THE HIRED GUN

PICTURE THIS: YOU ARE STANDING ON A STAGE in the grand ballroom of a gargantuan hotel in one of the largest cities in the country. You are massively in debt and far behind in payments to your lenders, who know you will never be able to pay them all you owe. In front of you as far as you can see stretches an audience made up exclusively of these lenders, who would like more than anything to tear you and your financial statement apart piece by piece. But standing next to you, as you shake in your lizard loafers, is your savior-a man whom Dallas calls a hired gun. He is theatrical; he is in-genious and imaginative in his negotiations with borrowers and lenders; he is Kenneth Leventhal, certified public accountant. And his greatest weapon, he says, is his pencil.

Something is wrong with this picture, you say? What kind of weapon is a pencil against a ballroom full of angry creditors? And since when is a CPA theatrical and ingenious? Behind the gleam in the eyes of sixty-seven-year-old Ken Leventhal lie the explanations to these incongruities. Leventhal has lived through the nightmare of a creditors’ meeting with many a Dallas borrower. The Dallas office of his Los Angeles-based accounting firm, Kenneth Leventhal & Company, has helped Texas developers restructure more than $10 billion in real estate loans during the last twenty-four months alone. These restructurings encompass the whole spectrum of real estate, literally thousands of properties and hundreds and hundreds of partnerships representing a cross section of the loan problems that have crushed the Texas economy.

Not surprisingly, the Dallas office of Kenneth Leventhal & Company is growing fast, given the massive amount of debt restructuring work being done here. Just eleven years old, it’s now the fourth largest of the forty-year-old firm’s thirteen offices. But the company as a whole is growing at a fast clip, now ranking thirteenth among CPA firms in the country. And like its founder, Kenneth Leventhal & Company shows no signs of slowing down.

Ken Leventhal became well known to this city when he spent time here during the real estate recession of the mid-Seventies rescuing the Trammell Crow Company from its huge debt problems. The Crow story is maybe the best-known item on his résumé, but Leventhal has left his healing touch in nonjudicial workouts all over Dallas. Redman Industries Inc., a Dallas-based homebuilder that has become the second-largest builder of manufactured homes in the world, was also experiencing major debt problems in the mid-Seventies crash. Without Leventhal’s help, Redman might never have grown so large or even remained a viable industry. In 1974, Redman had exactly the same problem Crow did-too many lenders fighting over a finite amount of cash. Leventhal says Redman had given preference to one lender. At that point, another of Redman’s creditors summoned Leventhal to make sure it got equal treatment.

“We came in and worked it all out and reorganized them nonjudicially, ” Leventhal recalls. “Eventually everybody made money. Everybody got well, and Dallas has a vital industry that has remained here for fifty-one years, paying payroll and keeping people happy. That is very satisfying work. “

The Redman story is a good illustration of how Leventhal operates. Though Dallas may be more familiar with his work for high-profile individuals like Crow, Leventhal says he is most often called in by a lender who wants to make sure his Last Savings Bank gets as big a chunk of the borrower as the First Savings Bank did.

The work Leventhal did for real estate syndicator Craig Hall is also well known. Two years ago, Leventhal began to help Hall restructure more than a billion dollars in debt. That kind of restructuring is a very long and painful process, Leventhal says, and when it all works out in the end, it creates a solid foundation for lifelong friendships. This is certainly true in Hall’s case. Leventhal went past the point of just pushing his pencil to make the numbers add up again. He became a confidant, a true ally.

“I used to call Craig every night during the worst of times just to tell him to keep his chin up, ” Leventhal says.

Hall returns the affection, and he offers some insight into why Dallas turns to this crusty CPA in times of trouble.

“Depending upon how one wants to view him, Ken Leventhal is either the greatest accountant who ever lived or just a typical Hollywood star, ” Hall says. “In all seriousness, Ken is a very unique person who combines gut-wrenching realism in the world of restructuring with a personal, caring, and human side. He’ll tell you that he is just a hired hand and can work for either the lender or the borrower. The truth is he really cares about doing what’s right as he sees it for whoever is involved in any difficult situation. He is honest, talented, and uniquely ’the king of workouts. ’ “

Hall isn’t the only client who describes Ken Leventhal as a Hollywood star, an actor who during the last forty years has perfected his various roles on the real estate workout stage. Ken Townsend, a managing partner of the Dallas office of Kenneth Leventhal & Company, will go so far as saying that his boss is a “celebrity. ” Certainly among the real estate crowd, Leventhal is a celebrity. Many credit him with saving the Trammell Crow Company, certainly a legendary star in the business world. But unlike a famous movie director who molds a cast into a great film, Leventhal is not really comfortable with the celebrity label. He describes his work much differently.

“The first thing that you have to achieve in a workout is to establish credibility, ” Leventhal says. “Now if you come at this like a lawyer, where you are an advocate, you are bound to get the deal in trouble. I envision a workout like a patient on the operating table. The spleen is ruptured and the appendix has got to go and the pancreas is diseased. You have to display all of the facts. “

That is Leventhal’s first act. It is also the basis of how he works. He says his company is a “purveyor of facts, not fluff, ” so his first step is to open up the borrower and make sure the lender has all of the facts-the good and the bad. To have Ken Leventhal as your “agent, ” you have to agree to do full fiscal nudity-he’s not going to let you hide anything from your lenders. This is a pretty dramatic process for borrowers and lenders who are used to striking their deals privately behind the closed doors of a banker’s office. Leventhal shines the bright light of reality on the situation, puts it all up there on stage for everyone to see.

Stripping the borrower down to his financial underwear can be embarrassing and shocking, but it’s all for the best, Leventhal says. All of their lives borrowers have been pitting their lenders against one another. So Leventhal turns that around by calling all of the creditors together in one room (“Sometimes you need a football stadium, ” he says) and displaying the naked lender right there in front of all of them. It is highly emotional; the borrower is scared to death, and the lenders, generally, are out for blood.

“Now that may be theatrics, but it gets it all out on the table, and it establishes the fact that you are not hiding anything, ” he says.

Leventhal’s second act is getting both the lender and the borrower to come closer together in their thinking.

“All of the parties involved have alternatives and some are more distasteful than others. So I always have to say, ’take the least distasteful alternative. ’ I say it over and over again. That brings realism to it. If that is theatrical, I can’t help it. It’s just fact, ” Leventhal says.

It is high drama for a purpose. By working out loan problems, Leventhal explains that he can keep borrowers and lenders from literally letting money go to waste. If an insolvent borrower’s assets are valued at $20 million in liquidation, but Leventhal can work out the loan, keep the lender from saying “pay up or die, ” and get $30 million out of the borrower over the long run, he figures he has injected $10 million into the economy.

“Obviously, if we go into the tank, the creditors will split up the $20 million. But if we get $30 million, then even though the debt may have been $50 million to start with, you have saved $10 million from going to waste, ” Leventhal says. Leventhal thinks the borrower is entitled to a piece of that $10 million. So much of the time, a lengthy workout is a matter of rolling around in the dirt and figuring out how borrower and lender are going to to split up the $10 million.

“It works, ” Kenneth Leventhal says of his tactics. “We’ve done more of this than anyone in the world. “



ONE REASON LEVENTHAL’S FIRM HAS gotten so much business is that he goes where the opportunity is. He does it now; he did it in the Forties. Today the hot work is in restructuring; in the past it has been merger work, public issues, or debt structuring for large land acquisitions. But if the work is in real estate, Leventhal is there.

Leventhal’s opportunistic, entrepreneurial spirit has been with him since childhood. He was bom in Cincinnati, and his family moved to Southern California when he was in the second grade. Leventhal’s father died when he was young, and he says he’s been on his own since he was twelve, hawking newspapers, doing this and that, but always being his own boss and hiring other kids to work for him.

“It would never have occurred to me to work for a big company, ” Leventhal says.

He decided early on that he would be an accountant because the main tool of the practice was a pencil and, he says, “I always knew I could buy a pencil. ” Leventhal attended college at the University of California at Los Angeles where he got his degree by petition. He was teaching there and the administration found out he didn’t have a degree. They wanted to keep him as a teacher, so they gave him one, he says.

Leventhal got married when he was twenty-seven. He did a short apprenticeship; with an accounting firm, which is the only time-other than a stint in the Army during World War II-that he has worked for someone else. Luckily, Southern California was the right place to be in the late Forties and early Fifties. Real estate was booming in California in those post-war days, so it was a good place for a new accountant with a real estate bent to get started. Kenneth Leventhal & Company emerged from those early years as a real estate authority, an accounting firm that provided its clients with much more than just the classic audit. Leventhal became a consummate deal maker who was involved in the full cycle of a real estate deal from feasibility studies to debt structuring and, if necessary, restructuring.

Lately, the firm’s perspective on real estate has been valued by more than just borrower and lender clients. It is not widely known, but Kenneth Leventhal & Company has also been advising federal regulators of the financial industry. Leventhal himself has been saying publicly for more than six years that the Federal Savings & Loan Insurance Corporation was headed for big trouble. Now that trouble is upon us.

The firm’s work has been helping regulators to understand the troubles in Texas and to realize the magnitude of those problems. Leventhal & Company has been assisting regulators on solving the problems at the borrower and the financial institution level. The firm has also been explaining the economics of Texas to interested congressmen.

“These guys are now faced with problems that they should not be dealing with, ” Leventhal says of the regulators. “Because if they take a problem loan portfolio and do what they were traditionally supposed to do, which is liquidate it in a reasonable time and get the highest value for it, if they dump all of this stuff on the Texas market, then there is a domino affect on all of the other institutions. If they cause a severe price decline, then they create problems of great magnitude in other institutions. So these people can’t really fulfill their job without keeping their eye on this other problem. Unless Congress or someone comes up with a clearcut plan-here’s what we are going to do-then the regulators sit around kind of stumbling.”

But Leventhal doesn’t think Southwest bankers will be burned forever. He says that a decade from now we will look back at these hard times from a high point in the real estate cycle. “We wouldn’t be having this terrible problem, even though we were so overbuilt, if Congress hadn’t changed the rules in the middle of the game, ” Leventhal says. He thinks the properties that are now in default and are causing lenders big problems could well have been carried through a temporary downturn by the “tax freaks” that existed pre-Tax Reform Act of 1986 that rendered investments in many real estate deals no longer tax deductible.

“That made [the Southwest] bankers look unwise. I think one of the things that citizens are entitled to is stability from their government, and our government has a great inability to remain stable regarding taxes. We have had eleven tax acts in the last seventeen years.”



JUST FTVE YEARS AWAY FROM RETIRE-ment, Ken Leventhal still works seven days a week. He regularly crisscrosses the country, flying from city to city at a moment’s notice if he’s needed in one of his company’s offices. He still gets up each morning at 5 a. m. to run and go to the gym. He says he owes 5 percent of his time to himself and claims that gives him an edge. “You can outwork and outdo everybody else if you take care of yourself. I really believe that, ” Leventhal says. Sage words from a man who spends the other 95 percent of his time, or close to it. taking care of everyone else’s problems.

Leventhal has no plans to change his company’s policy of mandatory retirement at age seventy-two. He’s planning on working about a thousand hours a year after that on a consulting basis. And for the next five years, he and his partners will be working very hard at keeping the Kenneth Leventhal legacy going.

’The big thing with a firm like ours is to provide for succession, ” he says. “And we really work hard on that because a lot of professional firms die with the founder. “

The means to that end have involved beefing up the Dallas office. In 1985, Leventhal moved Ken Townsend as managing partner to Dallas. The next year he sent another senior man, Jim McLennan, to bring the experience level of the Dallas office in line with the other major offices of the firm.

Leventhal says he is looking forward to his days as a consultant with his firm. He has other interests to keep him busy, like his work as a trustee of the University of Southern California. And he’s working on some grandchildren, though that may still be some years away. In between meetings in Dallas, Hong Kong, or New York, Leventhal is keeping his eye out for potential daughters-in-law for his two unmarried sons.