Anatomy of Dallas’ Biggest Bankruptcy
The expensive Aero Jet Commander would sit on the airport apron, its engines idling, while harried figures rushed out of the suburban Cleveland airport terminal clutching sheaves of papers. They would thrust the documents through the open cockpit door into the lap of a short, swarthy executive with black hair greying at the temples. With a flourish, he’d sign the papers, hand them back and order the pilots aboard to head the $375,000 aircraft up the runway and into the air, toward Dallas.
That luxury jet – which cost $525 an hour to fly – was perhaps the most obvious manifestation of Tom Hill’s aura of opulence. It compensated for a lot, including his stature (5’ 5″), his lack of formal education and his past business failures. More importantly, it impressed people. And Tom Hill’s ability to impress wealthy people, especially some of the leading financial investors of Cleveland, Ohio, was, as they say, “worth a million.” Many millions.
When the ceiling fell in last November on Hill Properties, its debts totaled $106.8 million, and perhaps $60 million of that came from Cleveland banks, investment trusts, financiers and moderately wealthy investors. Because of Tom Hill’s charisma, of which that luxurious airplane was an extension, they had bought the dream. And they weren’t alone. Confesses one in a parade of talented young executives who saw their own dreams turn into ashes within the Hill organization, “It looked like everyone around Tom Hill was getting rich.”
But judgment day has come. A legal minuet is now being danced in the Dallas bankruptcy courts over how much of Hill Properties’ misdoings are Hill’s and how much should be credited to his primary partners. It appears that the blame is ample enough to go around. Meanwhile the fantasy has been exploded, sadly but thoroughly, for all of those hopeful Ohio doctors, dentists, lawyers and insurance brokers who envisioned nine to 12 percent interest checks on their Hill Properties investments for years to come. The ceiling fell even more heavily on Hill’s first-line backers: four highly prominent Ohio investors, one from Florida and one from Milwaukee. For a couple of these, at the threshold of their retirement from nationally noted business careers, it may eventually lead to personal bankruptcy.
For federal bankruptcy referee Dean M. Gandy, it means a headache even larger than James J. Ling’s Omega-Alpha. Ledgered against those Hill Properties debts of $106,791,450 are assets of only $88,669,708. Most of that is represented by the 5,248 apartment units that Hill Properties owns, largely in Texas, plus units in Florida, Michigan and Arizona. Nearly all of the $88.7 million is pledged to secured lenders, including such household financial names as Aetna Life Insurance, Prudential Insurance, and Metropolitan Life Insurance Company. In all, there are 62 secured creditors, their claims covering page after page of legal-sized bankruptcy pleadings.
Bankruptcy courts, however, are not very well geared to handle truth. Courts traffic in trade-offs: the needs of society versus the clout of the defendant, the danger posed to the secured creditors versus the potential clamor of the unsecured creditors, the duplicity of Culprit No. 1 versus the duplicity of Culprits No. 2-6. Dallas’ Judge Gandy, a pleasant, wavy-haired jurist who runs a seaworthy bench, can be expected to do Justice justice. But the truth about the second staggering Texas bankruptcy of the season (the first being Ling’s) isn’t likely to appear in the files of bankruptcy case No. BK3-74-522. “Aura of opulence” is not a legal term.
Psyching Up to Sell
The Grand Prairie-born Hill grew up poor, the son of a boom /bust Depression Era wildcatter named L. O. Hill. Tom dropped out of Grand Prairie High School in the ninth grade and for years helped his father deal in oil leases. Sometimes he also flew cropdusters, having earned his first pilot’s license at age 13. In the late Fifties, he tried unsuccessfully to launch a trucking business, and after that, he sold Buicks for Vandergriff. Next came Trojan Oil Company. It folded, and so did Hill’s General Mining Corp., which made a run at producing lead and silver in Death Valley, California.
Hill’s cravings for status surfaced during his improbable 1964-65 stint as operator of the Queen of Sheba Mine, out of Shoshone, Calif., 84 miles west of Las Vegas. The owner of the town’s only grocery refused him credit, despite the fact that General Mining Corp. spent about $1,500 on supplies there weekly. The rebuff injured Hill’s pride, and he finally worked out what he felt was a suitable response. One weekend he sent his workers to town armed with $2 bills, convinced that his company’s impact on the local economy would soon be highly visible. Most of the $2 bills, however, were spent at the Crowbar, the local saloon. As it turned out, the owner of the grocery store also owned the saloon, and she still remembers Tom Hill with much amusement.
Tom Hill’s self-awakening came after that. It can be dated precisely only by Hill himself, and he’s not talking (the rich dislike publicity-hounds and there is plenty of time for a man of Hill’s talents and age to concoct another aura). But an odds-on guess is that he began to find his niche in the late Sixties, guided by gurus like Napoleon Hill and Og Mandino (“What man can conceive, man can achieve!”), whom Hill quotes often. Selling, Hill decided, is a state of mind achieved by intense preparation and concentration, and he taught himself to approach sales opportunities with a perfervid intensity. Between 1965 and 1968, he psyched himself regularly for the Arthur W. Beck Company, Dallas developers of apartments and the Royal Coach Inn motel chain. In 18 months, he rose from messenger to vice president in charge of sales, and he began to see the enormous profits available in real estate development and sales. Later, Arthur Beck went bankrupt, and he down-played Tom Hill’s supersalesmanship by saying he was merely “one employee among 500” while at the Beck Company. But Tom Hill made Arthur Beck a lot of money, and Beck taught the fast-learning Hill the business.
A former underling of Hill’s says, “Tom puts himself in an impossible position and then achieves it.”
That perhaps explains how Hill pulled off the major Dallas real estate coup of 1968, enjoying the brief envy of other real estate salesmen. During a week of negotiations, Hill (who has never been a licensed broker) engineered the sale of the LTV Tower, a seemingly immovable property, to Great American Management & Research Ltd. (GRAMCO). This Hill-made deal was followed by others. In a short time, Hill sold a hundred million dollars worth of property to GRAMCO, a high-flying offshore fund based in Jamaica. Characteristically, Hill didn’t view his $450,000 commission on the Tower transaction as wealth, but merely as the means with which to look wealthy. He banked it and his other commissions and started borrowing with his modus operandi already firmly in mind: to do what Arthur Beck had done, except on a grander scale. By the end of 1968, there were three Hill companies: Hilco Construction Corp. to build apartments; Hilco Management Corp. to manage them; and Hill Realty International to hold title. Hill’s first apartment purchase was “a real dump,” in the words of a former Hill Properties executive. “I kept saying, ’How did we get hold of it?’” Located near LBJ and Abrams Road, the complex had been repossessed by Hill’s bank, Exchange Bank & Trust. With the help of his newly recruited management team, Hill next secured a $2.5 million loan commitment from the United Dime Savings Bank in New York City to build an apartment complex of his own. “We gave them a financial statement that had a lot of water in it,” says the former Hill man who compiled the statement. Of the complex, Las Colonitas, at LBJ and Midway Road, the same source says, “It was probably the best quality job Hill ever did.” The second job was quality, too. But after that, our source contends, “You could see the junk stuff coming. The 300-foot-long ’row’ designs with balconies and an entrance at each end, like a dormitory. Stuff that had been tried and abandoned by quality builders years before.”
The Cleveland Connection
By this time, however, Hill was beginning to sense the value of connections he had made in Cleveland. While working at the Beck Co. he had met Edward Ginsberg, now 58, and Martin Friedman, now 65 – both shrewd, tough, highly respected members of the Cleveland business community – and in 1968 Ginsberg and Friedman were among Hill’s earliest clients. They bought two Dallas apartment complexes, London Place and London Square. A year later, U. S. Realty Investments, of which both were directors and Ginsberg was executive vice president, loaned Hill $2.5 million, which was one of the few major loans the Hill company ever fully repaid. Later, U.S. Realty loaned him another $1.4 million. By 1970, Hill was rapidly acquiring Dallas-area apartments and, seeing the need for more cash, he turned to the sale of limited partnership syndications, mostly in Ohio. With investors’ cash, he had in hand the difference between the bank loans and actual construction costs of his projects. For the investors, the syndications offered a tax shelter, plus in Hill’s case a “guaranteed” return of nine to 12 per cent even before the apartments were built. The limited partnerships sold well. Four years later, when Hill’s house of cards collapsed, investigators found that 346 investors had sunk (probably literally) $10.5 million in 15 Hill-connected syndications. What the investors, mostly from Cleveland, didn’t realize was that some of their funds, at least, were being dumped into the Hill company’s general fund, and four of the 15 projects would never be built at all.
One reason that Hill’s syndications sold well in Ohio was that the Ginsberg-Friedman group was promoting them heavily. In return, they were getting a cut – a legitimate cut – of the income. The treasurer of U. S. Realty, Robert J. Lax, served as a go-between for Hill and the syndicators (the persons selling the projects to investors). Ginsberg and U. S. Realty’s president, Sheldon B. Guren, also lent a hand. The three – Lax, Ginsberg, and Guren – split about $300,000 in Hill-connected fees over six months in 1970-71. Later, the three set up a company, Sheltered Realty Sales Inc., just for this purpose.
The year 1971 was a pivotal one for Tom Hill, Eddie Ginsberg, Martin Friedman and Bob Lax. It was a year of great expectations and professed mutual respect. Protestant-minded Tom Hill suddenly developed an affinity for Judaism, donating $125,000 to United Jewish Appeal. Later, he donated another $100,000, made three trips to Israel and talked with Golda Meir and Moshe Dayan. Ginsberg’s law firm, Ginsberg, Guren and Merritt, were now Hill’s attorneys. Because of Hill’s fast-growing Dallas apartment empire and the performance of his Hilco Management Corp. in turning some of the Cleveland group’s Florida apartments into successes, he was beginning to be hailed in Ohio as a “real estate genius.”
It seems safe to say that Cleveland had seen few visitors quite like Tom Hill. Appropriately for a Texan, in their eyes, he stayed in $150-a-night suites at the Sheraton-Cleveland Hotel on those nights he didn’t stay with the Eddie Ginsbergs. In his expensive tan western-cut suits and burnished brown Texas boots, he projected a suave, casual image. His enjoyment of smooth company, good liquor and attractive women had a zest, if not a volume, not exactly common in this 139-year-old Lake Erie city.
Apparently few Clevelanders resented Hill’s “crashing” Table 14 at the Pewter Mug, a fashionable bar in downtown Cleveland. Traditionally, this table had been the private domain of personages such as George M. stein-brenner III (chief executive of American Ship Building Co. and part-owner of the New York Yankees), Howard B. Schulman (president of U. S. Realty Investments) and a select group of lawyers, writers and journalists. But one day, there sat Hill, as if he belonged there.
Of course Hill had that airplane, an eight-seat 520-mile-per-hour craft with gold doorknobs, a hand-rubbed Spanish oak instrument panel, a permanently mounted electronic calculator between two of the seats, a bar, a telephone and prime leather upholstery. The scions of the original Shaker Heights fortunes enjoyed receiving Hill’s unexpected telephone calls from “somewhere over Kansas,” and his unannounced fly-in visits from Dallas. “Sometimes we wouldn’t do much more than fly in, say ’Hi’ and fly home,” recalls one of Hill’s ex-pilots. The Clevelanders also gossiped about Hill’s puritanical abhorrence of cigarettes (smoking was banned in the plane) – and his frequent warnings about cancer. A few of them even knew that Hill had invested $10,000 in a porno flick called Jekyll and Hyde Portfolio.
Other stories made the rounds. One night in an exclusive Cleveland restaurant, Hill’s righteous indignation rained down on the sommelier. How could it be, he fumed at the mortified waiter, that the establishment had only one bottle of their posted $100-a-bottle wine when his party needed two? The waiter wasn’t particularly gifted at turning water into wine, but just as the scene approached its ugliest, Hill’s mood suddenly changed and his charm returned. To the relief of his guests, the flamboyant Texan suddenly insisted that the flustered sommelier take a seat, manager’s regulations or no. Hill then poured him a huge glass of wine: “about $35 worth,” recalls one onlooker.
The Clevelanders enjoyed telling and re-telling that story. Another favorite story involved the night the pint-sized Hill was leaving a late-night soiree and one of Cleveland’s upper-crust inquired of another, “Who’s that?” The reply: “The fellow who owns seven square miles of something called Dallas.”
Incorporating a Disaster
The “Jewish Mafia,” as the Ginsberg-Friedman group later was tagged by Hill’s Dallas employees, was beginning to think in those mythological Texas terms. The way really to make a killing in this business, they began to tell Hill, was to set up ongoing vehicle to build, market and manage Hill’s spreading apartment empire, now into thousands of units.
The first attempt was an extended limited partnership, 75 per cent owned by Hill and 25 per cent by Ginsberg and Friedman. It operated informally for a time, but never really left the nest.
In early 1972, it was decided that they would incorporate as a Texas entity with two general partners, Hill on the one hand and a corporate general partner called Hill Consolidated Corp. on the other. Hill Consolidated would have six limited partners: Ginsberg, Friedman, Lax, Friedman’s son-in-law Marvin Persky of Palm Beach, Fla.; Manchester Consolidated of Cleveland, whose president was Friedman’s 31-year-old son Michael; and Albert E. Adelman of Milwaukee. Even at that point, the company’s fate had been sealed, for as Michael Friedman would tell the bankruptcy court three years later, the new Hill Properties group (the umbrella name adopted to encompass the Hill entities) was a major-league loser from the start, some months trashing $300,000 or more.
To gain a clue to this, all anyone had to do was request a single one-hour session with one of several of Hill’s young, increasingly restive Dallas executives. But nobody did.
If they had, here’s what they likely would have heard: the apartment boom in Dallas is over, and it’s time to develop some other markets. Tom Hill, moreover, genius of a salesman that he is, knows nothing and cares less about management. For that reason, this company is in chaos. Too many empty apartments, tree company cars, credit cards floating around, Hill family hangers-on and, generally, too much swinging at the office. (The wife of one of Hill’s top executives, in a stormy scene at a company party, told him in front of witnesses that he ought to clean up the company act. That was just before the outspoken gainsayer’s husband resigned in disgust and moved on to a new career in Chicago.) In addition, Hill’s savvy but frustrated executive corps harbored grave doubts about the high costs of architect’s fees (which went to a former Hill business associate), of interior decorating services (going to Interiors by Jeani, operated by Hill’s wife) and insurance (going to Nowell General Agency, Inc. of Arlington, 80 per cent owned by Hill).
The 44-year-old Bob Lax, of all the Cleveland crowd, had the best opportunity to steer the Hill Consolidated Corp. partners away from irretrievable disaster. Lax frequently visited Dallas during 1971 and early 1972, apparently exercising some degree of management control on Cleveland’s behalf. “How much control?” became a hotly debated issue after the bankruptcy was filed. Not very much, obviously. Nothing changed, and the company kept slipping. Lax was co-opted by his own lifestyle (a Shaker Heights home, a Cape Cod house, a boat at Fort Lauderdale) and by Tom Hill. “In those early days, they played together a lot,” says a former Hill executive.
In mid-72, one of two things happened. The Cleveland contingency either forced Lax on Tom Hill, or Hill convinced Lax to join Hill Properties officially as president and chief operating officer. Lax’s story is that Hill recruited him shamelessly, ignoring his repeated refusals. “I had to make a very tough trip to St. Louis and then to New York in a space of 48 hours,” Lax recounts, “and Tom agreed to take me in his plane. The entire time he pitched the job to me, telling me to make out my own contract.” Lax says he finally gave in, but only out of loyalty to Eddie Ginsberg, whom he described as a “shrewd but emotional guy.”
Lax arrived in June, thinking (he now says) that, at worst, Hill Properties was about $800,000 in the hole. He’d checked, he claims, with a couple of the former Hill people and while they were disillusioned, they felt a quick turnaround was possible for the company. “The financial statement looked great, and I thought I had a good staff,” he says.
Out of deference to Lax, Hill took a 30-day vacation to let the new boss get acquainted. During the third week, Lax’s telephone rang and he heard the excited manager of Tom Hill’s club, the South Forty, in Lincoln Park, Texas, tell him that one of the bar’s patrons had just died of a fall. The man’s assailant was being charged with manslaughter, and that would mean headlines.
Lax’s decision was quick. Get the man a good lawyer and send Hill Properties the bill. And try to keep the publicity to a minimum.
Lincoln Park was between Denton and McKinney. It was another oft Tom Hill’s brainchildren, and a good one. Denton County, with two large universities, was dry. Hill got busy in 1970 and assembled enough trailer houses and people to incorporate a town, vote it wet and open the South Forty Club and the Lincoln Park Beer and Liquor Store. They were instant gold mines, and Bob Lax, though new to the job, realized that the Lincoln Park liquor license needed to be protected. Its profits were coming into the company, having been so assigned by Hill.
Lax’s next encounter with adversity was less easily resolved. It dealt with one of the fundamental problems (though far from the only one) at Hill Properties: Jeani Hill.
Wig-wearing, diamond-studded Jeani Hill was Tom Hill’s second wife, and her duchy in the Hill empire was the Hill-owned Interiors by Jeani, organized in 1963. Her chief client was the Hill apartment projects, where she promoted a style that the less reverent Hill employees referred to as “Oklahoma baroque.” In 1970, just after telling his employees that things were too rough to allow the usual Christmas bonus, Hill purchased a new cobalt-blue Rolls Royce for the missus, for which she procured a set of license plates that read “JEANI.” One of her favorite idiosyncrasies was to call the office from the parking lot on the Rolls’ mobile telephone. Says an ex-Hill man who tangled with Mrs. Hill repeatedly, “She had very expensive tastes.”
Lax made the mistake of questioning a $26,000 payment to Interiors by Jeani. It was his right, under the employment agreement, to challenge any payment made 30 days after his arrival. However, as Lax quickly learned, there were exceptions. When he pressed the matter with Cleveland, their reply was, “Don’t upset Tom.” Later, a nervous, gaunt, chain-smoking Bob Lax said simply, “That’s where the rift started.”
It is difficult not to be sympathetic toward Lax, who now admits (and could hardly deny) culpability in the Hill Properties demise. The extravagance of the company’s operating style was maddening, especially when coupled with the absence of management rules and reporting procedures. The company owned at least 22 cars, several of them Cadillacs. Tom Hill himself, during one six-month period, went through a red Jaguar V-12 2 + 2, a green Eldorado, a brown 540 Mercedes, a brown Mark IV and a lipstick red Eldorado. When he acquired a new model, he sometimes took the old one to his 340-acre Denton County ranch for one of the seven kids (three Hills of Tom’s and four Tylers of Jeani’s) at home. Frequently, gasoline charges by the Hill/Tyler youngsters for the cars and for the Hill family’s Lake Texoma speedboats would come into the company. “The kids would claim they were on company business. Maybe they were,” shrugs a former Lax assistant.
Once Lax realized that there was going to be no extended honeymoon with Hill, he began to take his job more seriously. He established two priorities. One was to get rid of Hilco Construction Company, which was an out-and-out loser. The other was to try to upgrade the management company.
Moving Toward the Brink
It took Lax a year and a half to jettison the construction company. Again, he was showing disrespect for sacred cows. One was Tom Hill’s architect friend, Thomas Stanley, a nationally acclaimed Dallas designer of high-rise office buildings. For eight months in 1968, Hill had been president of Thomas Stanley Real Estate, Inc. Since then, the Stanley firm had designed many of Hill’s apartment complexes – sometimes charging fees that some of the ex-Hill people claimed were three times what other architects have charged for similar jobs. No one questioned Stanley’s basic competence. “It’s just that you don’t go to a Cadillac dealer to get your Volkswagen fixed,” says one former employee. Hill’s answer, according to Lax, was always, “You get what you pay for.”
The errors made in the construction company, reports a source who witnessed its final days, were almost incomprehensible. “I was absolutely amazed at the sheer stupidity of the mistakes,” the source says. Perhaps the worst of a bad lot was a $3.25 million, 370 unit Tallahassee project, started in July, 1972, but finished only after the mortgage company took it over. Says the executive: “For one thing, they didn’t check with the city police, the fire department, the civil defense people-anybody!-to find out what kind of governmental requirements exist for apartments in Tallahassee. They started it blind. To give an example, they fired one construction supervisor for incompetence only to hire him back 30 days later to complete the project. But he didn’t last. The theft rate skyrocketed; they finally had to pay him off to get him away from the project.”
If the construction company was a nest of snakes, Hilco Management Corp. was a bucket of worms. In its seven-year history, it went through six presidents, including the football coach of one of Mrs. Hill’s sons. Like so many Hill Properties entities, it had two strikes against it. The Cleveland investors were getting a million dollars a year off the top of the funds the company had to work with. And the high interest rates of the 1970’s would have kept many of the apartment complexes from returning a profit even if they had been 100 per cent occupied, which they seldom were. At one point, the occupancy rate for Hill Properties ran 15 to 20 per cent below the Dallas County average.
“Most of the Hill projects were financed at 3 to 4 per cent over prime,” says one former company executive. At the worst of the money squeeze, that meant interest rates approaching 16 per cent. Expenses at some complexes ran as high as 65 per cent of the gross. Mortgage payments typically ran as high as 60 to 70 per cent of gross. The two figures added up to insolvency. “And the Hill company never turned down a tenant,” an ex-Hill staffer notes, flipping through data from M-PF Research to prove it. “They were taking in what the trade calls transients.” At one point, the Hill apartment managers were offering free maid service, a month’s free rent and a free color television set to a tenant for leasing, in many cases, a $135-a-month efficiency apartment. At some Hill complexes, the annual turnover rate was 250 per cent.
The one chance for gaining ground with the management company blew sky-high in August, 1973. It involved a young executive named Don Bird, who had come aboard in August, 1972. Bird, unlike some of the more cautious recruits, was willing to tackle the hard problems, and Lax put him in the management company apparently not realizing that Jeani Hill also coveted control. Tom Hill got Jeani assigned to help out with leasing, the only area where Bird, an experienced development man, lacked expertise. Inevitably, the ambitious Bird, interested in helping run the company and therefore interested in how it was run, began to object to Jeani Hill’s extravagance. One day in August, 1973, while Bob Lax was out of town, general partner Hill fired Bird (who quickly went on to better things at Baker-Crow). “You never face a frontal attack by Tom Hill,” says Lax, who later admitted that he wasn’t much of a political animal.
Jeani herself freely admitted, making a joke of the fact, that “the Hill bedroom was the boardroom of the Hill company.” She would make copious notes on her problems with the management company, carry them home and bring back answers the following day. “Apartment managers left in droves during Jeani’s seven- or eight-month reign,” recalls a former Lax aide. “She replaced them with young, inexperienced managers; that alienated and kept away a lot of older, more stable tenants.” And in another former Hill employee’s view, she badly overspent. He remembers, “She always said not to worry, that there was always money coming in.”
A Hill family spokesman, while conceding that Mrs. Hill did little to reverse the management company’s rocky fortunes, blames much of her misfortune on the inadequacy of computer data from the computer company set up by the Cleveland contingent to process apartment billings. A point to consider, however, is that Mrs. Hill’s performance, or anybody else’s, may not have mattered much in late 1973. It may well have been hopeless by then, since it would have required total blindness not to see that Hill Properties was slowly slipping into the sea. One former Hill executive now says he gave the company only until January, 1974, when he departed a few months earlier. But he was wrong. It took eleven more months of comedy and hostility for Hill Properties to sink.
Hill Tries a Coup
Tom Hill kicked things off in mad-cap fashion by deciding in late 1973 to recapture his company, feeling that his good name, his personal holdings and his reputation had all been muscled from him by the Jewish Mafia. What had Hill, the acknowledged sales genius, been doing all this time? Supposedly negotiating new deals. But if you’re asking Bob Lax, Hill hadn’t been doing very much, at least for Hill Properties. “He made one sale outside the immediate family after June, 1972,” Lax contends. Says another close observer, “Tom was spending most of his time flying around in that expensive airplane-and here the company was with a horrendous negative cash flow. I couldn’t understand why they let Tom do this.” For his part, Hill contends that he had been progressively frozen out of a meaningful role by the Cleveland crowd. Says his current executive assistant, who has asked for anonymity, “Mr. Hill couldn’t even sign a check on the company.”
He intended to change that, however. The man he picked to engineer the palace coup was Russell Smith, Jr., a hard-nosed, foul-talking former Beck Co. executive that one ex-Hill staffer labels “the second most obnoxious person I’ve ever met.” Smith would hardly take offense at the news. At the Beck company, the story goes, he had once lined up all the black janitors and announced in chain-gang sergeant’s tones that he was the “head nigger” and they best respect the idea. Neither his attitude nor his manner had improved by the time he surfaced at Hill Properties as executive vice president in January of last year. The first thing he did was order treasurer Jim Oats, a former Alexander Grant & Co. man, to move his desk into his office so Smith could keep tabs on cash flow and expenditures. Secondly, Smith fired most of the maintenance people at the Hill apartment complexes. That produced a $300,000 savings (on an annual basis) the first month, but most of the Hill developments began deteriorating.
Since it was obvious that Smith was Hill’s man, why did Bob Lax ever consent to his installation as executive vice president, the third-ranking job? Because, says Lax, it was the only way he knew to get Jeani Hill out of the management company presidency. The Hill people tell a different story, however. “Tom told Cleveland that he was going to pull the liquor license from under Lincoln Park if they didn’t put Smith on board,” says Hill’s assistant. “Lax apparently thought he could handle Smith.”
Unfortunately, the funds saved by firing the maintenance crews barely covered Tom Hill’s $200,000 annual salary draw, which he was still getting. Lax was making $100,000. The expense of operating the apartments never ceased. The sale of syndications was lagging badly, a consequence of the 1974 economy. In short, the debits were coming home to the roost.
The Final Collapse
The Cleveland contingent never faltered in their basic faith in Hill Properties’ future, however. In February, Eddie Ginsberg arranged a $1.7 million loan to Hill Properties from Israel Discount Bank of Tel Aviv, where he was a director. Two months later, the limited partners guaranteed a $3.1 million loan from Cleveland Trust Co. Two months after that, Ginsberg, who was facing open-heart surgery, arranged an additional $3.1 million loan from International Banks in Geneva.
It took, finally, Russell Smith’s pile-driving bluntness to make the Cleveland contingent see what was dangling in front of their noses. Until the day before zero, Lax didn’t know anything about Smith’s plot to confront the Cleveland partners with the “honest to God” truth. One of the company pilots came to Lax that afternoon last July and said he’d just had lunch with Russell Smith. Smith was a little inebriated, the pilot said. He was telling people that Lax would be gone by the end of the year and powerless by the following day. As it turned out, Smith was wrong on both counts. But the next day, in Cleveland, in a meeting attended by Ginsberg, Michael and Marvin Friedman, Adelman, Persky, Hill and Edward Rosenthal (a partner in Manchester Steel Corp.), Smith had his moment of truth. As he later said, “I told ’em that if they didn’t come up with $12 million, it was all over.”
On hearing Smith’s brusque revelation, they made him president and chief operating officer for a few days, then thought better of the idea and canned him. They fired Bob Lax, then re-hired him as a $60,000-a-year consultant. They accepted Tom Hill’s resignation as chairman. Placing the management in the hands of 31-year-old Mickey Friedman, a handsome fellow who talks easily but carefully, the Cleveland contingent plowed another million and a half dollars into Hill Properties before they surrendered, finally, last November 7 and sought protection from their creditors. In the preceding 16 months, one or more of them had signed their names to $15.5 million in notes for Hill Properties.
Virtually all of these loans, of course, were made on the “full faith and credit” of the Cleveland principals. But millions and millions of dollars in other, routine, mortgagetype loans were made by supposedly shrewd, savvy, professionally cautious lending agencies, including nationally noted insurance companies, banks and realty trusts. Again, because of the Ginsberg-Friedman connection, the number of Cleveland names on the list of secured Hill Properties creditors is high: Union Commerce Bank, Continental Bank, Euclid National Bank, Capital National Bank, Cleveland Trust Co. and U.S. Realty Investments. There are at least two Texas-based lenders on the list: National Bank of Commerce in Dallas ($3,092,515) and Houston’s First Continental Mortgage ($5,185,000).
Unfortunately, it is the secured creditors who stand the best chance of recovery, when by any decent standard of human accountability, they probably should be forced to stand the loss as an object lesson in management and fiduciary responsibility. In a profoundly disturbing sense, Hill Properties is merely another major fiasco in a growing chain of cratering enterprises permitted by a profligate expansion of debt in this country. A mania, if you please. We’ve witnessed the switch from an equity-based society to a debt-based society, which in its relentless euphoria finds the financial community crazed by the profits of interest-differential lending and blind to questions of economic stability. Ling, Geneen, Riklis, Bluhdorn, nursing homes, computer companies, National Student Marketing, Penn Central… Hill Properties.
But, finally, there were no more loans to be obtained, and the resources of Ginsberg and Friedman were so depleted that five friends had to step in late last year and cover $715,000 in loans to the pair at Cleveland’s Continental Bank. Shortly afterwards, both men resigned as directors at the bank. Both men have also resigned their U. S. Realty posts, and Ginsberg has retired from his law firm. A harried Bob Lax, interviewed while he gulped down a steak at a Spring Valley Road steakhouse, was openly worried about finding a new job in Cleveland once the bankruptcy-or his role in it-is settled. Mickey Friedman, who was with Lax, talked wearily of his weekly commuting to Dallas the past six months, all without salary. “We’ve got responsibilities to three hundred people back home,” he sighed. “We’re trying to work something out.”
Tom Hill’s official line, quickly issued in a press release the day of the bankruptcy filing, was that he hadn’t exercised meaningful control of Hill Properties since late 1971. He claimed that his share of the company’s ownership had dwindled from 75 per cent in 1972 to either five or 20 per cent (depending on how an option of Ginsberg’s to sell off 15 per cent was interpreted), since he had repeatedly allowed the Cleveland contingent to sell off or dilute his stock. Why had he acquiesced so many times? Because, his spokesman said, he feared that if he refused, Cleveland would issue a capital call and he, Hill, would lose it all.
At that point Tom Hill wasn’t keeping very regular office hours, but he had an opulent new office suite in theValley View Bank Building, carpeted in brown, his favoritecolor. His Aero Jet Commander was gone, sold to GeorgeSteinbrenner III, but he had another airplane, a four-seatBeechcraft Baron. He still had his quarterhorses and his340 acres. Remarkably, he still had, in a sense, a measureof empathy from his Cleveland associates. The Ginsbergs andthe Friedmans refused to speak harsh things about Hill inpublic. It’s true, as Bob Lax said, that they still neededTom’s signature on the company’s documents if they hopedto pull off any reorganization scheme. But on the otherhand the former Hill Properties insiders profess, virtuallyto a man, that the company’s owners all generally knewwhat was going on. So Tom Hill’s young assistant may havebeen right when he suggested that it is fruitless to try toisolate a villain among the banks, mortgage companies,Cleveland investors or Dallas operators in the $106 millionbankruptcy labeled BK3-74-522. “There ain’t no bad guys,”he says, lifting his chest in a solemn chuckle. “Just incompetence, gross mismanagement… and greed.”