Running to Cover

As the inevitable shapely models splashed to music in a rooftop pool, the Boston-based Sheraton Corp. last week opened its new, $12 million Sheraton Motor Inn on Manhattan's West Side. Billed as the "world's largest motel," the 20-story Motor Inn sits improbably among tatty warehouses beside the piers where the transatlantic liners dock, and offers its customers, along with free parking, a spectacular view of the Hudson. Judging from the first curious-tourist turnout, business should be good. But far from taking this as encouragement to go on to even bigger things. Sheraton President Ernest Henderson, 65, has just canceled $25 million worth of further expansion. His reason: the Wall Street crash.

Though many businessmen take the stock market seriously as an economic barometer. Henderson lives by it. Says he: "We believe that stocks cause rather than predict depressions. So we have lived more daringly than most companies in good times and run to cover more rapidly in impending hard times; we could afford to because the theory has never failed us." Few economists support his thesis, but his account books do.

Come with Me. Henderson's derring-do (when stock prices are right), as well as his skillfully frugal management, have pyramided Sheraton in 25 years from a single money-losing hotel to a corporate giant with estimated assets of $400 million and 66 hotels scattered from Tel Aviv to Honolulu. (Sheraton, which has more hotels, vies for the title of "world's largest hotel chain" with Hilton, which has more rooms.) And while occupancy rates in most U.S. hotels have dropped steadily in the past decade, Sheraton's rate has been climbing; in May it stood at 74%, v. 64% for the industry as a whole.

Henderson and Sheraton Chairman Robert Moore, 66--his partner since they roomed together at Harvard--run their empire from a large double office in a warehouse-like building on the site of the Boston Tea Party. Henderson is spokesman and operating chief, but when financial transactions are involved, both men join in the negotiations. At Beacon Hill social gatherings, Henderson seems anything but a shrewd businessman as he lopes about snapping flashgun pictures of his fellow guests or sits down at the piano to torture the company with his own composition. Come with Me (sample line: "Even silly atoms know they should detonate"). Actually, he is a financial wizard who, along with the Zeckendorfs and the Urises, was one of the first to see how a small stake could be parlayed into a real estate empire.

Refute Muckrakers. Neither Henderson nor Moore are innkeepers at heart. They started out after World War I with $1,000 and a vague desire to refute those muckrakers who argued that no business could grow big without violating ethical standards. In 1931, after trying every thing from radio manufacturing to importing German shepherd dogs, they set up one of the nation's first mutual funds, and in the course of making investments for it acquired the struggling Stonehaven Hotel in Springfield, Mass. Impressed with the swiftness with which the Stonehaven's earnings responded to rigorous management, they bought more hotels and formed Sheraton Corp. (named after one of their first hotels, which had a costly electric sign that they did not want to discard).

Their hotels are clean, comfortable and well run, but not among those that cater most to luxurious whims. Henderson's cost-consciousness -- he campaigns endless ly against such minor extravagances as leaving unused lights burning -- makes this inevitable. "It is no longer possible to maintain all the costly traditions that sen timent once dictated." he once wrote. "Harsh economic facts relentlessly require attention." When a Sheraton hotel is remodeled, the rule is that any improvement must be able to return at least 15% on in vestment in good times, 20% in recessions.

Ample Warning. Another key to Sheraton's rapid growth is Henderson's skillful use of federal depreciation allowances to reduce taxable income and to provide money for further expansion. His method keeps profits low (61-c- per share or 0.8% of estimated net worth last year), but sends assets skyrocketing. To spread the Sheraton name without tying up Sheraton funds, Henderson has begun taking on management of hotels built by others, e.g., a syndicate headed by New York Real Estate Tycoon Louis J. Glickman owns the new Motor Inn. Last week Henderson announced that Sheraton will franchise other hotelmen to use its well-advertised name and nationwide reservation service in much the same way that Howard Johnson's does.

Henderson feels that he can risk almost reckless expansion in good times because of his confidence that the stock market will give him ample warning of when to pull back. Market crashes cause recessions, he argues, because the ease with which stocks can be converted into cash or used to back loans actually makes them part of the nation's monetary supply (20% of total security values should be figured into the nation's buying power, he believes). To Henderson, the $86 billion loss in paper values of stocks since last December's high is thus a real loss in purchasing power, and he suggests that "there is extreme danger that we're heading into a recession at this time." But for all his short-run pessimism, Henderson is still solidly optimistic about the long-range prospects of the economy--and Sheraton. His goal: a billion-dollar company within ten years.

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