Around The Block: The Business of a Neighborhood by Tom Shachtman, Hardcover | Barnes & Noble
Around The Block: The Business of a Neighborhood

Around The Block: The Business of a Neighborhood

by Tom Shachtman
     
 

In Around the Block, Tom Shachtman makes Adam Smith's "invisible hand" visible in the daily life of a number of small businesses in an ordinary, middle class block in New York City. Looking at The Block's economic life over the course of a year, Shachtman explores the everyday tragedies and triumphs hidden from view behind the shop windows and in offices. Behind

Overview

In Around the Block, Tom Shachtman makes Adam Smith's "invisible hand" visible in the daily life of a number of small businesses in an ordinary, middle class block in New York City. Looking at The Block's economic life over the course of a year, Shachtman explores the everyday tragedies and triumphs hidden from view behind the shop windows and in offices. Behind the abstractions of economists, a single block in the Chelsea section of Manhattan is the stage for the personal commitments and risks of small business-a father commits suicide so that his business can avoid bankruptcy; a Korean liquor store owner finds himself caught between tow worlds; a computer game programmer leaves her job and risks her career for an idea of her own. Shachtman puts a human face on the challenges that businesses weather every day. We see how small business is integral to America's national health, responsible for job growth while building social ties in a country mired by polarization. In this very human story about work and community, Tom Shachtman writes not the economics of textbooks and graphs buth the stuff of our lives.

Editorial Reviews

Kirkus Reviews
Shachtman returns to the turf of his 1991 Skyscraper Dreams, the business world of New York City, for a study of one year in the life of an urban block.

The block in Manhattan bounded by Seventh and Eighth avenues, and 17th and 18th streets is "an ordinary block in an in-between neighborhood in the biggest city in the country," Shachtman writes. As such, it makes a surprisingly good lens through which to view three trends going on in urban America: increased urbanization, a growing polarization between rich and poor as the middle class is driven out, and a concentration of economic power in the hands of large chain stores. Each of these trends comes into play during the year covered here (April 15, 1993, to April 15, 1994). Shachtman uses the block's three large companies (Nynex, Cahners, and the fashion emporium Barney's) and over a hundred small ones to illustrate the effects of rising rents, increasing tax burdens, and rapid technological change. Along the way, he offers some profoundly moving vignettes: A lumber-company proprietor commits suicide rather than allow a bank to foreclose on his business; a Korean-born professional is making his way in the New World as a liquor-store owner; a gay video-store proprietor finds himself battling the behemoth Blockbuster chain. The personal lives of the men and women who own businesses become deeply implicated in their survival, as Shachtman richly illustrates. Finally, he offers a bold thesis, that it is the small businesses of American cities that engage in real job creation and are the heart of the nation's economy, and he proposes a series of changes in US banking and governmental practices designed to bolster them.

Despite the limitations of his pedestrian prose style, Shachtman conveys the drama of simple daily life in New York small business, and no one who reads this will ever walk down a city street and see it in quite the same way again.

Product Details

ISBN-13:
9780151000777
Publisher:
Houghton Mifflin Harcourt
Publication date:
09/15/1997
Pages:
336
Product dimensions:
6.00(w) x 9.00(h) x (d)

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Read an Excerpt

CHAPTER ONE

THE BACK OF ONE
IS THE FACE OF ANOTHER

Man Yohn Lee, the dry cleaner on Eighth Avenue, complains that during the recent downturn, male customers wore shirts two days instead of one before taking them to be cleaned--his weekly intake of shirts dropped from 700 to 500--and female customers tried to get the spots out of their own dresses rather than having them professionally done. The dry cleaner on Seventh Avenue, Lee's competitor, also had problems. To lower expenses, the Seventh Avenue cleaner returned 400 square feet of avenue frontage to the landlord. The decrease in counter space seems not to have adversely affected traffic in this dry-cleaning establishment, but it has shaved his expenses and enabled him to repair the clock on the wall, which had lost its hands, and to fix a sign whose letters had fallen off.

Four hundred square feet is not enough space to accommodate every type of retail business; most clothing and food retailers need more. In this modest-priced location, however, the sale of just a few pairs of eyeglasses each day may prove sufficient to meet the week's overhead for an optician who has just rented the place for a spanking new business.

We used to take for granted that the American ground was so fertile and American capitalist climatological conditions were so favorable that almost any business crop planted was likely to flower. Today's failure rate for new businesses is one in three, and most failures occur in the first year of an enterprise; statistics like these could lead us to the belief that our economic soil has been depleted, compromised, or is at least in need of ever-more-powerful fertilizers, and that the economic weather seems suitable only for certain crops at certain seasons. So a central question for our future becomes whether the American dream of starting a business and becoming self-sufficient through it is not only still possible in the United States, but is also a reasonable expectation for new entrepreneurs. To begin examining the question of whether the American dream can still become a reality on a regular basis, one can look at the half-dozen locations around this block where, in the spring of 1993, something new is replacing something old. The back of one is the face of another, says an Irish proverb. Is there any other relationship between the two?

Sight on Seventh, scheduled to open May 15 on the east side of Seventh Avenue, is the brainchild of a former Long Island science teacher. Myron Michaels retains the studious and inquisitive air of the science classroom, leavened with ebullience and energy. Middle-aged, fleshy, with thinning hair, Michaels wears crisp shirts and, of course, very stylish eyewear. Before signing his lease, he recalls, "I went down to the Bureau of Records at City Hall and worked the computer, calling up demographic data, foot-traffic patterns, that sort of thing." The results of his research excited him: The residents in the area were for the most part middle class, relatively young, but with significant disposable income. To be just a few steps from Barneys, he believes, will mean many potential customers already primed to buy quality, stylish merchandise.

There is competition two blocks south, a branch of a four-unit chain called Myoptics, but Michaels considers it far enough away so as not to detract from his own business. His customer base, he believes, will come from the many apartment buildings and businesses around here. He reminds a listener that the American population is aging and that older people need eyewear and that younger people are also spending more money on eyewear, conceiving of it as a stylish clothing accessory.

Only time will tell whether Michaels's assumptions about his location and the population he can serve are right or wrong, but at the outset of his venture Michaels is upbeat and has a specific reason for optimism: He is on an approved-provider list of the Traveler's, the insurance company that covers many Nynex employees--and a Nynex facility is right across the street.

"You have to have certain minimum spatial requirements to properly measure how the patient reads the letter chart," says Michaels, bounding up to gesture at the dimensions. The smallness of his space has been an intriguing design problem. It's been a challenge to fit in the examining area for the optometrist who will come in one day a week, the display counters, the storage space for frames, and still have enough room so that customers won't feel crowded.

Optical work, with its emphasis on mathematics and precision and the principles of physics, appeals to Michaels. Also, he reasons that if he could deal with teenagers in the classroom, he should certainly be able to satisfy customers for eyewear. His first optical business was as part of an HMO on Long Island, but the organization failed. He then worked for an optician near Eighth Avenue and 23rd Street--as the crow flies, not far from here, but in a part of Chelsea where the clientele (and the merchandise in the shop) was less upscale. At that time, he had wanted his own shop but hadn't been ready. Then "this opportunity came up" in an area that he liked.

As with most entrepreneurs, Michaels is reluctant to divulge to an outsider the precise financial details of his tenancy or his capitalization, but he reports that he has signed a multiyear lease that he finds "comfortable." In New York, most commercial leases contain a clause that permits the renter to stop paying and vacate the space if the business fails, an important comfort to a start-up venture. Most storefronts in this area rent for around $75 per square foot per month, which would put his rent at hypothetical $3,000 per month. Rents have been creeping up, and in the process, changing business assumptions: Whereas in the past, businesses could figure that rent would cost them one-quarter of their gross income, now they must figure it at a third of their gross or more. The hypothetical $3,000-a-month rent will likely require that Michaels sell something like twenty pairs of glasses just to meet it, and twice again that many pairs per month in order to meet his other expenses, pay himself a modest salary, compensate his optometrist for coming in one day a week to conduct exams, and begin to amortize his start-up costs, which neighborhood observers estimate at between $35,000 and $75,000.

The start-up money, Michaels says, came from his own savings and from "people who believe in me"--investors, he points out, not partners. Very few small businesses begin with bank financing or investments from individuals who do not personally know the entrepreneur. But Michaels certainly appears to be a man on whom friends might reasonably bet: He has a business plan and is experienced at his craft, if not completely as an entrepreneur, and he has what is probably the correct philosophy (and budget to match), one that recognizes it will take time to build a client base and that for a while outgo will likely exceed income. Whether his shop will be different enough from the competitor down the avenue to be commercially viable, say, within the year, is a toss-up.

Directly across the avenue, another shop is due to open shortly, and from initial walks by it, it appears it will be a retail clothing store, like the previous two occupants, which sold funky retro clothes.

Recessions expose weaknesses in businesses that good times conceal. The dry cleaner found out that he had more space than he could sustain--a relatively minor weakness--but the women's clothing boutique on the west side of Seventh learned the consequences of a deeper flaw. It had aimed at the wrong sort of customers for this area of the city--a cardinal mistake. Didn't the shop owners have enough sense to recognize the mismatch between the neighborhood and their desired customers before opening up? Many observers of the blocks of this city and the Main Streets of the country have been chagrined to find that new entrepreneurs evidence an inordinate degree of blindness to history. You've seen it, too: People open restaurants in spaces where a string of previous eateries have gone bust or decide that a great place to sell shoes is the location where a hat shop, a foundation-garments shop, and a gloves-and-scarf shop have earlier failed, one after the other. When such new enterprises do not produce enough revenue to stay afloat, the proprietors are invariably puzzled as to why their good ideas are not being embraced by consumers, but they seldom admit their failure to take into account the site's history. Knowing the recent past of this particular site on Seventh, and in light of the knowledge that two clothing boutiques gave up the ghost right here, there is concern among neighborhood observers that a third boutique may be making the same mistake and will suffer a similar demise.

Walking past the site a week later, passersby see a floor-to-ceiling window that features a four-foot-high, black-and-white cartoon of a muscular male lifeguard carrying in his arms another equally muscular and widely grinning male. Within is a boutique not for the usual sort of men's clothing, but for skimpy, formfitting shorts, shirts, slacks.

Manager Tim Cass is an Australian-born architect in his late thirties with a crew cut, an open countenance, and the look of a man who takes very seriously his daily workout in a nearby gym. The shop he has helped design is mostly black, chrome, and mirrors--a sleek and minimal backdrop for the clothing. For the past several years Tim has been allied in a manufacturing enterprise with clothing designer Raymond Dragon. The Dragon line draws on Dragon's expertise with Lycra, a clingy fabric, Cass tells me, and is aimed "mostly at gay males." For the last four years, the Dragon company has been successfully manufacturing clothing and wholesaling it from a loft in midtown to twenty gay-owned and -operated boutiques around the country--and that, in the midst of a recession. Often, businesses that sail through recession feel so strong that they believe they can easily expand. A year ago Dragon determined that he would like to open a store that sold only his own merchandise. Instead of manufacturing a garment for $12.50 and selling it at wholesale for $25, Dragon will now be able to sell it at retail for $50, a markup of 300 percent.

That neither Tim nor Ray has ever before owned or managed a retail enterprise may not be much of a drawback to operating a store: On this block several other clothing boutique operators entered the business without retail experience. As for location, "We didn't want to be on Christopher Street"--in Greenwich Village, a half mile to the south--"because that's become too touristy." But they did want to be near a gay population center, which Chelsea is, although it has a preponderance of straight residents. They knew the history of the site, but because they were planning to appeal to a different clientele, it did not deter them.

This decision to pioneer rather than to locate in a known gay shopping area seems ingenuous or arrogant. Both qualities are underscored by Tim's tale of discussing the proposed location with Barneys. There have been persistent rumors that when Barneys opens its big uptown department store in the fall of 1994, the flagship location at 17th Street and Seventh Avenue will be downsized--an eventuality that would negatively influence the decision of any clothing boutique to move near the 17th Street store. Barneys executives, Tim reports, told the Raymond Dragon principals that any downsizing would be minimal, and the Dragon partners, believing them, decided to go ahead and open their boutique.

While optician Michaels is betting his life savings and that of his friends on his new shop--a considerable risk--the Raymond Dragon boutique is taking much less of a risk because it is bankrolled from the retained savings of its manufacturing business and the partners are continuing their main line of work while they try operating their own boutique. But Michaels can rely on the drawing power of the Armani and Calvin Klein names and frames he puts in his window, while the Dragon partners don't have big names to do the marketing and advertising for them. They must hope that their particular customers will act as most in-groups do when they make purchases--that is, pass information quickly within the group and patronize merchants known to be sympathetic to the group or to be members of it. Ray Dragon and Tim Cass will sell inexpensive "party clothes" that can be worn once and thrown away, and they hope customers will return often to buy outfits for specific occasions or purposes. To emphasize that notion, the partners plan to change their eye-catching, outrageous window displays every two to three weeks.

One optimistic theory about the future of the American economy, especially relevant to small business, is that this rich culture of ours is going to make possible more and more--and narrower and narrower--niches in which to position an enterprise. But successful niches have usually been defined much more broadly than that containing the relative handful of men who are gay, between the ages of eighteen and forty, and who can afford and who want to squeeze into formfitting "play" rags. If such a narrow-focused niche holder as the Raymond Dragon boutique can prevail where other, more generalized clothing stores have failed, it will be a powerful argument in support of the niche-holding theory of future enterprise.

There's a saw in the restaurant business that anyone who wants to do something other than what he or she is doing opens a dining establishment. That makes for lots of amateurs in the business and for results that are often disastrous. Fifty percent of the restaurants that open in New York shut within three to five years, a failure rate that is even higher than the basic failure rate for businesses. To run a restaurant entails a daily outflow of cash much greater than that of a clothing store, in which the stock is replenished only when items are sold and the owner is the mainstay of the staff. Moreover, restaurants also have to obtain licenses, pass inspections, and maintain considerably larger staffs. But if a restaurant becomes popular, it can generate profits in the hundreds or thousands of dollars a day, depending on its size. To obtain such intangibles as ingenuity of cuisine and atmosphere, customers of restaurants are used to paying substantial fees.

Behind windows covered by brown paper, in a small, garagelike building on Eighth Avenue, Pat Rogers and Bob Barbero are busily destroying their dream restaurant, Rogers & Barbero, and making way for a new one. About half of all new small businesses are begun by people whose previous small enterprises have not done well but who believe they've learned enough to do better the second time around.

A labor of love that encompassed everything the partners liked in a place to dine, R&B opened in the fall of 1983, when the area was in the first flush of gentrification. Rogers & Barbero was a brave outpost of haute cuisine among bars and delis catering to the working-class poor, a lushly appointed, candlelit, romantic hideaway serving classic French and Continental dishes and featuring a formidable wine list, as well as one of the first computer systems in a restaurant. An article in the New York Times then put the cost of construction and start-up at a quarter million dollars; ten years later, Bobby Barbero advises with a shrug that the tab was closer to a half million and included innumerable unpaid man-hours of the partners' own labor.

Theirs was an ingenuous gamble of considerable proportions, but the investment was rather rapidly amortized because, Barbero recalls, "We did very well, at first." He was then thirty, a wiry man who hoped to leave behind his work in real estate forever. Pat Rogers, the computer expert, was a bit older and beefier. Their restaurant drew a sizable dinner crowd, mostly couples: "Everyone ordered at least a bottle of wine." Lunchtime was profitable as well. R&B was close to 111 Eighth Avenue, a large office building that takes up the entire blockfront between 15th and 16th; and, Barbero remembers, "At least 30 percent of the lunch checks were paid for by a Cahners credit card." Their best year was 1987.

The stock-market crash of October 1987 wasn't nearly as devastating as 1929's, and so people beyond Wall Street tended to dismiss it. They hadn't understood the consequences, one of which was that by early 1988 even companies not directly connected with the securities industry were cutting back on discretionary expenses such as lunches at fine restaurants. That hurt R&B, as did the ensuing recession. Here, too, the downturn exposed a weakness: The restaurant was "too pricey for the neighborhood." But this understanding did not dawn on the partners immediately. In 1988-89, R&B still seemed to be riding the crest of a wave, the willingness of corporate managers to spend money on themselves; and so, at first, in reaction to the slowdown in business, the partners looked for an easy and inexpensive way out. Reasoning that the interior was too dark, "We lightened up the place, let the high ceilings take more focus, put in a big window, made the interior more inviting from the street." A few more customers came in because of the cosmetic surgery, but not enough.

Most of the problems renovation couldn't fix. For instance, wine rose considerably in price because of the declining purchasing power of the dollar in international markets, to the point where most restaurants, instead of doubling the wholesale price of a bottle, could only charge customers 60 to 70 percent more than they paid for the bottle or risk the wine being so expensive that diners wouldn't order any. Then, too, when a recession takes its toll on a small entrepreneurial business, Barbero explains, "You still have to pay your suppliers, your floor and kitchen help, your taxes, whatever; the last people to get paid are the owners." By 1992, to stay afloat, the R&B partners were spending most of their time working outside the business, Barbero as a real estate broker and Rogers as a consultant to a company that helps computerize restaurants. They continued to open R&B's doors every evening but knew they couldn't go on losing money much longer. Battlefields often produce survivors who stagger away from combat, apparently in one piece, only to later pitch over from the previously ignored effects of the struggle. In many ways, the Rogers & Barbero restaurant was this sort of casualty of the recession.

Should the partners simply admit defeat and fold their tent? That would waste their most valuable asset, the extensive renovations already made and paid for. But something had to be put in to replace the money-losing R&B. Ten years older than their first time out and "a lot more savvy about the restaurant business," Pat and Bob set about charting their new course. It was then that they acted on the realization that R&B was too pricey for the neighborhood. The final nudge in the precise direction they took, Barbero recalls, came from a friend who casually reported that he and the group of gay young men who had gone out to celebrate his twenty-fifth birthday would have done so at Rogers & Barbero, but it was too expensive. "I realized that young people like to go out several nights a week, and they have some money to spend, but they don't want to spend a lot all at once." This understanding led to agreement among the partners that whatever they did next, it would not be a "tablecloth" restaurant, and that the tab for dining must not be high. The cafe on the corner, called Eighteenth and Eighth, had recently been using such a formula with good results, and the most successful restaurant in the immediate area, Cola's--almost directly across the avenue from R&B--had also kept its prices relatively low.

Their hard-won experience now permitted Rogers and Barbero to translate their notion of a modest-priced place into a host of secondary decisions. Costs would be pared by having no table covers or linen napkins to launder and by not going overboard on renovations. Potential profits would be raised by junking the extensive wine list, which had been Rogers's joy, and selling mainly beer and margaritas, on which the markup was higher. The risk would be minimized by taking in a third partner as the chef, a man who had originally started as a salaried chef at R&B and had gone on to Cafe Luxembourg on the Upper West Side. His presence would trim Pat and Bob's potential profit but would also reduce the amount they would have to invest and the weekly salaries they would have to pay. All this would be done in order to price entrees at less than $10, even grilled tuna, for which other restaurants regularly charged $15 and up.

After proposing and rejecting hundreds of suggestions for a name, the partners chose one reflective of the new establishment's stripped-down style. Bob and Pat's first restaurant had been elegant and done for love; Food/Bar, designed strictly for business, would resemble "a nice diner." R&B closed on April 12, and the partners quickly dismantled the interior, brought in chrome and gray Formica tables and plain chairs; Food/Bar opened on April 26.

It was full the first night, and the flood of customers has hardly ebbed since then. At lunchtime Food/Bar draws its customers from the heterosexual population in the various office buildings nearby; in the evenings it becomes a young gay hangout.

The gay community that is the basis of two new enterprises, Food/Bar and Raymond Dragon's boutique, is only one of seven or eight distinct communities that have strong elements on this block. Theorists believe that successful enterprises are increasingly going to be those based within, or that have ties to, specific groupings. Clusters can be based on social factors or strictly economic ones. In this case the gay community and the number of schools create two clusters based on social factors. The "restaurant row" along Eighth Avenue, the printing-related companies in or near the 216 Building, and a cluster of bookstores are grouped along economic lines. An equally vibrant cluster is both social and economic: the one made up of blue-collar enterprises associated with the building trades. In the blocks adjacent to this one are wholesalers of electrical goods, roofing supplies, and tiles, and on this block proper are two plumbing supply depots and a lumber depot. It is within this last cluster, in the last-named enterprise, the lumber depot, that a particularly dramatic renewal is in process in the spring of 1993.

In December of 1992, the proprietor of Maxwell Lumber, Alan Bernstein, committed suicide on the eve of his sixtieth birthday. Notes that he left behind made clear that he had killed himself in order to ensure that his adopted son Marc would be able to purchase, renew, and continue the Maxwell Lumber business.

That rebirth almost did not take place; in the days after Alan's death, Maxwell Lumber was very nearly closed and shuttered. The tale of how it survived takes us into the block's past and into the often brutal interplay between large businesses and small ones. Maxwell Lumber inhabits a drab four-story building on the uptown side of West 18th. Unfinished doors, newel posts, moldings, Sheetrock board, and the like are piled around on the ground floor, as are displays of tools for use with wood. From a cockpit near the front, a clerk deals with customers who pull up their trucks. In an inner office, two women handle the telephones and other office chores. Marc Bernstein is a clean-shaven, freckle-faced man of about thirty, whose earnest look is almost belied by his attire, casual polo shirt and slacks. His office, slightly larger than a cubicle, is adorned with pictures of his adoptive father, Alan, who sports a large, bushy beard, and of Alan's father, Max. "My grandfather started the business in 1935," Marc says, pointing to a plaque on the wall that contains 84 [cts.] in coins and a paper-bag receipt that records Maxwell Lumber's first sale, fourteen board feet of pine. "Today, that amount of lumber would cost almost $50." For thirty years, Maxwell Lumber had three stores in Manhattan, two on 18th and another on 15th. Land values in Chelsea were relatively low then. In the early 1960s, thousands of small enterprises throughout the country moved out of center cities to near suburbs, where rents were lower; in 1963, the Bernsteins closed down two of their stores and opened a warehouse in Long Island City, across the East River, in a factory district. From there, the elder Bernsteins could service the building trades easily and still keep a single store in Manhattan.

"I started working here when I was nine," Marc recalls; that was shortly after Alan had married Marc's mother. "I used to sharpen pencils and take my father's shoes to be repaired." Although Alan had six children, three from the second marriage and three that he had adopted from his wife's first marriage, Marc was the only one that entered the business. He never entertained a thought of doing anything else. After he formally joined the firm in 1985, his father became his tutor, "a wonderful teacher who forced me to do every job here." To master any business, it helps to work through fat years and lean ones, and the late 1980s and early 1990s provided both. The company grew at more than 25 percent each year in the good years of Marc's apprenticeship, until it employed two-dozen people and had an annual gross in the millions of dollars. A fleet of a dozen Maxwell trucks left the warehouse every morning to make deliveries to various construction and renovation sites or to the offices of woodworking companies or department stores and hotels that had their own wood shops. Maxwell Lumber's specialty came to be clear molding, that is, molding without blemishes or knots, made from a single piece of lumber. "If you're going to paint, you can buy cheap molding made from small pieces glued together, since the paint will cover it," Marc explains, "but if you want to stain, you can't buy cheap molding because you want a continuous look to the wood." Marc and Alan bought raw lumber from all over the world and had it shipped to a clear-molding manufacturing mill in North Carolina, which shaped more than three hundred patterns for them to sell to their own customers.

In the fall of 1992, Marc and Alan were noting signs that the company's growth would soon resume. After seven years, Marc was still pleased to be working with Alan, "my best friend" and a tutor in far more than business, a man who started work at 6:00 A.M. each day, worked hard, and exuded an infectious enthusiasm for life.

Out of the blue, a letter arrived from their bank, the branch of Republic National Bank on 14th Street at Eighth Avenue. In the late 1980s the Bernsteins had taken out revolving lines of credit, known as notes on demand. Alan had been doing business with this particular bank branch for decades, since before it had been taken over by Republic. The letter came by regular mail and with no warning: It was a notice that Republic was calling their loan. "We couldn't believe this was happening, so we went to see the bank."

There were rumors that Republic had decided to get out of the small-business-loan game and was calling all loans in that category. The Bernsteins didn't know whether or not this was true; they only knew they were being asked to pay up--immediately.

Although they didn't know it--and would not have been able to act differently even if they had known it--the Bernsteins were on the wrong end of a whip that was being snapped by the bank in reaction to problems encountered by much larger borrowers. In the go-go days of the mid-1980s, banks all over the country had loaned billions to real estate developers; by the early 1990s, many multimillion-dollar loans were in trouble because of a decline in real estate prices throughout the country. New York was especially hard hit because it had been vastly overbuilt in the 1980s; the glut of space made real estate values decline precipitously. In turn, this caused banks to be overextended, especially on their loans to big borrowers, such as developers Donald Trump and Peter Kalikow. The banks had a problem with very big loans because the face amounts exceeded the capacity of borrowers to pay since the property assets pledged for the loans had declined so sharply in value. In the early 1990s it was really anybody's guess whether a big skyscraper in midtown Manhattan was worth the $1.2 billion that the developer had paid for it (with a bank loan of $960 million) or the $800 million he could obtain for it on the open market, since there were no customers for it at the higher price. The banks, unable to collect on their loans on big properties, had to swallow hard and wait for payment on those mortgages until the real estate market recovered. Foreclosure was usually not an option because the banks didn't want to operate the real estate, either. While the banks waited, however, they were under pressure to find money somewhere, and this pressure turned many of them in the direction of their smaller borrowers. The smaller borrowers' properties--warehouses, small loft buildings, mini-malls--were valued in smaller numbers of dollars, but these properties were also more likely to be salable because they were less costly. In fact, the values of the properties put up as collateral for these small loans were usually in excess of the loans' face amounts. So, all over the country, banks called in their small commercial property loans. That such actions could cause immense difficulties for borrowers like the Bernsteins--even to the point of shoving their commercial businesses out of existence--was shrugged off as an inevitable social cost of doing business.

Meet the Author

Tom Shachtman has written 25 books, including the acclaimed Around the Block and Skyscraper Dreams. He has also written documentary films and tapes, which have won many awards. He lives with his wife in New York City.

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