Whence Comes the Dew?

In 1727, young Benjamin Franklin organized ten convivial friends into the "Junto"*study club, to discuss such questions as: "Whence comes the dew that stands on the outside of a tankard?" and "Is self-interest the rudder that steers mankind?" The Junto club has long since disbanded, but it is still so famed in Philadelphia that when a group of public-spirited citizens started a nonprofit school for adult education in 1941, Junto seemed the logical name for it. Last week, the Junto told of making a business deal in its own self-interest that would have brought an amazed gasp from shrewd old Ben Franklin himself.

Without spending a cent of its own money (it had only $10,000), Junto in effect bought 4,028 houses worth some $32 million in Levittown, the Long Island mass housing development of Levitt & Sons. This complex deal in high finance was devised by bustling, mop-haired Philip Klein, a retired advertising man now Junto's non-salaried business manager. He had no trouble selling the deal to Builder William Levitt, who saw in it a way to save on his taxes.

First step was the purchase by Junto of the Bethpage Realty Corp., which owned the 4,028 rental houses and was, in turn, owned by Levitt and his brother Alfred S. The price: $5,150,000 with $1,500,000 as down payment.

To make the down payment, Junto borrowed $1,500,000 for five days from the Fidelity-Philadelphia Trust Co., and took over Bethpage. In its treasury was around $5,000,000 in working capital and profits. With this cash, Junto repaid the Fidelity-Philadelphia Co. and paid Levitt and his brother another $3,400,000. Junto agreed to pay the remaining $250,000 to the Levitts next December. Since it expects to do so out of cash on hand and incoming rents, Junto actually got the houses for nothing. When the mortgages are paid off in some 20 years, it will own them free and clear. Meanwhile, it expects to use its profit of $75,000 a year, tax free for education.*

The deal was just as nice for the Levitts. Just how much of the cash in Bethpage was profit, they did not say. On the profits they will pay only a long-term capital gains tax of 25% compared to a 77% maximum they might have paid if they had taken money out in dividends.

In any case, the deal gave the Levitts enough money to expand their building activities. They have bought 1,400 acres of Long Island farmland, plan to build 4,000 houses (complete with built-in television) on it this year to sell at their standard price of $7,990.

*A corruption of the Spanish junta, meaning committee or council. *But it will continue to pay an annual real estate tax of about $560,000 to New York's Nassau County.

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