THE BREAKUP

There were several issues and events that led up the Mackle Brothers to leaving General Development Corporation.

First, the incredible volume of land sales which the company had achieved was not sufficient for some stockholders. One element of the board pushed for even more aggressive marketing and sales efforts. Apparently they had some experience in high pressure sales techniques which the Mackles would not accept. 

In the 1960 annual report, published in the spring of 1961 Dad stated as one of the accomplishments of the year, "we successfully undertook a long planned shift in our selling emphasis toward home sales - with the result that your Company increased its home sales 48 percent in a year when home-selling elsewhere was suffering a serious decline."

This conflict between the relative importance and methods of land sales was one source of the friction that developed.

Also, in spite of the success of the company, there were feelings among some major stockholders that the fees that the Mackles were getting on construction and development activities were excessive.

Their contract was coming to an end and they were having trouble renegotiating it - in spite of the profits and stock appreciation that they had achieved for the company and its stockholders.

In addition, the character and reputation of Lou Chesler was in question. The January 1960 edition of Fortune Magazine reported "At one point there was some erratic trading in GDC stock"  which - it was speculated - might be his doing. As the disagreement escalated Chesler went from being a  partner to a potentially dangerous adversary.

Bill O'Dowd is of the opinion that disagreements in the racing partnership were the beginning of the disputes between the Mackles and Chesler. 

A deal that was in the works - and Cheslers reputation and failure to do what he agreed to - caused more friction. In 1960 and early 1961 the Dad was in active negotiation with the Arthur Vining Davis estate. Arthur Vining Davis had amassed considerable wealth with Alcoa Aluminum and had acquired extensive Florida land holdings especially in Palm Beach County. These properties were later the basis for the highly successful Arvida Corporation and what is now the community of Boca West among others. The Mackles had know Davis as he had been a frequent visitor to the Key Biscayne Hotel.

Dad and the Arthur Vining Davis Trustee, Komer Kimball had agreed that General Development Corporation and the Davis real estate holdings in Florida would merge. 

One condition of the Trustee, however, was that Lou Chesler be bought out of the company. 

Sales and profits had fallen somewhat in 1960 and the stock price had reacted accordingly. 

Chesler had verbally agreed to sell his stock when, in May of 1961, Kennedy spoke to a joint session of Congress and made his historic announcement setting a  goal for the United States to land a man on the moon by the end of the decade. Immediately it became clear there would be a huge increase in spending for the Cape Canaveral Space Center creating tremendous employment and industrial growth in the area of the Cape.

General Development had considerable land in the Cape Canaveral area: 45,000 acres at Port Malabar and 5,400 acres at Port St. Johns both in Brevard county - the home of the Space Center. 

Land values began to skyrocket.

Suddenly, Chesler was not willing to sell his stock. 

And the Arthur Vining Davis deal was off.

And Chesler was still in control.

The friction escalated.

Gardner Cowles, publisher of LOOK  magazine, who had become Chairman of the Board of General Development in 1959 tried to arrange a compromise. 

In the spring of 1961 Bill Yoars was named President and Dad was moved to Chairman of the Board. Yoars had been with General for about six months as Financial Vice President and had previously been at First National City Bank of New York.

Eventually Cowles insisted that either Chesler had to sell out or the Mackles would have to go. Cowles sided with those who thought the Mackles fee arrangement was too lucrative. 

It was a trying time for the Mackle Brothers and the situation finally came to a breaking  point.

In late 1961 - the Mackles agreed to be bought out of General Development Corporation and in February 1962 it became official.

 

THE AFTERMATH

After the split-up General named Charles Kelstadt, President. Lou Chelser went on to develop Great Harbour in the Bahamas in a venture not associated with General. 

In the late 1950s the land sales industry - still in its embryonic stages - began to spawn competition. Unfortunately, the enormous profits available from the sale of Florida land began to attract the worst of operators. They were all selling dreams....the dream of people everywhere to live and someday retire in the Sunshine State. The better people in the industry strove to deliver on that promise. Others did not. Promises were easily broken and the success of high pressure land sales was addicting. Over the years the luster of the installment land sales business was ruined by the promoters.

General began to move in that direction as well.

Early on after the break-up all references to  the "Mackle" origins at GDC were eliminated. Virtually every community, for example, had a main Elkcam Boulevard. Now they were all renamed.

Virtually all of the land that General marketed over the next thirty years would be land that the Mackles acquired.  The only exceptions that I know of were Port LaBelle and a property in Tennessee. 

For years - at Deltona - the comparison between GDC sales and Deltona sales were made as a measure of Deltona's achievements. In the late 60s or early 70s Deltona's sales surpassed GDC sales but later, with Deltona's permit problems and GDCs turn to some very dubious (later ruled fraudulent) sales practices GDC again surpassed Deltona. However the accomplishment of catching and surpassing GDC which had an eight year head start was quietly noted at Deltona with some satisfaction.

Finally, thirty years later, GDC went too far with its sales practices.

GDCs eventual downfall stemmed from several facts. 

1. Land sales were highly profitable and became the primary focus of marketing efforts. This resulted in the creation of fully developed lots in numbers far in excess of the demand of end users for those lots. Lots were sold - not to end users as originally contemplated - but to speculators and investors who instead of building homes on them placed them on the resale market when developed and deeded. This resulted in tens of thousands of improved but vacant lots on the resale market.

2. Home sales were never emphasized enough. some developers were more guilty of this than others and General was not the worse. However the transition to home sales as a primary source of revenue and profits never occurred. These companies never learned how compete in the local home sales markets because the cost of their out-of-state marketing divisions were too great to be absorbed by competitive local home sales. 

3. Out-of-state, sight unseen sales methods allowed increases in prices beyond the local price of identical (actually better located) resale prices. In the early stages of a development no lots were deeded so there were no lots being resold. Price increases were addicting as the announcement of a pending price increase was a sure stimulant to increased sales. And with nothing to compare to - except perhaps local market - in Pittsburgh say - and price increases were unrestrained.  But ten years later, as lots were deeded, the resale market sprang up. This was especially a problem in the larger communities where the developer was still selling land far years after deeding the first lots sold. The result, for example, was that a quarter acre undeveloped lot on the edge of the planned development was being sold by the company for perhaps $15,000  and a quarter acre lot (bought years earlier for perhaps as little as $795) fully developed closer to the center of the community was being offered on resale at say $5,000. Eventually, the new customers - and the sales representatives began to see this disparity.

General Development Corporation had a particular problem because of the enormous size of their communities. Port Charlotte, for example was over 90,000 acres in size including the contiguous North Port Charlotte. Thus they were still selling lots for years after the earlier sold lots came back on the resale market. At Port Charlotte, for example General was still in the lot sales business at least into the 70s - thirty years after the first lots were sold. The problems were just as bad at their other communities.

To deal with the problem General came up with a clever - they thought - scheme to justify their lot prices and sell more land. They would increase the prices of the homes they were selling. They would then offer the lot buyer the option to trade their lot back in as down payment on the house at the current GDC price of the lot. This would, ostensibly, give the lot owner full value against the purchase of the home. Unfortunately this just shifted the fraud from the lot value to the  home value - where the value comparison was harder to make. 

GDC home prices were greatly inflated to cover the potential trade and - as a result - local sales against competitive builders were non-existent. But for the vast majority of lot purchasers who never planned to buy a home anyway, the willingness of the company to trade the lot was a "stamp of approval" on the "value" of the lot sale. A salesman could say, in effect, that value was "guaranteed" by the company's willingness to take it back as a deposit on a home. He did not tell them that the home was also overpriced!

It was like the proverbial trade of two $25,000 cats for one $50,000 dog!

Both were absurdly over-valued!

But their customers - confined to a few hours if inspection on a sponsored trip  and controlled by their sales representative - were easily fooled.

Generals land sales boomed under this program for years.

It all came to an end in the late 1980s however.

Their sales practices finally led to the suspension of licenses to sell by regulatory authorities around the country and criminal conviction of several of GDCs officers. While the criminal convictions were overturned on appeal years later, the damage was done.

GDC  declared bankruptcy in 1990. Stockholders were wiped out and the GDC lenders took over the operation. In the late nineties the company was being liquidated.

We, at Deltona, looked at GDC's sales methods several times and declined to take that same route even though - for many years - GDC was extremely successful with the program.

After Dad and I left Deltona - the company, under the direction of Minnesota Power - and later Maurice Halperin -  and headed by Bill Avella, a former officer of GDC, did launch similar programs. When they saw what happened to GDC and its officers they backed off ! 

Bringing this saga to an appropriate end is the humorous preamble written by Judge Cristol to his final GDC bankruptcy decree in March 1995.