Affordable Housing Institute : US

“He was always just a couple jumps ahead of the law, but when the cops sometimes caught up with him, he always managed to blame it on some other guy.”

– Ross Thomas, Chinaman’s Chance, page 58

 

Are developers more credulous than other people? 

 

Ross Thomas: “They never took nobody who didn’t deserve it”

 

Ever since the bizarre story broke of the world’s biggest and longest-running Ponzi scheme, I’ve been agape at its audacity and searching for something to say.  Now I’ve found it, courtesy of a faith-chasm-leaping set of logical links from Christine Haughney of the New York Times:

 

Madoff Scandal Shaking Real Estate Industry

 

The real estate industry alone?  Or a lot of rich people in New York?

 

Almost no segment of New York City’s real estate industry [Or any other industry? – Ed.] was spared in the Madoff scandal, which may be history’s largest Ponzi scheme: commercial brokers large and small, little-known developers and prominent families like the Wilpons and Rechlers all lost money to Bernard L. Madoff, industry executives say.

 

The outsize impact on the industry may have resulted largely because Mr. Madoff (pronounced MAY-doff) –

 

Actually, it’s pronounced MADE-off, as in “made off with the money.”

 

– managed his funds much the way that real estate leaders have operated successfully for decades: He provided little information and demanded a lot of trust.

 

He made off with the money because due diligence as always being done by some other guy

 

That’s implausible to me, since the real estate people I do business with engage in extensive due diligence.  Indeed, my for-profit company is now conducting a complex and detailed due diligence investigation of a large acquisition. 

 

“You have a lot of wealthy people who made a lot of money on handshakes,” said Mark S. Weiss, a commercial real estate broker at Newmark Knight Frank, where several brokers had invested heavily with Mr. Madoff. There was “something about this person, pedigree and reputation that inspired trust,” he said.

 

In business, our working principle is that we listen to everything you tell us, and we believe it while you’re telling us, but then we immediately verify everything you said, and if we can’t verify it, we disbelieve it.

 

No offense, Jesus, but let me see your schedules

 

Yet the grand bluff – the big lie, as it’s sometimes called – can work, particularly among the very wealthy, for whom inquiry into backgrounds is gauche, or even worse, classless. 

 

Dr. Mueller said many patients were re-evaluating whether they can trust their business partners after Mr. Madoff’s betrayal.

 

“Madoff was considered a member of the family,” he said.

 

Neat, sweet, and … discreet

 

That’s how the self-styled Clark Rockefeller perpetuated his multi-decade con on the world, being someone he evidently was not.

 

It’s because we assume that someone who moves effortlessly, even arrogantly, within a rarefied universe must already have been vetted by some one of us. 

 

They met Mr. Madoff through contacts at country clubs in the tri-state area, he said.

“They knew him from golfing in the Hamptons. They knew him from the locker rooms,” Mr. Reisman said. “He was considered a wizard.”

 

Among the most wonderful characters invented by the incomparable Ross Thomas was Otherguy Overby, introduced in Chinaman’s Chance, who never took the rap – because it was always pinned on some other guy.

 

What ’s all but inconceivable to me is that all these savvy investors would have sat still for an ask-no-questions-tell-no-lies approach to due diligence.  What were they thinking?

 

The essence of business is conducting transactions with people whom one need not inherently trust.

 

It’s just business

 

Now many a real estate deal is going to come unwound:

 

Many developers had pledged their investments with Mr. Madoff as collateral for projects, and are now worried that their banks will call in their loans.

 

The bankers will.

 

The victims include executives at the global commercial brokerage CB Richard Ellis, most prominently Stephen Siegel, a major Bronx landlord who is chairman of worldwide operations at the brokerage and whose wife, Wendy, helped organize Saturday’s fund-raising dinner.

 

One who trusted and should not: Stephen Siegel

 

Brian S. Waterman, a principal at Newmark, also invested with Mr. Madoff.

 

Another victim: Waterman (at right)

 

Jerry Reisman, a lawyer based in Garden City, N.Y., said he was representing six commercial real estate investors and developers in the area who lost a total of $150 million to Mr. Madoff.  Mr. Reisman said his clients were especially concerned because they counted on Madoff investments to complete some of their real estate projects, pledging their investments as collateral for projects.

 

What were they thinking?  Was it all a suspension of healthy skepticism?

 

“Many of these developers, their resources are all with Madoff,” Mr. Reisman said.

There are widespread concerns that some developers will have trouble completing projects currently under construction. Edward Blumenfeld, who runs Blumenfeld Development Group, had invested heavily with Mr. Madoff and considered him a friend. Gary Lewi, a spokesman for Mr. Blumenfeld, said he still planned to complete a shopping complex in East Harlem that is to include a Target and a Costco, as well as several other projects where construction is “in the ground.”

 

Edward Blumenfeld, the developer of East River Plaza, above, invested heavily with Mr. Madoff and considered him a friend.

 

Other real estate developers are finding that their charitable giving has been wiped out by Mr. Madoff. Leonard Litwin, one of the city’s largest apartment landlords and head of Glenwood Management, had nearly all of his charitable foundation’s investments managed by Mr. Madoff.

 

I wonder if Mr. Madoff’s aura of wealth dulled their sensibilities.  Yet when I was selling a controlling interest in Recap to some British investors who are now my bosses, we did extensive due diligence on the buyers, just to satisfy ourselves as to who they were.  And we were the sellers, the ones receiving cash.

In any con game, the essential rule is watch who gives whom the money.

 

As beautifully expressed in David Mamet’s play and film, House of Games:

 

Mike: It’s called a confidence game. Why? Because you give me your confidence? No. Because I give you mine.

 

“It’s called a confidence game.”

 

Here Mr. Madoff made the fantastic transformation of becoming so accepted that everyone assumed that some other guy had done the diligence on him:

 

Gary Jacob, executive vice president of Glenwood, said Mr. Litwin had never met Mr. Madoff but had invested with him on the advice of a friend.  

 

My ‘friend’ did the due diligence ..

 

All right, who did the due diligence!?!?

 

Some members of the real estate industry are receiving the news with a mix of schadenfreude and sadness for their peers. Jeffrey R. Gural, chairman of Newmark Knight Frank, the brokerage firm, said Mr. Madoff had turned his family down as investors about eight years ago because they would not invest at least $20 million. For years, he said, colleagues introduced to Mr. Madoff through relatives or country club friends had sung his praises.

 

There is the con man’s genius – you’re too small, you’re not worth my trouble.

 

Dr. Margaret Ford: You took my money.
Mike: How naughty of me.

 

“You took me under false pretenses.”

“Well, that’s just what happened, isn’t it?”

 

Those on the inside became Mr. Madoff’s best salesmen, doing his next marks’ diligence for them:

 

“People used to brag how they were getting these great returns when everybody else was struggling,” he said. “They thought Bernie Madoff was a genius, and anybody who didn’t give them their money was a fool.”

 

A reputation for genius has its uses – you can bluster and people interpret it as part of your charm.

 

Maybe you’re good enough to let me take your money

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