourselves and laying the foundation of our own improvement. Not only so, but when we, as individuals, acquire their knowledge and adopt their manners, they still prohibit us from owning individual property in the soil, either of our own lands or of theirs. In such circumstances, our advance in civilization is impossible.

 

That Indian knew what he was talking about. Private, as distinguished from public ownership of property, is the basis of our civilization. Political administration can only serve to bind or reduce men to barbarism. If the situation we face were not so tragic, it would be comic. We could smile and say that, after all, our property is being taken away from us and restored to another kind of Indian — the tribe of Tammany in Tammany Hall. I don’t think, however, that there is really anything funny about that.”

At this point Mr. Wolker, a member of Mr. White’s committee, arose to supplement Mr. White’s remark. “I can think of only one thing to add to the statement you have just heard. The situation we are in will not right itself. We already have, as you know, a Budget Commission which shows up at every session of the city council and tries, for the most part unsuccessfully, to pinch the municipal budget. Such negative approach cannot produce results. Worse than that, such activities make it appear that the realty owners of the City of New York are opposed to any improvement or extension of community services, and that they think they should pay as few taxes and collect as much tribute from their tenants, as possible. The basic reason for replacing the political by a business administration of the community services is that realty owners can provide them more cheaply, more plentifully and with constantly increasing advantages to their tenants along with profits to themselves.”

27

Mr. Riegel also spoke briefly. “When I first came to New York to inspect the Weyer property,” he said, “I was, of course, familiar with the layout of it on the map. What struck me as I walked through it was how completely that street was an appurten­ance to all my property and that the rent paid to me was in part because of it. I had a feeling that in a certain sense I owned that street because I got a revenue from it. Further, my taxes paved it and kept it open as a common facility to my tenants, giv­ing them access to the advantages of the largest city in the world. In seeing their opportunities, I saw a greater one for myself. I succeeded in a small way — but suppose there were ten or twelve streets of property, so to speak. Suppose we could get them together under a unified management, regionally or even city-wide ..

“How much would an automobile cost if the politicians produced it? You can get an estimate on that by figuring how many hours of labor it takes for a Russian to buy a Soviet auto­mobile — and the answer would be that no Russian could live that long! Similarly, we can envision great and new community benefits which few Americans can hope to see — so long as the politicians alone are depended on to produce them.  Frankly, I can see the limitations of what I am doing in my small group of properties. I can do nothing to improve the wider community facilities such as police, water, sewer, and transportation services. Nor can I alone ease the burden of taxation on my tenants or their increasing subjection to coercive controls. But when a sufficient number of us get together and place our properties under unified management, we can do every one of these things and make a per­fectly legitimate profit every step of the way!“

After a full discussion of the report from the floor, Mr. White reminded the audience that since the hiring of a professional staff to carry on the work of the Relocation Com­mittee, there was little for its members to do. He proposed, therefore, that this staff be placed on a permanent footing as a service department of the Real Estate Board. It was so ordered. As for the committee itself, he further proposed that it should be reconstituted, with additional nominations, as an exploratory group for the purpose of investigating ways and means of imple­menting a program of corporate unification of titles to real property in the City of New York. It was so ordered, and con­sequently three new committeemen were elected. Mr. James J. Quigley, Mr. Oscar Hegerbacker and Mr. Morris Firestone.

The spirit in which this group undertook its task was revealed by the preliminary report. It dealt chiefly with many legal questions that now, happily, have been resolved. A summary follows:

 

There are three methods by which parcels of real estate (real property) held under scattered ownership might be brought together in order to realize the benefits of a unified admin­istration. They are:

1. by the political authority, exercising the right of emin­ent domain.
2. by a combination of private capital and political authority, wielding the power of eminent domain to drive into line all owners who disagree with the action proposed.

 (3) By voluntary association of the owners themselves, under the economically sound motivation of service for profit, pooling their property rights and separate titles and taking corresponding undivided interests in the whole.

The objection to the first method is that the municipal government has already shown its hand in a “creeping” application of the right of eminent domain through the power to tax and, furthermore, to break through the statutory debt limitation imposed on the city by the state legislature. The municipal government does indeed purvey a measure of civic amenities out of the tax dollars collected by it, but obviously not in suf­ficient quantity to cover the cost and thus halt the decline of the actual worth of real property in this city; for we find that on a market valuation, after making due allowance for inflations, the community services furnished are worth less than the taxes paid for them.

     The objection to the second method is similar to what we have found objectionable in the first, with the following addition. Public funds of any description whatever are, essentially, funds taken out of the market. If not granted outright as a gift or privilege to a portion of the electorate in return for votes received or anticipated by the politician, they are lent or invested at nominal (i.e., uneconomic) rates of interest. The consequence is that such “investments” have a tendency to subsidize inefficiency to the extent of the difference between the market rate of interest and the political rate of interest, and as a result we find that such municipal investments, whether in public housing projects or in public utilities, impose an ever increasing tax burden upon us, to the detriment of the community as a whole.

     The objection to the third method is that titles to real property are difficult to assemble. Not only are the owners of realty scattered; their properties are held under deeds of trust or other legal arrangements of bewildering variety. Members of the Real Estate Board are no doubt aware of the efforts that have been made to assemble small blocks of real estate in various sections of the city. This is a serious matter, and we have given it much thought.

     We feel that one of the chief merits of the proposed plan of organization is that it removes the basic reason for the difficulty. We do not contemplate the outright purchase of the separate titles to realty. Were we to do so it would be entirely logical for the owner of a particular parcel of real estate to seek to anticipate some portion of the profits that will arise from the assemblage of his property with that of other property owners. Indeed, if he is to participate at all, as a seller, he must raise his price before title passes out of his hands.

     The plan we have in mind proposes the consolidation of separate titles in a trusteeship or management corporation, from which the owners will receive certificates, or securities, amounting to the value of a proportionate undivided interest in the whole. Owners will be invited to participate in the future profits of the corporation to the extent of a fair current appraisal of the worth of their properties. Such securities will be far more readily negotiable than the separate titles to real property. Practically every single parcel of land, and every building, has a set of unique characteristics which require careful analysis in order to determine its value, but the securities of the corporation will be bought and sold on the stock ex­change, like any other, and their value determined by the daily consensus of bids and offerings. We shall thus provide what has been lacking so long: a market for real property in which any investor can, at any tine, sell what he has or, conversely, increase his holdings at a fair price.

     There may, however, be other owners who will prefer to retain their separate titles for another reason; they may wish to wait and see whether the improvements installed by the corporation in adjacent properties will, without any direct participation or expense to themselves, raise the value of their own property. We do not anticipate any serious trouble with such holdouts. Our reason is quite simple. There are no deliberate holdouts around Gramercy Park. We feel that similarly attractive facilities, protections and other amenities and services in which only tenants of a cooperating landlord can participate will solve the problem.

     We are therefore going ahead with the preparation of a prospectus which will invite the participation of realty owners, and Mr. Riegel has agreed to transfer the name of his enter­prise — COMMUNITY SERVICES, INC. — to the new organization if