Greek Diners & Their Colorful Lawyer
Bob Tells Bill Frezza About his Early Career as a Lending Lawyer
Stumbling Into a Vocation
Bill Frezza: Welcome back to Real Clear Radio Hour brought to you by the The Competitive Enterprise Institute. I’m your host Bill Frezza. Please welcome specialty finance attorney Bob Zadek, who also happens to be the host of The Bob Zadek Show. Bob, welcome to the show.
Bob Zadek: Thanks, Bill. Glad to be on your show.
Bill Frezza: Bob, you’ve been practicing finance law for 45 years. You’ve chaired the Commercial Financial Services Committee American Bar Association. You’ve taught law courses on secured transactions. You run your own specialty finance company. Among many of the accolades you’ve received, you’ve been listed as one of the best lawyers in America. Despite the fact that I’m normally allergic to lawyers, I guest you on the show for one reason: You’re a great storyteller. I want to spend the next half hour talking about Greek diners. Are you up for it?
Bob Zadek: I’m up for it. By the way, I share your allergy to lawyers. Lawyers give me the willies. I know exactly what you’re talking about. I just want to mention one thing: when people have an aversion to lawyers, I have to help people learn how to hug their lawyer. There are two kinds of lawyers. There are lawyers who litigate — who go into courtrooms — and there are lawyers who do transactions. When people talk about not liking lawyers, they’re really saying they don’t like litigators, because no one ever wins in a litigation. All you do is make people really really unhappy. Even the winners lose. I am not a litigator. I am a lawyer.
Bill Frezza: If you do your job, there is no litigation. Take us back to your roots on Long Island, New York, your choice to become a lawyer, and the path that led you in specialty finance for what we New Yorkers know as a unique and beloved culinary institution.
Bob Zadek: Diners — oh, my goodness. I’m getting moist-eyed thinking about it. My roots were incredibly boring. I grew up in Queens. I went to PS 26 in Jamaica High School. I don’t think I ever had a date in public school or in high school. I once asked my shop teacher’s daughter to go out on a date. We went on one date, but she was above my pay grade. I couldn’t really survive with her.
I went to college at Syracuse, and was an accounting major. I spent four years dreading graduation because college was so good. I didn’t have a great life plan. I was going to be an accountant because my father was an accountant. That’s the only occupation I had ever heard of. Then, my friend Matty Rosenberg — a Hearts-playing buddy of mine, who was a more serious student — took the law boards because he had more of a life plan, and he did really well.
I was a better Hearts player than him. I was smarter than him. I decided to take the law boards without knowing what lawyers did, just to show him I was smarter. I had a great law board. I think I was highest behind Bob Sudak in my senior class — I remember that. Bob Sudak was in the 97th percentile. I was in 94th percentile. I was the second highest. The dean told me I couldn’t waste these law boards and that I should apply to these law schools. I had to remind the dean that I was on academic probation, and that I probably wouldn’t get into law school. I did apply to NYU Law School and got in, in the evening division. That’s how I became a lawyer today.
Lending in the Diner Industry
Bill Frezza: You had to work during the day to pay your keep.
Bob Zadek: I worked during the day because I was just impatient to start earning money. I went to law school at night, rode in the subway from Midtown Manhattan to NYU — in the Village — went to law school an extra year at night and loved every second of it.
Bill Frezza: Before you tell us how you found your way into the diner business, describe a Greek diner for non-New Yorkers or people who haven’t visited New York.
Bob Zadek: You’re going to hear a bit of longing in my voice if you’re perceptive, because we have no diners out in California. We have what purports to be restaurants, but there are no diners. Diners are basically an East Coast phenomenon. They’re prefabricated. Think of it like a mobile home for food. They were built by three manufacturers — Musee, Paramount, and I can’t remember the third one… Coleman. They were assembled on the side so you could start off with a vacant lot on a Friday night and Monday morning, there is the Hilltop Diner open for business. They were invariably owned and operated and staffed by Greeks. That’s culturally historic in the same way that the Vietnamese adopt one trade or business in the U.S., Thai people another, and Jews another. There’s a cultural history to it. Probably complicated. Greeks are in the diner business and always have been.
Bill Frezza: Growing up in the Greek church on Long Island, the pillars of our community were all diner owners.
Bob Zadek: All diner owners. The characteristics were, first of all, they never closed. They were open 24/7. Think of a great movie Diner, although that was in Baltimore, not in the northeast. The menu was always printed on hard plastic.
Bill Frezza: And it was 50 pages long.
Bob Zadek: 50 pages long. It was like eight pages of Italian food and 42 pages of Chinese food. Then there were the hamburgers, and breakfast all day. One characteristic was that if you ordered a green vegetable, they were cooked probably for weeks on end. If you closed your eyes, there was no way on Earth you could tell broccoli from string beans from peas other than by the shape on your tongue.
Bill Frezza: Anything you ordered was there in about seven minutes.
Bob Zadek: The food in seven minutes, and the check in 11 minutes, because they had to turn over the table. The best thing about the diners was the desserts.
Bill Frezza: Oh, when you came in the front door.
Bob Zadek: There was a revolving display case, which was about a foot high. You would expect to find jewelry and watches in it, but instead there was Nesselrode pie and Boston cream pie. On the way to the table, you were already planning dessert.
Bill Frezza: It was like dessert porn.
Bob Zadek: Oh my god. It was all like “baked on the premise.”
Bill Frezza: Give people some idea of what I grew up with and what New Yorkers loved today, how did you get into the business of helping make it financed?
Bob Zadek: In law school, I had a life-altering experience. My law professor was a brilliant man, and his name was Homer Kripke. He should rest in peace. He drafted a body of law called the Commercial Code, which was brand new and changed everything about the law of commercial finance. It was this seminal, watershed moment, because I went to law school roughly from ’62 to ’66 (that’s 19-, not 1862 to 66). The UCC, the Uniform Commercial Code, was just being adopted by that time.
Bill Frezza: All these UCC filings I’ve been doing all these years for patents and intellectual property goes back to that guy?
Bob Zadek: It goes back to a group of which he was one. He was so inspirational. I sat in his class in about 1965, with my mouth opened — loving him and loving the law. I asked him, “Can you get me a job in this business and this lending business, and he did?” I never left. That was in 1966, and I never left. I loved it. I’m still doing pretty much the same thing I was doing then, and love it every bit as much as the day I walked in the door at my first job.
Bill Frezza: Generically, what’s involved in that kind of secured lending?
Bob Zadek: Secured lending means, first of all, it’s commercial loans. It’s loans to businesses — secured like a home loan is secured by the house. This is secured by the assets of the business. In the case of a business, the assets are accounts receivable, inventory, and equipment. With diners, the collateral is the dining car itself. Diners never go out of business. They never fail because people who operate the diners know exactly what a diner is worth. When they buy a location they can predict with absolute arithmetic certainty how much they’re going to make.
Bill, here’s a little known fact that will make you more interesting at cocktail parties. In those days, when you bought and sold a diner, you bought and sold the diner for 17-and-a-half-times the weekly growth period. That was 17-and-a-half-times the weekly gross, so you knew when you bought a diner how much it was worth, so long as you knew the weekly gross.
Bill Frezza: If you keep the gross up or grow the gross you grow the asset.
Bob Zadek: Well put. Exactly right. Now let’s say you want to buy a diner. How do you know the gross? Half of the business was off the books. What you would do is you’d go there before breakfast — you would get there at six in the morning. You’d get the table next to the cash register. You would start drinking coffee until your bladder would explode, sitting there with a little calculator or with a pad. Every time the cash register went “ka-chunk”, you looked up and you wrote it down. You had to get breakfast, lunch, and dinner to get the whole picture.
Bill Frezza: So this is a real field audit.
Bob Zadek: Perfect. Exactly right. Then you can make an offer, and you would not be disappointed.
Bill Frezza: Bob, give us a little primer on how Greek diners were run. Take us a little deeper into it in terms of financing these and how your business rolled forward.
Bob Zadek: Well, when you operate a diner, of course you’re going to be paying taxes, and nobody likes to pay taxes, so what sprung up in the diner business to manage the tax obligations?
Bill Frezza: Is that a Greek way of saying it?
Bob Zadek: You could manage it if you conducted, in effect, two businesses. You had the business which was on the books, which went through the cash register, on which you paid taxes. Then you would have a cash business. The cash business was a cash business. Nothing was on the books. The problem was, generally, when you were being audited — whether it was a sales tax audit or the income tax audit — tax auditors could determine how much you were supposed to make based on how much you bought. They knew they had good numbers for what you bought. If you bought $10,000 a day in food you ought to have $20,000 in sales. Now the diner operators had a problem. How do they buy food without showing it? The answer is they buy it for cash. In fact, they sold for cash and bought for cash. There were two businesses operating in one diner: There was the invisible cash business, and the “on the books” business.
Bill Frezza: How carefully did they have to monitor these to make sure they got the balance right?
Bob Zadek: They had to be careful, but they know how to do it.
They also had to get cash. How do they get cash? They had lots of techniques. If they sold in cash, that was easy, but then you had the vending machine guy. Remember, every diner sold cigarettes in the lobby. In the anteroom, where you walked in to get out of the snow in the winter, there was a cigarette machine. If you wanted to put a cigarette machine in a diner — they’re all the same — you gave a cut to the diner operator. What would make the diner operator pick your cigarette machine with your Marlboro’s versus somebody else’s? Well, you would agree to make him a cash loan. It wouldn’t be a bribe, he would pay you back, but you’d make a loan to the diner operator in cash — $15,000.
Bill Frezza: Really, that kind of money for a cigarette machine? <sarcastically>
Bob Zadek: It was just a loan, and you would charge interest, but you would have to lend him the cash. Then you had the cash to go out and buy groceries and conduct the cash business. The same thing with the linen guy, and the plate guy, and the silverware guy. They all had to make loans.
When I started practicing law, I hooked up with Howard and Marty in Great Neck. Howard and Marty had a business of lending to diners. Marty was the older of the two. Howard was movie-star handsome. Marty was a bit older. How did Marty get into the lending to diners business? He used to have a linen route. He used to rent linen to the diners, but then he had to lend money to them. He found he was making more money on the loans than on the linen. He said, “Screw the linens. I’m just gonna be a lender.”
Marty became a lender to diners. The same people he had sold linen to, now he just lent to them.
Bill Frezza: They all knew him, because he had done business before.
Bob Zadek: They knew him, and more importantly, he knew them. He knew the good operators, and so he would lend to diners. As diners were bought and sold he would provide the financing.
Bill Frezza: Not just for short-term cash financing, but actual financing for buying and selling the business.
Bob Zadek: Yes, and they always needed more working capital to expand, to get more ugly fluorescent lights, or to redo an even more atrocious decorations, so they borrowed the money from this small community who financed the diners. Since I was the lawyer for the lender, this meant two things: first of all, at every loan closing, I walked out with huge boxes of baklava. I had baklava up the ying-yang. I had boxes of baklava in my attic. I couldn’t eat it fast enough. Second, it meant that in 10 years of living in Long Island, I never paid for a hamburger. I walked into a diner and I got a hamburger because I was the lawyer.
Nick the Greek
Bill Frezza: Bob, we had breakfast some time ago and that got me excited about having you on the show. You talked about a fella named Nick the Greek.
Bob Zadek: Nick the Greek — well, “the Greek” was superfluous. Also, one side note — I was a lawyer; I drafted these form documents, the same documents each time. Lawyers like to be efficient. In my documents, the owners would always have to guarantee the debt. You would type in their names, so they just had to sign. To save time, I would always have a signature line. The first name is always the same names. It was either Nick, George, or Steve. The last names were eight or nine syllables ending in -ous, so I typed in the -ous. I just had to fill in the first part. I would save time in the closing. Then their wives are always Anna and Marie, and they were guarantors as well. There’s Nick, George, and Steve, married to Anna and Marie, and those were the guarantors.
Then there was Nick. Nick was a rogue — good at operating diners, but he had a gambling problem. I lived in Westbury, Long Island, right near Roosevelt Field. The Westbury Diner was there on Old Country Road. Nick owned that diner. He also owned this Landmark diner in Douglaston. John McEnroe lived in Douglaston. It was upscale, right near Great Neck, Long Island. Nick had a gambling addiction. He was into the street for gambling money. And he needed money, so he did an arson. Arson is a verb — you can “do an arson.” He did an arson for the insurance money. The pastry chef was working late. Nick didn’t know that. The pastry chef died in the fire, and Nick went up the river. That meant that the Westbury diner now had to be sold, because Nick was in Sing Sing. Nick was up the river so his three dishwashers — Greeks — bought the diner, and my client financed them.
Bill Frezza: They financed three dishwashers.
Bob Zadek: They never failed. We had just closed on the sale of the Westbury diner to the three dishwashers. Two days later, I get a phone call. I’m sitting in my office, in Manhattan, and I’m accustomed to dealing with bankers and accountants. I get a phone call. The phone rings.
“Is this Mr. Zadek?”
I said, “Yes, hi..”
“This is Tony the meat guy.”
I said, “Who?”
“Tony the meat guy.”
I said, “How can I help you?”
He said, “Where’s my check?”
I said, “What are you talking about?”
He said, “Where’s my check? I want my check for the meat.”
I couldn’t understand what he was talking about. He said, “For the Westbury Diner, where’s my check?”
I said, “Look, call the diner — I’m the lawyer for the lender.”
Then I get a phone call from Sal — Sal the linen guy wants his check. I’m thinking what the hell’s going on? Why are these people calling the lawyer for the lender? I lived in Westbury, so I went home. I got off the Long Island Rail Road, and I went to the diner.
At the closing, when we lent the money, I gave these three dishwashers my business card because it’s a professional thing to do — that’s what you do when you’re a lawyer. You give people your business card. It was made in Boston. It was a really cool card.
And there it was — they had taken my business card, and scotch taped it to the cash register on the front. Whenever somebody came in for the check that Nick had stiffed them for, these guys didn’t speak great English and just pointed to my card.
Bill Frezza: You became a guarantor for Nick’s bad debts?
Bob Zadek: Until I took the card off the cash register. That was the diner industry. The remarkable thing was there are certain kinds of loans that never default, because the borrowers are assured of making money.
Bill Frezza: Or they could at least sell the asset for a reasonable price even if they were not doing well.
Bob Zadek: If you have a diner, you will make money just like a taxicab medallion — although that’s going down because of Uber — but for all of my life, medallion loans were a gold standard. No one ever defaulted on a taxicab medallion loan, because you had the cash flow. The great thing about diners was that, first of all, you had this insight into this subculture of Greek diners.
Greek diners would always use a corporate name, and it was always a Greek island. It was always Mykonos Diner Corp., Crete Diner Corp., or Athens Diner Corp. The name in the front was always the most American of names. It was the Oak Tree Diner, or the Hilltop Diner, Stagecoach Diner, because they want to be Americanized.
Bill Frezza: After being a lawyer and watching other people make money on these deals for so long, what got you into your own specialty finance business?
Bob Zadek: I had to correct what I observed to be a profound injustice. My worldview in the year 2000 was that I was pretty much smarter than anybody I haven’t met, including all of my clients. Here I was, the lawyer, and my clients were making so much money. I was pecking at the dirt, just making a living. I went to law school. I was a lawyer! I wasn’t making as much money as them. I had to become a lender.
I formed a company called Lenders Funding in the year 2000, so that I could get into the game. I could, in effect, lend money to my clients and share the good fortune that they had by lending money to businesses. I started lending money to my clients, and to some degree, to businesses. I’ve been doing that, in addition to practicing law, for the past 15 years. The best thing about it is that all of my clients are entrepreneurs. They all own their own business. I don’t represent the largest official lenders. First of all, I would have to go to a Men’s Wearhouse. I’d have to buy suits. I don’t want to do that. I’m done with suits. I had one suit and I couldn’t find it. I lend to entrepreneurs, and they lend to entrepreneurs. So all I do is interact with the salt of the earth, entrepreneurs. We lend to them, and I provide lending to my clients, and they lend to them.
Bill Frezza: This is based on your judgment and knowledge, not on Sarbanes-Oxley and Dodd-Frank.
Bob Zadek: Oh, no. I’m going to say a word that’s becoming in great disuse in America, which is “unregulated.” My world is a world of unregulated business activity, where the only rule is to be fair, plus freedom of contract. It’s magic because there are no regulators … yet who knows what’s going to happen? It’s magic because people just do business together, and they don’t need intrusion.
Bill Frezza: Bob, it’s been delightful chatting with you. I look forward to our next get together in San Francisco. Thanks for being on the show.
Bob Zadek: The pleasure is all mine. Thank you so much.
Bill Frezza: That was attorney Bob Zadek, who hosts The Bob Zadek Show every Sunday morning and the funniest storyteller I’ve ever talked to here on Real Clear Radio Hour — brought to you by the Competitive Enterprise Institute. I’m your host Bill Frezza. Real Clear Radio Hour is produced in conjunction with Real Clear Politics, America’s premier independent political website. Real Clear Radio is a not-for-profit donor-supported program. If you’d like to help us expand, please stop by realclearradio.org and hit the donate button or contact us to become a corporate supporter. That wraps up our show for this week. Join us next week, same time, same station. See you then.