Charles Hurwitz

Whether it’s harvesting ancient redwoods or bringing gambling to Texas, the low-profile CEO won’t shy away from controversial deals.

September 1994By Comments

A monastic quiet prevails at Maxxam headquarters, from its vast and sparsely decorated waiting room on the twenty-sixth floor of an office building in Houston’s Galleria area to the conference room on the twenty-seventh floor, where CEO Charles Hurwitz is demonstrating the art of reticence to a visiting journalist. The opening subject is the Houston Rockets, one of Hurwitz’s few loves outside of his work.

“I thought about buying the team a couple of years ago,” he offers quietly.

There is silence. Well, what happened?

Hurwitz shrugs. “I offered a lot less than Charlie Thomas later got from Les Alexander,” he says.

Does he regret passing the chance to buy the 1994 NBA champions?

The slightest pause, followed by the slightest response: “No.” And then more silence.

The 54-year-old executive, who is dressed in his customary dark suit with European-collared shirt, has consented to this rare interview—if it can be called that—only after a week of wary deliberation. Throughout the hour-long exchange, which Maxxam publicist Bob Irelan attends, quietly taking notes, Hurwitz’s remarks are delivered in a barely audible voice and with scant elaboration. His omnipresent smile seems to be saying, only half apologetically, “I’m not being very helpful, am I?” Whether the subject is his childhood in Kilgore, his acquisition in 1988 of Kaiser Aluminum (which accounts for 85 percent of Maxxam’s revenue), the redwood clear-cutting practices of Maxxam’s Northern California firm, Pacific Lumber, or his pivotal role in bringing horse racing to Texas, Hurwitz maintains a genial demeanor that is defensive to the core.

The lightest moment comes when the controversial Maxxam boss is asked whether he’s tired of all the bad press. His smile widens. “I’d rather have neither bad press nor good press,” he fairly booms. “I’d rather have no press.” Then Charles Hurwitz laughs, and soon afterward the CEO shakes hands and retreats to his office like a shadow receding at dusk.

But the next day, a Saturday, the cipher becomes a charmer. The setting is not the chilly confines of Maxxam but rather the sunny and festive Sam Houston Race Park, on the northwestern outskirts of the city. Hurwitz, who commands 34 percent of the stock, is the principal owner. He shows up in a straw hat and a necktie dotted with little horses. Yesterday’s tension is replaced by chattiness and backslapping. This is the Charles Hurwitz who, say loyal friends such as Mayor Bob Lanier and Nellie Connally, is thoroughly misunderstood. They see him simply as a man of action, evidenced by the single most admirable business feat in Texas of the past year: the opening of the state’s first Class I racetrack, a project that was stuck in the mud for six years before Texas’ premier post-boom-and-bust CEO got ahold of it and brought it to completion in ten months’ time.

Hurwitz made his fortune the modern way: by investing, rather than drilling for oil or developing real estate. His evolution—a Bache and Company stockbroker fresh out of college, a manager of a $54 million hedge fund at the age of 27, the acquisition of Federated Development (which would ultimately put him in control of Maxxam) at 33, and fifteen years later, the CEO of one of the world’s leading aluminum producers—amounts to a textbook dealmaker’s résumé. That Hurwitz spearheaded the completion of the racetrack has made him the leading candidate for the state’s next big play: casino gambling.

The Sam Houston endeavor has already lost some of its luster. Spotty attendance and disappointing betting figures have led to cutbacks in the winners’ purses, which in turn have provoked threats of boycotts on the part of the contestants. Nonetheless, the sheer act of giving Texas voters what a state referendum said they wanted has gained Hurwitz favorable ink for the first time in his career. Yet the overall view of the Kilgore-bred businessman is perhaps more muddled than ever. Hurwitz the race track savior and Hurwitz the anti-environmentalist seem to exist in irreconcilably parallel universes, and the CEO has done nothing to clarify his persona.

He is aggressively colorless. Despite his wealth (estimated at $140 million), Hurwitz lives in a condominium rather than a River Oaks mansion, does not own an airplane, and likes to joke that his limousines are yellow with lights on the top. He donates heavily to local charities but leaves the society limelight to his wife, Barbara. His friendships are business-related. (Notable among these is his decades-long close relationship with Bob Lanier. The thousands of dollars Hurwitz has contributed to Lanier’s campaigns have been more than repaid in political prestige.) Despite having lived in Kilgore throughout his childhood and retaining friends from the area, Hurwitz is not one for folksy aphorisms or for invoking the wisdom of his late father, a prominent East Texas haberdasher. In the world of business, Charles Hurwitz sees himself as a corporate actor completely disinterested in theatrics and audience response. Yet he continually wanders onto big stages where high-stakes melodramas are inevitable.

A fifteen-acre expanse of grassy marsh abuts the Sam Houston Race Park and seems to have been placed there purely to torment Charles Hurwitz. The marsh happens to be a designated wetlands area, which meant that the construction blueprint of the track had to meet with the approval of the Army Corps of Engineers. Both sides gave ground in the negotiations, and as a result, most of the wetlands now adjoins the parking lot, while the remaining protected marsh is actually in the middle of the track, where Hurwitz can see it and muse about bureaucratic hypocrisies as he sits in his grandstand luxury booth.

“When we came to build the track,” Hurwitz says as he gestures toward the runway, “eventually we were told, ‘We won’t bother your plans as long as you’re willing to mitigate on this part or trade that part.’ Well, either this whole area is wetlands or it isn’t what the game’s all about.”

It is, he believes, about bureaucratic bullying. “Apparently a portion of land is designated as wetlands if it’s been underwater for thirty days,” he says. “Of course, recently the whole Midwest was underwater for forty-five days. So I guess that whole region’s a wetlands preserve.” In a low, caustic voice, he adds, “It’s absurd.”

Throughout his business career, Charles Hurwitz has been ensnared in environmental controversy—always to his surprise, though never by accident. He has consistently been willing to take risks that might have scared off other potential investors. In 1982 Hurwitz’s Federated Development moved to build a $75 million complex of luxury properties on a pristine 105-acre spread of rolling hills in Rancho Mirage, California—an area that had been a mating ground for bighorn sheep. Among the residents protesting the Mirada development, as it was known, was Frank Sinatra. “Sinatra’s wife, Barbara, wanted to be able to ride her horses in privacy,” Hurwitz notes dryly. It took six years of battling Sinatra, the environmentalists, and the Rancho Mirage City Council, but Hurwitz prevailed and opened the Ritz-Carlton Rancho Mirage Hotel and the Mirada property in March 1988.

By that time, Hurwitz had already incurred the lasting enmity of environmentalists. In 1986 Maxxam acquired Pacific Lumber in a hostile takeover financed in large part with junk bonds floated by Michael Milken of Drexel Burnham Lambert. The lumber company purchase included 196,000 acres of Northern California forestland with significant stands of ancient redwoods, which—at Hurwitz’s direction and for the apparent purpose of paying off the junk-bond interest—Pacific Lumber began to clear-cut at double the company’s usual pace. Other investors had shied away from making a play at Pacific Lumber precisely because felling thousand-year-old redwoods seemed the only way to make the numbers work. As with Rancho Mirage, Hurwitz made his move and took the flak. He did not exactly improve his public standing when, while bantering with a Pacific Lumber employee, he uttered (to his regret, Hurwitz now admits) the infamous words: “There’s a story about the golden rule. He who has the gold, rules.”

“We’re all environmentalists at Pacific Lumber,” Hurwitz says and ticks off the ways in which the company has demonstrated its sense of responsibility. Several of these are easily discredited: The redwoods Pacific Lumber cuts down are not dead, as Hurwitz claims, and the company’s policy of planting 500,000 seedlings a year does not mean that Pacific Lumber will permit such trees to grow the fabulous heights of the fallen stands they are meant to replace. Still, Hurwitz’s ultimate line of defense is unassailable. “When we’re talking about Pacific Lumber,” he says, “we’re talking about privately owned land that is zoned exclusively for commercial timber production.”

The gold is indeed Hurwitz’s to rule with as he sees fit, and he has done so with total dedication to what he calls “building value”—even when share holder profit is maximized through decidedly cold-blooded means. Recently, in response to the outcry over Pacific Lumber’s threat to harvest the 4,500-acre redwood grove known as the Headwaters Forest, Hurwitz offered to sell the property to the U.S. Government. But he has reportedly asked $600 million for the Headwaters, a figure many believe to be in excess of the property’s financial worth. The highball offer has left environmentalists howling, but Hurwitz commands the leverage. It’s another case of building value with a vengeance.

Nonetheless, the same qualities that so infuriated Hurwitz’s critics enabled him to bring Class I horse racing to Texas. After Texas voters passed the pari-mutuel wagering referendum in 1987, numerous individuals tried without success to finance the Sam Houston Race Park. The effort seemed doomed, and similar racetrack plans in San Antonio and Grand Prairie showed no signs of clearing the financial hurdles.

Hurwitz, who knew nothing about horse racing, took his time. “John Conally was really pushing me, saying it was the sport of kings and all that,” he says. “But the numbers didn’t work. And I did have some thoughts about investing in a gambling enterprise. My wife was completely against it.” Still, when the Legislature lowered the state tax on pari-mutuel betting from 5 to 2 percent in early 1993, Hurwitz ignored his wife’s sentiments and made his move. That May, he paid former Houston Astros owner John McMullen $7 million for his racetrack stock. The new principal owner then took it upon himself to lead the Class I fundraising drive.

“When we put our name on it,” says Hurwitz simply, “that gave the project credibility.” As much a darling of Wall Street as he is a scoundrel to the Sierra Club, Hurwitz had exactly the kind of portfolio, business approach, and native tenacity that compelled New York institutional investors and mutual fund managers to give the racetrack endeavor a second look. Within two months Hurwitz had sold $75 million in bonds, underwritten by Salomon Brothers. It was an astonishing fundraising feat, but Hurwitz didn’t stop there. Says racetrack manager Jim Murphy: “There wasn’t a day that went by when Charles didn’t call, offering construction advisers or whatever else we needed.” When the Army Corps of Engineers pressed the point about the wetlands, investors didn’t have to worry about construction plans being in jeopardy. After all, their chief stockholder had been through this before.

The Sam Houston Race Park opened on April 29, six months after the ground-breaking. Suddenly Charles Hurwitz was a man of the people whose dealmaking was a matter of civic benevolence. And if he shrugged off his new good-guy status, his almost palpable exuberance every time he strolled through the park grounds was widely observed. It turned out that the environmentalists’ prince of darkness looked good in white.

Whether or not Hurwitz’s investment was a wise one is another matter. Since its opening, the racetrack has stumbled badly. “Right now,” Hurwitz concedes, “we’re running at about $77 to $80 in daily gambling per person, instead of the national average of $120.” To Hurwitz and other race park officials, this is simply a matter of Texans’ needing a little horse racing education, which the park is now aiming to provide through seminars and printed literature. There is much to suggest, however, that horse racing is a dying pastime and that the track will not be able to compete with more youth-oriented forms of entertainment. Though Hurwitz disputes such notions, he has tacitly conceded the track’s limited appeal: Within the next two years, he says, an amusement park may be constructed adjacent to the track.

In the meantime, the Maxxam boss seems to have overcome his reservations about investing in the gambling trade. Indeed, Maxxam and Las Vegas-based Mirage have announced a partnership for redevelopment of the Sam Houston Coliseum in downtown Houston, with the hope of building a hotel-casino complex on the site. Even if the Mirage proposal fails to materialize, it has escaped no one’s notice that Maxxam has significant real estate holdings throughout Texas. And though Charles Hurwitz has refused to confirm that any such property is intended as a casino site, when he discusses the prospects of his race park, his language is that of a man who sees a bigger play at hand.

“We haven’t had gaming in Texas in fifty years,” he says, eagerness suddenly overtaking his reticence as he leans forward in his chair and pitches the deal. “For his part of the world, horse racing is a new and confusing sport. But Texas, and Houston in particular, is horse country. And Harris County is a county that has always been fond of wagering. Of all the counties, it’s the state lottery’s biggest participant, if I’m not mistaken. So the inclination to wager is there. You have the fourth-largest city in the country. You have a high per-capita income in that city. And you have a monopoly in the area.” The man with the gold settles back in his chair. Beneath his quiet smile there is little to discern, but one can almost hear his blood racing.

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