BUSINESS
What Exactly Is Donald Trump's Deal?
Is he a buffoon? A genius? An exploration of the man, his brand, and his chronic bluster.
“How would you defend any fiscal policy, considering you’ve had to declare bankruptcy numerous times?,” Swaile wondered.
“I never went bankrupt,” Trump replied.
Before Stephanopoulos could clarify that perhaps Swaile was referring to the Chapter 11 filings of three highly leveraged hotel and casino properties that Trump had a stake in—separately in 1991 and 1992, and then, after restructuring, as a group in 2004 and again in 2009—Trump spoke over him. “Excuse me,” he said. “I never went bankrupt. And let me just tell you: If you look at our great businesspeople today”—he mentioned the leveraged-buyout kings and investors Carl Icahn, Henry Kravis, and Leon Black, and said he could name 25 others—“all of them have done the same. They use, and we use, the laws of this country, the bankruptcy laws, because we’ll buy a company. We’ll have the company, we’ll throw it into a chapter, we’ll negotiate with the banks, we’ll make a fantastic deal. We’ll use those [laws]. But [the bankruptcy filings] were never personal. This is nothing personal. You know, it’s like on The Apprentice. It’s not personal. It’s just business. Okay?”
He then gave Stephanopoulos examples of how he has taken advantage of the bankruptcy process to make small fortunes for himself. There was the time, in 2005, when he bought a massive mansion in Palm Beach, once owned by the businessman Abe Gosman, out of bankruptcy for $41 million, did some painting, and then sold it to a Russian fertilizer oligarch three years later for about $100 million—at the time, the highest price paid for a single-family residence in the United States. Then, in 2011, he bought, out of foreclosure, most of the rural-Virginia estate of the late billionaire John Kluge (Kluge’s ex-wife, Patricia, had turned it into a winery). Trump paid $7.9 million for the land, the vineyard, the winery, and some inventory and equipment, all of which the foreclosing bank had on its books for a total of $60 million. He later bought Kluge’s 45‑room manor house—named Albemarle—for $6.5 million from Bank of America, which owned the $22.8 million mortgage on the house. Patricia Kluge had initially listed the entire property for $100 million; Trump bought it for $14.4 million.
Not one to let a perceived slight die, when the question of bankruptcy resurfaced on Twitter on December 13, 2012, after Mike Stacey (a Mets fan with 55 followers) retweeted an ÜberFacts blog post detailing the bankruptcies of Trump-branded companies, Trump (who has more than 2 million followers) tweeted to Stacey: “I never went bankrupt.” He tweeted the same message to C. J. O’Leary, from Columbus, Ohio (58 followers), and to Lydia O, from Toronto (122 followers). To Dylawn, from Southampton, Ontario (42 followers), he tweeted, “Dopey, I never filed for bankruptcy.”
Most multibillionaires have better things to do than spend time on Twitter arguing the finer points of bankruptcy law. But Donald Trump is not your typical billionaire. He is the Paris Hilton of the business world: famous for being rich and famous. And he has proved again and again that he will go to extraordinary lengths to buff the public perception that he is a billionaire many times over and, despite what you may or may not think, one of the savviest businessmen around.
When Timothy L. O’Brien—then a staff writer at The New York Times—had the temerity to report in the paper of record, on October 23, 2005 (and in his book TrumpNation, published days later), that “three people with direct knowledge of Donald’s finances” had told him Trump was worth “somewhere between $150 million and $250 million,” Trump was incensed, and a few months later filed suit. “By anyone’s standards, this still qualified Donald as comfortably wealthy,” O’Brien continued in the article, “but none of these people thought that he was remotely close to being a billionaire.” Outrageous, countered Trump. “You can go ahead and speak to guys who have 400‑pound wives at home who are jealous of me, but the guys who really know me know I’m a great builder,” he told O’Brien.
Trump is, above all else, a skillful developer and an extraordinary deal maker. Yet as he has grown more financially conservative, his image has become more important to his ability to make money.
What infuriated Trump was that for much of the year or so that O’Brien had spent researching the book, Trump had been telling him that he was worth between $4 billion and $6 billion—and that was before he factored in the value of his “brand.” (Jonathan Low, a partner at Predictiv Consulting, a firm hired by Trump to value the Trump brand, later figured it was worth about $3 billion.) Apparently, these estimates still undersold Trump’s fortune. On a visit to Trump’s Mar-a-Lago club, in Palm Beach, O’Brien was thumbing through a brochure about the place on the nightstand and read, with amusement, that Trump had pegged his fortune at $9.5 billion. “Was Donald living in his own private zone of wildly escalating daily inflation, a Trump Bolivia?,” O’Brien wondered in The Times.This injustice could not stand. In January 2006, Trump sued O’Brien and his book publisher—but not The Times—for defamation in a Camden, New Jersey, court. Trump wanted $5 billion in damages. In July 2009, Superior Court Judge Michele M. Fox dismissed the case, arguing that Trump had not come up with “clear and convincing evidence to establish malice.” Trump appealed, and in September 2011, he lost again after the court found no evidence of “actual malice” on O’Brien’s part. And that was that, although Trump told me recently that he still believes O’Brien libeled him and that the laws are unfair to public figures like himself. We were talking about his business empire, and the lawsuit, and his deposition in the suit—which was released only in 2009, and has never before been fully explored in the press. “Essentially the judge just said ‘Trump is too famous,’ ” he told me. “ ‘He’s so famous that you’re allowed to say anything you want about him.’ Well, I disagree with that.”
Trump said he would not hesitate to sue anyone who he believes misrepresents the facts of his life or his businesses. As recent evidence, he cited the lawsuit brought by the Miss Universe Organization, which Trump owns in partnership with NBC Universal, against Sheena Monnin, a former Miss Pennsylvania, who claimed on her Facebook page that the Miss USA pageant—which the Miss Universe Organization owns—was “fraudulent,” “trashy,” and “rigged,” because the five finalists were determined in advance of the actual pageant. Trump said Monnin was “a beautiful young woman who had sour grapes because she wasn’t a top-16 finalist.” An arbitrator ruled in December that Monnin had acted with actual malice and awarded Trump $5 million. (Monnin notes that the ruling has not been confirmed by the court, and that her lawyers have submitted arguments for vacating the arbitration decision.) “That’s an interesting one,” Trump told me.
These legal musings aside, the question hangs in the air, like a trailing wisp of cigar smoke: Why did Trump spend five years—and by some estimates millions in legal fees—to pursue a libel suit against O’Brien when he had to know, as a larger-than-life public figure, that the bar he’d have to clear to win the lawsuit would be incredibly high? Why is Trump’s net worth so important to him that he has to hit people over the head with it?
“I think it’s very important to him, psychologically and emotionally, to be considered fabulously wealthy, because I think he sees it as part of a pecking order and a symbol of his arrival,” O’Brien told me.
Trump said the reason was far simpler. “I like people telling the truth,” he explained. “When people don’t tell the truth, I go after them, and I don’t like that. For instance, there have been many bad things said about me over the years, and in some cases they’ve been true. It doesn’t bother me. If I have a fault and somebody exposes that fault or talks about that fault, you won’t hear me complain. If I make a mistake and somebody brings it up, you won’t hear me complain. But when people make things up, or when people do things knowingly wrong, I always bring it up, even if it’s not so bad.”
He said he doesn’t understand why this “ancient history”—the O’Brien libel suit—is worthy of additional ink. He told me that when he first filed the lawsuit, one of his friends called him and told him that just by filing, he’d already proved he was really rich, because he was willing to show in court just how rich he was. “And I proved that I was much richer than anyone knew, but unfortunately, the judge basically said I wasn’t damaged,” he explained. “In other words, they said his story didn’t damage me, didn’t have any impact. The judge said I wasn’t damaged. But if you could, William, I don’t think you should even bring that up.”
America’s history is replete with men—it’s almost always men—who have traded profitably on the perception that their life traces an arc of uninterrupted, overwhelming, seemingly effortless success. The iconic self-made man may stand center stage in the culture, but not far to the side is his fun-house-mirror image, no less American and only a little less beloved: the sly huckster, the razzle-dazzler. It is too simple to say that Donald Trump is rich because you think he’s rich. He is, above all, a skillful developer, a highly creative thinker, and an extraordinary deal maker. Yet over the years, Trump’s image—the public perception that he has a Midas touch—has become increasingly important to his ability to make money. Paradoxically, as his business dealings themselves have grown more cautious and risk-averse since his earlier flirtations with, yes, bankruptcy, his bluster has become more essential—and he has missed few opportunities to turn up the volume.
Trump is a graduate of the Wharton School at the University of Pennsylvania, but as parts of the two-day, December 2007 deposition he gave in the O’Brien lawsuit make clear, his preoccupation with his retail image sometimes crowds out conventional financial thinking when it comes to calculating his net worth. In the deposition, Trump showed little or no understanding of the concept of “net present value,” the idea that because of the time value of money, something that is expected to be worth $100 in the future is worth less than $100 today. The concept is essential to calculating what a business is worth. The subject came up in a discussion of how Trump valued his golf courses. After conceding that he was only “modestly” familiar with the idea of net present value, he said it had something to do with “the value of the land currently after debt,” which sounds more like a definition of the equity value of an asset, rather than its net present value. His methods of valuing assets are more creative than precise, although Trump has his own internal logic for them. For instance, in 2005, he was paid $400,000 for a speech at the Learning Annex, but bragged on Larry King Live that his pay was actually more than $1 million because, as he explained in his deposition, the speech was promoted in billboard, newspaper, radio, and TV ads around New York City, creating extra value for his brand.
“Oh, absolutely, yes,” he replied. “That has a great value. It has a great value to me.”
He said in the deposition that he tries to be “truthful” in discussing his net worth, but the transcript reveals that he views the truth, in these matters, to be a function of emotion as much as hard science. “My net worth fluctuates, and it goes up and down with markets and with attitudes and with feelings—even my own feelings—but I try.” He’s no different than “a politician running for office,” he said. “You always put the best foot forward. So you don’t want to say negative things.”
O’Brien’s lawyers at Debevoise & Plimpton—among them Mary Jo White, who would become Obama’s 2013 nominee to chair the Securities and Exchange Commission—probed further into the idea that Trump’s net worth changes with his mood. “Yes, even my own feelings, as to where the world is, where the world is going—and that can change rapidly from day to day,” Trump said. “You have a September 11, and you don’t feel so good about yourself and you don’t feel so good about the world and you don’t feel so good about New York City. Then you have a year later, and the city is as hot as a pistol. Even months after that, it was a different feeling. So yeah, even my own feelings affects my value to myself.” He said it all depends on when the question is asked.
But the crux of the matter, he said in the deposition, was that O’Brien’s suggestion in The New York Times that he was worth some 20 times less than he believed had damaged his reputation and hurt his ability to do business. “And that is because you are perceived publicly, you believe, as a billionaire, correct?” a Debevoise lawyer asked.
“I am a billionaire,” Trump replied. “I’m not perceived. I mean, I am a billionaire. Of course, if you read Tim O’Brien’s writings and what was then transposed into The New York Times, you would certainly not think that. But I am a billionaire, many times over, on a conservative basis.” He said the implication that he was worth much less had hurt him. “And that was huge negative impact on me, for obvious reasons: for deal reasons, for psychological reasons,” he said. “I’m in a very big business—$150 million in my business is not very much when we’re building buildings that are worth, you know, hundreds of millions of dollars and even billions of dollars. And when somebody sees ‘Trump is worth $150 million,’ that is very damaging to me.”
As it happened, Trump had been looking at the nearby Lord & Taylor site, at 40th Street and Fifth Avenue, but Lorber convinced him that the other site was better. Trump met with the Italians. “It looked like it was a deal made in heaven,” he told the lawyers. He loved the site, and even though the meeting was preliminary, he felt that everything added up. “What I do for a living is deals, and I know when they’re going to happen and when they’re not,” he said. Recalling his thinking at the time, he continued, “This is a deal that was going to happen.” He said he suggested a mixed-use purpose for the building along the lines of how he had redeveloped One Central Park West, at Columbus Circle. He figured he’d get a 25 percent stake in the project, without putting up any capital. “I said, ‘It will be a tremendous success,’ ” he recalled. “The market was blazing hot. And they were all excited about it. And they left my office extremely excited.”
Trump said his net worth “goes up and down with markets and with attitudes and with feelings—even my own feelings ... You always put the best foot forward.”
But then the Italians read O’Brien’s article, and his book. “And Mr. Lorber called me and he said, ‘They’re not going to make a deal with you.’ ” Trump asked Lorber why not. “ ‘Because they read the article in The Times, and they read the book. They’re not going to make a deal.’ ” Trump spoke with the Italians himself, but it was no use. “Houdini couldn’t have sold them on the deal,” Trump told the lawyers. “So I lost potentially a couple of hundred million dollars on that deal because of this false book.”Lorber declined to be interviewed for this article, and his deposition in the O’Brien lawsuit was sealed, like much of the proceedings; Trump’s deposition became public when it was attached as an exhibit to a motion of summary judgment filed by O’Brien’s lawyers. But the fact is, 400 Fifth Avenue is now a gleaming 60-story hotel-and-condominium tower, designed by the star architects at Gwathmey Siegel, and built without Trump’s involvement. This does seem to lend credence to Trump’s argument that the kerfuffle over his fortune cost him some business.
Despite Trump’s bravado, not everyone considers him a top player in Manhattan’s clubby world of family-owned real-estate developers, where names like Tishman Speyer, Milstein, Silverstein, Durst, Ross, and Rose reign. Although his redevelopment of 40 Wall Street is impressive, the only office tower he built from scratch in Manhattan was Trump Tower, in the 1980s. His ambitious casino projects in Atlantic City in the late ’80s and early ’90s ended painfully; personal guarantees had him on the ropes for some $900 million before the debts were restructured—helping him stave off personal bankruptcy. His projects these days tend more toward those where he can put his name on some buildings—usually residential, or mixed-use residential and hotel. He develops or redevelops the site, manages the construction and design, and helps sell the units. He generally puts up none of his own capital and has no liability for the debt that the projects incur. Trump gets a fee and a minority stake for his trouble.
Trump told me his inactivity in the office-construction market in Manhattan is simply smart business. “I take that as a compliment,” he said of the suggestion that he is not anyone’s first choice to build an office tower. If high-end Manhattan office developers “don’t get $100 a square foot, they lose money, and they’re not getting $100 a square foot.” He pointed out, as an aside, that he does own 30 percent of two major office buildings, a fact few people know: 1290 Avenue of the Americas, in New York, and the Bank of America Tower in San Francisco. (His partner in both is Vornado Realty Trust.) He also said that he often wins RFPs in Manhattan, assignments many others coveted—for example, the Wollman and Lasker ice-skating rinks, both in Central Park.
In his deposition, he said repeatedly that he sees his approach—finding projects for which he doesn’t need to put up much of his own money but still gets a minority stake—as a virtue, and a mark of his growing stature. “I’ve seen the world go good, and I’ve seen the world go bad,” he said by way of explaining his strategy. By and large, it’s a different strategy from that of New York’s premier real-estate families, who would rather assume additional risk—putting up their own capital and taking on potential liabilities—for the chance of earning a greater financial reward if a project succeeds. Trump’s reluctance these days to write big checks or assume big liabilities may result from the shellacking he took in Atlantic City, or from his judgment of current market fundamentals, or perhaps simply from a shift in priorities toward wealth preservation as he has aged and realized he might be a mere mortal after all. (He proudly describes himself as a grandfather and a devoted family man—he has been married to his third wife, Melania, a former model from Slovenia, for eight years—and his friends confirm his devotion. He has five children, and the three oldest ones—Donald Jr., 35; Ivanka, 31; and Eric, 29—play important roles in his business empire.) Regardless of the reasons, Trump’s conservatism has made him more dependent on finding partners (on the front end of a project) and selling residential units or golf memberships (on the back end), which has only increased the importance of defending a Midas-like business image, and of keeping his name in the news.
“I’ve seen the world go good, and I’ve seen the world go bad,” he said by way of explaining his cautious strategy.
In the lawsuit, Trump claimed Deutsche Bank’s “predatory lending practices” had harmed his reputation, “which is associated worldwide with on-time, under-budget, first-class construction projects and first-class luxury hotel operations.” Deutsche Bank countersued Trump, in Manhattan, to collect on his $40 million guarantee. “This suit is classic Trump,” the bank said in a legal filing. “Trump is no stranger to overdue debt.” In March 2009, the two sides reached a legal truce in order to restructure the debt. In August 2010, the original loan was extended for five years. One of the lenders involved told me that the dueling lawsuits made the situation seem much worse than it was, and that everything has worked out. Trump “tends to take a litigious route if he thinks it will benefit him,” he said. “In the end, I don’t think it benefited him here, in the negotiations, but the fact is, it was a good resolution for everybody. It was a good resolution for him. It was a good resolution for the banks.” Trump insisted that I speak with his bankers from Deutsche Bank—“just to show you how good my relationship is”—but that never happened, because, despite permission from Trump, the bank said it has a policy against speaking publicly about its clients.Golf is a good prism through which to examine Trump, to assess his strengths, his foibles, his self-awareness (or lack of it), and above all his preoccupation with seeming invincible. He has developed 13 new golf courses—ranging in location from Aberdeenshire, Scotland, to Los Angeles, California—with a 14th course under way in Ferry Point, in the Bronx. He is proud of his ability to build golf courses when the odds are against him. For instance, in Aberdeenshire, “I got it zoned, and nobody thought it was possible to get it zoned,” he told me. “It’s the largest dunes anywhere in the world, the most incredible dunes. It’s the great dunes of Scotland. I bought them … and it’s a spectacular success.” About a year ago, he bought the Doral Golf Resort & Spa for $150 million. “Eight hundred acres in Miami, right smack in the middle of Miami,” he said. “We’re redoing it. We have the big Cadillac Championship there, which is a major championship, at Doral. In a year from now, which you will see, there won’t be anything like it. There just won’t be anything like it.” (He made sure to tell me that Deutsche Bank provided a $106 million mortgage for the Doral acquisition, even though he didn’t need its money. “We have a great relationship,” he said.)
Trump’s fascination with golf courses may stem in part from his personal interest in playing the game. He is, by all accounts, a terrific golfer. “I’ve won many club championships,” Trump told me. “And I was always the best athlete. But I’ve won many a club championship. It’s something that people don’t know unless they are with me and have played with me.” Jimmy Lee, the über‑banker at JPMorgan Chase, had played with Trump recently at one of his New York–area golf clubs. Trump wanted me to call Lee and ask him about his golf game. Trump “is more than legit,” Lee said. “He shot a 67 on his own ball, with me.” He said there were no, shall we say, “preferred lies,” either.
These days, Trump likes to say he has never been hotter. That is, when he’s not asserting that he is the best-known person in the world. Michael Cohen, his special counsel, said Trump has $800 million in cash in the bank. Not true, Trump declared: “Eight hundred? No, more than that … Not that that’s a bad number. But I have substantially more than that.”
He pointed out that while money was tight for others, it was plentiful for him. He made sure that I knew that something called “The Hollywood Rich List,” on the Web site Celebuzz, had just stated that he’d earned a “whopping $63 million” in 2012 from his books, speaking engagements, and The Apprentice. “And I’m not even in Hollywood. That’s like my part-time job,” he said. He had borrowed money for the Doral project only because interest rates are at historically low levels and he likes leverage. “Every single bank wants to do business with me, and the reason they want to, William, is because I really am a great developer,” Trump told me. “I build the best. A lot of people say, ‘Oh, he’s very promotional.’ I don’t think I’m promotional. I think what I am is the best developer. I think I have great product. When I do something, I build better.”
In passing, Trump referred to the recently concluded presidential election. He said he gave up thinking about the race because NBC was desperate to have him continue The Apprentice, and because he supported Mitt Romney and his policies. He told me that was a mistake: “I thought he could win, and he didn’t. He just didn’t resonate, for whatever reason, and he didn’t catch on, and it’s too bad. He’s a nice man, and it just didn’t work. So in retrospect, I probably wish I’d stayed in. Frankly, I think I would’ve won.”
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