For 30 years San Francisco's Hale Bros., one of the city's oldest and biggest department stores, did business in a six-story Market Street building. For only ten years the J. C. Penney Co. has operated one of its 1,600 stores half a block down Market Street towards the Bay. Last week Hale's and Penney's were switching stores. But most San Franciscans were mystified about the reasons.
Behind the Hale-Penney swap was an object lesson: "How To Get On in the Real-Estate Business."
How Not To Do It. Hale Bros.' building was built on land leased from an estate (the rent: $90,000 a year), on a deal wherein the store would revert to the landowners, upon payment to Hale's of $350,000 when the lease ran out in 1944. Once Hale's almost bought the site for $1,500,000, but stalled for a better bargain. Then someone else snapped up the whole works: San Francisco's famed real-estate operator, Louis R. Lurie.
Dumpy, 55-year-old Louie Lurie made a fine bargain—even for him. He paid $1,525,000 for the land, took up the estate's debt to Hale's at its $350,000 face value and, as he puts it, "The building itself is worth a million dollars today."
Then he offered Hale Bros.: 1) a for-the-duration lease at their old rental, or 2) a 50-year lease at $106,000. Hale's management stalled again. The next thing they knew he had leased it out from under them to J. C. Penney for a cool minimum guarantee of $180,000 a year.
Hale Bros, found itself stuck. With San Francisco jammed with war work, it had to move into Penney's old quarters at a still higher rental ($120,000) than Lurie's top price to them. To add insult to injury, Penney's nondescript store site was hard by San Francisco's largest department store, The Emporium. Hale's only consolation: the hope (and expense) of building a brand-new store on another Market Street corner after the war.
How To Do It. The Hale-Penney operation was atypical Louie Lurie coup.
Lurie, born on Chicago's tough West Side, quit school in the third grade to sell papers, did so well with the brand-new Chicago American. ("Whatever the customer gave us, we'd take and run away") that Hearst had to run page-one notices calling attention to the paper's official 1¢ price. Then he drifted out to Vancouver, made and lost several small fortunes learning the real-estate business.
By the end of World War I Louie Lurie had settled in San Francisco. As he tells it now, his formula was beautifully simple: "I'd buy lots south of Market Street for $5,000, put up a $10,000 building and sell the deal for $18,000-$20,000." In that way he 1) put up 259 buildings, including a score of San Francisco's cinemas; 2) kept his own growing fortune strictly liquid. The Hale-Penney deal did nothing to harm his finances.