Hands Across a Tax Loss

One day last week Boston Real Estate Tycoon Abraham Malcolm Sonnabend, 58, happily extended his right hand, firmly shook his own left hand. He thus Approved a deal to let his restaurant chain, Childs Co., buy three Sonnabend hotels --Manhattan's Plaza, Boston's Somerset and Cleveland's Cleveland--and make himself a potful of money.

Childs stockholders, when they approve the plan, will probably get the hotels by giving shares in their company to the hotels' security holders, receive in turn stock in a new company: the Hotel Corporation of America. The new company will gross an estimated $52 million annually: $22 million from the hotels, $15 million from the restaurants and $15 million from two food companies now owned by Childs. By putting all companies under one corporate roof, Sonnabend will make a fat tax saving. He will be able to de duct Childs' losses from the hotels' profits (1954: about $2,000,000), thereby add a king-sized fillip to his earnings.

Sonnabend's efforts to improve Childs (which lost $698,000 in 1953) do not stop with putting it into a new company. He has closed unprofitable restaurants (leaving him with 35 in ten cities, largely on the East Coast), sold its ice-cream producing subsidiary (Sherry's) and retired a $500,000 bank loan. Last year he paid out $3,398,500 for two food-processing companies in order to diversify, recently began experimenting with new, slightly higher-priced restaurants. The changes cost money, and last year Childs lost $687,500. This year Sonnabend "hopes" that Childs will operate in the black.

Career-in-Boom. Sonnabend began his career of buying and selling in Boston, where he was born. After graduating from Harvard ('18), and serving briefly as a naval aviator at the end of World War I, Sonnabend borrowed $5,000 from his jeweler father, and in less than a year made $22,000 buying and selling real estate. He paid his father back, and went on making and saving money the same way all through the 1920s. During the 1930s he bought Boston-area hotels at Depression prices, made his first million when he sold them during the early 1940s at boom values. Says he: "Anything you bought in the '30s and sold in the '40s with your eyes closed could make money."

In 1943, a Sonnabend-led syndicate bought four hotels in the Palm Beach area for $2,400,000. Within a year he got nearly all his investment back by selling only one of the hotels (the Palm Beach Biltmore) for $2,000,000. By 1948 he was ready to head the syndicate which bought Chicago's Edgewater Beach Hotel for $6,000,000. (The hotel will be an early addition to the new Hotel Corp.) In 1950, moving on to bigger and better things, Sonnabend's syndicate paid Railroader Robert R. Young (TIME, Oct. 16, 1950) $8,000,000 for the Cleveland real estate once owned by the Van Sweringens, including the Hotel Cleveland. Later, it bought Manhattan's Plaza for $15 million from Conrad Hilton. Says Sonnabend: "We are going to try to maintain it as the finest hotel in the world. It will be our flagship."

Valuable Loss. Last September, attracted by a tax loss of $11 million, Sonnabend bought control of Botany Mills, an oldtime worsted manufacturer hard hit by the textile depression. To make use of its tax loss, Botany bought money-making Gastonia Combed Yarn Corp., Jewel Cotton Mills and Gurney Mfg. for $14 million. By writing its losses off against the mills' profits, the purchase was made largely an intracompany, bookkeeping operation, cost Botany little in cash.

Botany is still losing money ($612,000 in the first quarter v. the 1954 average quarterly loss of $1,100,000). But Sonnabend feels that the losses are about over. Says he: "When I took over, Botany was losing more than $4,000,000 a year. This year it will operate in the black."

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