Jumbo Turns Black

Of the world's supply of white elephants, no industry has a bigger share than the U. S. hotel industry. Though queasy strains of albinism began to appear as early as 1925, the industry continued to multiply, ended in 1933 with 85% of its properties in trouble. Today, among some 28,000 U. S. hotels, more are losing money than making it. During 1940, their average return on capital was below 1%; even this was above the average of the past ten years.

With 1,385 hotels and 143,000 rooms to offer, Chicago became the white herd's favorite watering hole. Its Jumbo was the Stevens, "World's Largest Hotel." Built in 1927, the Stevens has 3,000 rooms (one man could spend eight years in it without twice sleeping in the same room), 1,500 employes, 40 miles of carpets. Overbuilt and overcapitalized (cost: $28,000,000) by its promoters, Ernest J. and Raymond W. Stevens, the Stevens began to totter in the first tremors of 1929. Panicky, the Stevens brothers began sluicing funds from their father's insurance company, Illinois Life. But this was just a bag of peanuts to Jumbo, and in 1932 the Stevens and Illinois Life were both in receivership. After the brothers were indicted for embezzling $1,208,463, Raymond killed himself, Ernest lived to be exculpated, later died of a "broken heart."

The Stevens Hotel came out of reorganization in 1936 with its bonded indebtedness cut to some $6,000,000. But it still had 3,000 rooms, and about half of them were vacant. Not until 1937 did the Stevens begin paying anything to holders of its 5% income debentures. By 1939 they were getting only 2.1%.

Early in 1939 disgruntled bondholders got Jumbo a new trainer, Joseph Patterson Binns. Instead of writing Jumbo off as too big to work, Joey Binns gave it jobs for which it was best suited. He installed a production-line system in the enormous laundry, saved $25,000 a year. He mechanized the housekeeping, closed off whole floors in rotation, kept a perpetual inventory of the rooms. This set-up cut the cleaning bill per room 22-c- a day, which for the Stevens meant $120,000 a year. But the average occupancy was still only 44%. So Binns spent $325.000 for repairs, new furnishings, etc. In 1940 the occupancy figure rose to 50%. Fortnight ago, bondholders heard they would get their 5%, or most of it, for the first time. Though rival managers discounted Binns's record by pointing to their own increased occupancy (and to the Stevens' shrunken capitalization), most Stevens bondholders agreed that Trainer Binns had done a good job.

At 35, handsome Joey Binns is an old hand at hotel trouble shooting. Born of Quaker parents in Winona, Ohio, he de cided at ten to become a hotel man, got his first job as a storeroom boy. As man ager of Stevens, he draws down $25,000 a year (plus maintenance). No lover of city life, Binns camouflages the door of his suite in the Stevens to look like that of an ivy-covered cottage.

Last week, when the news got around that Jumbo was turning black, the bond holders had another reason to be grateful to Binns: from a 1940 low of 28 the bonds had shot up to 62. Said Binns: ". . . Think what we could do with an occupancy of 55%."

The U. S. got its second $3,000,-000,000 bank last week when National City of New York reported year's-end assets of $3,095,466,387 (up from $2,922,420,074 the previous quarter). The other: Manhattan's Chase National, with $3,824,403,-347 at year's end.

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