(FORTUNE Magazine) – REAL ESTATE syndicator Craig Hall couldn't have built his $3-billion empire without big doses of energy and moxie. One day last year, when a secretary brought a phone into Hall's private office where he was pedaling away on an exercise bike, the 36-year-old workaholic kept right on pumping as he chatted with a high executive of Dallas's mighty InterFirst bank. Hall needs more energy and moxie than ever for a desperate game of chicken he has been playing with his creditors. They have threatened to foreclose on dozens of his properties that aren't generating enough rent to meet mortgage payments. If he can't extract concessions from lenders, Hall vows, he will do what he has already done once: seek Chapter 11 protection for his properties, thereby staving off foreclosures for years. He has already sued one savings and loan for usury, claiming it charged him excessive interest rates, and he won't rule out suing other thrifts. If he does not get his way peacefully, he serves notice: ''It will be a war zone out there.'' Apart from his properties, the other thing Hall is trying to hang on to is his battered reputation as the boy wonder of Texas real estate. Nowadays he is portrayed by rivals as one of the clumsiest plungers in real estate history. Just when inflation was abating but mortgage rates were still sky-high, Hall paid premium prices for dozens of properties, tacked on fat fees up front, and sold the buildings to thousands of investors seeking deep tax shelters. In retrospect, only a resurgence of real estate inflation would have bailed these deals out. Says an executive at a big Texas financial company: ''Nice try, but so long, fella.'' Until recently, Hall claims, he was worth $225 million. But his wealth is melting fast. He has personally lent money to some partnership ventures so they can keep up mortgage payments and has given savings and loans a share of his own equity in properties in order to win concessions. He has also lost nearly $30 million on his investment in an oil company he bought control of in November. ''I figure I will have lost $100 million of my own money in about six months' time,'' he says matter-of-factly. ''If that's all that happens, I'll consider myself lucky.'' Some of Hall's investors remain surprisingly loyal. They have already benefited from the tax write-offs that were the main lure of Hall's syndications and claim not to be troubled that some deals are in the red. ''I'm looking to do more deals with him this year,'' says an accountant in Atlanta. He is impressed that Hall, who could have walked away from his troubled properties and kept the money he made in up-front fees, is hanging in and fighting it out. Says the accountant, ''He will not let his investors down.'' Hall's solely owned company, Hall Financial Group, could go under in the worst scenario. But he should be able to keep a large chunk of his wealth. In addition to real estate, he has invested in racquetball courts, a shirt manufacturer, savings and loans, a health maintenance organization, and 10% of the Dallas Cowboys. ''Half the money I've made was not in real estate,'' he says. He hankers to score big as a takeover artist. After making passes at two companies and selling his shares at a profit, he has raised a pool of money to finance takeover battles. Says Lee Faulkner, head of a Dallas securities firm, ''Hall wants to be another Carl Icahn.'' Hall has been phenomenally successful in raising real estate money. Since 1969, when Hall Financial Group got its start by turning around ailing garden apartments in Hall's home state of Michigan and other rust-belt states, it has gathered $950 million from 7,000 limited partners, mostly in private offerings. Some $815 million of that was raised in just the last three years after Hall moved to Dallas. Hall combined the investors' money with lots of debt to buy properties galore, including more than 55,000 garden apartments concentrated in the South and Southwest. As general partner arranging the deals and managing the properties, Hall's company kept at least 15% of what it raised as up-front fees -- fees that a Dallas developer calls ''too high.'' In addition, Hall's company got 6% of the properties' yearly rental income as a management fee. In January, Hall stunned his investors by disclosing that he was in trouble. Half-a-billion dollars' worth of properties owned by 65 of Hall Financial Group's 200 limited partnership ventures were not earning enough to pay off mortgages, he said in a letter, and he was about to confront his lenders. He would get them to the bargaining table by withholding mortgage payments, he said, and bargain with them to stretch the payback period and reduce interest rates that run as high as 17%. Playing chicken with lenders is risky. If they foreclose, Hall and his investors would lose more than their equity in the affected properties. Tax rules require that if a property is foreclosed within a few years, investors must hand back to Uncle Sam up to 100% of the money they saved by using rapid depreciation to shelter other income. Since the taxes saved in ''deep shelters'' can exceed the investment, the effect can be calamitous. Hall's tough tactics have worked so far. Some savings and loans that financed Hall's buildings are so weak financially they cannot afford the write-downs they would have to take if they foreclosed. These S&Ls have renegotiated terms on about $270 million worth of property. But Hall's biggest lenders include two failed thrifts, California-based Westwood Savings & Loan and Beverly Hills Federal Savings & Loan, which have been taken over by federal regulators. In early May these S&Ls were not saying what they planned to do, while Hall claimed to be on the verge of winning concessions from them. ''If lenders don't work things out with us,'' Hall warns, ''there will be a series of Chapter 11s on the properties, and Hall Financial will go Chapter 11.'' ONE LENDER laboring to work out Hall's problems is impressed with his chutzpah. ''He's all of 5 foot 7,'' this executive says, ''and he has the ego of a 6-foot-7 lineman.'' Photos that adorn Hall's brochures show him with hair brushed straight back, sporting an Errol Flynn mustache and glaring at the camera. He is the author of two of the best-known books on tax-sheltered real estate financing, and the company's six-story headquarters, Hall Financial Center, is illuminated nightly with floodlights. That ''high profile,'' Hall concedes, is exacerbating his woes. Less conspicuous real estate syndicators with similar problems are spared the media attention he is getting, he complains. ''Some people,'' he says, ''are enjoying my difficulties.'' He could long ago have avoided this fate, of course, by sitting back and enjoying his wealth. ''He tried to slow down once,'' said Thomas Becherer, a business partner years ago in Michigan. ''He found it uncomfortable.'' His mansion in north Dallas is filled with artwork, including the elaborate antique music boxes he greatly fancies, but he spends little time enjoying them. His wife, Mary Anna, and their four daughters -- two by previous marriages -- see him mainly when he knocks off work for a few hours on Sunday , evenings. ''My hobby,'' he says, ''is what other people call work.''

Hall was anything but brash when he was growing up in Ann Arbor, Michigan. His was a pleasant, middle-class childhood, he says, with one complication. At an early age he was diagnosed as mildly epileptic and put on phenobarbital to control the seizures. It worked as a sedative and depressant too, making it difficult for him to concentrate in school. ''When he was 10, we discovered that he couldn't read,'' says his father, Herbert, now a management consultant. ''He was faking it.'' Craig is harsher: ''I was the class clown and the class idiot.'' After he was taken off the drug in fifth grade, he was transformed. ''I came out of my shell,'' he says. ''I went out for sports. I was elected to a lot of things. I became very outgoing in a short period of time. I was even made mayor of Ann Arbor for a day.'' He has never, it seems, stopped making up for lost time. ''Most people don't live up to a fraction of their potential,'' he says. While a student at the University of Michigan, he worked 40 hours a week moving furniture at a hospital. His real estate career began during college, when he learned of a decaying frame house occupied by a passel of college students that was up for sale for $27,000. He put $4,000 down, fixed it up, and sold it three years later for $49,000. Even before the first house was sold, he found a bigger one for $7,000 down. Unable to afford the down payment, he formed his first syndicate, selling $250 shares to fellow students. That display of enterprise attracted the attention of J. David Mackstaller, a young lawyer who was teaching a business law course. ''Hall's focus was all business,'' recalls Mackstaller. ''He didn't pursue the pastimes of others. No fraternities, not much socializing.'' In 1970, when Hall discovered a 128-unit garden apartment in Ypsilanti for sale, he and Mackstaller bought it. It was half empty and in terrible shape. ''It was the kind of place where people got murdered,'' says Mackstaller. ''One manager used to carry a gun.'' They patched walls, planted flowers, coped with tenant unions that almost put them out of business, and struggled to attract new tenants. Mackstaller sold out to Hall in 1971. ''I'd had it,'' he says. Hall, who quit school that year to run the apartments, was just warming up. By the time he was 21 he owned 20 properties. In the mid-1970s he discovered tax-shelter financing. He sold limited partnerships, at $66,000 a shot in one early project, by pointing out that the apartments faced a long turnaround. Each investor would be able to take losses for tax purposes of $250,000 in the first five years. For an investor in the 50% tax bracket, this was sweet music: for each $66,000 investment, he could realize a $125,000 cut in taxes on other income. When the project was sold for $41 million in 1985, Hall could claim that the return to investors was ''infinite,'' because in effect they had no money in the properties. The tax man had returned their stake and then some. That kind of talk, combined with a string of successful turnarounds, worked powerful magic on investors. After the 1981 tax law allowed faster depreciation, demand for limited partnerships in Hall's and other tax shelters skyrocketed. The torrent of money began to overwhelm Hall's organization. Instead of ferreting out bargain buildings that would benefit mightily from a fresh coat of paint, it banked more and more on inflation to boost rents in booming cities such as Dallas and Phoenix. In Houston, depressed after a drop in oil prices in 1982, Hall bet on a swift rebound of the city's economy. Hall Financial Group scooped up 25,000 apartments in Texas and Phoenix in three years. It overpaid by a wide margin, critics contend. ''If the top price in Dallas was $45,000 a unit,'' says a Dallas builder, ''Hall paid $50,000. Then he'd add as much as 20% in fees, boosting the limited partners' cost to $60,000. The only lenders who would touch it were savings and loans. They'd add points, boosting the cost to $66,000.'' Sometimes the cost was hiked further by ''flipping'' -- selling and reselling the property quickly. Hall found a 778,000-square-foot office building in north Dallas named Park Central III. Instead of selling it directly to his limited partners, he arranged a sale to Westwood Savings & Loan for $58.4 million. A few days later Westwood sold it to Hall's limited partners for $63 million. William Hillmeyer, chief operating officer at Hall Financial, says the flip was justified because Westwood was able to buy the property cheap in the first place. Others say Westwood wanted extra profits because the deal was risky. Hall's company collected two broker's fees: $1.5 million when Park Central III was sold to Westwood, and another $1.8 million when his partners bought it. In all, 25% of the money the limited partners invested went to Hall organizations as fees. Westwood charged 15.5% a year interest on the mortgage. Then the office market collapsed because of overbuilding, and now Park Central III, partly vacant, cannot meet the mortgage payments. Similar woes plague thousands of Hall apartments in Dallas, Phoenix, Houston, and elsewhere. WHEN HALL'S PROBLEMS first surfaced last year, the company estimated that rental income on all its properties would fall $24 million short of the $200 million needed for mortgage payments. By midyear the projected shortfall was $30 million, and the bad news kept coming. ''On the week of December 20,'' says Hall, ''we did more analysis and found we were $40 million short for 1985 and would be $50 million below our needs in 1986.'' He decided to confront his lenders. ''I was already lending my own money back into these projects,'' he explains. ''We couldn't keep throwing money into them without trying for a permanent solution.'' Is a solution possible? Hall says he has persuaded some lenders to slash interest rates from 16% to 9% or 10%. Repayment schedules have been stretched out several years. The agreements have not come cheap. To persuade lenders to go along, Hall says, he has given them half the general partner's equity in the properties, worth $20 million at today's prices and possibly twice as much when the loans expire. In addition, he has loaned $33 million of his own money to the partnerships, money he could lose if the lenders eventually foreclosed. Hall has had to dig deep in another way. In four cases where he has allowed foreclosure to proceed, he gave the limited partners a portion of his own general partnership interest in other syndications to reimburse them for the tax consequences. The failed thrifts, which hold $265 million in loans on Hall properties, have been his biggest headache. ''I think those institutions will take a very tough stance on foreclosures,'' says Allan G. Bortel, a financial services analyst for Shearson Lehman Brothers. ''There are no stockholders or management jobs to protect anymore, so the regulators are just looking to preserve what they can for these busted institutions.'' Nevertheless, Hall says he has letters of intent from the failed thrifts and several other lenders signaling their willingness to ease mortgage terms. Together with the concessions won earlier, he says, the restructurings would cut that $50- million-a-year shortfall to $12 million. If so, Hall Financial Group would still be operating in the red but would have a better chance to survive. Hall says that if Beverly Hills Federal and Westwood try to foreclose, he could protect his investors from the tax consequences for five years or more by putting the properties in Chapter 11. These uncertainties raise questions, to put it mildly, about Hall's ability to go on selling partnerships. Hall predicts his fans out there will put another $100 million into his tax shelters this year, less than a third the 1985 figure. Partnership sales were down by a third in the first quarter, to $27 million, and have since fallen further, says Hillmeyer. The company may shift course in the future, he says, broadening its offerings to include other investment vehicles such as real estate investment trusts, which shun debt and pay dividends from the rental income on properties they own. HALL ALSO HOPES to spend more time on his other investments. Five years ago he realized a $31-million profit on shares in a Michigan health maintenance organization. Last year he made $8.6 million when he called off a takeover attempt and sold his shares in First Federal of Michigan, the state's biggest thrift, back to the S&L. He next made a pass at Cluett Peabody & Co., maker of Arrow shirts, and picked up a $7.6-million profit when white knight West Point-Pepperell galloped in and bought Cluett. But then he lost all his 1985 stock profits, and more, by buying control of Dallas-based May Petroleum last December. As the price of oil tumbled, Hall's $44-million investment fell in market value by almost two-thirds. Dallas is still shaking its head. ''Here's this kid from Michigan,'' says a Dallas oil analyst, ''leveraged to the hilt. He made all his money from inflation, and he was going to show the oil community how to succeed in oil.'' Hall's brain still bubbles with other moneymaking ideas, not excluding greenmail. Last year he started a ''special situation'' fund to buy interests in public companies. ''I've never taken greenmail before,'' he insists, ''but I won't say I'd never do it.'' He says he has raised $15 million so far, and investors have committed themselves to kick in another $30 million in the next two years. But all that is on hold as Hall tries to keep his real estate empire together. It has been exhausting, he says, and to unwind he writes his thoughts in a journal before he drops off to sleep. ''I haven't been able to bring myself to read what I've written,'' he says. ''It's too painful.'' No doubt some of his limited partners are having trouble sleeping too.