The Rostoffs Come to Town
Ernie Booth of Ernie’s Texaco and his wife, Carolyn, had suspicions about the new owners of the Hotel Northampton. David Rostoff came over to try to sweet-talk them into opening up a line of credit at the garage for the hotel and Carolyn said the fact that they had her name just right tipped her that something was wrong. She figured they must have gone to the Registry of Deeds to learn her name. So, they caucused and told them no. It was cash on the barrelhead.
“To Northampton people”, she says, “I’m just Mrs. Ernie. ”
If they had said yes to the line of credit, they probably would have ended up eating thousands in unpaid receivables when they left town. Many other small businesses did.
“We want to change the face of Northampton for the next fifty years.” said David Rostoff in a glowing article in a 1986 issue of the Western Massachusetts Business Review. They vowed that the Hotel Northampton would be transformed into “the Parker House of Western Massachusetts.” As time went by, they promised more, a $20 million. conference center, an addition to the Hampshire County Courthouse, a pool on top of the roof, a horse-drawn carriage route through downtown. It was everything the local Chamber of Commerce could have dreamed about. Who had the money to finance all this?
Heritage Bank and the federal government, through its Urban Development Action Grant (UDAG) program. HUD was putting millions into local developments to fight urban poverty. Later Mike Smith would catch grief from the board for all of his loans to the Rostoffs. Not all his fault, he told the FBI at his first interview. They saw Covell first and got his okay for a big line of credit that they could draw on.
At its high point in the late eighties, the main Rostoff organization, Patriot Development, controlled more than $200 million in real estate in New England and Florida. Patriot was partners with a Rhode Island outfit, STE Development. David and Steven Rostoff and their partners in Patriot came to Northampton at the height of their power and influence, driving Jaguars and big new BMWS. Every time Paul Benjamin saw Steven Rostoff he would have a new beautiful woman on his arm.
When they first came to Northampton, some people were a little suspicious of the new owners of the hotel. Owners had come and gone, and many of them had just neglected the old hotel. Their remark in a Gazette interview that Northampton was an “artsy little town” rubbed people the wrong way. They walked into the city hall meeting room dressed to the nines, cashmere overcoats, leather gloves, silk ties.
“Who do these wops thinks they are?” City Council President Paul Bixby asked people after a city council meeting with the Rostoffs was over.
But then they hired Paul Benjamin to manage their public relations, and he got them in to talk to the publishers of the Gazette. The newspaper came around and the editorials grew warm and supportive. I overheard two city councilors talking one night, and one of them asked the other who these Rostoffs were. “Good people” said the other councilor. He said the DeRoses had vetted them. The red carpet was rolled out. City councilor and realtor Pat Goggins went to work for them putting together an expansion plan, and as County Commissioner he helped approve a property transfer that gave them free parkland next to the Hampshire County Courthouse for an open air restaurant. Dave Musante advocated for them, and the Gazette, the city, and the Chamber of Commerce backed them getting a UDAG to rebuild the hotel. It was a $22 million dollar project. In this huge project, almost all the money being risked was federal and state loans and bank money. All the developers would commit to the venture was $100,000 or 0. 45% of the financing. The Federal government demands a developer put in 5% to 10% of their own money.
In those days Northampton politics was blue collar, grey-haired and conservative. Ed King type Democrats ruled the roost. David Musante had a city council that routinely went along with what he wanted. Liberals were lonely voices in the wilderness. I circulated a petition against the scale and siting of the development (a big five story building fronting on Gothic Street); I got some allies and discovered that the Mayor had signed off on the application for the city before the first public hearing and without a city council vote. HUD regulations required city councils to approve the developments. City planner Gene Bunnell resigned in protest, charging that he had been shut out of the planning process. HUD turned them down, citing them for having only one open hearing instead of two.
When they came back to the city council for the second round of funding, the Musante steamroller was going full blast. The Rostoffs met quietly with City Councilor Paul Bixby at Dunkin Donuts, and he ended up coming on board. All these provisos had been tacked on to satisfy various Northampton constituencies. The project was scaled down a little, and there was affordable housing, day care, and parking. The Chamber threw its weight behind the proposal, the Gazette campaigned for it, and it went through. Lucky for us taxpayers, HUD shot down this effort too.
“Even back in 1982, you could see the warning signs of a bank getting out of control. Senior people had promised a lot of people in the merging banks that they would keep their jobs, but there’s no need for two controllers, or two treasurers or two accounting departments. There was all kinds of confusion and bad feelings. When I came back to Heritage NIS in l986, I spent six months just straightening out the fundamentals, like getting our tellers to balance out their accounts the same way. We had to write off about $150,000 of bad loans. We’d find a big check clearing and nothing to back it up. A bank officer would write someone a loan without creating a file.
“Following the Initial Public Offering. (IPO) we got 60 million in three days. $60 million. Say you got $60 million one day, what would you do with it? And guess what. Now you have new bosses. You are responsible to stockholders who want a return on their money. At the bank the day after the IPO, though, things hadn’t changed. We still had our old bosses; we still had the old crew of people that were all mutual savings people. They were good at dealing with home mortgages, but they were green at commercial lending. And there was no way in our area of the state that we had the kind of normal home mortgaging work that night have absorbed that kind of money. “
“Oh, he used to scare the hell out of me. He came in, in a bad mood, and he’d start yelling. This wasn’t right, that wasn’t right. He’d threaten to go to Covell, he threatened to fire me more than once. .
And the hell of it was that to the customers, he could do no wrong. He walked on water. Of course, they loved him. He never asked any questions, never raised any objections. Want to finance a widget factory in Hong Kong? Great idea. Oh no, no problem with your not knowing anything about widgets. And to Covell he was his original fair-haired boy. His son and Mike went to school together. Covell hired him practically right out of college So we were all at his beck and call, buttering him up all the time to stay on his right side so we could rise up the ladder too.”
One of Mike Smith’s office staff