Joseph P. Kennedy: Lessons Good And Bad From A Master Real Estate Investor
BATTLECALL GUEST EXPERT: Robert J. Abalos, Esq.,
InvestingInLand.com
As I have written on previous occasions on this website much can be
learned about real estate investing from studying the careers of successful
investors and developers from the past. One such example is John Jacob Astor,
probably the greatest real estate investor in history.
Another such example is Joseph P. Kennedy. Although Joe is mostly known these
days for being the father of President John F. Kennedy and U.S. Senators Robert
and Teddy Kennedy, he was a self-made man who amassed huge real estate holdings
as well as other corporate interests, making the Kennedy family one of the
richest in America.
Study But Do Not Copy
Notice above I said much can be learned from "studying" the careers of famous
real estate investors and developers.
I did not say copy their careers or follow their examples.
William Zeckendorf was one of the greatest real estate developers in history.
If you followed his advice and copied his career you'd wind up just like he did.
Broke, bankrupt, disgraced, and emotionally devastated. You can study his genius
without copying his faults.
The same is true of Joseph P. Kennedy.
Joe was a product of his times and should be judged by them, not ours. He was
a strong anti-Semite, perhaps as a result of the harsh anti-Irish and
anti-Catholic prejudice that was heaped upon him his whole life. Nevertheless,
his statements about Jews today are insulting and downright ignorant.
The same logic is true of many of the stock market methods he used to build
his fortune. Joe was a master of the "stock pool" a now very illegal method of
market manipulation where the insiders with information drove up stock prices
while the outsiders (in other words, average investors) bought high and
eventually were forced to sell at huge losses. Today the strategy is outrageous
to contemplate because it is so illegal. But in the 1920s, back before Joe
himself became head of the SEC and outlawed it, stock pools were not only legal
but common.
No one is going to praise Joe Kennedy as a saint or even a man that should be
respected in every way just because he created a large fortune and gave away
lots of money to charity. Joe was NOT a nice man. He was a notorious adulterer
who carried on with a long list of women, including actress Gloria Swanson and
even his own Hyannis Port secretary, and cruelly flaunted his infidelity in
front of his wife and children. (Swanson and Joe's wife and children would dine
together.) Joe arranged for his daughter, Rosemary Kennedy, to be given a
lobotomy in the fall of 1941 without even consulting his wife, the child's
mother, Rose Kennedy.
The then highly controversial and experimental treatment left Rosemary, who
had been suffering from what is now regarded as a case of clinical depression, a
woman with the emotional development of a two-year-old child, one who could not
wash or dress herself, not even put on her own pair of shoes. Joe paid off
politicians and newspapermen, especially to endorse his son Jack for president
and also cover up family dirt, like Jack's notorious infidelity and Teddy's
expulsion from Harvard College for cheating. Joe openly did business with
gangsters and bootleggers during Prohibition, whether his ventures were legal or
not isn't really the issue. Notorious gang boss and murderer Frank Costello
considered Joe his friend and business partner.
Nevertheless, Joseph P. Kennedy built an empire estimated at more than $500
million at the time of his death starting almost from scratch. We want to learn
what made him a superior investor, not just what made him a failure as a husband
or father.
Lesson #1: Always Be Ambitious Despite Your Circumstance
Despite common legend, Joseph Patrick Kennedy was not born rich.
Joe was born on September 6, 1888 in Boston, Massachusetts, the son of a
prominent Irish political boss and moderately successful businessman. Joe's
father, Patrick Joseph ("P.J.") Kennedy, was a delegate to the Democratic
National Convention that helped nominate Grover Cleveland for President, and was
elected to the Massachusetts Senate. But it was in local Boston City politics
where P.J. soared, working in a variety of government positions (such as acting
fire commissioner) where he participated in what was then known as "legal graft"
or a type of spoils system where the rich got the city contracts they needed to
prosper, the poor got handouts at Christmas and when they needed them, and the
politicians got rich playing both sides against the middle and robbing everyone
in sight. One of Joe's earliest memories of his father was the day a pair of old
ward heelers visited the family home on Election Day and reported to P.J. that
the two of them had voted 128 times so far that morning. When P.J. died in 1929
he was worth more than $100,000 or $845,000 in today's money. Not exactly rich
but not poor either.
From the very start, young Joe was obsessed with making money. He held a
number of jobs as a young boy, from selling newspapers to sailors to peddling
peanuts and candy on the Cunard Line docks to passengers. He was always figuring
out ways to make money fast. He sold pigeons he captured on Boston Common to
local poultry stores. He had his friends sell soap all over East Boston to win a
bookcase a local company was giving away as a contest prize. Of course he
removed all the contest coupons from the soap containers before actually selling
the soap. He did win the contest. Probably Joe's earliest monetary triumph was
organizing a local baseball team called the Assumptions, for Our Lady of
Assumption Church on Sumner Street in Boston, not so the children could play
ball but so he could sell tickets to the games and food to those who filled the
stands.
Although Joe was a genius at making money, he was an awful student in school.
His grades were consistently lousy no matter how hard he studied. He was a poor
student at Boston Latin, his high school. In his senior year he earned a C in
Greek, a D+ in algebra, and D's in elementary Latin, history, and geometry. He
failed physics, French, and advanced Latin. But he was class president and a
baseball hero with a .580 batting average and very popular with the other
kids.
Despite these grades, he was accepted to Harvard College.
He didn't do much better there. For all of his four years in college he was a
solid C to D student. But he joined all the right clubs and was again very
popular on campus, including membership in the famous Hasty Pudding Club where
Joe dressed up as a ten-year-old girl for his initiation and sang "Oh, You
Beautiful Doll." He also supplied liquor to his friends, very expensive Haig
& Haig Pinch Bottle Scotch that still today sells for $300 a case. Like his
father, Joe never drank but gained favors by supplying free booze to others. (He
continued the practice into adult life, sending cases of scotch to President
Franklin D. Roosevelt and New York Times Washington Bureau Chief Arthur
Krock.)
While at Harvard, Joe dated a large number of women. People say he meant to
project power and prestige by always associating himself with the most beautiful
women around campus in the largest numbers. One of those women was Rose
Elizabeth Fitzgerald, a beautiful girl he had known since he was seven and she
was five. Whether Joe ever truly loved Rose is a question of the ages, for he
never was faithful to her. But after graduation from Harvard, Joe went into
banking and on January 20, 1914 he was elected President of the Columbia Trust
Bank. At age 25, he was the youngest bank president in the United States. A week
after his election, Boston Mayor Thomas "Honey Fitz" Fitzgerald appointed Joe
president of the Collateral Loan Company, a city-owned pawn shop that supposedly
lent money to the poor but in actually was a major source of graft.
Six months later, on June 1, 1914, Joe announced his engagement to Rose
Fitzgerald, the daughter of the Mayor of Boston.
From the start, Joe was ambitious like any good investor, setting his goals
very high and always working hard to exceed even those lofty targets. A poor
student, he nevertheless got into the best school in the country by playing to
his strengths, his social skills and athletics. In a time where anti-Irish
prejudice was rampant and bound to hold him back in ultra-WASPy Brahmin Boston,
he bought influence with free liquor and even by marriage. Not born into money,
he mingled freely with those who had been. He did not let his personal
weaknesses cripple his future, he worked around his flaws and pushed them to the
side.
Lesson #2: Concentrate on the Fundamentals
Joe attributed his success as an investor to his early years as a bank
executive. First, he learned how to read balance sheets and financial
statements, evaluate cash flows, value company assets, and make credit risks on
customers. This was a skill he used all his life. Joe made investment decisions
based on hard intrinsic value calculations and not on market sentiments or
current prices.
But Joe also learned the value of inside information, something he traded on
the rest of his life. Joe learned through his bank connections which companies
needed cash and those that were cash-rich. He prided himself on his extensive
network of contacts and information providers. The more knowledge he had about a
target property or company, the more accurately he could evaluate the numbers he
was given.
A classic example of Joe's use of fundamental data and inside information was
his acquisition of the Columbia Trust Company in 1914. When Joe, still a lowly
bank examiner working in his first job out of Harvard, learned that the First
Ward Bank was planning a takeover of Columbia, a bank where his father was a
minority shareholder, he borrowed $45,000 from family members to obtain control
of the bank himself. Of course, this explains why Joe was the youngest bank
president in the United States. He controlled the bank and appointed himself to
the job.
A funny example of Joe's fondness for inside information was when he took his
first trip to Europe by ship with a couple friends from Harvard. Learning from a
purser that the ship's first-class imperial suite was empty on the trip, Joe
paid the purser $100 a day to lease it to them under the table. They traveled to
Europe in the best suite on the ship for just $33 a day more than a second-class
room cost.
Lesson #3: Only Buy Distressed Assets
Joe was a master of buying distressed assets, such as real estate in
foreclosure, corporations under siege from the market or unruly shareholders, or
other forced sale situations. There is no riskier and less ineffective way of
building wealth than buying an asset at full price and hoping marketwide
appreciation over time will make you money. Most often it does not, or at best
means you earn nothing more than what the market gives you each year in price
rises and falls. Think of how a stock market index fund works here.
While still a bank examiner, Joe got into the real estate foreclosure
business. Along with some partners, he bought a company called Old Colony Realty
Associates, Inc., an old investment firm in Boston that Joe converted into one
that bought real estate in foreclosure and other forms of defaulted real estate
paper. Today we would call Joe's firm a "preforeclosure outfit." Old Colony
would acquire single family homes and other properties in foreclosure, paint
them and otherwise fix them up, and sell them for huge profits. The company also
bought land and developed homes for quick resale, always using large amounts of
leverage to do both. Old Colony was a major success for Joe. When the company
was dissolved three years later in 1917, Joe's initial investment of $1,000 had
grown into $25,000.
Joe was attracted to making investments in the film industry for two reasons.
Beautiful women and a shakeout in the industry that left many distressed
companies searching for cash. Unlike today, the film industry in the 1920s was
not centered in Hollywood but spread out all across the United States with
dozens of studios turning out feature films for distribution to movie houses.
One such company was Film Booking Office of America Inc. ("FBO"), the producer
of cheap Westerns starring among others Tom Mix. When its parent company,
Robertson-Cole Pictures Corporation, Inc., found itself in the middle of a
credit squeeze and desperate for cash, it turned to Joe for help as a "financial
advisor." FBO agreed to pay Joe a $75,000 commission if he could arrange a sale
of FBO for $1.5 million. He also earned an "advisor's fee" of $4,500 a
month.
But instead of selling FBO to a third party, Joe put together a syndicate of
investors to buy the company himself, guaranteeing himself a controlling stake
in FBO. He then moved himself to Hollywood (leaving Rose and the children back
East), arriving in Los Angeles in March 1926.
Since Joe now owned a movie production studio, he needed a theater chain to
distribute his films. He targeted another distressed company, the
Keith-Albee-Orpheum Theaters Corporation ("KAO"), a chain of more than seven
hundred theaters across the United States. Joe eventually forced out Edward
Albee, the founder of KAO, and on May 10, 1928 took possession of his new
acquisition.
Joe began to radically slash expenses and costs at FBO and KAO. Soon another
distressed film production company, Pathe Exchange Inc., fell under Joe's
control when he became chairman of the company. Of course all the corporate cost
cutting did not apply to Joe himself. He was paid $500,000 in "consulting" fees
for his work with Pathe and also took a salary of $100,000 a year from FBO, KAO,
and also Pathe too.
Joe was far from done. In October 1928 he made $2 million by arranging the
merger of FBO and KAO into Radio-Keith-Orpheum ("RKO"). Joe then engaged in a
bitter war with famous theater owner Alexander Pantages (buider of the Pantages
Theater that still stands at the corner of Hollywood and Vine in Los Angeles)
over his sixty-three theater chain. In this case, Pantages had a profitable
company but Joe's efforts in restricting films to his theaters caused this
company's distress. In addition, Pantages was hit with a false rape accusation.
Although he was acquitted at his second trial, his reputation was already
destroyed.
Joe's first offer to buy Pantages' company was $8 million. Within months
Pantages was forced to sell to Joe's RKO for just $3.5 million. It should be
noted that on her deathbed two years after the rape trial, Eunice Pringle, the
girl that had accused Pantages of rape, confessed to her mother that a friend of
Joe's had set up Pantages for a $10,000 payment she never received. The
seventeen year old girl died of unknown causes. No autopsy was ever performed.
Her mother suspected cyanide poisoning due to her daughter never having been ill
a day in her life prior to her death, her violent illness, and the red color of
her skin. She also noted the curious timing of her daughter's death, just days
after meeting with her lawyer saying she wanted to "name names" on the Pantages
incident and newspaper headlines reporting the same.
All told Joe made more than $5 million in the movie business in less than
three years, merging one distressed company into another.
Joe bought huge tracts of land and other real estate in Florida after a wave
of mortgage defaults and a series of hurricanes in the fall of 1926 devastated
the area. The real estate bubble that had driven prices straight upwards for
nearly fifteen years burst and Joe arrived to pick up bargains everywhere he
could find them. When the hurricanes made matters worse, Joe poured cash into
the area bragging he could write a $5 million check for properties anytime he
wanted. The famous Palm Beach Kennedy compound (notorious during the William
Kennedy Smith rape trial) was purchased by Joe in 1933 on one of his Florida
real estate bargain hunts.
If it was a distressed asset selling below intrinsic value, Joe bought it.
While he is primarily known as a stock operator who would partner up with
everyone from the respected Bernard Baruch to the notorious Bernard E. "Sell 'em
Ben" Smith to make fast cash on trades, Joe did buy many shares for investment
purposes. Probably Joe's worst investment mistake occurred in the early 1950s
when Charles "Tex" Thornton, founder of Litton Industries Inc which would
eventually become the conglomerate LTV in the 1960s, approached Joe for an
investment. Litton was in some financial trouble and needed an immediate cash
investment. Thornton told Joe that for a mere $250,000 he could buy control of
Litton. Joe refused since Litton did 90% of its business with the Federal
government and Joe wanted to avoid any conflict of interest with his son Jack
already a rising star in Washington. When Litton went public in 1954, Joe's
stake would have been worth millions. By the end of the 1960s, it would have
been worth hundreds of millions.
If Joe found out a company was in distress and he wanted it, he would figure
out a way to capitalize on that turmoil. There is nothing wrong with
profiting from the misfortune of others so long as they understand what your
motives truly are when dealing with them and obviously you are not the proximate
cause of their distress but a solution they desperately need.
Lesson #4: Be Careful Who Your Partners Are
Much of Joe's reputation today as an investor is sullied by the company he
kept as a business leader and a politician. He did business with gangsters in
the liquor business during Prohibition, sleazy stock market operators during the
1920s, and slimy yes-men in Hollywood. But probably what left most of his
reputation in tatters was his endorsement of anti-Semitic and pro-Nazi views
during the 1930s, especially after his appointment by President Franklin D.
Roosevelt in 1938 as Ambassador to Great Britain.
Although Joe was not a big reader of books, he admired the writings of Brooks
Adams, a leading proponent on racial purity and anti-Democratic views during the
1930s. His memoranda to President Roosevelt while Ambassador to the Court of St.
James contained numerous references to Adams' ideas and works, so many so that
Henry Morgenthau, Roosevelt's Treasury Secretary, found Joe's memos "absurd" and
"typically asinine." Adolf Berle, a career diplomat in the State Department at
the time, described Joe as "innocent as a babe unborn" and said "Joe's mind is
as blank as unmarked paper." Joe's support of British Prime Minister Neville
Chamberlain and his subsequent doom-and-gloom attitude towards the war against
Hitler convinced Clare Boothe Luce Joe was "crazy." Joe predicted in a memo to
Roosevelt that England would be "gone as a nation" by the end of July 1940. In
other he suggested "the British haven't a chance in the long run." Many of his
contemporaries believed Joe wanted the Nazis to win because they hated the Jews
more than everyone else.
Occasionally Joe's anti-Semitic views became fanatical such as when he urged
his son Jack to incorporate anti-Jewish appeals into his political campaign.
To tame the harsh criticism he received from Jewish groups, Joe decided to
buy himself a Jewish newspaper reporter who in exchange for free trips to his
Florida estate and regular cases of Haig & Haig scotch would blame Joe's
anti-Semitic reputation on critics "motivated by jealousy" and "opinions fueled
by misunderstandings." Arthur Krock, an influential columnist with The New York
Times, defended Joe on many occasions in print against charges of anti-Semitism.
On one occasion when Joe was offended by what Krock wrote about him, Joe offered
to buy Krock a brand new automobile to change his thinking on a particular
subject. Krock refused the offer. Years later, Krock would call Joe "amoral"
saying "Only a Roman Catholic like Joe could be amoral and still be
religious."
Probably Joe's poorest choice in companionship came about in 1938 when he
allied himself with Lady Nancy Astor and the Cliveden Set, a group of
influential British politicians, members of Parliament, and other aristocrats
known for their anti-Semitism and sympathy for Hitler's aims for Germany. Lady
Astor was a dreary looking woman who was known for stating her views on
appeasement with such rudeness and vile than Winston Churchill publicly called
her a "bitch." Nevertheless, Joe attended a meeting at Lady Astor's home on May
5, 1938 where he met famous flyer Charles A. Lindbergh, then leader of the
pro-Nazi Keep America Out of War movement. Lindbergh was a favorite of Hitler,
personally touring Germany's air force and flying facilities at the Fuhrer's
invitation. Lindbergh called Hitler "a great man" who had "done much for the
German people." He also said "it was the American Jews who were among the
principal war agitators." Hitler awarded Lindbergh the Service Cross of the
Order of the German Eagle with the Star, the second highest of all German
military decorations. Lindbergh's personal friend Harold Nicolson said that
Lindbergh "believes in the Nazi theology" and "hated democracy as represented by
the free press." President Roosevelt himself believed Lindbergh was a Nazi.
Despite being the highest ranking U.S. government official in England, Joe
took up Lindbergh's message hook, line, and sinker. On June 13, 1938, he went to
the German embassy in London for a meeting with Herbert von Dirksen, the German
ambassador, describing Hitler's government as having "done great things for the
German people." The Germans were "satisfied" and "enjoyed good living
conditions." A report that food was being hoarded for military use while
civilians starved was discounted by Joe, saying "the professor who made the
report was a Jew." Dirksen recounted that, in Joe's view, the problem was "not
that the Germans wanted to get rid of the Jews but rather the loud clamor with
which we (Germany) accompanied this purpose." Dirksen reported that Joe, the
U.S. Ambassador to Great Britain and not just a private citizen, understood Nazi
Jewish policy completely because "he was from Boston and there, in one golf
club, and in other clubs, no Jews had been admitted for the past fifty years."
Joe told Dirksen to discount American press reports against Germany and Hitler
because "the United States had only 3.5 million Jews with the overwhelming
majority of them living on the East Coast where the formation of public opinion
was predominant and therefore strongly influenced by the Jews." Joe even went
further, saying that the United States and Nazi Germany had much in common since
"during the first two years of the Roosevelt Administration the U.S. had been
governed in an authoritarian manner" and that countries with autocratic and
fascist governments could maintain friendly relations with democracies.
Dirksen was so stunned and surprised by Joe's political views he invited Joe
to meet Hitler for himself. Three weeks later, Joe reported back to Dirksen that
his superiors at the State Department had vetoed any trip to Berlin to visit
Hitler, although Joe still hoped to make the trip if some other non-governmental
mission could be arranged.
Joseph Kennedy and Adolf Hitler never did meet. After a very angry meeting
with President Roosevelt at his Hyde Park, New York estate, Joe was asked to
resign as U.S. Ambassador to Great Britain and submitted his resignation on
December 1, 1940. Roosevelt screamed after the meeting:
"I never want to see that son-of-a-bitch again as long as I live.
Take his resignation and get him out of here."
Eleanor Roosevelt often said that her husband could not stand to hear the
name Joseph Kennedy in her presence. The situation was made even worse when it
was learned by Harry Hopkins, Roosevelt's most trusted aide, that Joe had sold
Czech securities and made $500,000 in profits while U.S. Ambassador. He
apparently traded on top secret intelligence information that the Germans were
going to invade Czechoslovakia and when they did the Czech stock market
collapsed and Joe covered his shorts.
As an investor, you are only as good as your reputation and my Investing in
Land Home Study Course makes this point clear again and again. Closely
investigate EVERYONE you do business with and why they want to do business with
you. Joe never really heeded this advice. Many people did business with Joe out
of necessity or fear, nothing more. Even in his day for all his great wealth and
influence, he was disliked and ridiculed. Today he is mostly remembered for his
transparent schemes for making money, bribing critics, and blatant
anti-Semitism. It is a shame his downright shameful associations ruined the
reputation history has given truly one of America's most successful and
innovative investors.
Lesson #5: Always Use The Most Leverage Possible
Joe always used the most borrowed money possible in his deals. Leverage was
his friend. In fact, he traded away most of the equity in his deals in return
for maintaining control over them. In other words, he would rather control a
deal with a minority equity position acquired with next to no capital than buy a
controlling interest with his own money and retain most of the equity
himself.
One example of this leverage/control formula was Joe's 1933 anonymous
acquisition (through a straw man named Edward E. Moore, Esq.) of Redmond and
Company, a stock brokerage firm that organized stock pools to manipulate share
prices. One pool was created to buy stock in a company called Libbey-Owens-Ford
Glass Company because its name was very familiar with Owens-Illinois Glass
Company. Owens-Illinois made glass bottles and on the eve of the repeal of
Prohibition, the company looked like a wise investment. On the other hand, Joe's
target company, Libbey-Owens-Ford, manufactured plate glass windows.
After Joe's new company arranged the stock pool and began to manipulate the
stock price through churning stock trades among members, the share price of
Libbey-Ownens-Ford rose from $20 to $37 in four months. The syndicate earned a
profit of $395,283. Joe's individual profit was $60,807. His initial investment
was just $12,000. He earned a 507% return on his money in sixteen weeks even
though he only was entitled to 15% of the overall profit.
Joe cultivated credit lines and other ways of borrowing money everywhere he
went. He borrowed money from company suppliers, friends, business associates,
even his own relatives. His first major acquisition, the Columbia Trust Company
which made him the youngest bank president in the United States, was funded by
his own family. His acquisition of film company FBO was in part funded by his
father-in-law, "Honey Fitz" Fitzgerald. Joe understood that only by using high
amounts of leverage can you generate the sufficient returns-on-equity you need
to build wealth fast.
A classic Joe Kennedy real estate deal illustrates his awesome use of
leverage. In 1943, Joe bought an apartment building at 616 Sixth Avenue in New
York for $1 million, using $200,000 of borrowed money as a down payment. Three
years later the building was sold for $1.5 million.
Lesson #6: Keep Your Assets Liquid
Although Joe had plenty of assets and equity, he preferred to borrow other
people's money to do his deals. That said, he often used his powerful ability to
get cash quickly to his advantage. In an era where $5,000 was an annual wage for
a factory worker, Joe often boasted about maintaining "instant" access to $5
million in cash anytime he wanted it.
Since Joe dealt with distressed businesses and their troubled owners, this
instant access to cash gave him immediate influence over what he wanted. James
Landis, one of Joe's closest business advisors, often heard Joe brag about his
ability to write a check for $5 million whenever he wanted the money. Landis
claims this awesome liquidity allowed Joe to borrow other funds at rates below
his competitors. In one example, Joe bought a building for $2 million borrowing
$1.8 million at 4%, two points below the average mortgage rate of the time. This
building earned a 6% ROI, meaning Joe earned $48,000 a year (after debt service
and all operating expenses) on an investment of just $200,000 or a 24% ROE.
The only financial advice Joe ever gave his friends was to "keep liquid."
Igor Cassini, a real estate friend of Joe's, said Joe was obsessed with "keeping
cash" and told everyone it was his "key to wealth."
Liquidity and cash flow are the cornerstones of real wealth. Owning real
estate or other equity ("dead equity") is not. Joe understood that by keeping
cash near you preserved the ability to pounce on great investment opportunities
whenever they presented themselves.
Lesson #7: Buy Real Estate to Preserve Wealth, Not Grow It
Joe primarily made his fortune in the stock market and by owning a wide
variety of businesses from shipyards to movie companies to banks and brokerage
firms. And while he dabbled in real estate his whole professional life, he did
not begin a serious career as a real estate investor until after 1940 when he
resigned his Ambassadorship under pressure and left public service for good. For
the rest of his life, Joe became a dedicated real estate investor and one of the
best of his time. He understood that real estate, because it is so capital
intensive, is a great investment vehicle to PERPETUATE wealth and not so good an
investment choice to CREATE wealth. By his 55th birthday in 1943 Joe had more
money than he could ever spend. He needed to protect and nurture his wealth, not
grow it so fast anymore.
It was in 1945 that Joe made the largest and most lucrative real estate
investment of his career, his purchase of the Chicago Merchandise Mart which to
this day is still the cornerstone of the Kennedy family fortune.
The huge limestone building on the Chicago River was built by Marshall Field
& Company for $3.5 million in 1930. It was the world's largest building at
the time, containing four million square feet of floor space and a twenty-five
story office tower. Over time the building became a financial drag for the
retail company and they desperately wanted to unload the property to someone
quickly.
The building was valued on the company's books for $21 million. Joe bought
the building in July 1945 for just $12,956,516 of which a full $12.5 million was
borrowed from the Equitable Life Assurance Society of the United States. (His
down payment of just $456,516 is just 3.5%. Talk about leverage!)
Joe was just beginning his financial journey with this property. Four years
later he took a new loan out on the building for $17 million from the Prudential
Insurance Company of America, giving him over $4 million in profits to invest
elsewhere. He then sold a quarter of the building to the Joseph P. Kennedy Jr.
Foundation, a charitable trust, for tax purposes which saved him more money. Joe
evicted all the low paying tenants, mostly government agencies, over time and
brought in higher paying ones, further boosting cash flow and property values.
When the time came to install air conditioning, something quite rare in a
building of this type at the time, Joe assessed each tenant with a lease for the
cost. Eventually the Mart became Chicago's premier home furnishings marketplace
where wholesale companies would display their latest and upcoming sales lines
for retail buyers.
In 1961, Joe asked Andre Meyer, the legendary financier with Lazard Freres,
to do an audit of the Kennedy family holdings. Meyer placed a value on the
Chicago Merchandise Mart of $150 million. He also suggested Joe construct a
building to attract apparel tenants on the site, much like home furnishing
companies used the Mart. Joe built the Chicago Apparel Center for $70 million,
preempting an idea that other rival Chicago developers had for the city.
Today, both buildings are worth in excess of $1 billion and the company which
runs both sites has expanded all across the United States.
Joe was very happy with his purchase, although his anti-Semitism again did
spill out. He claimed that "usually the Jews take all the good deals like this
and this one they didn't get" never mentioning that Joe stole the Mart from
rival real estate investor James T. Lee (not a Jew) who mentioned he was buying
the Mart to Joe only to have the deal stolen away from him.
Buy-and-hold real estate builds wealth slowly but surely over time but NOT at
the rates you need to become wealthy. Only a strategy of buy-improve-and-flip
can generate the wealth generating rates you need to go from poor to rich in a
single lifetime. Buy-and-hold works if you are rich and want to be richer. It's
a great plan for someone like Joe. But if you are living paycheck-to-paycheck or
just comfortably in the Middle Class, you'll never get really rich buying
properties and hanging on for a lifetime.
Galen Stone, one of Joe's first and important mentors in stock market trading
who Joe later double-crossed, told Joe a simple lesson:
"Whatever money I have made has been in staying in property and
not regarding fluctuations."
Once rich like Galen Stone, who got a tax bill under the newly created
federal income tax in 1919 for $1.5 million, Joe followed the same advice but
only after he got as rich as Stone was when he gave him the advice.
Lesson #8: Money Does Not Buy Happiness
Despite all Joe's tremendous wealth, he never was a happy man or enjoyed his
prosperity. He had all the trappings of wealth, huge estates on Cape Cod and in
Florida, homes in New York and Los Angeles, large numbers of companies,
extensive real estate and stock holdings, and much more, but none of this ever
seemed to make him satisfied. He was always driven by an unbridled ambition to
make more money, then to achieve greatness at all costs. Once his own political
ambitions were destroyed by his failure as U.S. Ambassador to Great Britain and
the American entry into World War II, he was determined to see his children
succeed where he did not.
But first there was more tragedy.
Two of his children were killed during World War II. His eldest son, Joe Jr.,
was killed in a bombing raid over Germany. His eldest daughter, Kathleen, who
Joe had disowned because she married a Protestant, died in a plane crash. Around
this time, Joe had his daughter Rosemary lobotomized and forever lived with the
guilt of destroying his child's mind.
His son Jack did become a U.S. Senator and then President of the United
States in 1960. Joe's millions definitely won the election for his son, one of
the closest in American history. But shortly thereafter at the age of 73, he
began having a series of mild strokes that left him unable to work and
semi-paralyzed. It was in this disabled and crippled condition that he was told
about the assassination of his son Jack, the murder of his son Robert, and the
drowning of Mary Jo Kopechne on Chappaquidick Island that forever doomed the
presidential aspirations of his last remaining son Teddy.
Joe died soon after the Chappaquidick incident at the age of 81. At his death
on November 18, 1969, he was eulogized as a great man who formed a political
dynasty and financial empire.
But quickly Joe's mean streak was visible, even from the grave. At a time
where his fortune was estimated at more than $500 million, he gave only $25,000
each to his two sisters, Loretta and Margaret, who each adored Joe. He led them
both to believe they would be taken care of under his will. But then again Joe
always had a mean streak. He refused to attend his own father's funeral. He was
in Hollywood on business and while the rest of his family and a good portion of
Boston society laid P.J. Kennedy to rest, Joe was closing the deal on RKO. Joe's
logic was simple. He told a friend "I couldn't leave for two days to head back
East. The Jews would rob me blind."
Money isn't everything and it can't buy you happiness. Wealth doesn't always
mean financial prosperity. Sometimes it can mean doing something that just plain
makes you happy, like preserving a green field or a historic site or giving a
family that really needs a home a good one. I've done all three and
professionally I have never been prouder of myself or more satisfied.
Joseph Patrick Kennedy was a complex man who built a financial empire. His
methods and tactics, for better or worse, deserve to be studied for the lessons
they provide. But he is also an example to those who worship money, power, and
prestige above all else. His family, his wife Rose, their sons and daughters,
and even Joe paid too high a price for all that real estate.
Got an opinion? We want to hear from you. Post your thoughts or comments here in our Mortgage Warrior Forum. Come join the conversation and say hello...onward mortgage warrior!
| 
Join Now Warriors Wanted
