#38. Conrad Hilton: Dreams in a Depression

18:56Conrad Hilton:He's awed by the sheer scale of it. It's a monument and he wants it desperately. The problem is that the Stevens, like virtually everything in the hotel industry, had been destroyed by the Depression. and then during the war the U.S. Army bought it for six million dollars and converted it into barracks and classrooms for the Air Force. 10 ,000 air cadets lived there. The Grand Ballroom became a mess hall. By the time the war is ending the hotel is a stripped out shell and the government puts it up for sale and here I think this is important Conrad makes what he himself later acknowledges as one of his few strategic mistakes.

19:37Conrad Hilton:He figures no serious hotel man will bid enough to get it. So he doesn't bid at all. He waits. He's right that no hotel man makes an adequate offer, but a millionaire Chicago contractor named Stephen Healy does. Healy buys the hotel, restores it completely using his own suppliers and labor force, and suddenly the Stevens is back in business, and Conrad doesn't own a piece of it. So Conrad boards a train from California to Chicago, he tells friends and family, I'm not going to leave Chicago until I get that hotel. Now, I want you to hold on to that statement because this is the moment I find so revealing about Conrad's character.

20:16Conrad Hilton:He makes a public commitment. He states his intention clearly and definitively. And then he goes in and does exactly what he said he would do, no matter how painful and convoluted the process gets. His first meeting with Healy goes really well. They shake hands on a deal for a$500 ,000 profit over Healy's investment. Conrad is ready to move forward. And then Healy disappears. Doesn't answer calls. But he finally reappears and wants$650 ,000. Conrad grits his teeth and agrees. Healy disappears again. Comes back and wants a million dollars. Conrad agrees again. Even though he hates dealing with people who renegotiate after a handshake.

20:57Conrad Hilton:Healy vanishes one more time. The deal appears to be dead. While all of this is happening, Conrad's friend, Chicago industrialist Henry Crown, suggests that maybe Conrad should look at the Palmer House instead. The Palmer House is the grand lady of Chicago's Loop, the hotel that Marshall Field's former partner Potter Palmer built, famous for its Empire Room where every major entertainment star has performed. Conrad goes to see the trustee of the Palmer House estate and makes an offer of$18.5 million. and then in a move that's either brilliant or borderline dishonest depending on how you look at it he has to convince the trustee that the stevens deal is completely dead because the trustee won't show him the financials if he thinks conrad might become a competitor so conrad tells the trustee the stevens deal is finished there's no way i'm going to own that hotel he reviews the palmer house books even in 1933 at the absolute nadir of the depression the hotel makes a gross operating profit of$1.36 million.

21:59Conrad Hilton:It's a machine and Conrad is ready to

22:02Inflection Moments Host:buy. And then Stephen Healy reappears. Healy says he'll sell the Stevens for$1.5 million profit. Conrad has been waiting months for this moment. He demands Healy sign the paperwork on the spot. Right there and then, Healy does, and now Conrad has the Stevens.

22:19Conrad Hilton:But now he's in trouble with the Palmer House trustee, who has just been told by Conrad that the Stevens deal was dead. He has to go back and convince the trustee that he was telling the truth about his intentions at the time, that the Stevens deal genuinely appeared to be finished. And somehow it works.

22:35Inflection Moments Host:He buys the Palmer House too for$19.385 million. And this detail tells you everything.

22:43Conrad Hilton:The trustee turns down a higher offer from another buyer because he's given Conrad his word. So Conrad Hilton gets on the train back to California, having in one extraordinary stretch of negotiations acquired two of the greatest hotels in America. He later writes with characteristic understatement, I had gone to Chicago hoping to buy one gold mine and came home with two. Under Conrad's management, the Palmer House goes from good to extraordinary. He finds his beloved wasted space, adds 60 bedrooms and more shops and lifts the annual profit to$1.75 million. The Stevens, renamed the Conrad Hilton in 1951, becomes the flagship of the entire chain.

23:25Conrad Hilton:Occupancy regularly exceeds 90%. But here's what I think is the real lesson of Chicago. It's about Conrad's mentality. Conrad makes a public declaration. I'm not leaving until I get that hotel. And then he does whatever it takes for as long as it takes to make good on it. He absorbs renegotiations, he navigates contradictions, he keeps all the plates spinning, and he walks out of Chicago with both. That willingness to pursue multiple objectives simultaneously, to keep moving forward even when a deal looks dead, to make bold commitments and then back them up with relentless action, that's a signature Conrad Hilton move, and it's about to define the biggest acquisition of his entire career.

24:15Conrad Hilton:Okay, inflection point number four. And we need to step back to 1931 for a moment because the story actually starts there. It's the middle of the Great Depression and Conrad is in the depths of his worst crisis. He's borrowing money from bellboys. He can't pay his rent. He doesn't know if he's going to lose everything he's built. And he opens a magazine on a train trip across Texas. And there's an article about the grand opening of the new Waldorf Astoria Hotel in New York. The article describes it as the most extraordinary hotel in the world. Nearly 1 ,500 rooms, six kitchens, 200 chefs, 500 waiters, a private railroad siding in the basement, track 61, allowing the wealthy to arrive by private rail car directly into the hotel.

24:57Conrad Hilton:Its own private hospital, its own zip code essentially, it had cost$42 million to build in 1931 in the depths of the depression. and Conrad, who can't find$30 ,000 to save his Texas hotel chain, reads this article and writes across it four words, the greatest of them all. And then he puts it under the glass top of his desk where he sees it every morning, every single day for 18 years. Now, I want to be clear about what's happening here because it would be very easy to file this under, you know, inspiring but kind of naive. Maybe you're thinking, okay, this is a nice story, but isn't this just a vision board?

25:34Conrad Hilton:but if you think about it like that it's going to be a misreading this is a very deliberate psychological act by a man who understands something very important but the thing separating him from the waldorf astoria is not fundamentally money but it's time and to survive and grow through the time required he needs to keep the goal visible and alive he describes this in his autobiography. And it's one of the most extraordinary passages in any business autobiography. He says, in retrospect, 1931 was an outrageous time to dream. But the economic crisis didn't keep me from dreaming big, praying hard, or thinking long.

26:17Conrad Hilton:And then he starts circling the Waldorf. Every time he's in New York, every time he walks past that building on Park Avenue, he tips his hat to the hotel he's going to own. People who see him doing this think he's eccentric. But what he's doing is maintaining a living, present, daily connection to his goal. He's treating it as it's already real. In the meantime, he gets closer. In the early 40s, when the Waldorf's bonds are trading at catastrophically distressed prices, four and a half cents on the dollar, Conrad starts buying them. Wall Street thinks he's insane. The Waldorf has been a financial black hole for years.

26:54Conrad Hilton:Even after it opened in 1931, it ran at a loss for most of the depression, with only 232 guests registered at one point in 1932, forcing the president to slash 500 from the staff of 2000. But Conrad knows hotels. He knows the Waldorf is not fundamentally broken. It's just been caught in the worst economic environment of hospitality in American history in a city that overbuilt before the depression. So he buys the distress bonds. He convinces friends to join him. And then at exactly the right moment, he sells those bonds at 85 cents on the dollar. He turns$22 ,500 into$500 ,000, half a million dollars from securities that Wall Street had written off as worthless.

27:40Conrad Hilton:He has more faith in the future of the Waldorf Astoria than anyone around him, and the numbers are proving him right before he even owns the place. And then by the late 1940s, the moment arrives. His own board of directors, it's worth noting, is not enthusiastic. Most of them are Midwestern and Western businessmen who think the Waldorf is a money-losing white elephant. The head of Paramount Pictures, Frank Freeman, who sits on the board, tells Conrad, okay, you can try to buy it, but I sure hope you don't succeed. But Conrad doesn't care. He's been staring at that photograph for 18 years. On October 12th, 1949, Hilton Hotels Corporation gained control of the Waldorf Astoria, the building and management contract for somewhere between three and four million dollars, 18 years after Conrad cut out that magazine photograph.

28:32Conrad Hilton:When he first walks into the Waldorf as its owner, he writes about the experience in Be My Guest. He says, I suddenly realized that I was seeing a dream, a wild, all but impossible dream fulfilled, and that can't help but fill a man with awe. He says, I was giving thanks not for the Waldorf, but for the all-American right to dream with the actual possibility of seeing that dream come true. You know, Conrad is celebrating the vindication of the act of dreaming itself. It's a remarkable thing to say. And then, of course, he finds the wasted space. He looks at the famous Peacock Alley, the grand promenade of the Waldorf where wealthy New Yorkers have paraded for decades, and he notices the four massive decorative columns.

29:15Conrad Hilton:He installs display cases for jewelry stores to rent into those columns. By the end of 1950, the first time in its 19-year history, the Waldorf Astoria is operating at a profit. The Time magazine cover on Conrad, which runs in December 1949, says plainly, the deal that gave him the greatest satisfaction and made him the nation's leading hotel man came when he made the Waldorf Astoria a Hilton hotel. The numbers tell the rest of the story. When Hilton Worldwide eventually sells the Waldorf Astoria building in 2014, the sale price is$1.95 billion. From a management contract that had cost$3 to$4 million in 1949 and a full building purchase for$35 million in 1972, that is one of the great long-term returns in the history of real estate.

30:05Conrad Hilton:But what I want you to take from this inflection point is the 18-year time frame in a world that is absolutely obsessed with speed, with getting there faster, scaling fast, compressing timelines with quarterly results, Conrad sees a hotel building in 1931, knows with certainty that he's going to own it, and spent the next 18 years positioning himself to make that happen, not dreaming passively, actively moving towards it, buying the bonds, acquiring the surrounding properties, building the financial strength, and the industry reputation that would eventually make the deal possible. That is a completely different relationship with time than most business leaders ever develop.

30:53Conrad Hilton:All right, final inflection point, and we're in the late 1940s. Conrad has just bought the Waldorf Astoria. He has the Steams and the Palmer House in Chicago. He has properties in New York, California, Texas. He has become, as the press call him, the nation's leading hotel man. And he decides, not content with any of that, that he wants to go international. Keep in mind the context here because it's important. International travel in 1947 is nothing like what you and I know today. There are no commercial jets. Transatlantic crossings are still largely by ship. The idea of an American hotel company operating in a foreign country is genuinely exotic, almost eccentric.

31:34Conrad Hilton:And Conrad's board of directors, composed mostly of Midwestern and Western businessmen, are appalled by the idea. His board votes him a paltry$500 ,000 for international expansion, essentially a rounding error, and sets up the international division as a separate subsidiary, specifically so that its failure would not affect the main company. They were essentially giving Conrad a sandbox to play in, so that when he inevitably failed internationally, it wouldn't take down the core business. But Conrad doesn't care. Here's how the international story actually begins. And I think it's one of the great accidental competitive advantages in business history.

32:11Conrad Hilton:In 1947, the Puerto Rico Industrial Development Company decides that they want to build a luxury hotel in San Juan to attract American businessmen and help develop the island's economy. They write letters to all the major American hotel companies, inviting them to come down and discuss a partnership. Only one person responds and responds quickly, warmly, and personally. Conrad writes back to Teodoro Moscoso, the Spanish-speaking chief of the Puerto Rico Development Corporation, and begins the letter, mi estimado amigo, my dear friend. And Time Magazine's account of this is wonderful. They say, after that, Conrad had no difficulty signing a partnership deal with Puerto Rico.

32:51Conrad Hilton:That's so cool to me. And it blew my mind when I first read it. The competitive advantage that got Conrad into the international hotel business wasn't capital, it wasn't scale, it wasn't technology either. It was two words in Spanish, mi estimado amigo. The Caribe Hilton opens in San Juan in 1949. It's the first Hilton hotel outside the continental US. It becomes one of the most profitable hotels in the entire chain, and it creates something else entirely. The barman at the Caribe Hilton, a man named Ramon Monchita Marrero, creates a new drink five years later, in 1954, when management asked him to develop a signature welcome cocktail for guests.

33:30Conrad Hilton:After three months of experimentation, he settles on a recipe he calls the pina colada. I mean, come on, one letter in Spanish and you've got the most profitable hotel in your chain and the invention of the pina colada. That is an incredible return on your investment. But back to the strategic picture. Conrad formalizes the international push by creating Hilton Hotels International as a wholly owned subsidiary in 1948. And then he establishes a set of principles for international operations that are genuinely revolutionary. Every international Hilton will be built and owned locally. Conrad doesn't want to be seen as an American company planting a flag on foreign soil.

34:09Conrad Hilton:He wants to be seen as a partner, a collaborator, a good neighbor. He makes sure each international hotel sources local materials, trains and employs local workers, and reflects the character of the city that it's in. He instructs his team that each hotel should be a little America and of goodwill may speak the language of peace. There is, and I think this is one of the most underappreciated thing about Conrad Hilton, a genuinely philosophical dimension to his international ambitions. He truly believes that hospitality can be a force for international peace. He believes that people from different countries stay in the same hotel, share the same dining room, sit at adjacent tables, and treat each other with courtesy and warmth that a good hotel demands, they are less likely to see each other as enemies.

34:56Conrad Hilton:His slogan for Hilton International is world peace through international trade and travel. Now that might sound like marketing copy, but I think Conrad actually believes it. And then the international expansion accelerates. Hotels in Mexico City, Istanbul, Madrid, Cairo, West Berlin, Havana before the Cuban Revolution, Montreal, and then in 1954, in what was at the time the largest real estate transaction in the history of the world, Conrad acquires the entire Statler Hotel Company for$111 million. Eight hotels with two more under construction. The New York Times covers the closing of the deal with genuine awe.

35:37Conrad Hilton:Over 2 ,000 document signed in a single day. Conrad himself calls it the most significant transaction in the hotel sector's history. By the time Conrad steps back from active management, the Hilton Hotel is on 188 hotels in the United States and 54 more overseas. And it started with a letter in Spanish. I think there's something profound in that. And I think it's a lesson that is available to every single person listening to this right now. You don't have to have the most money. You don't have to have the biggest team. Sometimes the move that changes everything is just being the one person who actually shows up, actually responds, and actually treats someone like they matter.

36:25Conrad Hilton:All right, let's step back because this is the part of the episode that I find the most valuable and the most personally fascinating. Because again, the promise of this podcast is to pull apart what makes the decision making and strategic thinking of the most successful entrepreneurs in the world genuinely different. Not just what they did, but how they thought. And when I look at Conrad's five turning points, the Mobley, the Depression, Chicago, the Waldorf, and the international push, I see three things that show up over and over again. Three threads that run through every single one of those moments.

36:59Conrad Hilton:The first one is that he sees systems when everyone else sees chaos. Look at the Mobley. Everyone who walks into that hotel sees a rundown mess operating in a state of barely controlled frenzy. Conrad walks in and sees a supply and demand system that is completely underserving its market. And within days, he's already re-engineering it, converting the dining room, shrinking the front desk, installing the newsstand. He looks through all of this chaos to the underlying structure. And you see this again and again. When the depression hits and everyone else is panicking, Conrad is making structured deals.

37:37Conrad Hilton:The moody loan with his exit clause, the El Paso laundry, dairy, beer arrangement. When the Waldorf's bonds are cratering, he's buying them at four cents on the dollar because he can see the underlying asset through the noise of the financial crisis. When the Stevens Hotel is a stripped-out army barracks, he can see the world's greatest hotel hiding inside it. This is a specific cognitive skill, the ability to hold a long-term picture of what something can be while simultaneously navigating the short-term chaos of what it currently is. Most people can do one or the other, but Conrad does both at the same time.

38:11Conrad Hilton:The second common thread is how he makes commitments before he has the resources to back them up and then moves heaven and earth to honor them. Think about Dallas. He commits to building a million-dollar hotel when he has a fraction of that money. He raises it in tranches, deals within deals, the contractor, the banker, the landowner, all the while keeping the whole structure from collapsing. Think about Chicago. You know, I'm not leaving until I get that hotel. Think about the Waldorf. 18 years of a public, daily, non-negotiable commitment to a goal that most people thought was delusional. By making his commitment publicly and irrevocably, Conrad removes the option of a retreat.

38:51Conrad Hilton:he only has one direction left which is forward most entrepreneurs wait until they have all the resources before they make the commitment but conrad makes the commitment first and lets the commitment pull the resources into existence that is important and it's worth sitting with the third common thread is that his deepest competitive advantages are personal not financial here's the thing that no one talks about when they talk about conrad hilton we talk about the deals they talk about the hotels, they talk about the Waldorf, but they don't talk about the fact that that bellboy gives him$300. They don't talk about the fact that the gas station attendant fills his car on his own dime.

39:32Conrad Hilton:They don't talk about the fact that all it takes to win the Puerto Rico contract against every major hotel company in America is a letter in Spanish. Conrad's greatest competitive advantage is the trust and goodwill he's accumulated with people at every level. bellboys bankers business partners government official he treats all of them with the same fundamental respect and courtesy and in the moment when resources run out when financial capital is zero that social capital is the only thing keeping him alive his mother had instilled in him the idea that prayer is the best investment you'll ever make and i think conrad interpreted that more broadly than just its religious meaning.

40:13Conrad Hilton:He understood that investing in relationships, in your reputation, in the trust of people around you, that is the one investment that depression can't wipe out. The banks can call your loans, the creditors can take your hotels, but they can't take the fact that your bellboy believes in you.

40:36Conrad Hilton:So here's what keeps coming back to me about Conrad Hilton's story. We live in a world that's absolutely obsessed with speed. We're building fast, scaling fast, moving fast, and there's nothing wrong with speed. But Conrad's story is a pretty powerful argument that the most impowerful variable is not speed, it's persistence. It's the willingness to stay in the game long enough for circumstances to turn in your favor. 18 years. He stares at that photograph of the Waldorf for 18 years. And when the moment arrives, he's ready because he spent 18 years building the financial muscle, the industry reputation, and the strategic positioning to actually make the deal happen.

41:16Conrad Hilton:The depression doesn't break him. It teaches Conrad something that all good years in business couldn't have taught him, that he can survive the worst. And that knowledge gives him a kind of fearlessness in the years that follow that I think accounts for a lot of his most audacious moves. Because when you've already borrowed$300 from a bellboy to buy food, at the end of the day, how scary is a$111 million acquisition?

41:39Inflection Moments Host:Thank you for listening. We'll talk soon. Thank you for joining us on Inflection Moments. If today's story sparked a new perspective or challenged your thinking, be sure to share it with someone you know loves this stuff as much as you and I do. Maybe it's a college buddy, your water cooler buddy, or maybe even someone in the family group chat. If you enjoyed this deep dive, make sure to leave a five star review and subscribe to our channels so you can be the first one to hear what we've got coming next. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, sign up for our newsletter.

42:13Inflection Moments Host:The link is in the show notes. Until next time, keep building and talk soon.