By David
L. Bahnsen
Monday,
July 10, 2023
There has
been no shortage of writers playing armchair psychologist over the years to
analyze the pathologies of Donald J. Trump. From “daddy issues” to
accusations of “clinical narcissism” to a variety of questions about his
management style, what makes Donald Trump tick has been a heavily trafficked
subject since well before he ran for president.
A
correlated but not identical subject is his feeling of invincibility — that
“Teflon” mystique that not only comes from getting away with things but that
provides the impetus or bravado to do questionable things to begin with. Other
authors and documentarians have pored over Trump’s life, examining a host of life
events that created and then reinforced this feeling of untouchability. Some
have focused on childhood overreaches (skirting discipline for misbehavior at
his military boarding school), while others have focused on early business
matters that saved him from tremendous embarrassment and failure (receiving
unprecedented tax abatements to enable his first-ever venture in Manhattan, the
conversion of the Commodore Hotel into the Grand Hyatt adjacent to Grand
Central Terminal, as well as the massive corporate welfare he successfully
litigated to achieve his breakthrough Trump Tower project on Fifth Avenue).
There is
no doubt his early life and young business life saw various forms of good luck
in how the dominoes fell, and of course the entire Donald Trump story was
already rooted in the privilege of being the son of Fred and Mary Trump,
complete with the private education, massive capital, generous access to
credit, and perhaps most important, access to make-or-break levels of political
connections that accompany such lineage. Too many have tried to point these
things out as if they were Donald’s fault, when in reality, the only shame has
been in his laughable attempts to downplay or deny them.
But as I
have studied the business life of Donald Trump from the 1970s to the 1990s, a
period of his life exponentially more interesting to me than his 2000s TV life
and more recent presidential life, one moment sticks out above all others as
simply inexplicable in reinforcing Trump’s immunity from consequence. This moment,
in concert with so many others but still unique for a variety of reasons, helps
clearly establish why Donald Trump feels completely immune from the
consequences of his decisions.
Of all
the fascinating stories in Trump’s business past, the one least explainable in
the ebb and flow of business rationality, the one that has to have produced the
biggest smile on Trump’s face, and generated the greatest sigh of relief, but
also an aura of invincibility, was the financial outcome around his purchase
and subsequent bankruptcy of the Plaza Hotel in New York City.
Now, this is a story of Teflon luck.
Those
with a cursory understanding of Trump’s business background, and even some with
a more granular understanding of various transaction particulars, may find it odd
to focus on this particular deal. His Atlantic City failures are well
documented and did not bring him down, and they cover larger losses and
reputational damage than the Plaza Hotel. All told, there are five different
bankruptcy events around Atlantic City properties and holding companies. Yet in
each case there was little personal recourse that lenders had, and there was an
arguable brand value in Trump’s likeness and marketing support that had to
enter the fray for bondholders and other creditors in how terms were negotiated
and adjudicated. His Trump Tower in Chicago is another fascinating tale of
Trump turning lemons into lemonade. The overly indebted project had the heavy
timing misfortune of coinciding with the world’s greatest financial recession since
the 1930s, yet that timing proved advantageous for borrower Trump, as his
bankers at Deutsche Bank surely knew they had more to lose foreclosing on Trump
in such a period of systemic distress than they did extending and forgiving.
Extend and forgive they did, and when all was said and done, Trump maintains
his equity to this day in the troubled project, despite years of nonperformance
and distress.
Reasonable
people can disagree as to whether creditors were right to value the cooperation
and brand value of Trump as they did (in hindsight, it doesn’t appear to have
been a great call), but my point is that Trump had some leverage in those deals
that he used very effectively. No one should ever doubt his talent to use
leverage, when he holds it, to maximum advantage (that may be one of the
biggest understatements I will ever type).
What
makes the Plaza Hotel in New York City matter so unique is the favorable
outcome despite a lack of leverage. It is a story for the ages. Donald
Trump bought the hotel in 1988 for $409 million from the Bass Group of Texas.
He took a $300 million mortgage secured by the property and then a $125 million
second mortgage that he personally guaranteed entirely. He had no personal
funds in the property at all and was over 100 percent encumbered on the
property. In 1992 he put the property into bankruptcy, as cash flows were not
even close to servicing the debt. What did Donald Trump lose as a result of
this bankruptcy? He gave 49 percent of the equity of the hotel to Citi (as the lead
bank in a consortium of lenders), and he kept 51 percent. The personal
guarantee on his $125 million second mortgage was eliminated. The banks had
every right to seize his other assets to protect their $125 million. They had
every right to seize 100 percent of the Plaza Hotel, not 49 percent, to protect
their $300 million. And when all was said and done, they exited the bankruptcy
plan losing their personal guarantee and not even taking back the entire
(depreciated) value of their own collateral.
I don’t
think it takes a con man to get a bank to give him a deal like this. It takes a
really dumb bank or some aura of invincibility. Trump clearly was dealing with
both. Seven years after Trump’s purchase — seven years that saw a real-estate
correction followed by a massive recovery and bull market — the hotel was sold
for $83 million less than Donald Trump paid for it. He recovered $0, but of
course, he had $0 invested. His bankers recovered a tiny fraction of their
extended capital. The ultimate sale (to a joint venture of a Singaporean
billionaire and Saudi billionaire prince) even contained a contingency that if
penthouses were built under the new ownership, Trump would share in those
profits (with no risk capital at play, and having lost financial partners unspeakable
amounts of money thus far). Those penthouses were not built, but for years
Trump remained in the enviable position of having upside exposure with no
downside risk.
I do not
believe anyone should assume that they can take national-security documents
illegally, refuse to give them back when asked for them, and then play
dangerously risky cat-and-mouse games with federal authorities for a year, and
get away with it. But I have to say, if I had ever bought a hotel with other
people’s money for over $400 million, had unquestionable and nonnegotiable
liability of up to $125 million of my own personal funds, and walked away
without losing a single dollar, with no explanation whatsoever as to how the
banks so generously worked with me, I, too, might start to believe the universe
was there to let me get away with anything.
There
are three potential interpretations of how former President Trump’s business
career has gone. One is that he has been an abject failure with the resources
afforded to him by his dad, with a multitude of capital-destruction events that
clearly mark Trump as a reckless user of debt who has gotten by on a “heads I
win, tails you lose” approach to commerce. Another view (probably the most
commonly held one) is that he is a symbol of success and business acumen — that
no one gets to his level of fame and recognition without being a marketing
genius, and that his whole persona and lifestyle demonstrate what a commercial
titan he must be, even if a few projects have failed over the years.
The
third view, which happens to be mine, requires more nuance and less desperation
for a singular narrative. Donald Trump’s resilience out of this early-1990s
position is absolutely legendary. Yes, one could argue he got into that
position out of recklessness regarding debt, but be that as it may, in a web of
highly complicated transactions, Donald Trump navigated the early 1990s with
more bravado and chutzpah than anyone I have ever studied. That comeback story
is, to be as nonpartisan as possible about it, legendary. And yet, of course,
the total story is essentially a very rich young man working off Daddy’s
capital who, over time, destroyed way more money than he made. That is just the
math of it. He remains rich, and he obviously remains famous, but the actual
stories of decades of business life are, net-net, highly underwhelming. In this
third view, Donald Trump is granted all the credit he deserves for his stunning
tenacity in the face of early 1990s adversity, and credit for being a showman,
the real value he has always maintained in the marketplace. And yet he is also
viewed as a tremendous destroyer of capital who has largely been a completely
leveraged player his whole career.
If paying
off porn stars, winning a presidency despite insulting American POWs, and
otherwise playing absurd games with the Department of Justice over highly
sensitive military documents strikes you as requiring a cloak of invincibility,
the experience of Donald Trump’s adult life might explain the pathology. Normal
people do not believe they can get away with the things President Trump has
gotten away with over the last decade, because normal people do not get away
with such.
But
normal people did not do the deal Donald Trump did with the Plaza Hotel. It
belongs in the history books.
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