Maclean’s Magazine Sept. 22, 1997

By John Schofield

There was a time in 1992, as the rubble of his family’s shattered real estate empire rained down around him, when Philip Reichmann considered leaving it all behind. For what, he wasn’t sure. All he could think about was that Olympia & York Developments Ltd., the company he had grown up with, had disappeared in a cloud of debt. As a small boy, he had tinkered with scale models of O & Y skyscrapers. At 21, he became the first Reichmann of his generation to join the firm. He rose to become director of leasing and took a seat on the board of its U.S. subsidiary. Suddenly, his world came crashing down. “For a fleeting moment, I thought maybe I ought to do something different,” recalls the 39-year-old son of Albert Reichmann, who, along with brothers Paul and Ralph, had built O & Y into one of the world’s pre-eminent commercial landlords. “Then I decided to focus on the things I had learned. I wasn’t going to throw that away.”

Far from squandering his hard-won experience, Philip Reichmann is today assembling his own real estate empire on the remnants of the old. He and his partner, Frank Hauer, Paul Reichmann’s son-in-law, are inevitably driven by the family’s age-old passion for business. But they are also on a mission of sorts–a drive to redeem the family’s tarnished reputation after the largest failure in Canadian corporate history.

Avoiding, as always, the glare of publicity, other members of the secretive Reichmann clan are doggedly engaged in the same crusade. Ralph’s 34-year-old son Abraham is the motivating force behind Destination: Technodome, a mammoth, $750-million amusement park now being planned for suburban Toronto–and the Reichmanns’ largest single project since Canary Wharf, the sprawling London office complex whose runaway costs helped to seal Olympia & York’s fate. Abraham’s brother Steven, 37, hopes to make his own mark as chairman of a high-tech company that allows firms to market their wares over the Internet. Barry, 31, Paul’s eldest son, is on a quest for dominance in Canada’s fast-growing nursing home industry. With this month’s $220-million takeover of Cambridge, Ont.-based Versa-Care Ltd., his Toronto-based CPL Long Term Care Real Estate Investment Trust is now the country’s second-largest operator of nursing homes. Finally, in what must qualify as the most unusual venture for the famously staid family, Philip Reichmann’s 33-year-old brother David is the co-owner of the largest chain of in-line skate stores in the United States.

The older generation, too, has been far from idle since since the dark days of 1992. Of the three elder Reichmanns, Paul–the visionary who masterminded O & Y’s meteoric rise and took much of the responsibility for its disastrous fall–has so far staged the most significant comeback. He owns 70 per cent of Central Park Lodges Ltd., which spun off the independently operated CPL Real Estate Investment Trust earlier this year, and is gradually increasing his stake in First Canadian Place, the Toronto skyscraper that ranked among the family’s first major edifices. He is also pursuing plans to build an office tower in Mexico City and, in 1995, was part of a consortium that regained control of Canary Wharf for $1.6 billion.

Even so, the senior Reichmanns’ former glory is likely gone forever. Now in their 60s, they stand almost no chance of being able to recreate an empire that, at its height, encompassed premier office properties in some of the world’s largest metropolises and controlling interests in Canadian corporate giants such as Abitibi-Price Inc. and Gulf Canada Resources. In 1991, the family ranked fourth on Fortune magazine’s list of the world’s top 202 billionaires, with an estimated $17 billion. A year later, they disappeared from the list.

Any hope of restoring that legacy now rests with the next generation. Ironically, O & Y’s collapse freed the sons of Paul, Albert and Ralph–the women of the family are not active in business–to exercise their own entrepreneurial gifts. If the company had endured, their lives might have been very different. “With the old O & Y, a company that was worth some $20-odd billion, there was always the expectation that I’d find my way into some arm or some division of O & Y someplace,” says David Reichmann in one of his sun-dappled skate emporiums in Miami Beach. “Whether I’d be running Abitibi-Price today or Gulf Canada, who knows.”

In a sense, O & Y’s downfall also lifted an enormous burden from the shoulders of the younger Reichmanns. “Not only were they constrained in growing up Orthodox, but they had to grow up Reichmanns–which are some very big shoes to fill,” says Anthony Bianco, a New York City writer who chronicled the family’s epic story earlier this year in his book, The Reichmanns. The emotional consequences of those pressures were revealed most dramatically in the death of Ralph’s eldest son, David, who succumbed to an apparent cocaine overdose in Israel in 1994. “He was among the most ambitious members of the generation,” Bianco says, “and he just wasn’t able to handle it.”

Of all the members of the younger generation, Philip Reichmann and Frank Hauer seem most consumed with restoring the family legacy. Since Olympia ‘s demise, the two have created one of Canada’s fastest-growing real estate and property management companies. Late last year, they acquired a controlling interest in what remained of another fallen kingdom, Camdev Corp., once the proud domain of developer Robert Campeau. After receiving shareholders’ approval at Camdev’s annual meeting in Toronto on July 30, Philip stood proudly on the podium and officially renamed the company O & Y Properties Corp.

It is virtually the same name Reichmann and Hauer chose in 1993 when, in a feat of moxy, they convinced many of Olympia & York’s creditors to let them continue managing the buildings that had just been seized from the family. “It required them to go out and build their business directly with the companies that were fighting them,” says Steven Sharpe, a Toronto lawyer who helped shepherd Olympia & York through bankruptcy. They called their new firm O & Y Properties Inc. Philip Reichmann acknowledges that a number of clients wondered why he was keeping the O & Y name. But four years later, he says, the dark cloud that enshrouded the initials has largely dissipated: “Today, we hardly ever bump into any baggage.”

Still, some investors appear less forgiving than others. A Camdev share offering last spring raised $50 million–$20 million short of the target. In his own half-full interpretation, Philip describes the offering as “an indication of huge confidence,” but some analysts say there is a lingering wariness around the Reichmann name. “There’s no doubt that a collapse of O & Y’s magnitude has some implications,” says one Bay Street market watcher.

Philip says those concerns are unfounded and that the family has learned from its mistakes. He says he is more cautious than his father and his uncles, more consultative, and committed to growth through equity offerings, not debt. And for now, at least, that growth will be tightly focused on the market he knows best: Canada.

As the first Reichmann to run a publicly traded company, Philip has encountered a host of other changes, as well. “It’s a whole different side of the business world that we hadn’t experienced before.” Around the office, he encourages a casual atmosphere and refuses to be called Mr. Reichmann. Ultimately, he says, his business credo comes down to one word: responsibility. “There is absolutely nothing that I’m more passionate about. I’m here to create growth and wealth and do that at a steady and conservative pace.”

The company’s growth has been impressive. Its portfolio of managed properties has increased to 2.16 million square metres from 810,000 square metres in 1993. In July, Reichmann and Hauer bought three Toronto office towers for $81 million. The company is now on the hunt for more acquisitions. Within five years, Philip predicts, O & Y Properties Corp. will be one of the country’s top real estate companies.

In contrast to the more austere lifestyles of the older Reichmanns, Philip clearly savors the fruits of his work. He drives a $72,000 Lexus LX450 sport-utility vehicle, and owns three classic cars: a 1956 Corvette, a 1957 Thunderbird and a 1957 Edwards America, one of only two left in North America. But the conspicuous consumption ends there. Like other family members, Philip remains steeped in the traditions of his faith. He lives with his wife, Hannah, and their five children in the same predominantly Orthodox neighborhood, near North York’s Lawrence and Bathurst streets, that the Reichmanns have inhabited since the 1950s. When he is not working, he devotes time to family or charitable activities. “Our role in the community is very important to us,” he says. “Those values haven’t changed.” If Philip has his way, neither will the Reichmanns’ importance to Canada’s real estate industry.

Long after his cousins found their places in the family empire, Barry Reichmann was studying the Jewish scriptures at a yeshiva in Spring Valley, N.Y. But in 1993, at the urging of his father, Paul, he decided it was time to make his way in business. A year later, Paul acquired a 70-per-cent stake in Central Park Lodges, a Toronto-based operator of nursing homes and seniors’ residences. The job of president was open.

Barry stepped in and has never looked back. In August, Central Park Lodges completed construction in Calgary of its 20th retirement home; it is currently building another facility in Florida. When the takeover of Versa-Care is finalized next month, CPL Real Estate Investment Trust, which is 13.7 per cent owned by Central Park Lodges, will own 43 nursing homes across Canada and manage another 12. Barry’s vision for the company is classic Reichmann–on a grand scale. “We believe that this acquisition will help us achieve our stated goal of becoming the premier provider of nursing home services in the country,” he says.

Central Park Lodges formed the investment trust earlier this year to fuel more rapid expansion in the nursing home sector. Operating like a mutual fund, the trust trades on the Toronto Stock Exchange and generated $85 million in a public offering in May. It plans to issue more units this fall to finance the latest deal.

Barry Reichmann is convinced that the aging population–the number of Canadians over 75 is forecast to increase 62 per cent over the next 20 years–means a bright future for the trust. To guide its growth, he has surrounded himself with an all-star cast of business veterans. George Kuhl and his family, who own 30 per cent of Central Park Lodges, and Bill Dillane, the trust’s chief operating officer, both have more than 25 years’ experience in the nursing home industry. And the trust’s board is a who’s who of the Canadian establishment. Along with Paul Reichmann, it includes former Bank of Canada governor John Crow, CTV chairman Douglas Bassett and Vancouver billionaire Jimmy Pattison.

Barry’s job is to guard the family’s stake in the firm. “Nothing I’ve seen would indicate he believes he is an expert in providing health-care services,” says Dillane. “What the Reichmanns bring to the table is the real estate and financing component of our business.” That said, Dillane describes the junior Reichmann as an “astute businessman” with a genuine entrepreneurial flair.

When it collapsed in 1992, Olympia & York’s debt load stood at a staggering $18.6 billion. The calamity might have destroyed many families. Remarkably, though, the Reichmanns’ lifestyle has change little from the days when their fortune rivalled that of the British Royal Family. “Everyone has worked harder than we would have,” says David Reichmann. “But there really wasn’t a significant impact other than, OK, we have to think a little bit more about what we do and play our game a little bit differently.” Only five years after the fall, that’s exactly what the Reichmanns are doing.