725 Fifth Avenue
The Trump Organization presides over the assets of the Trump family and includes not only the assets of the flamboyant Donald J. Trump but those accumulated by his father, Fred C. Trump. These assets consisted, in the late 1990s, of apartment buildings, mostly in New York City's borough of Brooklyn, owned and/or managed by Trump corporations; a variety of properties in Manhattan, also owned and/or managed by Trump corporations; and, in the late 1990s, more than 40 percent of Trump Hotels & Casino Resorts, Inc., owner and operator of five gambling casinos and hotels in Atlantic City, New Jersey, and a riverboat casino in Indiana. Donald Trump established a high-profile business empire in the 1980s that almost collapsed under a mountain of debt during the 1990-91 recession. Although forced to divest himself of some properties, he remained an important presence in Manhattan real estate development. As chairman of Trump Hotels & Casino, he headed Atlantic City's largest hotel-casino operation.
Fred Trump's Career: 1927-74
Fred Trump represented his life as a climb from poverty to riches, but in his muckraking biography of Donald Trump, Wayne Barrett reported that the elder Trump's father was engaged in the real estate business and left a comfortable estate to his widow and children on his death in 1918. Fred Trump built about 300 houses in the New York City borough of Queens from 1927 to 1932, when the market dried up in the depths of the Great Depression. His career revived in 1934, when he was able to acquire a list of serviceable mortgages from a bankrupt Brooklyn realtor. Financing from the newly created Federal Housing Administration enabled Trump to build many more Brooklyn homes, typically selling for $6,000 apiece. During World War II he built FHA-backed housing for naval personnel and shipyard workers near Virginia and Pennsylvania shipyards.
Between 1947 and 1949 Trump completed Shore Haven, a 1,314-unit apartment complex of six-story apartment buildings on a 14-acre site in southern Brooklyn. An even larger development, 2,000-unit Beach Haven, followed. His biggest project was Trump Village in Coney Island. Consisting of 4,600 Brooklyn apartments in seven 23-story buildings--five of them cooperatives, two rental--it was completed in 1965. This one was constructed with state, rather than federal, funding and essentially ended Fred Trump's career as a builder. Previously said to have padded his costs to obtain excessive FHA mortgage money, he was now accused in public testimony of having fraudulently lined his pockets with state funds. Trump ultimately returned $1.2 million and, his reputation under a cloud, was unable to obtain funding for further large residential projects he had planned on the sites of former Coney Island amusement parks.
Donald Trump joined the family business in 1968 upon graduation from the University of Pennsylvania's Wharton School. By 1974 he was president (with his father as chairman of the board) of an assortment of Trump entities, laying claim to the management of 48 privately held corporations and 15 family partnerships. His principal job was managing the apartments, whose number varied between 10,000 and 22,000, according to different estimates. The value of the Trump empire was estimated in the early 1970s at $200 million by Fred Trump and between $40 million and $100 million by other sources.
Acquiring Manhattan Real Estate: 1974-88
Donald Trump was determined to take the enterprise into Manhattan. As head of the Trump Organization--which at the time had no legal existence--he took out, in 1974, an option (with no money down) to purchase railyards along the Hudson River north and south of midtown owned by the bankrupt Penn Central Transportation Co. Trump planned to build a huge residential complex on the 76-acre northern segment, but opposition by West Side resident groups would make the plan unfeasible until the 1990s. He persuaded the city to build a new convention center on the 44-acre southern segment. Although unable to win the construction contract, he collected a $500,000 broker's commission.
Trump also was interested in Penn Central's decaying Commodore Hotel, on East 42nd Street just east of Grand Central Station. Eventually a deal was reached in 1976 whereby a state agency received the property and leased it for 99 years to a Trump entity, which would share in the profits with the city. Trump, who obtained an unprecedented 40-year tax abatement from the city--the first ever granted for a commercial property--then lined up a construction loan guaranteed by his father and the Hyatt Corp., which became the joint partner. The shell of the hotel was enclosed in a chrome-and-mirrored-glass façe. Completed in 1980, the rehabilitated structure opened as the 1,400-room Grand Hyatt Hotel.
Trump's signature building was the Trump Tower, built on the northeast corner of 56th Street and Fifth Avenue. Assembling lots, purchasing air rights, and securing rezoning enabled him to put up a 58-story office, retail, and residential complex with a six-story atrium shopping mall and a sawtooth exterior shape of 28 different surfaces cascading in a bronze-and-dark-glass sheath. The Equitable Life Assurance Society of the United States, which owned the land and helped obtain financing from Chase Manhattan Bank, was Trump's joint partner. Completed in 1983 at a cost of $201 million, the building was a hit; by 1986, 251 of the 268 condominium apartments had been sold for a total of $277 million. The partnership retained ownership of the retail and office space and won a ten-year tax abatement in court. Trump installed his family in a penthouse double triplex and bought out Equitable in 1986.
Following on Trump Tower's heels, the 36-story, Y-shaped Trump Plaza residential cooperative at Third Avenue and 61st Street was completed in 1984 at a cost of $125 million. More of a problem was 106 Central Park South, a 15-story apartment building Trump bought in 1981 along with the neighboring, 38-story Barbizon Plaza Hotel (for which he paid only $13 million but received a $65 million mortgage loan). He envisioned a huge condo on the combined sites but was unable to oust the rent-regulated tenants, who were protected against eviction. When Trump offered to house homeless people in vacated apartments, he was slapped with a tenant harassment suit. In the end the tenants stayed, their building's facade harmonized next to that of the refurbished Barbizon, which became Trump Parc, with 340 condominium units advertised in 1986 at between $180,000 and $4 million. In 1985 Trump paid $72 million for the St. Moritz, the aging hotel across the street from Trump Parc that also faced Central Park.
Trump's last Manhattan hotel purchase was the Plaza, the French Renaissance landmark at the southeastern corner of Central Park, one block east of Trump Parc. He purchased it from the Bass Group in 1988 for a staggering $393 million, or $500,000 per room, making it the most expensive hotel purchase in history. Trump received a $409 million loan from Citibank and personally guaranteed the $125 million equity portion. Simultaneously, he sold the St. Moritz to Australian magnate Alan Bond, reportedly for $100 million more than he had paid for it.
Trump's option on the northern segment of the Penn Yards had expired in 1979, but after other developers failed to build on the site, he purchased it in 1985 for $115 million. Trump's "Television City" plan for the site included an agglomeration of five buildings extending to a height of 150 stories and a landscaped platform supporting a collection of 8,000 apartments, two office buildings, open space, and parkland above television and film studios, a retail mall, and a massive parking garage. It died in 1987, when NBC decided to renew its quarters in Rockefeller Center. The successor, the 14 million-square-foot "Trump City" development project, did not win the needed city approval.
Atlantic City and Other Ventures: 1980-90
Trump's first investment in Atlantic City came in 1980, when he (with his father) purchased 98-year leases on properties bordering the Boardwalk. After the projected casino was licensed in 1982, Holiday Inns Inc.'s Harrah subsidiary agreed to invest $50 million in a partnership. Trump was responsible for the construction of Harrah's at Trump Plaza (soon shortened to Trump Plaza), a 39-story casino-hotel that opened in 1984. Harrah's originally managed it, but in 1986 Trump borrowed $250 million to buy out the company's interest. He had bought the Hilton Corp.'s casino-hotel for $320 million in 1985, which opened as Trump's Castle Casino Resort. An addition to the Castle, a 14-story Crystal Tower of luxury suites, was completed in 1990.
Even these deals paled beside his plan to take over Resorts International, the troubled casino company that was the largest landowner in Atlantic City, and its unfinished Taj Mahal, the world's largest casino. Outbid for voting control of the company in 1988 by Merv Griffin, Trump nevertheless obtained his objective--the Taj--for $280 million and issued $675 million in junk bonds to pay for the acquisition and completion of the casino, which opened in 1990. He spent another $115 million in 1989 to buy two more properties flanking Trump Plaza. One of these was the Atlantis, a 500-room hotel-casino without a gaming license that he renamed the Trump Regency. The other consisted of the Penthouse, a half-built hotel-casino, and its parking-garage site.
Trump indulged his lavish lifestyle by purchasing Mar-A-Lago, a 118-room Palm Beach mansion in 1984, and the world's second largest yacht, a 282-foot-long craft that he renamed the Trump Princess and docked next to Trump's Castle to entertain high rollers, in 1988. In partnership with Lee Iacocca, he also paid $41 million for a 32-story residential condominium, which he named Trump Plaza of the Palm Beaches, in West Palm Beach. In 1983 he purchased the New Jersey Generals of the struggling U.S. Football League as the opening gambit in a scheme to move the team into an indoor, publicly financed stadium in New York City to be called the "Trumpdome." The league and the stadium proposal folded in 1987. By his own estimates in court papers, Trump lost about $22 million on the venture.
Trump's interest in another glamour business&mdashrcraft--resulted in his purchase of bankrupt Eastern Airlines' Boston-New York-Washington shuttle in 1989 for $365 million, paid with a Citibank loan that accepted as collateral the airline's aging jets and $135 million in equity backed only by Trump's personal guarantee. Renamed the Trump Shuttle, this venture required $85 million in capital and operating costs in its first year alone. By then he also had paid $23 million for a fleet of helicopters he dubbed Trump Air. Trump also moved ahead with the construction of the Trump Palace, a 55-story residential condominium building on a site at Third Avenue and 69th Street that he had bought in 1985.
When the U.S. economy fell into recession in 1990, Trump's highly leveraged business empire threatened to collapse like a house of cards. Entities of the Trump Organization, or Donald Trump personally, had incurred more than $5 billion in debt--$8.8 billion, according to one source--of which almost $1 billion had been drawn solely on Trump's personal guarantee. Big New York banks had financed $3.75 billion worth of debt. They reduced their risk and collected fees by syndicating the loans to some 70 other banks, including British, French, German, and Japanese institutions. Most of this money was recovered after subsequent restructurings, but some $600 million to $800 million may have been lost. Forbes had estimated Trump's worth at $1.7 billion in 1989, making him the nation's 19th richest man, but two years later it assessed his worth at minus $900 million.
An August 1990 bailout pact allowed Trump to defer almost $1 billion in bank debt but required him to make certain payments on more than $1 billion in additional bank debt. It also gave the banks second and third mortgages on nearly all of Trump's properties. In return for being released from his personal guarantee on about $960 million of debt, Trump gave up ownership of the Trump Shuttle and all but a small stake in the Plaza. Also lost was the West Palm Beach building and the Trump Princess. Trump Air was dissolved and its helicopters sold to pay debts. The Mar-A-Lago was turned into a club. Even Trump's Boeing 727 jet was repossessed (but later repurchased).
Temporarily unaffected was $1.3 billion in casino bonds, but in December 1990 the casinos and property group of the Trump Organization defaulted on a $50 million loan used to fund the Taj Mahal. Trump subsequently agreed to cede half of the casino to bondholders as part of a 1991 restructuring, known as a prepackaged bankruptcy, in which new credit agreements were legally authorized.
During the first part of 1991 the Trump Organization negotiated with creditors of the other casino holdings concerning a revision of the debt. A crucial, mysterious $3.3 million payment on the Trump's Castle debt was traced by a reporter to Fred Trump, who apparently auctioned some of his Brooklyn and Queens apartments to raise the funds. Otherwise, however, Trump could count for help in this quarter only on his own stake in his father's estate, which bankers estimated at a maximum of $150 million. Still alive in 1997 at the age of 92, Fred Trump had, according to a biography of Donald Trump by Harry Hurt, turned over the management of his estate to Donald's younger brother, Robert.
Like the Trump Taj Mahal Casino Resort, the Trump Plaza Hotel and Casino and Trump's Castle Casino Resort underwent prepackaged bankruptcies in 1992 to restructure their huge bond debts. Trump Plaza bonds and debt were converted to lower-interest bonds and four million shares of preferred stock for the creditors. In exchange for a reduction in the interest rate on the Trump's Castle bonds, the creditors received half the equity in the property.
Trump also lost the Penthouse and Trump Regency to banks but leased them with options to buy. He reopened the Penthouse--renamed the East Tower--in 1995. He also won a gambling license for the Regency, which was renamed Trump World's Fair. He then exercised his options and bought both properties back for in excess of $200 million. The Trump World's Fair and Plaza East (in the East Tower) casinos opened in 1997.
Trump Plaza Hotel and Casino went public in 1995 as Trump Hotels & Casino Resorts, Inc., selling ten million shares of common stock at $14 a share. A secondary stock offering in April 1996 sold 13.25 million shares at $32.50 a share. This company also included a subsidiary that opened, in 1996, a gambling riverboat, named Trump Indiana, on Lake Michigan at Gary, Indiana.
In April 1996 Trump Hotels & Casino acquired the Taj Mahal for $40.5 million, plus assumption of its debts. The company, through Trump Atlantic City Associates, issued more than $1.1 billion in new mortgage notes to redeem the Taj Mahal's $780 million in mortgage bonds due 1999 and the Trump Plaza's $340 million in mortgage notes due 2001. Five months later, Trump Hotels & Casino acquired the money-losing Trump's Castle (renamed Trump Marina in 1997) for about $490 million in stock, a transaction that included the assumption of about $314 million of the hotel-casino's debt. The acquisition raised Trump's stake in the public company to about 40 percent. Trump Hotels & Casino Resorts grew to six casinos with the integration of the World's Fair and East Tower properties into Trump Plaza in 1997.
Trump Hotels & Casino Resorts was now an awesome agglomeration of Atlantic City properties. Revenues reached $976 million in 1996, but the company lost $65.7 million, mostly because of an extraordinary $59.1 million charge for redemption of notes and writeoff of deferred financing costs. The company's underlying weakness--a long-term debt that reached $1.7 billion in mid-1997--caused the stock to fall below $10 a share by the end of the year.
Trump's plan for the northern segment of the old Penn Central railyards received approval in 1992 in scaled-down form. The proposed development, renamed Riverside South, now was to consist of 5,700 apartments, 1.8 million square feet of office space, 350,000 square feet of retail space, and parking for 3,500 cars. Trump did not have the financing to develop the property, but in 1994 he signed a joint-venture agreement with a consortium of Asian investors, led by two of Hong Kong's biggest developers. He was said to have received a 30 percent stake in the project, with responsibility for constructing and managing the 18 buildings and seeking regulatory approvals, while putting up no cash. According to one source, however, he had no actual equity in the project and would begin to get a share of the profits only after the developer syndicate recovered its investment, plus interest. (The first two Riverside South buildings began to rise in 1997.)
Again in 1994, Trump's relish for high-profile deals was evident when he formed a joint venture with two foreign investors who had paid $42 million for the Empire State Building. Trump became general partner, but his stake in the venture was unclear. In any case, other realtors had 81 years remaining on a lease of the landmark building that gave them almost complete independence from the owners, who would only receive an annual rental of under $2 million during the life of the lease. In 1995 Trump bought 40 Wall Street, a 72-story office building. He paid less than $8 million for the property, but it was 89 percent vacant, and the remodeling he envisioned would cost at least $100 million.
The Trump International Hotel & Tower, a slender 52-story structure at the north end of Columbus Circle that was formerly the Gulf & Western office building, was being converted to luxury residential condominiums, with a Trumpian bronze-and-dark-glass outer skin. Trump Organization units were in charge of construction, sales, and management but provided little or no cash. Besides fees for these services and the use of his name, Trump received a penthouse in the building and a stake in the hotel's restaurant and garage. Work began in 1995 and was completed in 1997.
In 1996 Trump bought the Miss USA, Miss Universe, and Miss Teen USA pageants from ITT Corp. and then sold half of the property to CBS, which was broadcasting the pageants. He said he wanted to create marketing tie-ins to raise their visibility, possibly including an agreement for a top modeling agency to hire the winners and a new line of Miss Universe cosmetics backed by a major beauty company.
Trump sold his half-share in the Grand Hyatt Hotel to the Hyatt Corp. in 1996 for $142 million. This enabled him to extinguish the remainder of his personal indebtedness. Forbes estimated his worth at $1.4 billion in October 1997--up from $450 million the previous year.
Principal Subsidiaries: Trump Enterprises Inc.; Trump Corporation; Trump Development Company; Wembly Realty Inc.; Park South Company; Land Corporation of California.