New York - Here comes Donald Trump, again, and again, and again, touting his prowess at dealmaking. There goes Donald Trump, again, and again, and again, touting his prowess at dealmaking. Gliding into February’s Republican presidential primaries atop a flotilla of polls, Trump has made “deals” the litmus test of his candidacy.
“If I’m president,” he announced at the most recent GOP debate, “there won’t be stupid deals anymore.”
But a well-documented and widely reported trail of bad deals litters Trump’s career as a real estate developer and gambling mogul. (Disclosure: I wrote a book about the Republican candidate, “TrumpNation,” for which he sued me in 2006 because, among other things, it questioned the size of his fortune; the suit was later dismissed.)
Fuelled by a slew of bank loans in the late 1980s, Trump absorbed an airline, a football team, a landmark hotel, a bunch of casinos, a yacht, and other nifty stuff - almost all of which he eventually lost because he couldn’t juggle the debt payments.
He overcame those setbacks, but the man who emerged from that mess wasn’t really a dealmaker anymore. Kept afloat by his wealthy father’s funds and his own gifts for self-promotion, Trump became a reality TV star, golf course developer and human shingle who licensed his name on everything from real estate and vodka to mattresses and underwear.
Through Trump’s rise, fall and rebirth, there was one major real estate project that he tried to keep. The tale of what happened to that property should be of interest to anyone looking for insight into how Trump might perform as president. It was a deal of genuine magnitude and would have put him atop the New York real estate market. And he screwed it up.
The deal involved Manhattan’s West Side Yards, a sprawling, 77-acre tract abutting the Hudson River between 59th and 72nd Streets and at the time the largest privately owned undeveloped stretch of land in New York City. The Yards were a vestige of the Penn Central Transportation Company, a failed railroad enterprise that, in 1970, filed what was then the biggest corporate bankruptcy in US history. In the wake of that collapse, Trump leveraged his father’s ties to New York’s Democratic machine and local bankers to acquire pieces of Penn Central’s holdings, including the Yards, in the mid-1970s.
Unable to reach agreements with the city and community groups on how to develop the site, Trump let his option lapse in 1979. His Yards saga began in earnest in 1985, when he bought back the property from another developer for $115 million.
Trump’s plans for the property included office and residential space; a new broadcasting headquarters for NBC; a rocket-ship-shaped skyscraper that would have been the world’s tallest building and cast shadows across the Hudson River into New Jersey; and a $700 million property tax abatement from the city as an incentive to build it. The $4.5 billion project - which Trump called Television City - would have been New York’s biggest development since Rockefeller Center.
Like London’s Canary Wharf, begun a few years later, Television City promised to reshape a significant portion of a major urban center. “It’s an opportunity to build a city within the greatest city, and I don’t think anybody’s ever had that opportunity,” Trump said in an interview at the time.
With the property, financing and plans in place, a large part of what Trump needed to do to make Television City a reality was to bring together different stakeholders: locals (like the late actor Paul Newman) who wanted parks and a less imposing development, and a mayor, Ed Koch, who had his own outsize personality and who was trying to balance the city’s redevelopment with the needs of the area’s longtime residents.
Had Trump appeased these interests, he might have made the project a reality. Instead, the author of “The Art of the Deal” quickly became entangled in an epic, only-in-New-York round of public fisticuffs with Koch in the spring and summer of 1987. The brawl devolved into name-calling -- and ultimately helped doom a deal that could have had vastly different results if Trump chose different tactics.
After learning that Koch was going to turn down his request for the $700 million abatement for Television City, Trump dashed off a letter to the mayor.
“For you to be playing ‘Russian Roulette’ with perhaps the most important corporation in New York over the relatively small amounts of money involved because you and your staff are afraid that Donald Trump may actually make more than a dollar of profit, is both ludicrous and disgraceful,” he wrote to Koch.
Koch wrote back to Trump, warning him to “refrain from further attempts to influence the process through intimidation.” Koch then held a press conference, during which he released the letters and said he wasn’t going to give Trump the abatement.
Trump doubled down, holding his own press conference and calling on Koch to resign. The battle played out in a carnivalesque stream on TV and on the front pages and gossip columns of newspapers.
Koch said Trump was “squealing like a stuck pig.” Trump said Koch’s New York had become a “cesspool of corruption and incompetence.” Koch said Trump was a “piggy, piggy, piggy.”
Trump said the mayor had “no talent and only moderate intelligence” and should be impeached. “Ed Koch would do everybody a huge favour if he would get out of office and they started all over again,” he noted. “It’s bedlam in the city.”
Things quieted down for a little while, and then Koch announced that he would zone the Yards for a project about half the size of what Trump wanted for Television City. Koch also gave NBC tax breaks that persuaded it to stay put in Rockefeller Center.
Trump promised that he would eventually build Television City “with or without the current administration” in City Hall. But he never did.
Although New York developer William Zeckendorf Jr. offered Trump $550 million for the site in 1989 - which would have given him a handsome return on the $115 million in borrowed money he used to acquire the Yards four years earlier - he refused to sell.
In 1994, with the Yards bleeding about $23.5 million in annual carrying costs, and long after Koch had departed City Hall, Trump’s bankers forced him to give up control of the site. The property went to a group of Hong Kong investors, including New World Development, for $82 million and the assumption of about $250 million in debt Trump had amassed.
The Hong Kong investors later broke ground on the site with a series of high-end condominiums known as Riverside South, and the group used Trump’s name on some of the buildings there (they also paid him management and construction fees). The Hong Kong group sold the entire project for about $1.8 billion in 2005 - the largest residential real estate transaction in New York City’s history at the time.
Under the terms of Trump’s involvement with the project, he was entitled to a portion of the profits on the site. He sued the Hong Kong investors over the sale, claiming the group could have gotten more money. They went ahead and sold, and Trump eventually ended up with minority stakes in a pair of office buildings now worth about $640 million, according to Bloomberg data. (The $550 million Trump could have gotten for the Yards in 1989 would be worth over $1 billion in 2016 dollars, and that figure excludes any more money he might have made by subsequently investing those funds 27 years ago.)
Losing the Yards also deprived Trump of bragging rights. When the reality TV show “The Apprentice” debuted in 2004, it featured Trump telling viewers that he was the “largest real estate developer in New York.” By any real estate measure - square footage or value - this simply wasn’t true (and it’s still not true today). Trump had become a major personality, but he wasn’t New York’s top developer.
Had Trump kept control of the Yards, he could have vaulted into the top ranks of Manhattan builders. But that would have required him to effectively straddle the public and private sectors, to work with a diverse array of leaders and interests, to stay focused, to demonstrate financial discipline, and to get things done -- in other words, to be a great dealmaker.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg and its owners.