TRUMP Strategies For Real Estate

TRUMP Strategies For Real Estate
Billionaire Lessons for the Small Investor
Andrew James McLean
& S
, I
Copyright © 2005 by George H. Ross. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
Ross, George H., 1928
Tr ump strategies for real estate : billionaire lessons for the small
investor / George H. Ross with Andrew James McLean.
p. cm.
Includes bibliographical references and index.
ISBN 0-471-71835-1 (cloth)
1. Real estate investment. 2. Real estate development. 3. Real estate
investment—United States—Case studies. 4. Real estate
development—United States—Case studies. 5. Trump, Donald, 1946 I.
Title: Billionaire lessons for the small investor. II. McLean, Andrew
James. III. Title.
HD1382.5.R67 2005
Printed in the United States of America.
10 987654321
This book is dedicated to my wonderful wife, Billie
the solid foundation on which the happiness and success
in my life was built.
: H
: C
,” G
: T
” S
Donald Trump
(In the author’s copy of The Art of the Deal)
o George—
There is no one like you. Only you and I know how important a
role you played in my success—Thanks for everything!
Best wishes,
Donald Trump
as a lawyer, business advisor, and deal nego-
tiator for real estate tycoons at the top of the world’s toughest real
estate market—New York City. I’ve represented or negotiated with
great real estate minds like Harry Helmsley, Sam LeFrak, Bill Zeck-
endorf, and Donald Trump. It’s been my good fortune to spend many
of the best years of my career as Donald’s right-hand man.
These days most people know me best from the TV show, The
Apprentice, where Carolyn Kepcher and I help Donald make tough
decisions about whom to fire and whom to keep. The show has been
fun, but most of my work for Donald over the past 25 years has been
in the world of real estate. I have been an advisor, negotiator, and
lawyer on many of his biggest and most successful real estate invest-
ments, including the acquisition and renovation of the GM building,
Tr ump Tower on 5th Avenue, the Grand Hyatt Hotel, and my per-
sonal favorite, 40 Wall Street.
Throughout my career, I have had the opportunity to acquire a
great deal of knowledge and experience in real estate investing,
which I hope to pass on to you in this book. For example, during a
10-year period from 1956 to 1966 when Sol Goldman and Alex
DiLorenzo Jr. became two of the biggest property owners in New
York, I personally bought 702 individual properties on their behalf. I
have been intimately involved in many of New York City’s most
spectacular projects, such as the Chrysler Building and the St. Regis
Hotel, which I helped one of my clients buy. I’ve also had the oppor-
tunity to watch Donald Trump in action as he made some of the
greatest real estate investments in history.
This book explains the strategies Donald Trump used to make
his real estate fortune, and how small investors can apply them to in-
vestments of any size, right down to a one-family rental property. I
describe how Trump implements some of his signature strategies
such as creating luxury, perceived value, exclusivity, and attention to
detail, which all come together to maximize the value of his invest-
ments. (This is why his properties earn far more money, square foot
for square foot, than his competitors’.)
A number of the chapters focus on a particular real estate invest-
ment that I was directly involved in negotiating or advising Trump
on. Using this example, I draw out the lessons and explain how the
same strategies that Trump used to make huge profits on his deals
can work for you—the small investor. Although Trump does things
on a grand scale and his target market is usually an elite, luxury cus-
tomer, Trump’s basic real estate strategies will be of interest to:
•Anyone who is interested in owning or developing real estate
•Anyone unsure of how to negotiate a real estate transaction
Anyone who isinrealestateonasmallscalebutwouldliketo
do more
Anyone interested in learning how Donald Trump does
This is the first book on Trump’s strategies for the real estate
investor. Although it has a lot of nuts-and-bolts guidance and in-
vesting principles, the book alone will not make you a great in-
vestor. As I tell the students who take my negotiation course at New
York University, “There’s no way in 15 hours that I can make you
an excellent negotiator. It is impossible! All I want to do is open
your mind to the possibilities and the power of negotiating, and
some basic techniques. Then, when you run into a specific situation
you can go back to your notes, and say, how did George handle this?
Or, what did he suggest?” You already have some ideas about real
estate, but I’ve learned many things in my 25 years working with
Tr u mp a nd 50 years in the real estate business, that I’d like to pass
along to you. If I am successful, this book will help you negotiate
far better deals, arrange better financing, make better investments,
and earn significantly more money in real estate.
I recall the day I first met Donald Trump in 1974. He entered my
office at the law firm of Dreyer and Traub beaming with enthusiasm
about a project he wanted to do with the old Commodore Hotel on
42d Street in New York City. He was just 27 years old at the time, and
I was a senior partner known for completing complex deals, but I
agreed to see him out of courtesy because I represented his father,
Fred Trump. Fred had spoken enthusiastically about Donald’s promise
as a future star in the real estate world.
Donald laid out his incredibly complex plan for buying the huge,
dumpy, rundown hotel next to Grand Central Station and turning it
into a first-class, state-of-the-art business hotel. I told him it was a
brilliant idea, but there was no way it would ever work, given the num-
ber of powerful people and governmental agencies he would have to
convince to grant him major concessions. Nevertheless, if he was will-
ing to pay the legal fees, I was willing to help him take a shot at it. We
spent the next two years negotiating with railroad executives, city and
state officials, lenders, and Hyatt executives making the deal happen.
During those tumultuous two years, Donald and I developed a great
working relationship and mutual respect. When he miraculously
pulled off the deal, I was so sure he would be a huge success in real es-
tate that I became his closest advisor and lawyer.
When I was young, growing up in Brooklyn, New York, I planned to
go to MIT to be an engineer, but my father died suddenly when I was
16 and that plan died with him. At 17 I enlisted in the U.S. Army be-
cause they offered to send me to college. When I went on active duty,
I was trained as a cryptanalyst (a code breaker) and spent most of my
short army career in Washington, DC. The analytical skills, pa-
tience, and tenacity I learned as a code breaker helped me when I was
faced with seemingly unresolvable real estate problems.
With the help of the GI Bill, I obtained my BA degree at Brook-
lyn College and entered Brooklyn Law School. Working three jobs
concurrently and with the support of my working wife, I graduated
and was admitted to the New York Bar in 1953.
While looking for a job, I saw an ad in the Law Journal for a law
clerk. As luck would have it, the person who answered the phone was
Bill, a friend from law school. He was working for Dreyer and Traub, a
well-known real estate law firm. Bill said, “You don’t want this job.
Yo u’ll be nothing but a messenger and it only pays $25 a week.” But I
took it anyway! That was the inauspicious beginning of my legal career.
Although Dreyer and Traub was a law firm dealing primarily with
real estate matters, they handled litigation as a courtesy for their
clients, and Bill and I worked in the litigation department. Several
months later there was an opening upstairs in the real estate acquisi-
tion and leasing practice, the place where real money was made.
It was
an excellent opportunity for advancement and Bill was slotted for
the job. I was to take his spot in litigation. But before he could start,
he was drafted into the army and recommended me for the real es-
tate position. Once upstairs, I had the good fortune to apprentice to
Murray Felton, a very tough taskmaster. He was so demanding that
if I put a comma in the wrong place, I would hear about it for days.
But Felton was a superb technician and highly regarded in the
world of real estate attorneys. I knew that working with him was a
great opportunity to learn the intricacies of real estate law from a
perfectionist. So I soaked up every bit of helpful information I
could from him. I became adept at drafting leases, real estate docu-
ments, and participating in all types of transactions. My prior liti-
gation experience added to the perception that I was a competent,
though young, real estate attorney.
In 1955, one of my clients asked me to draft a commercial lease for
him even though he was to be the tenant. Usually, the landlord’s at-
torney drafts the lease, but in this case the landlord told my client to
have his lawyer prepare the lease. So I drew up the lease and inserted
a provision stating that the tenant didn’t have to pay any rent before
the landlord made a certain elevator operational. My client moved in
and, as it turned out, the elevator inspector for New York City re-
fused to accept the elevator repairs the landlord made, insisting that
only a brand new elevator would get his approval. The elevator stayed
out of operation for a very long time, but throughout that period my
client was still able to carry out his normal business operations.
Theowners, Sol Goldman and Alex DiLorenzo Jr. had a “tenant
in possession” utilizing the premises for its normal business opera-
tions, but because of that clause in the lease, the tenant was not paying
them any rent! Although the landlords were very unhappy they were
In the mid-1950s, Goldman and DiLorenzo, who were both
timillionaires, had decided to invest in real estate on a huge scale.
I had decided to leave Dreyer and Traub because I had been told that
there was no possibility for me to become a partner in the firm. I
happened to mention my impending departure to Sol Goldman and
he called me a few days later and said, “George, Alex and I would like
you to be our counsel.” I said, “Why me?” He said, “Well, we al-
ready paid $90,000 in the form of lost rent just for the privilege of
knowing you! We’ll make it worth your while if you say yes.” I ac-
cepted their offer.
Very quickly I learned something that every real estate investor
should understand: There is a huge difference between the legal as-
pects of real estate and the business of investing in real estate. I had
to restructure my whole way of thinking. Whenever I discovered a
legal problem with a real estate deal, Goldman would say, “Is it seri-
ous enough to blow the deal?” If I said, “No.” Then he would say,
“How much can I get off the price for the problem?” Most lawyers
simply advise their clients not to do a deal if they find legal problems;
lawyers cannot or will not make business recommendations for their
clients. Goldman forced me to think like a businessman, not just a
lawyer, and realize that almost every problem has a price tag. He
forced me to look at legal problems strictly as a way of improving the
deal. He’d say, “What can I get if I overlook this problem?” To find
that answer, I had to dig into the problem.
For example, Goldman and DiLorenzo contracted to buy Har-
borside Terminal in Jersey City, New Jersey, from the railroad that
owned it. The property consisted of a huge cold storage warehouse of
almost two million square feet abutting the Hudson River, right
across the river from downtown Manhattan. The purchase price
seemed reasonable even though it was to be an all-cash deal. How-
ever, the title report contained an exception for possible claims of the
State of New Jersey to a strip of land that the warehouse straddled. It
became clear to me why the railroad was having difficulty finding a
buyer. No lawyer would let a client buy the property with such a de-
fect and certainly no bank would place a mortgage on it. The problem
related to land under water that was filled in sometime in the 1800s.
A law was passed stipulating that if the land under water was filled in
by the adjoining landowner before 1849, the landowner had good
title to it. If it was filled in after 1849, the State of New Jersey owned
it. I couldn’t prove when it was filled in and who filled it nor could
the State of New Jersey.
I told Sol we should get a price reduction and also convince the
railroad to take back a long-term purchase money mortgage at a low
interest rate since no lender would make any loan because of the title
defect. The railroad agreed to reduce the purchase price by $400,000
and to take a sizable mortgage, so we closed the deal. Several years
went by but the title impediment still stuck in my craw. I was certain
that the State of New Jersey must have encountered the same prob-
lem in the past since much of the land abutting the Hudson River was
filled-in land. I contacted the State and learned that they were aware
of the problem and rather than sit with a dubious claim they had
passed a statute giving the State the right to give up its claim in ex-
change for the value of their interest in the disputed land. Following
the procedure outlined in the statute, we paid a minimal amount and
received a quitclaim deed to the land in dispute from the State of
New Jersey. As a result, the property appreciated in value so much
that a bank made a first mortgage loan in an amount exceeding the
total purchase price paid by Goldman and DiLorenzo.
From 1956 to 1966 Goldman and DiLorenzo were New Yorkreal
estate. When I arrived at Goldman and DiLorenzo in 1956, they
owned18properties; when I left in 1966, they owned 720. I negoti-
ated and handled almost all of these purchasesby myselfwith very lit-
tle supervision from them. We were buying Manhattan ground leases
by thedozen, warehouses in New York harbor, and multimillion-
lar office buildings. We were dealing in big num
bers, and much of
it was done with cash. Many times I walked into a closing on a prop-
erty with a certified check for millions of dollars inmywallet.Iwas
also given a standing million dollar deposit by Goldman and
DiLorenzo with which to negotiate. Goldman and DiLorenzo
would tell me what typeofdealtheywantedandmyjobwastomake
it happen. They were not anxious buyers, so if I didn’t think the
deal met their terms, I would kill it and goontothenextone.
That’s what enabled them to acquire so much real estate so quickly.
During that 10-year period, I bought the Chrysler Building, the St.
RegisHotel, the land under the Plaza Hotel, Harborside Terminal
in Jersey City, and numerous ground leases on their behalf. (A
ground lease isalong-term lease for land on which a building sits,
andgives the tenant all the rights and obligations of operation and
ownership except title to the land.)
Goldman and DiLorenzo’s appetite for real estate was voracious.
They had excellent financing connections which enabled me to close
transactions quickly. As their lone lawyer and business representa-
tive, I had almost unlimited authority to negotiate but not to in-
crease the purchase price. I negotiated with Harry Helmsley, Bill
Zeckendorf, and Morris Karp to name a few. These were all the big
names in New York real estate at that particular time—pretty heady
stuff for a 30-year-old lawyer.
For the first few years I worked for Goldman and DiLorenzo,
I was in way over my head. At Dreyer and Traub, I was handling
closings on single-family homes in New Jersey. I had never done a
contract and closing on any office building of any size. Now I was
thrust into an arena involving the purchase and operation of huge
office buildings. I really had no prior training or experience. Yet ev-
eryone thought, because I was so young and represented these mil-
lionaires in huge transactions, I must be brilliant so they treated me
as an equal. I knew how green I was, but I wasn’t going to dispute
their assessment of me! I learned as fast as I could from everyone I
came in contact with, including all the people on the other side—the
lawyers and other professionals and the real estate moguls them-
selves. I concentrated on what they did, how they did it, how they
acted and reacted in certain situations, and anything else that would
fill the void of my ineptitude. I was like a sponge absorbing every bit
of information I could. Before long my crash course in real estate
paid off and I began to give my clients well-reasoned opinions as to
which deals were good and which were not and what price to pay.
This gave me a unique combination of talents. Most lawyers don’t
know the business of real estate, and therefore, they are not
equipped to make business decisions. They are ready to render ad-
vice on any legal issue, but leave the business decisions to their
Any good lawyer will make lots of money while practicing law, but
since lawyering is a service business, the income stops when you step
down. I recognized the need to invest in some enterprise that would
be of value in my later years. In 1966, my brother-in-law, Martin
Beck, was leaving the Katz Agency, a big name in the business of sell-
ing radio time. He suggested that we look for investment opportuni-
ies together. He thought radio broadcasting on Long Island would be
profitable. I told him, “I don’t know anything about the radio busi-
ness.” He said, “I know all about radio but I don’t know how to raise
the capital necessary for a venture.” I told him, “You find and run the
stations and I’ll find the money to make it happen.” In 1966, we
formed Beck-Ross Communications Corporation and bought our first
radio station in Long Island, WGLI, for approximately $450,000.
Marty knew how to make money in radio broadcasting. Using the
profits from WGLI and by expanding our financial contacts, we
barked on a plan of expansion. FM broadcasting was in its infancy
but the superiority of the sound made it an attractive prospect. We
purchased several other stations—both AM and FM—increased
their market share, and then sold them at huge profits. In 1986,
Marty and I bought out all of our investors for 25 times their origi-
nal investment. In 1987, we were faced with a decision that many in-
vestors confront at some time, to expand the business or sell out to
someone who would. We chose to take a substantial profit and leave
the expansion to the buyer.
But the radio business was only a sideline to my law career. In
1966, after 10 years with Goldman and DiLorenzo, my reputation
had grown to the point where I could have received a partnership
with any quality law firm with a real estate department. I opted to re-
turn as a partner to my old firm, Dreyer and Traub, where I was
being accepted as a senior partner. I realized that since only two
young attorneys had become new partners in the past 10 years and
the old partners were reaching retirement, it would be my firm
within a few years. That’s exactly what happened. By the early
1970s, I became one of four senior partners running one of the best
real estate law firms in New York with as many as 120 lawyers. I led
that firm for more than 20 years.
Eventually, I got tired of dealing with partnership politics, gave
up the active practice of law, got a severance package, and joined the
Edward S. Gordon Company where my role for the next 10 years was
to supply real estate expertise to major clients like United Technolo-
gies, IBM, the New York Times, and AT&T.
Although I left the active practice of law in 1987, I remained friendly
with Donald Trump, and though I had worked with him on many of
his most successful projects, I was no longer his lawyer. When the
New York City real estate market tanked in 1990, Trump hit the
rocks. It was not due to a lack of business acumen; rather, his phe-
nomenal success had created an air of invincibility. Because he had
been so incredibly successful, he began to think that any business he
touched would turn to gold.
The banks would throw money at him. If he asked to borrow $60
million for a building, they gave him $80 million. When the bottom
fell out of the New York City real estate market, he was vastly
overextended and was over $990 million in debt. He owed so much
money that the lenders knew if they forced him into bankruptcy it
would have a disastrous effect on the real estate market. They had
many bad loans that they didn’t want to write off. So they came up
with a plan that would enable him to work his way back by agreeing
to accept a substantial reduction if the loans were repaid by a certain
future date.
Even though I was no longer a member of a law firm, I
wanted to help. I told Donald that if he ever needed legal advice or
counsel while he was in trouble, I would be happy to do it for him
without charge. He was impressed and asked me why I would do
that. I said, “Donald, I think a lawyer has a responsibility to repre-
sent a client when he’s down, not only when he’s on top. I’m here if
you need me.” Trump never accepted my offer because it’s not his
style to get something for nothing. But I’m sure he appreciated the
gesture. My philosophy has since paid off in spades—with Donald
Tr u mp, loya lty goes a long way.
In the mid-1990s, Donald had two deals going, the new Nike
Building adjoining Trump Tower and 40 Wall Street. Both were
plagued with problems because of the lawyers involved, and very lit-
tle was getting accomplished. Donald knows when to use delay tac-
tics, but he also hates deals that drag on and on. So he hired me to
eliminate the roadblocks and get those deals done. While I was
working on them, I told Donald that I was bored with my life at
Gordon and was planning to retire. He asked me to join the Trump
Organization on a full-time basis. He said, “I’ve got a lot of great
things going and you’ll have fun.” We quickly agreed on terms (I
only work four days a week) and 10 years later, I’m still an important
part of the Tr u mp team.
My title is Senior Executive Vice President and Senior Counsel for
the Trump Organization and my primary function is to give Donald
Tr ump business and legal advice. I offer my opinion as to the feasibil-
ity of his proposed projects, which he is free to accept or reject. He
likes to bounce things off me before reaching his own decision. He
knows that I will call it like I see it and give him an unbiased opinion.
I’m currently responsible for developing many foreign investments for
Donald and supervising the leasing and operation of 40 Wall Street
and Trump Tower.
Additionally, I teach a course at New York University on negoti-
ation. Negotiation is a subject that I have made a study of throughout
my career, because it is such a critical part of real estate success. I
could easily fill a book on this subject. For a discussion of some of
the principles and techniques, used by Trump, that I think are most
valuable, see Chapters 3 and 4.
Tr ump has been a great man to work for. In 10 years, he has
never once asked me where I’m going or what I’m doing. That’s the
kind of trust we have. When he gave me responsibility for 40 Wall
Street, I took the building from where it was—a one-million-square-
foot nearly vacant structure he purchased for $1 million—to where
it is now—a thriving office building worth in excess of $350 million.
After 40 Wall Street had been rented and had become extremely
profitable for Trump, I said to him, “I think I’m entitled to a bonus
for 40 Wall Street.” Trump’s reply was, “How much do you think
you’re entitled to?” I gave him a figure. He said, “You’ve got it.” It’s
this kind of recognition that makes it a pleasure to work for him.
Fred Trump once said to Donald when he needed a lawyer, “You
would be hard-pressed to find a wiser, more loyal, or a better advisor
and lawyer than George Ross.” I’m delighted Donald took that ad-
vice and gave me the opportunity to work with a true real estate
genius. Now I hope to pass on to you some of the powerful investing
strategies I’ve learned from some of the greatest real estate minds in
the business.
My gratitude to Donald J. Trump for becoming such an important
part of my life as a friend and for giving me the unique opportunity
throughout my career to help turn his visions of spectacular projects
into realities.
Five Personal Qualities You Need to
Succeed in Real Estate
•Use your enthusiasm for the project to inspire others.
Build relationships with everyone involved in a deal.
•Showmanship is a real estate strategy.
•Be better prepared than anyone else.
•Be tenacious.
Grand Hyatt
a billionaire in real estate by making a
series of incredibly creative and successful investments in New
York City properties. He is now the largest real estate developer in
New York and is widely acknowledged to be one of the most brilliant
real estate investing minds anywhere. For example, in the early
1980s, with the building of Trump Tower on 5th Avenue, he single-
handedly created the market for high-end luxury residences in New
York City. He continued with a string of successes and in 2003, 9 of
the 10 highest selling apartments were in Trump buildings—apart-
ments that sold for millions of dollars each.
What can the small real estate investor learn from a billionaire
developer like Trump? After advising Trump on many of his biggest
investments over 25 years, I’m convinced that small investors can
successfully use many of the same principles that earn him millions.
It’s not the scale of your real estate investment project that counts.
Whether you are investing in a single-family rental, a four-unit
rental, or a multimillion-dollar office building makes no difference to
the financial success of your particular project, what’s important are
the real estate investing strategies used to acquire and develop the
property, and how you design and market the property to buyers or
tenants. Many of the same basic principles that work for one of
Tr ump’s $300-million skyscrapers work just as well for smaller prop-
erties. Anyone interested in investing in real estate can benefit from a
study of Trump’s real estate investor strategies.
For example, you can’t make big real estate investments—or re-
ally profitable small investmentswithout projecting certain per-
sonal qualities that inspire confidence in others, and make them want
to help you or to see things your way. The key personal qualities you
need are enthusiasm, relationship-building skills, showmanship,
preparation, and tenacity. Donald Trump has these qualities in
spades as he demonstrated on his first big real estate deal, the trans-
formation of the dilapidated Commodore Hotel on 42nd Street in
New York City into the magnificent Grand Hyatt. Remarkably,
Tr u mp u sed very little of his own money in this transaction, yet later
sold his half interest to Hyatt for $85 million.
This chapter will describe how these five key personal qualities
helped Trump make the Commodore-Hyatt deal work, and how
small investors can use these same qualities in their own real estate
investments to negotiate better deals, sell properties for more money,
and dramatically improve real estate profits.
This real estate investment was a monster as far as complexity was
concerned. It was 1974, New York City was struggling to survive,
and Trump decided that this was a great time to buy a huge, dilapi-
dated, nearly empty building on 42nd Street next to Grand Central
Station. Like many of the best real estate investors, he looks at prob-
lem properties and sees opportunities. Trump’s plan was to convert
this old building, the Commodore Hotel, into a 1,400-room first-
class convention hotel—the largest since the New York Hilton was
built 25 years earlier.
When 27-year-old Donald Trump explained his grandiose idea to
me during our first meeting, I told him that based on existing condi-
tions he was chasing an impossible dream that would never happen.
I thought the idea was brilliant, but it was totally unrealistic given the
economic environment and the huge cast of characters who would
have to embrace a set of entirely new concepts for the idea to work.
Tr ump would have to win major financial concessions from:
1. Penn Central, a bankrupt railroad that owned the land on which
the Commodore Hotel was built;
2. New York City, which was facing bankruptcy;
3. The State of New York, which had no money to contribute to any
4. A lender who was holding many defaulted loans on New York real
5. A major hotel chain that was not pursuing new facilities in New
Yo rk City since tourism and occupancy rates were extremely low;
6. Existing tenants occupying the building.
The deal involved successful negotiation of several treacherous in-
terconnected transactions. If Trump failed to conclude any one of
these transactions, it would sink the entire project. Using the five
personal qualities outlined in this chapter he had to:
1. Obtain an option to buy the Commodore Hotel from the Penn
Central Railroad for $12 million dollars;
2. Convince the representatives of Penn Central Railroad to turn
over the $12 million purchase price to New York City, which was
owed $15 million in back taxes from the Penn Central;
3. Convince New York City to accept the $12 million to cover $15
million in back taxes and agree to the creation of a long-term
lease that would give the city a share of profits in lieu of future
real estate taxes;
4. Convince the Urban Development Corporation, a New York State
Agency, to accept title to the property, then grant a long-term
lease of the property to Trump and to use its right of eminent do-
main to obtain possession from existing tenants;
5. Find a major hotel operator willing to participate in the owner-
ship and operation of the new hotel to give credibility to the cre-
ation of profits in which New York City would share; and
6. Find a bank willing to lend $80 million to cover all of the costs in-
volved in purchasing and developing the property.
This was as complex as it sounds. Something like this had never
been done before.
To jump ahead to the end of the story, Trump pulled it off,
convincing all these parties to work with him, using his enthusiasm,
relationship-building skills, showmanship, preparation, and tenacity.
In September of 1980, the Grand Hyatt opened—and it was a great
success from day one. The renovated Hyatt helped revitalize the
whole Grand Central Station neighborhood in New York City, which
in turn played a major role in reversing the failing, bankrupt image of
the city in the 1970s. By 1987, gross operating profits at the Hyatt
exceeded $30 million annually. Years later, after recouping his mod-
est cash investment in the property, Trump sold his half interest to
Hyatt for $85 million.
Heres how Donald Trump used critical personal qualities to clinch
that monumental real estate deal. You can use the same qualities in
your own dealings regardless of their size or complexity.
Enthusiasm is a crucial element of the investment game because your
success depends largely on capturing the imagination and securing
the cooperation of key players—buyers, sellers, lenders, tenants, con-
tractors, and others. If you’re not enthusiastic about your real estate
investment idea, there’s no way you can get someone else to sign on.
Remember that people will initially be skeptical of whatever you say.
So be like Trump, sell hard. If you can maintain your level of com-
mitment and enthusiasm in the face of initial doubts, you’ve taken
the first step toward getting the support you will need to succeed.
Tr u mp k nows that enthusiasm is contagious.
For example, Trump’s enthusiasm for the Commodore-Hyatt
project and the way he envisioned it benefiting the entire city of New
York were boundless. He communicated his vision over and over to all
of the people who were involved in the various governmental agen-
cies, including the mayor’s office and the railroad. He argued that
this one project could help turn around the entire blighted midtown
Manhattan area. They all agreed that it was important to do some-
thing about this eyesore, the Commodore, because of its critical loca-
tion next to Grand Central Station. Trump’s enthusiasm convinced
them that he was the only person capable of putting all the pieces to-
gether. For example, he told the city, “Forget real estate taxes and
concentrate on the money you’ll earn from room taxes, income taxes
paid to the city on the salaries earned by the employees working in
the new hotel, and the profits from the hotel operation.” (Trump of-
fered to make New York City a partner in the profits.) “Think about
how the new construction will bring desperately needed jobs to New
York and reestablish New York City as the capital of the world.”
Tr ump’s enthusiasm was the catalyst for getting key people,
whose support he needed to achieve success, interested in the deal
and to getting the city to embrace the idea. He prepared charts and
graphics showing the dreary existing conditions of the area, the like-
lihood of an extended recession in property values leading to further
erosion of the city’s tax base. He explained, “This is what you’ve
now but here’s what I can do for you.” He would then display a
dramatic color rendering of the building as it would appear when ren-
ovated and sell this as the linchpin of revitalizing the Grand Central
area—which in turn was the cornerstone of the reconstruction of the
image of New York City. All he initially sought was the city’s ac-
knowledgment that this was a great idea coupled with a loose com-
mitment to cooperate in bringing it to fruition, if they got
everything they wanted. He never talked numbers with the key play-
ers in this deal until after he got an initial expression of interest and
support for his plan. He knew that talking numbers too soon would
give people a reason to say no to his plan. It’s a valuable lesson for
you to remember in any real estate investment of yours: Enthusiasm
(and focusing initially on the large outlines of a deal rather than the
financial details) can overcome many obstacles.
How Small Real Estate Investors Can Use Enthusiasm
The Hotel Commodore conversion was a huge project that took over
two years and 23 drafts of a complicated and intensely negotiated
ground lease to finish. But no matter what the size or complexity of
your real estate project, at various stages of the transaction you’ll
need to convince other people to help you, and do what you want
them to do. This takes enthusiasm and perseverance. Share with the
seller, your lenders, contractors, and others what you envision for the
property you want to buy or renovate. Tell a great story about how
you found it, what your inspiration was, and the difficulties you have
already overcome. Play up what you see as its best or most unique
features. Trump knows that people like to be excited. You just have
to find creative ways to excite them.
If you’re not enthusiastic, the people you’re trying to convince to
lend you money, sell you a property, or invest in your partnership are
not going to stick their necks out. But if you can tell a great story
about your investment idea, if you are articulate and enthusiastic
about the opportunity you are offering others, you are on your way
to developing the requisite rapport with buyers, sellers, lenders, or
other decision makers.
The success of any real estate investment or any business deal, for
that matter, is not strictly a matter of dollars-and-cents. A lot of it
comes down to personal relationships—your ability to forge strong
cooperative relationships with all parties, whether they are directly
or even tangentially involved. Trump does this by taking the time
necessary to gain insight into the people he is dealing with—who
they are, what they do, how they do business, who are their family
members or friends, and if appropriate, what their hobbies are. If you
can establish a rapport and a feeling of mutual trust it invariably
makes for an easier negotiation and a faster, more amicable conclu-
sion to any problems that arise. The principle here is, “No one in-
tends to buy a bucket of trust but they will pay for it if it’s delivered.”
Give people reasons to trust you by building a relationship with
them, and you will be laying the foundation for long-term real estate
investing success.
The reason you have to build relationships, especially at the be-
ginning of a real estate transaction, is that people are naturally sus-
picious of others. Until you have built up a level of trust, it is likely
that what you say will be somewhat discounted.
One way to build a good relationship is to assume that the pres-
ent transaction you’re working on is only the beginning of negoti-
ating many deals with your counterparts. Work hard to create the
sion of being “a nice person to deal with.” Some of Trump’s
best deals were the result of recommendations from adversaries with
whom he had past dealings. Leaving pleasant memories is the best
personal advertisement in any real estate transaction.
Here’s a great example of Trump’s relationship-building skill in
action from the Commodore-Hyatt deal. Trump had never met Vic-
tor Palmieri, an executive with Penn Central Railroad, which owned
the Commodore Hotel, but Trump knew Palmieri would have to play
a key role if Trump’s idea were to become reality. With full confi-
dence in his project and his salesmanship, Donald Trump called
Palmieri, introduced himself, and said, “Give me 15 minutes of your
time and we can reverse the decline of the City of New York and in-
crease the value of your Penn Central holdings.” In the meeting,
Tr u mp got Palmieri’s attention and a solid working relationship was
created. Without Trump building a strong cooperative relationship
with Victor Palmieri, the decision maker for Penn Central, he would
have never had the opportunity to purchase the Commodore from
Penn Central, let alone get Palmieri’s help in pressuring the city for
its cooperation, which became critical later on.
Small investors tend to think that they have no basis for building
a personal relationship, and therefore no negotiating power. Nega-
tive thoughts create their own problems. You may be dealing with
someone who’s much more successful, or who works for a large, im-
personal bank. You may think they can’t (or won’t) relate to you, but
that’s not true. You can relate to each other as human beings. Look
for anything at all you may have in common.
If you’re going into a meeting with someone, learn as much about
them beforehand as you can. Ask someone else about them, find out
what they know. If you’re going to meet with an owner of a rental
property, speak to one of his tenants beforehand. Ask questions, such
as, Is it a good property? What do you think about the landlord?
Now you have information that may help you establish rapport
with the owner, and probably some ammunition that will be useful
when you enter into negotiations.
Once you have conviction about how your real estate investment
can benefit not just you but the other people whose help you need,
and you’ve started to build relationships, the next step is to find
concrete ways to communicate your vision to your potential real es-
tate partners. Anyone who is involved with a real estate transaction,
especially a fixer-upper project or new construction, has undoubt-
edly spent a lot of time and effort thinking about the details of it:
how it will work, why it will be good for everyone involved, how it
will be successful, and what the end reward will be. The challenge
now is to condense everything that you’ve done and thought into
something that you can show or tell other people so that they get
the same degree of enthusiasm. It’s difficult, but that’s your chal-
lenge. Keep in mind that other people whose help you need are
starting off cold. They haven’t spent the weeks or the months living
with this project that you have. To get them to share in your
dream, you have to come up with a way of making it interesting to
them. This is called showmanship—and it is one of Trump’s signa-
ture traits.
One great example of Trump’s showmanship was his hiring of
Henry Pearce, a dignified, New York City banker with decades of
experience, to assist him in obtaining the financing for the Com-
modore. Trump was only 27 and he knew bankers would be skepti-
cal of lending so much money to someone so young. Showmanship,
in this case, meant conveying a powerful symbol of reliability and
safety to the conservative bankers, and this is exactly what Trump
did when he sat down at the table with Pearce at his side. Instead of
seeing a 27-year-old asking for millions of dollars, the bankers
saw Trump with someone they had been dealing with for years—
even though the reality was that he was just a temporary hired gun
for Trump.
An even better example of Trump’s showmanship is the way
he used flashy architecture to get people excited about the
Commodore-Hyatt deal. Using eye-catching, conversation-starting
architecture is one of Trump’s signature tactics, and it’s something
every real estate investor, no matter how small, should consider
doing. A good design and some flashy ideas from an architect can
easily add far more value to a project than the cost of the architect’s
fee. If you can create something impressive and distinctive, you will
be able to get premium rents or a premium selling price for your
Tr u mp felt that the Commodore was going down hill because it
looked so dark and dingy. His plan was to build a new façade directly
over the building’s old skeletal structure in glass, or bronze if that
was feasible, otherwise he would demolish the existing building and
build a new one. It had to embody “showmanship”—a building with
sparkle and excitement that would make people stop and notice. He
hired a young, talented architect named Der Scutt, to help him real-
ize this vision.
Next, Trump used showmanship to get New York City to agree
to a massive 40-year tax abatement in order to make this deal work,
and instead, take a share of the profits. This was a critical piece of
his plan. But Trump knew that convincing the politicians and bu-
reaucrats in New York City government to go along with this plan
would be extremely difficult. To imagine that the run-down Com-
modore Hotel, mostly vacant and mired in unpaid property taxes,
could evolve into one of the busiest and most luxurious hotels in
Manhattan was a tough proposition for anyone to believe. He had to
give the Board of Estimate something physical to look at, to touch,
in order to make his vision real.
Tr u mp h ad t he architect come up with sketches and renderings
that he could use in his presentations to the city and the lenders. He
told Der to make it appear that he had spent a huge sum of money on
the drawings. A beautiful presentation can be very impressive. It
worked. People began to believe in the idea.
How Small Investors Can Use Showmanship
There are plenty of inexpensive ways to use showmanship in small
real estate investments. For example, instead of showing prospective
buyers a vacant piece of land, show them a rendering of what the
project will look like after it is built. Hire an artist if necessary. It
may be worth investing in a scale model of your property so that buy-
ers can visualize the final product.
Also, how you dress, your appearance, says something to the peo-
ple you’re trying to influence. Donald Trump always dresses in a way
that will make a good impression on the people whose help he needs.
To spearhead a luxury hotel deal in the heart of Manhattan, a pin-
stripe suit and silk tie are the safest bet. But because appearance
communicates adaptability as well as respectability, Trump knows
that khakis and a polo shirt are appropriate for golf course negotia-
tions, or a hard hat for on-site construction projects. Your dress
should be chosen to give people confidence that you can do what you
say you’re going to do.
Think about the people whose help you need to make your in-
vestment successful. When meeting withabankyoumaywantto
wear a suit—but very high heels or excessive makeup might com-
promise the impression you want to make. If you’re meeting with a
contractor, trytokeep it casual, don’t overdress, but try to wear a
casual outfit that still looks impressive. First impressions make a
powerful statement.
Most people don’t realize that there’s a lot of preparation involved in
getting people to respond in the way you want them to respond. The
key is anticipating problems and questions that other people will ask
about your proposal and having answers ready. Donald Trump
spends significant amounts of time preparing for important meet-
ings in which he needs to persuade a key person or group.
Here’s an example for small investors: You want to sell a home to
a potential buyer. The buyer says that he wants to buy the house, but
his purchase will be subject to getting a mortgage. Here is where
your planning pays off. If you have already done your homework and
contacted a bank, which has agreed to make a mortgage on the house
for x amount of dollars, you anticipated this potential problem. Now
you can tell the buyer, “I already have the ideal bank for you to go
to.” I have now directed you to one source, instead of you going to
ten sources and getting confused.
You could be selling a house with a very old refrigerator, and you
don’t want to buy a new one. You anticipate a buyer’s objection by say-
ing (if the objection comes up), “I’ll guarantee that if the refrigerator
doesn’t last a year, I’ll buy you a new one.” You have anticipated a po-
tential problem. So instead of the buyer asking for a discount because
he wants a new refrigerator, you simply give him a one-year warranty.
Whatever the situation, whether you are buying or selling, try to an-
ticipate any likely potential problem.
You do this by taking an objective look at what it is you’re try-
ing to accomplish. You say, “If I were the buyer, what would I find
objectionable?” Put yourself in the shoes of the other party and
raise the questions they would raise, then find the answers to the
questions. There’s always some wrinkle in the transaction, some-
thing that you will need to address so that you can quickly move
on so the other party doesn’t dwell on it. Keep your goal in mind
and think through any potential obstacles and have possible solu-
tions ready.
If you are preparing for a meeting, you need to think about how
you can use the meeting to build rapport, but also focus on what
your objective is. Perhaps you want others to invest; maybe you want
them to accept your capabilities, whatever the case you must prepare
for that meeting: What you’re going to say; what you’re going to do;
and who the audience is; who you’ll be playing to. This way you can
have the maximum effect. If you don’t prepare, you’ll fall flat.
There was a researcher named Ziff who made a study of negotia-
tion. He expanded a concept called Ziff ’s principle of least effort,
which proved that most people will put the least amount of effort in
a transaction that they can in order to proceed. When I read about
the theory, I immediately realized it was true in real estate. Most
people are not willing to put in a lot of time to prepare before mak-
ing big real estate decisions, and you can make this work to your ad-
vantage if you are willing to do what most other people won’t.
Knowing that others want to put in very little effort, successful peo-
ple like Trump take the role of filling the gap and doing all of the ef-
fort that’s required in a transaction. They do it on behalf of the
other people involved in the transaction who don’t want to do it.
Tr u mp a lway s does more preparation than other people are willing to
because it gives him greater control in a fluid situation.
For example, if Trump is creating a plan to attract investors in a
property, knowing what he does about human nature, he’s not going
to expect you to spend a lot of time and effort reading the details.
He’ll do all the mathematics for you in the plan and at the bottom
he’ll write, in big type, “Return on your money: 20% a year.” Most
people are going to go right to that “20% a year.” They’re not going
to delve into the details. They’re enamored with the 20%.
When Trump has a person interested in a transaction, he will do
everything he can to make his involvement in that transaction easy.
For example, “I’ll do this so you don’t have to; I’ll send you this; I’ll
take care of that phone call.” You want to keep other people, as much
as possible, out of the nitty gritty of the actual transaction, so you
can control the details. Take advantage of the fact that most people
are not willing to spend time on preparation.
Tr ump spent huge amounts of time preparing for the New York
City Board of Estimate, which first met to approve his entire Com-
modore transaction in late December 1975. One of the things he did
a week beforehand, was to go to Victor Palmieri, the executive from
Penn Central Railroad who owned the Commodore Hotel and ex-
plain to him that if he wanted the city to take our abatement case se-
riously, we needed to get out the message that the Commodore was
going downhill fast and that it was not going to survive much longer.
Palmieri agreed with him. On December 12, Palmieri made a public
announcement to the media that the Commodore Hotel had lost an-
other $1.2 million during 1975, was anticipating worse losses in
1976, and as a result intended to shut down the hotel permanently no
later then June 30, 1976. This announcement by itself didn’t change
the Board of Estimate’s mind, but they agreed to hold several more
meetings with Trump. However, from the beginning of negotiations,
the single event that nobody in city government wanted to see was the
Commodore closed down and boarded up. So the news release prior
to the December meeting helped get the Board of Estimates worried
about a closing of the Commodore. Then, next spring, on May 12,
1976, one week before the Board of Estimate, for the fourth time, was
to vote on Trump’s tax abatement, Trump got Palmieri to announce
that Penn Central would permanently close the Commodore in six
days. Palmieri explained to the media that the occupancy had de-
creased from 46 percent the previous year to 33 percent, and that op-
erational losses for 1976 were projected at $4.6 million.
Adding fuel to the fire, on May 19, was the front-page news in
allthe local newspapers about the remaining tenants being forced
out of the Commodore. The news featured stories about the hun-
dreds of employees who were now looking for work, and the dismay
thelocal retailers were feeling in anticipation of a boarded-up Com-
modore Hotel.
On May 20, thanks in part to Trump’s strategic preparations for
his four meetings with the Board of Estimate, the Board finally
voted unanimously to give Trump the full tax abatement deal he had
sought. Over the 40-year term, the tax abatement saved him tens of
millions of dollars. This is typical of how Trump thinks strategically
about preparing for critical meetings. He will go to great lengths to
create conditions that will work to his favor during the meeting.
How Small Investors Can Use Preparation to Their Advantage
Suppose, for example, you need a temporary construction loan for a
fixer-upper. Before you ever ask for a loan, talk to other people who
have received constructionloans.Whatdidtheyhavetodotoqual-
ify? What kind of fees and ratesdidthelendercharge?Werethey
happy with the lender? Do as much networking as you can to find peo-
ple who have direct experience and are knowledgeable about the kind
of loan you want, and who can give you the inside story on what it
takes togetthatkindofaloanwithfavorableterms.Gettinginforma-
tion from insiders or people who know more than you is the best kind
of preparation you can do for an important meeting or negotiation.
Preparation is important in all phases of a real estate investment.
It shows up in how well conceived your plan for fixing up and selling
a property is, and how many contingencies you have prepared for;
it’s in how you present yourself to a lender and if you have properly
profitable projects have been those such as 40 Wall Street (to be dis-
cussed later in the book) where he picked up a property for very little
because a string of earlier investors had failed with the property—
and only he had the tenacity and vision to make it work. Everything
that is really successful was the result of hard work that nobody else
wanted to do. The only thing that held the whole Commodore-Hyatt
deal together was Trump’s tenacity—he was like a hungry pit bull.
For example, during early negotiations with New York City over
theCommodore Hotel, one of the city’s key concerns was who would
runthisnew hotel. They said, You say you’re going to pay us rent,
and that you’re going to give usashareoftheprofits,butwhatdo
you, Donald Trump, know about running a first-class hotel?” And at
first, he didn’t have an answer. But he said, “All right, I’ll go out and
get a major player to run it.” And the city responded with, “Okay, if
you bring in a major hotel operator, we’ll go along with it.” That ten-
tative commitment from the city gave him a strong position from
which to negotiate with a hotel company, and he ended up bringing in
Hyatt as a partner. Once again his tenacity helped him turn a road-
block into anadditional benefit for this investment.
One ofthebiggest roadblocks the small investor will encounter is
themortgage lender. Tenacity can help a lot here. If the first lender
you approach denies you a loan, keep trying with other lenders. Make
inquiries with friends and neighbors about who is making mortgage
loansinyour neighborhood. If you look hard enough, you will find a
lender, though you may have to pay a premium for the loan.
Another potential roadblock could be a stubborn seller. Here you
have to find out exactly why he or she does not want to sell, then in a
determined way, answer each issue.
Other possible roadblocks could be denial of a zoning variance or
a building permit. Again, you have to approach the problem tena-
ciously. Find out what the bureaucrats’ specific concerns with your
plans are, then address these issues.
Everything worth doing is difficult, and in order to accomplish
it, you have to be tenacious.
I deliberately started this book with a chapter on personal qualities
because most people don’t realize the role that people skills play in
real estate investing success. It is not just a matter of financing, buy-
ing the right property, getting tenants, and so on. All these elements
are built on a foundation of having the right personal qualities. Great
real estate investors like Trump are also great entrepreneurs. They
know that they know how to get people excited about their bold
ideas, and they are undaunted by the setbacks, problems, and disap-
pointments that cause most people to give up.
How Trump Chooses
Properties to Invest In
•Be willing to pay a premium for a prime location.
Don’t buy without a creative vision for adding
significant value.
•Four things Trump looks for in a location.
•Creative problem solving leads to big profits.
•Write a preliminary business plan before you buy.
cliche about the three most important things
in real estate being “location, location, location. Trump thinks
this is misleading. Location is important, but having a great location
doesn’tguarantee anything. It’s a starting point for what could be a
great investment. However, an inept real estate investor could own
property at a great location and lose a fortune. One of the corner-
stones of Trump’s philosophy is Improve any Location.” In other
words, use creativityandvisiontochange the way your location is
utilized. Trump never gets involved with something that’s just ordi-
nary—it has to be very special. If he’s building an apartment building,
it has to be the most luxurious, and the biggest and best in the area.
Small investors can adapt this principle by doing something radical to
their property, changing the zoning, changing the way the property
is used, or renovating it sostrikingly that people think about the lo-
cation in a new way. Thats what he decidedtodowhenheconceived
theideafor Tr umpWorld To weratthe United Nations Plaza.
When Donald first discovered this property in 1997 it contained a
sprawling two-story building situated across the street from the
United Nations in New York City. The building was the headquarters
of an engineering society whose officers decided to sell the building
because the value of land for new construction had skyrocketed, and
given the prime location they believed they could get a high price and
move their offices into better space nearer the business hub of New
Yo r k C i t y. The zoning ordinance affecting the site limited the size of
any new building on the property to a 10:1 ratio: Any new structure
could be no bigger than 10 times the square-footage of the land. Since
the land area was approximately 37,000 square feet this would have
limited Trump to constructing a 370,000 square foot building on the
site. Trump knew that the property was very expensive but it was an
entire block from 47th Street to 48th Street with an unparalleled view
of the United Nations headquarters and the East River. He felt he had
to build something extraordinary that would justify the high price of
the land and take advantage of the sight lines of the property. Fortu-
itously, the existing zoning covering the property permitted the trans-
fer of unused “air rights” from one parcel of land to a contiguous
parcel on the same block. When the city wrote its zoning law, it
wanted to limit the amount of bulk on a particular block but not nec-
essarily building height. It didn’t care if the bulk was in one building or
20 buildings. In other words, if a building on Parcel A was 10,000
square feet but the zoning permitted a 30,000-square-foot building,
the owner of Parcel A could sell the excess 20,000 square feet of
building coverage (“air rights”) to the owner of Parcel B. In fact, the
building department liked the idea of the bulk being in one structure
because it gave you more light and air everywhere else in the neigh-
borhood. Since there was little likelihood that the owner of the un-
used air rights would ever use them, their sale to an adjoining owner
who wanted them could fetch a price far in excess of their worth to
the owner who had them.
After making preliminary evaluations, Trump, “thinking big” as he
typically does, decided to build a huge luxury condominium tower
using air rights from adjoining underbuilt properties. No other devel-
oper recognized this possibility, and it was the key to Trump turning
this “ordinary” property into something extraordinary. But the process
Tr ump World Tower at United Nations Plaza
would be extremely difficult. First, Trump would have to agree to buy
the engineering societys property. Then he would have to convince
the owners of the adjacent properties to sell him their unused air
rights. In complete compliance with the law, Trump could then incor-
porate these air rights with the parcel he was buying and get a build-
ing permit for a much larger building. If he could buy enough air rights,
he could build something really unique—the tallest residential building
in New York City.
The keytomaking this concept work was to acquire the air rights of
adjacent buildings quietly. Building owners in New York City with ex-
cess air rights are often willing to sell them freely because they con-
siderthe dollars they get for the air rights as “found money.” But if
word got out to nearby building owners about what Trump was doing,
theprices for those air rights on parcels on the same block might have
escalatedthrough the roof. A difficult problem to be overcome was
that only air rights on contiguous parcels were of value. He had to
makeadeal for the air rights on one parcel adjoining the one he was
buying,and then work his way down the block to acquire the air rights
on several parcels that adjoined one another. So he took options on
various properties, offering the owners a high price, subject to his
abilitytoacquire the air rights needed to form the chain permitted by
thezoning. The outright purchase of all the adjacent parcels was im-
possible because one of the parcels was a church that might be willing
to sell its air rights but never the church.
Thus, we had several negotiations going on concurrently, and we
had to conduct all the negotiations secretly. To help keep our negoti-
ations for air rights simple, we offered the same price per square foot
for the air rights to all adjoining property owners. If one owner got a
higher price per square foot, we agreed that all other owners would
get that same price. That way no owner could feel cheated. In some
cases, we actually told an owner, “This is the price per square foot
we agreed to pay John Smith for his air rights, and we are offering
you the same deal.”
Having assembled air rights from seven adjoining parcels, we ap-
plied to the building department for a building permit to build a
towering 677,000-square-foot building with 376 condominium
units—the tallest residential building in New York City. We showed
the City that we were in full compliance with the zoning resolutions
and were entitled to the issuance of a building permit. We would be
building as “a matter of right” meaning we didn’t need any special
permission from the zoning board. The building department of the
City of New York agreed. Some representatives said, “We might not
like the proposed building, but it’s perfectly legal to build it.” They
felt that if they denied issuing a building permit, their denial would
be overturned in court and possibly lead to a huge damage award.
So, the building department issued the permit. Trump immediately
began construction. He did this to gain the advantage of having al-
ready broken ground, in the event a lawsuit was filed seeking an in-
junction against construction.
As the scope of the building as the tallest residential building in
New York City and maybe the entire world became evident, a num-
ber of prominent residents in the community decided to oppose it.
They tried to use political pressure but were told Trump was acting
well within the law. A group of wealthy residents in the area, includ-
ing Walter Cronkite, filed a lawsuit to stop construction, arguing that
“the zoning in this neighborhood was intended to permit something
completely different; you can’t build a 90-floor monster right in front
of the U.N.” We explained that it wasn’t 90 floors, it was 72 floors (it
was 90 stories high because of higher than normal ceiling heights
(ceiling heights did not affect permitted square footage). The opposi-
tion didn’t like that fact either, but what we did was entirely within
the law.
It is easy to understand that when this lawsuit was filedtostopthe
building, the lenders who had agreed to finance the construction of
the buildinggot nervous. They felt that there was a real possibility
that the building might never be built as Trump envisioned it. But
Tr ump had a Plan B. He established a relationship with Daewoo
one of the largest corporations in Korea—who was willing to be his
partner and would guarantee repayment of the loan if the planned
building did not materialize. So now the mortgage lender wasnt wor-
ried about the adverse publicity or the lawsuit because they had this
billion dollar company, Daewoo, which is the equivalent of General
Motors in Korea, to guarantee repayment of the loan if necessary.
Meanwhile, the building kept going up. The opposition tried to stop
the construction. They claimed that if Trump’s building was allowed to
be built they would lose their beautiful views of the East River. They
filed a lawsuit against Donald Trump and the City of New York for
wrongfully issuing the building permit; but Trump filed a countersuit
that sought damages as a result of the opposition’s lawsuit and a judg-
ment that the building permit was properly issued. The court basically
ruled that the city had every right to issue the permit and Mr. Trump
had every right to build the building under the permit. They were not
going to issue an injunction in this case because the damages would
be horrendous and it was unlikely that Trump’s position would be
overturned on appeal. They allowed the construction to proceed.
The opposition lost in the lower courts and eventually took their
lawsuit to the Court of Appeals—the highest New York State court.
The Court of Appeals didn’t even review the case to consider over-
turning it. Their comment to the plaintiffs was, “If you don’t like the
zoning law, change it. But any subsequent change to the zoning law
will not affect this building which is being built in accordance with
the law as it now exists.”
Tr ump World Tower isnowone of the most luxurious resi-
dential towers in the world and enjoys a five-star rating. Many of
the apartments have maids’ rooms, wood-burning fireplaces, and
16-foot ceilings. A four-bedroom condominium sells for as much as
$13.5 million. The building was a huge success and the construc-
tion loan was paidofflongbefore its due date from the sale pro-
ceeds from units.
Ironically, once the Trump World Tower was completed, some of
the people who fought the construction because it blocked their
views bought units in Trump World Tower because of its superior
construction and far superior views.
1: B
Perhaps the best example of paying a premium price for a piece of
real estate occurred in 1962 when I was counsel for Sol Goldman and
Alex DiLorenzo Jr., the multimillionaires I worked for early in my ca-
reer. Since they were considered to be the most aggressive purchasers
of real estate, they would get dozens of listings sent to them every
day. Part of my job was to screen the sale offers and get Sol’s opinion
as to which ones were of interest to him. One day, a disheveled old
broker came into my office and handed me a crumpled piece of paper
listing an apartment house in Brooklyn Heights that was for sale by
the family who had built it and owned it for over 40 years. The asking
price was $860,000 which, at that time, was a lot of money. I didn’t
know whether the price was high or low but I did know that Brooklyn
Heights was a desirable neighborhood, so I brought the listing into
Goldman. I told him the broker was a “nobody” and I doubted his
ability to bring in anything worthwhile but I thought it was worth
bringing it to Sol’s attention. Goldman took a quick look at the list-
ing and said, “George, find out how many people the broker has of-
fered this apartment house to.” I did as I was asked and when I went
back into Sol’s office I said, “He knows you’re the number one
buyer of property in Brooklyn so you are the first person who is
aware of this offer.” After listening to me, Sol said to me, “I know
everything about this property, the type of apartments, the rentals,
how well it was built and operated, and I have been secretly trying
to buy it for years without success. If the listing gets out in the
maketplace, a bidding war will take place for the property and I
want to avoid that at all costs. Go out and tell the broker your odd-
ball client will pay $1 million for the property.” I said, “Sol, they’re
only asking $860,000 for the building, so you could probably buy it
for $825,000, why offer $1 million?” Sol insisted that I do as he di-
rected. I pleaded, “How can I possibly get the broker to understand
the excessive offer.” Sol said, “Hey, you’re the lawyer, be creative.”
I went back to the broker who was still sitting in my office and said,
“My client likes the property but there is a serious problem. The
price is too low!” Thinking he heard wrong the broker said, “You
might be able to buy it for $820,000 if you move quickly.” I replied,
“You’re going in the wrong direction, unless you up the price to
$1 million my client isn’t interested.” The broker had a look of total
bewilderment on his face and asked, “Why would anyone pay $1
lion for a piece of property that could be bought for $860,000?” I
replied, “My client is a very eccentric millionaire, he thinks anything
that costs less than $1 million is beneath him. So if you come back
with a sales contract indicating a purchase price of $1 million, I’m
authorized to sign it and give you a deposit of $100,000 immedi-
ately. But, I suggest you move quickly before my client comes to his
senses.” The broker came back with the contract the next day; I
signed it and gave him the deposit. The amazing thing is that be-
fore title had even passed, Goldman obtained a first mortgage on the
property from a bank for $1.4 million—the property was that good.
So Sol now owned a building he always coveted, and had pocketed
$400,000. The seemingly exorbitant price in reality was an incredi-
ble bargain. By overpaying, he made sure the property stayed off
the market. There’s an excellent lesson here for the small investor. If
your instinct tells you a piece of real estate has your name on it, and
is significantly undervalued, go for it and forget the price tag!
There will always be a demand for a prime location, and people will
always pay a premium price to get a prime location. You have to
avoid the trap of looking only at the average selling prices in your
local real estate marketplace, and be willing to “overpay” if overpay-
ment is warranted. In other words, the so-called “average market
price” of property is computed based on limited general information
relating to an entire neighborhood, not the value of a specific prop-
erty which may have a desirable size and a better location. You may
have to pay 50 percent to 100 percent more to get a good property in
a great location, but it’s worth it if that will allow you to attract su-
perior tenants or buyers, and if you can improve the site to get max-
imum value out of it.
Tr u mp Wor ld Tower was a perfect example of overpaying for a
prime location. When Trump found it, the property contained an
outdated two-story office building owned by an engineering frater-
nity. The amount of money they wanted for the site was outrageous.
But Donald Trump paid it, because he knew other buildings on the
block had unused air rights that could be purchased at reasonable
prices and then he could build something extraordinary.
Tr u mp i s always willing to pay a premium for a prime location,
but he also knows that “there’s no right price for the wrong prop-
erty.” He will not buy something just because it’s cheap, if he can’t
see a way to add significant value. The reality is that in small or
cation if he can devise a plan that will dramatically change the way
people perceive and value the property. To be attractive to Trump or
to any intelligent investor there has to be undiscovered potential for
adding significant value to the property—value that is not already
factored into the selling price of the building.
For example, if the officers of the engineering society had known
that it was possible to build a 90-story building on their property
they could have sold the concept to many other developers for a much
higher price. Most people looking at the site would have seen only
the potential for a 370,000-square-foot 20-story building, the limit
permitted under the then existing zoning restrictions of the city.
What made the deal successful was Trump’s creative vision for buy-
ing up the surrounding air rights, and using them to build a towering
667,000 square foot structure with high ceilings, floor-to-ceiling
windows, thus capitalizing on the site’s potentially magnificent
views. The genius of Trump was that he was able to put all the pieces
together at a price that was consistent with the anticipated sales
prices he would get for the condominium units.
Though you may be a small investor, if you want to be extremely
successful make sure that you too have a vision for adding significant
value to any property you buy. Think about your vision for adding
undiscovered value before you get serious about putting any money
down for the property. You have to think creatively about the ways
to get the highest and best use out of a property. For example, you
might buy a fixer-upper in a great neighborhood and renovate it, or
build an addition, increase the number of units or the quality of the
tenants. Other creative options are to build another building or
amenities on the property, change the use from residential to com-
mercial or vice versa, or seek a variance or a change in the zoning.
These are all ways to enhance the value.
The bottom line is, whenever you are considering buying an in-
vestment property; explore ways to “Improve the Location.”
3: F
Great Views
What Tr ump liked best about the location on which he built Trump
World Tower was the potential for stunning views over the East
River. Without that, he would not have bought the property. In fact,
views were also an important factor behind the success of his 40 Wall
Street building (great views of New York Harbor from the upper
floors), Trump Tower (which overlooks Central Park), Trump Inter-
national Hotel and Tower (also overlooking Central Park), and his
We st Side Towers that overlook the Hudson River. For a small in-
vestor, good views may mean something slightly different, and more
modest, but just as important to the value of the property. For exam-
ple, a modest residential building may have views onto a grove of
trees at the back of the property. Turning them into a park-like set-
ting could raise the value of the building. In one of his buildings,
Tr ump went so far as to cut larger window holes out of the existing
structure, to enhance the building’s views of Central Park. The im-
portance of views depends on the particular use of the property you
have in mind. Certainly, nobody wants to live near a dumpsite or a
sewerage treatment plant but a quiet street is a good view for a mod-
est residential building. At a minimum, look for a view that is com-
patible with the life style of the occupants of your property and
you’ve passed the view requirement.
Tr umpalso looks for locations that have prestige, and in the case of
Tr u mp Wor ld To wer, he liked the prestige of having a building next
to theUnited Nations. Trump knew that many governments would
be eager to buy luxury apartments for their senior diplomats across
the street from the UN building. TrumpTowerhasa5thAvenue
address which is very prestigious as is the Wall Street address of the
Tr u mp building at 40 Wall Street. A small investor purchasing a
real estate parcel should consider whether or not the location or the
address is desirable for the people you intend to attract. If your tar-
get is high-income families, then you have to buy in an area that al-
ready contains luxury residences. If your intended target is
middle-income families or low-income families, pick an area con-
sideredtobedesirable among members of that group.
Growth Potential
Any real estate acquisition by Trump must have some growth poten-
tial or it won’t pique his interest. The most important questions to be
answered are: “Will this investment keep up with changing times?
Will rents keep up with inflation? Is the area stable, getting better,
or deteriorating?” Any serious investor in real estate should be ask-
ing and answering the very same questions if you expect to be suc-
cessful. One of the best places to look for undervalued property is in
marginal areas that are near very successful locations.
Land banking may be appropriate in many cases. Land banking is
buying land on the theory that, in time, it’s going to go up in value,
perhaps because it’s in a strategic location. Meanwhile, you’re going
to pay the taxes and other carrying charges on it. To the extent you
have no offsetting income—thats your investment. You may not in-
tend to develop it or build on it yourself. Your intention may be to
own it until the value of its location increases. In New York City, a
good example of land banking might be acquiring an existing parking
lot in the midst of surrounding underutilized parcels. Your immedi-
ate intention might be to continue the property’s interim use as a
parking lot, until a more profitable use comes into view.
Land banking is always a risky investment but one that can be ex-
tremely profitable if you guess right. It’s a good idea to go into land
banking with money you’re willing to lose or tie up for a long time. It
works especially well when there’s an area or neighborhood that is in
transition, or it looks like it’s in transition. For example, you see a de-
pressed area, and an area not far away which is starting to flourish,
being rebuilt, and on the rise. You might say to yourself, “Hey, I can
buy here while it’s cheap, because sooner or later the growth will come
my way and I want to be there when it happens.” So you buy on the
theory that there will be an uptick at some time in the foreseeable fu-
ture. You never know how long it will take for that to occur. You have
no control over if it happens or when it happens. However one thing is
for sure. The earlier you buy it, the cheaper the price and conversely,
the later you buy it—once the growth in the neighborhood gets hot—
the higher the price.
Another thing Trump looks for in a location is the convenience of
the location for his intended customers whether they are apartment
owners or office tenants. Convenience encompasses the proximity of
shopping facilities, transportation, schools, houses of worship, and
other amenities. Availability of a suitable labor force is a factor to be
considered in determining the desirability of office or commercial
space. If you intend to live or work in the property you are planning
to buy, just ask yourself does this property meet your needs; can you
picture yourself being happy there and in the neighborhood. If the
answer is “yes” it should be a good buy. Your future buyers will prob-
ably have the same response. If it’s not a place you would feel com-
fortable, I suggest you pass.
4: C
In my 20 years of representing major estate developers before I met
Donald Trump I earned my reputation as a problem solver, and it’s one
of the reasons he hired me. It has been the key to my success in real es-
tate and in law, and I encourage every small real estate investor to
think of real estate problems, especially in the acquisition stage, as
“opportunities.” In fact, Donald and I both tend to view things that
are considered “impossible” by other experts, as simply taking longer.
This is what happened on the Commodore Hotel deal I described in
Chapter 1, and this common perspective has been one of the founda-
tions of our work together. We became a formidable combination that
still exists today.
As I mentioned, one of the things I learned from working with New
York real estate mogul Sol Goldman, is that “every problem has a price
tag.” Many small real estate investors are intimidated by problems, but
to entrepreneurial minds like Trump’s, a problem is like a key to the
vault—a reason to get an even lower price on a building. Some of
Tr ump’s biggest profits have come from properties he bought cheap be-
cause they had complex problems nobody had been able to solve. After
he solved the problem, he reaped millions of dollars in profits (40 Wall
Street, which I discuss in Chapter 3, is a good example). Ambitious real
estate investors should look at a problem property (provided it can be
bought at a correspondingly large discount) as a great opportunity.
Unfortunately, lawyers are too often trained to kill deals when
problems arise, rather than translating legal problems and risks into fi-
nancial terms,sothatabusiness decision can be made. Many times real
estate deals run into problems that can only be solved with creative,
out-of-the-box thinking. That’s how Donald and I put together a
deal that brought Niketown to a prime location in New York City.
Creative Problem Solving: Trump, Ross, IBM, and the
Nike Building on 5th Avenue
In the process of putting together the property to build Trump
Tower (I tell that story in Chapter 5), Trump acquired the Bonwit
Te ller building on 5th Avenue. However, the ground lease for this
site was owned by a veteran New York investor named Leonard Kan-
dell. Bonwit Teller was leasing the site for a below-market rent and in
1990 fell on hard times. They wanted out of their lease and were
willing to pay for the privilege. Gallerie Lafayette, a premier French
department store chain wanted a New York store, so Trump sold
them on the idea of taking over the Bonwit Teller store—at a rent
which topped the old Bonwit rent by over $3 million a year! He then
agreed to cancellation of the Bonwit lease and Bonwit paid a few mil-
lion to get off the obligation. The success Gallerie Lafayette envi-
sioned never happened and in 1993–1994 they too wanted out and
were also willing to pay for the privilege. At that time, Nike desired
to build a flagship store on 57th Street. The Bonwit/Lafayette/Kan-
dell site with its 50-foot frontage was too small but Trump also had a
long-term lease on a site owned by IBM that was next to the Kandell
site and also had 50 feet of frontage. Trump asked Nike, “If I can
combine both sites giving you 100 feet of frontage and 100 feet of
depth would you agree to a long-term lease?” Nike loved the idea and
agreed to a rent averaging $9 million a year. They also agreed to de-
molish the buildings on both sites and then construct a new $50 mil-
lion Niketown building at their own expense. Now the problem
Tr ump was faced with was convincing two separate ground lease
owners (Kandell and IBM) to revise and extend their ground leases
with Tr ump to permit Nike to build. Trump had previously been a
long-term client of mine but I hadn’t represented him for seven
years. At that time, I was the attorney for Leonard Kandell. Trump
sent two of his associates to renegotiate the Kandell ground lease
with me. Although I wasn’t working for Donald, I wanted to be help-
ful if it benefited Kandell. Trump’s representatives said that they felt
the Kandell site had a value of $2.5 million and they were willing to
pay a rent starting at $250,000 a year. I told them I couldn’t agree
with the value they placed on the site because there was one “0” miss-
ing. $25 million was the right number. They were shocked by my an-
swer and went back to report to Trump their lack of success. They
complained, “You told us we could make a fair deal with George Ross
but what he wants is outrageous.” When they told Trump the offer
they had made, he said, “What did you expect? You tried to low ball
him and he did you one better. I’ll handle it myself.”
Donald called me and arranged a meeting. At that meeting he told
me about the Nike deal and asked me what I could do to help him do
it. Once again I was impressed with the creative problem-solving ge-
nius of Trump in envisioning this complex plan. I told him if the in-
creased rental was adequate I could get Kandell to agree to a revised
lease that would enable the Nike deal to be made, but obtaining a revi-
sion of the IBM lease was his problem and Ed Minskoff who repre-
sented IBM would be very difficult to convince. I was right. Minskoff
raised obstacles that were difficult or impossible to overcome, such as
asking for control of the Kandell site. As each problem arose Trump
would call me and ask my advice. I said to him, “Donald, what you
need is to get Minskoff to agree to a co-ownership agreement which
sets forth the rights of Kandell and IBM when the Nike lease expires.”
Donald said, “I’ve never seen a co-ownership agreement.” I replied,
“Neither did I until I needed one years ago and couldn’t find anyone
who did one. I spent a full month drafting one which touches all the
bases.” I told him I would send it to him and if Minskoff wanted to
modify it, he could call me. Minskoff liked the co-ownership idea and
told Tr ump if they could agree to a revision and extension of Trump’s
lease with IBM he had a deal. Trump and Minskoff agreed to terms
and the Nike building became a very profitable reality. As is so often
typical in real estate investing, this deal would have failed at many
points without continuous creative problem solving.
As I mentioned earlier, I learned how to stop thinking like a lawyer and
think like a problem solver while I worked for Sol Goldman, who
forced me to put a price on every real estate problem. In the early
1970s, my problem-solving expertise eventually endeared me to
Arthur Cohen, another creative genius where real estate was involved,
and principal of Arlen Realty and Development Corporation, a publicly
traded entity. Cohen came up with the original idea of erecting a
mixed-use building on 51st Street and 5th Avenue in New York City
with stores on the ground floor, offices above for approximately 20
floors, and finally topped by another 20 floors containing luxury coop-
erative apartments. However, the only property he could control was
a narrow plot in the middle of the block. The plot fronted on 5th Av-
enue and was occupied by Olympic Airways, a company that was
owned by Aristotle Onassis. Cohen’s original idea was to buy the air
rights over Best & Co. which owned a large parcel of land on the cor-
ner of 5th Avenue and 51st Street. Then he would also buy the air
rights over the Cartier building on 5th Avenue and 52nd Street. The
Olympic site would be used for elevators to a sky lobby servicing a
new building that would cantilever over the Best & Co. building. I
christened this novelty building the “popsicle.” But it never came to
pass. Instead something else interesting happened on the site.
Cohen became a close friend of Meshulam Riklis who owned
Best & Co. Riklis agreed to sell Cohen the Best & Co. site so that a
normal looking building called Olympic Tower could now be built on
the site—but only if I could resolve a dispute that arose between
Riklis and Aristotle Onassis, each of whom wanted office space on
the highest floors of the new building. Since Riklis was committing
to lease several floors as part of the sale of the Best & Co. site, he
insisted on taking the top four floors. But Onassis’s ego would not
tolerate his offices being lower than Riklis. I had to find a way to
appease both of these men or the project would abort. So I sold
them on the idea of checkerboarding their space. Onassis would
lease the top floor. Riklis would lease the floor below. Then Onassis
would lease the next lower floor until the each had the amount of
space they wanted. It was a cumbersome solution but they bought it
and Arthur Cohen’s vision became reality. This is the kind of creative
problem solving successful real estate investors need to learn to do.
As it turned out, the project needed more creative approaches to
challenges and opportunities that arose. Olympic Tower was the first
mixed-use building of its type in New York City. Cohen took advan-
tage of a statute that permitted a larger building if a public area was
provided on the street level. (I helped Trump do the same thing years
later in Trump Tower, described in Chapter 5.) Cohen also filed for
the benefits of 421a, a statute that gave favorable tax treatment for a
new building built on undeveloped land. (Again Trump would do the
same thing for Trump Tower.)
While Olympic Tower was being constructed, the concept of con-
dominium ownership was gaining popularity. The idea of owning a
unit rather than renting one under a lease from a cooperative corpo-
ration had merit since the unit would be taxed separately, could be
easily mortgaged or sold, and would be entitled to the tax treatment
available to real estate owners. One day, Arthur Cohen called me and
said, “George, I’d like to turn Olympic Tower into a mixed-use con-
dominium, can it be done?” I said, “Arthur, I never heard of such a
thing, but let me check it out and see what I can come up with.” I
paid a visit to the New York City Building Department to see if there
was any prohibition to such a building. I was told there is no statute
either permitting it or prohibiting it, and they would review any
building plans that were submitted. Since the state attorney general’s
office must approve any condominium plan or cooperative plan, I
had the partner in my firm that handles such plans find out from his
contact with the attorney general’s office whether a mixed-use
condominium plan would be acceptable. He reported back that
none had ever been filed but there was no prohibition for a mixed-
building but any condominium on leased land was prohibited.
Relying on this information, I told Arthur the condominium plan was
possible. I told my partner to draft the condominium documents. In
the middle of drafting them, he asked, “I have to prepare an estimate
of expenses that each unit owner will pay. What number should I use
for real estate taxes?” I didn’t have any idea of the thinking of the tax
assessor’s office as to allocation of the taxes on the land, so I paid
the tax assessor a visit to get the information. The tax assessor said,
“I don’t have the slightest idea since the question has never come up.
As of today, there are no mixed-use condominium buildings in the
city. Figure it out for yourself but my best guess would be that the
land taxes would be apportioned based on the ratio that the square
footage of the residential portion bears to the square footage of the
nonresidential portion.” If the assessor’s office took that approach,
the amount of land taxes the unit holders would bear for the very
valuable land on which the building stood would price the units out
of the market.
Now I had another obstacle to overcome. How could I reduce
the exposure of the unit owners for real estate taxes? The answer
was simple—eliminate their ownership of the land. But the attorney
general would not approve any condominium plan for a building that
does not have an ownership interest in the land on which it sits.
After much thought, an innovative and unusual solution came to
mind, I decided to deed to the unit holders as a group the land
under the 24 columns that supported the building. I prepared and
filed a deed for 24 pieces of land each being four square feet and
identified with a typical metes and bounds description. Except for
the 24 pieces, the unit owners had no rights to any of the land. The
rest of the land was owned by the owner of the unit that covered all
of the building below the residential units. My concept was ac-
cepted and the Olympic Tower was a huge success. After the
Olympic Tower was completed, legislation was passed governing
mixed-use condominiums and the allocation of real estate taxes.
Years later, when Donald Tr ump decided to build Trump Tower, we
drew on my Olympic Tower’s experience to creatively solve prob-
lems wherever it was feasible to do so.
5: W
Once Trump intends to purchase a property, he has his associates
prepare a projected business plan containing the following items:
•Anticipated costs of various items,
•Nature and cost of available financing,
Estimates of income,
•A projected timeline indicating when expenses will be incurred
and when income will be received.
Creating a preliminary business plan is an important discipline
for you to adopt because it forces you to think through the most im-
portant elements of owning a particular piece of property. It also
forces you to think of your future plans for the property, and the tim-
ing of an eventual sale. Are you looking for a safe or speculative re-
turn on your money, or are you looking for a situation in which
you’re going to buy and do something to it, dramatically increasing
the value based on your creative vision and then sell all or part of it to
make a profit? (Obviously, Trump prefers the latter approach.) The
key to buying or not buying is the answer to the following question,
“Does the purchase achieve the intended goal as part of your invest-
ment portfolio.” Ask yourself, “Am I looking to make a capital gain?
Will it be short term or long term? Am I looking to buy and hold this
property as part of my estate? Am I looking for a transaction that has
great tax benefits, at the expense of other monetary benefits?” It de-
pends on the nature of your goals at that time as to whether or not a
particular purchase is consistent with that goal. It’s very possible, log-
ical, and desirable for a small investor to purchase different properties
with different goals.
For example, you might buy a piece of land on the outskirts of
town, build it up, and plan that in three years you’ll sell it and double
your money. Or, in another part of the city you might buy something
that can be leased to a reputable tenant giving you a safe return of
8 percent on your money. In another neighborhood, you might con-
sider building something new from the ground up with a view to-
ward sale, lease, or long range ownership.
Here are somequestions to answer in your business plan for
the property:
•How are you going to increase the value of whatever it is you
intend to buy?
•What are the projected costs for refurbishment, income, and
expense? Make a financial analysis of the property to find out.
•Is it going to be a short- or long-term investment? Are you
planning to flip the property or buy and hold?
•How do you intend to manage the property?
•How will you finance the property? Do you intend to get in-
vestors, or finance it through a bank by yourself?
If you need investors, how will you pitch them? What percent-
age return on their money will they get?
•What is your strategy and timeline for selling the property?
Careful crafting of a business plan will not only help you explain
more convincingly to lenders the great plans you have for the property,
it will also help you be realistic about costs, and projected profits.
negotiate intelligently is the key to the comple-
tion of any successful real estate transaction, large or small.
The problem is, the art of negotiation is far more complex than just
haggling over a selling price. It’s mastering preparation, knowledge
of human nature, learning how to uncover and exploit weaknesses,
learning special skills, and many other intricacies. Good real estate
negotiation principles are developed with the aim of getting others
to agree with your ideas.
If you can adopt some of the negotiation principles Donald
Tr ump used when he bought 40 Wall Street in New York City, you
will give yourself a powerful advantage in your next real estate trans-
action. This chapter explains five key negotiation principles from
that deal. Following the case study presentation is an explanation of
each principle, along with examples of how Trump used them, and
how small investors can do likewise.
40 W
In 1994, 40 Wall Street was a huge old building in downtown Man-
hattan that nobody wanted. It had over one million square feet of
space in a great location, but over the years had been totally mis-
managed. To make matters worse, the building was almost entirely
vacant and in a state of total disrepair.
Built in the 1920s, it was once the tallest building in the world and
had been a renowned New York landmark. When Trump got interested
in the property, and asked me to handle the acquisition for him, the
land on which the building was built was owned by a wealthy German
family who had granted a long-term lease to a bank that had built the
building as its headquarters.
Unfortunately, the building had a very troubled past with many
building operators. At one time, Ferdinand Marcos, the infamous pres-
ident of the Philippines owned it, and during his tenure the building
was run into the ground. Eventually, it went into foreclosure and was
sold to a member of the Resnick family who had loads of real estate
experience, but who still couldn’t make it work. He let it go into fore-
closure and the holder of the mortgage took it back. Then it went to
Kinson Group out of Hong Kong. They put millions of dollars into it,
but they also failed dismally. Nobody seemed able to come up with a
plan that could transform 40 Wall Street from a loser to a winner.
The underlying problem was that the ground lease (the lease for the
land on which the building was built) was antiquated and contained
provisions that were hostile to potential occupants, making it difficult
for anyone to finance a purchase of the lease or needed building ren-
ovations. Although they tried, none of the previous owners could ever
get the ground lease modified to eliminate the deficiencies it con-
tained. Percy Pyne was the man who represented the German prop-
erty owner, and nobody was able to bypass him in order to negotiate
directly with the owner. Pyne was a difficult man to deal with and
continually placed unacceptable obstacles in the way of every deal
that was proposed.
While the Kinson group poured millions of dollars into the prop-
erty, they also forced most tenants out of the building, leaving it al-
most vacant, except for a law firm that occupied seven floors on a
long-term lease. Kinson left the building with virtually no services
and in terrible shape, and to make matters worse, their failure to pay
contractors resulted in the filing of several mechanic liens adding up
to almost a million dollars against the building. Since there was no
40 Wall Street
better alter
native, the Kinson group agreed that it would give Trump
an option to buy the building for $1 million. (The huge building was
one million square feet, which meant Trump could buy the building for
a dollar per square foot—a ridiculously low price.) Trump also as-
sumed liability for the $1 million of liens.
Tr ump realized he could never make a deal with Percy Pyne, so in
a stroke of pure genius he flew to Germany and met directly with the
owner of the property. He was following one of the basic principles
that good salespeople know—find a way to get around the gate-
keeper and talk directly to the decision maker.
Tr ump t old t he ow ner, “If you work with me and give me a fair
ground lease, I will make 40 Wall Street a very successful building
that you will be proud of. But, he added, I can’t pay you any rent for
at least a year while I am renovating the building. I know you have
had a parade of failing tenants but I guarantee I won’t join the list.”
Tr umpwon over theowner,who agreed to rewrite the lease to make
it financeable and feasible for either an office or residential building.
Part of what Trump loved about this deal was thefactthatno one
else had been able to make the building work. He loved the chal-
lenge. What made it even more enticing was the location: it had won-
derful viewsofthe NewYorkHarborand fantastic potential. Also,
Tr ump t hought the rental market would turn around, the building was
huge, and where intheworldcouldyoubuyaprime-locatedoffice
buildingfor $1 a square foot even with all its problems? It’s unheard
of. Even though in 1996, the downtown New York City area was still
Tr ump had an advisor named Abe Wallach who played an instru-
mental role in the purchase of 40 Wall Street and was of the opinion
that it could never be successful as an office building. He thought the
only feasible solution was a conversion into residential co-operative
apartments. At this particular time, there was a glut of office space,
and in fact, the city was offering developers incentives to convert
vacant office space in the downtown area to residential units. So
Tr ump said to me, “George, I’m thinking of turning 40 Wall Street
into co-op units, because that’s what everybody else is doing. I
want you to analyze the situation and tell me what you think I
should do.
A number of well-known brokers had analyzed the building and
determined that there were no tenants looking for office space down-
town. They said that even if the office rental market improved, the
higher floors were too small to be attractive, and the lower floors
contained huge columns that interfered with efficient space usage.
Their sentiments were unanimous: “It will never work as an office
building even if by some miracle the market for downtown office
space improves.”
But there was a major roadblock to residential conversion. Before
any workcouldbecommencedadealwouldhavetobemadewith
theseven-floor law firm to give up their lease. Based on my exten-
sive experience in dealing with holdouts and knowing the principals
of the law firm, I kn