AS legend has it, John D. Rockefeller, who turned an oil monopoly into one of the first great American family fortunes, used to give a way shiny new dimes in the depths of the Depression to those he p assed on the street. Some of his heirs may now be wishing that the p atriarch were still around to toss a little spare change their way.
No, the Rockefellers aren’t running out of money. But their wealth is beginning to look just a little bit less awesome as more and more relatives line up to dip into the family kitty. In 1937, John D. Rockefeller left his vast riches to a single son, John D. Rockefeller Jr., who in turn divided the fortune among his six children. Now the great pie is being sliced again -this time among 23 heirs, who themselves will have to provide for some 40 fifth-generation descendants.
With such demands on their inheritance, the Rockefellers are moving quietly, but purposefully, to generate more earnings from one of their principal sources of income – Rockefeller Center Inc. R.C.I., which is owned by trusts benefiting the family members, is under pressure from the younger Rockefellers to invest in businesses that provide immediate dividend income and to sell off some of its more traditional real estate holdings, which offer only long-term gains.
So strong is the Rockefeller commitment to this strategy that R.C.I. is taking steps that could lead to the sale of all or part of New York’s famed Rockefeller Center, the company’s main asset and now the family’s most visible symbol of its past grandeur and wealth. It has recently offered to buy the land beneath the Center from its owner, Columbia University, in a move that real estate people say is almost necessary if the buildings are ever to be sold.
To lead R.C.I. in its new profit-making endeavors, the family has replaced Alton Marshall, the company’s president for 10 years, with Richard Voell, an acquisitions expert who helped transform Penn Central from a railroad into an energy, resources and real estate company.
”During my tenure, there was no big demand for return,” said Mr. Marshall, who left R.C.I. in 1981. ”But with the increasing size of the family, the return will be just as important as it is for stockholders in the company – which is actually what they are.” Adds Harry Helmsley, a powerful New York real estate executive: ”As the family gets bigger and bigger, some of them would like to have the money in their pockets.”
And R.C.I. is trying to put it there. In 1981, it joined forces with RCA, one of Rockefeller Center’s biggest tenants, to start what many analysts say could be a highly profitable cable television network. And in 1980 it paid $28 million for a small but highly respected oil and natural gas exploring and production company.
But real estate analysts, who have watched R.C.I. dispose of its stakes in the New York Hilton and the Manhattan headquarters of Celanese, Sperry and the Continental Corporation, say those investments are only the beginning now that David Rockefeller, one of the two surviving sons of John D. Rockefeller Jr., has taken over as R.C.I. chairman and hired Mr. Voell.
Wherever the two men take R.C.I., the new emphasis on more profitable ventures is a major change for the Rockefellers. John D. Rockefeller Jr., who built Rockefeller Center during the Depression, spent much of his life giving away money to help rescue a family image that had been badly tarnished by his father’s ruthless business practices. And any of the family’s money-making endeavors were kept so quiet that most believed the Rockefellers had no need for additional wealth.
Indeed, when there were only six Rockefellers, income was not an issue, and real estate seemed the perfect investment for R.C.I. David, Nelson, Winthrop, Laurance, John 3d and Abby, the children of John D. Rockefeller Jr., were content with the return on their investment coming mainly from long-term appreciation of real estate values.
In fact, it was during this period that R.C.I. grew from a singleproperty real estate owner to one of the nation’s largest development firms. It built new office space around Rockefeller Center and constructed the Wells Fargo headquarters in Los Angeles and two buildings in Detroit’s Renaissance Center.
But the paper profits of real estate deals are no longer enough for the cousins, those fourth-generation descendants who now control the majority of R.C.I. stock and who are not as concerned with their family’s image.
So far, Mr. Voell has not indicated how he will increase R.C.I’s earnings or whether he plans any big acquisitions. But he is gearing up for major changes. He has reduced the size of the real estate development staff and expanded the strategic planning staff. In September, he hired Lorian L. Marlantes, who was Penn Central’s top planning officer, as R.C.I.’s vice president for strategic planning and development.
R.C.I. officials refuse to talk about their diversification plans, and Rockefeller family members are equally silent. ”We are engaged in major strategic planning now, and feel it would be inappropriate to comment on our plans,” a spokesman said.
But there seems no doubt that R.C.I. is prepared to expand its interests in the entertainment area. For the past few years it has been trying to make Radio City Music Hall more profitable by bringing in new types of entertainment. And in 1981, it joined with RCA to set up The Entertainment Channel. Arthur Taylor, the channel’s president and the former president of CBS Inc., said that R.C.I. and RCA invested $100 million in the venture.
R.C.I. looked at several options before getting into cable television, including the role of being a system operator, according to an Entertainment Channel official. ”They decided programming is where the money can be made,” the executive said. Herbert S. Schlosser, an RCA executive vice president, believes that R.C.I. entered the business because ”it is the kind of business that, if it works, will have a very good cash return.”
Analysts concur and are quite optimistic about the venture, although they say it is a risky one. ”It has a long way to go,” said John S. Reidy, an analyst at Drexel, Burnham, Lambert. The network has fewer than 100,000 subscribers and Mr. Reidy estimated that it would take 1.5 million subscribers to turn a profit. But it has a valuable niche. Unlike competitors, such HBO and the Movie Channel, it does not rely on Hollywood for its programming. The channel is showing broadway plays and has a 10-year contract with the British Broadcasting Corporation.
J. Kendrick Noble Jr., an analyst at Paine Webber Mitchell Hutchins, said The Entertainment Channel could enjoy a profit margin of 20 percent of revenues, the same as HBO. And both Mr. Reidy and Mr. Nobel say the channel could eventually sign up five million subscribers.
In addition to entertainment, the Rockefellers seems to be returning to the business of oil with the purchase of the Wessely Energy Corporation, a Dallas-based oil and natural gas company. With assets of $65 million, Wessely is exploring in Central Oklahoma and East Texas. Industry sources say the company has recently received major ”Rockefeller injections” of new investment capital. And a source close to R.C.I. expects it to continue to increase its presence in the oil business.
R.C.I. also owns the New York-based Trinity Paper and Plastics Corporation, the second-largest producer of both grocery store bags and sacks, accounting for about 10 percent of sales in each market. Trinity is believed to be more profitable than other companies in the industry.
Many analysts are not surprised that R.C.I. is moving away from being predominantly a real estate company. Rockefeller Center – built at a cost of $125 million Depression-era dollars -has not been a particularly profitable investment, according to Mr. Helmsley. He said the buildings would be more valuable to another investor, who could take advantage of fat depreciation tax breaks. The half-century-old Center has already used up its 40-year depreciation allowance, but a new purchaser could depreciate the cost of the Center over 12 years under current tax law.
It is not known how much the Center’s tenants pay in rent, but Mr. Helmsley says many long-term leases have a $20-per-square-foot rate that will rise to $40 to $45 when renewed. There are about 15 million square feet of office space in the Center, and R.C.I. occupies six million.
Mr. Helmsley said there was ”no question” that R.C.I.’s profits have suffered from the family’s noneconomic goals. ”The Rockefellers are not really real estate people.”
The biggest obstacle in the way of R.C.I.’s move away from real estate is Columbia’s ownership of the land beneath the Center’s 14 original buildings. Institutions avoid purchasing buildings when they cannot own the land, and even lending institutions are reluctant to refinance buildings on land independently owned. According to a former official of the Greenwich Savings Bank (now part of the Metropolitan Savings Bank), R.C.I. asked the bank in the 1970’s to make a loan against the buildings and was refused because Columbia owned the land.
Mr. Marshall said he unsuccessfully negotiated to sell a major part of the Center. So did Mr. Voell in 1981, when he tried to arrange for a $400 million loan from the Prudential Insurance Company of America. The Prudential was given an option that would have allowed it to convert the loan into a half-ownership position in the buildings on the Columbia property. Although the arrangement fell through in mid-November, some suggest that the Prudential deal could be in abeyance until R.C.I. can buy the land, for which its lease expires in 2069.
R.C.I. has already made Columbia an offer. Although the amount is not known, the land is worth $400 million to $500 million, according to Mr. Helmsley, who has appraised the property for Columbia.
But the university is not expected to accept any offer quickly and is reluctant to talk about it. ”We can’t talk about something that’s on the table,” explained David B. Hertz, a member of Columbia’s board of trustees. And Anthony D. Knirr, Columbia’s top business officer, even denies the existence of the R.C.I. offer, although he disclosed for the first time in an interview that an R.C.I. offer was secretly made and rejected in 1970.
But when everything is said and done, added Thomas D. Flynn, another trustee, ”What it’s worth to Rockefeller Center may not be what Columbia considers a good deal.”
A LOT GOES A LONG WAY
In 1880, almost all of the nation’s oil was being refined by one man, John D. Rockefeller. The Standard Oil Company, which also controlled the transportation of the oil through the railroads, helped its creator accumulate fantastic wealth: an estimated $900 million by 1908.
But John D. Rockefeller, who had a ruthless business reputation, came to believe that his riches were God-given and should be used to improve the world. He consistently gave 10 percent of his income to the Baptist Church. Before he died in 1937, he had given away $550 million, mostly to the Rockefeller Foundation, the General Education Board, the Rockefeller Institute and the University of Chicago.
John D. Rockefeller Jr. received $465 million from his father and also devoted himself to philanthropy, in part to improve the family’s image. All told, he gave away $552 million during his life, but still had $240 million left for his wife and six children when he died in 1960. Each of the children – Abby, John, Nelson, Laurance, Winthrop and David – had also gotten a trust worth $40 million in 1934.
While it was generally believed that the family’s wealth from trusts, securities and other investments was between $5 billion and $10 billion, Nelson A. Rockefeller insisted – in testimony before the Senate at the time of his Vice Presidential nomination – that the family had total wealth of only $1.3 billion.
The inheritances have varied, and will vary, widely. Winthrop Rockefeller had only one child; Abby had children; John and Laurance, four each; David, six, and Nelson, seven.
The younger generation has vastly different financial needs. One of Laurance’s four children, Marion French Rockefeller, has lived for years in a well-appointed caboose in California, raising her food and making do with about $700 a month.