Iliana E. Perez:December 2000

Trump: His early rise into fame and wealth, his near fatal end and his resilient comeback

The weird thing about Donald Trump is, as much as he tried to be a figure of ridiculous fun and shrug of gossip, lie as he did about things large and small, Trump appears to be an enormously skilled developer even though he has very poor investment strategies. Donald Trump’s early rise came about as the result of timely speculation and not because of his deal making strategies. During the early eighties the Real Estate market was hot and gave Trump the window of opportunity he needed. Donald Trump possesses the ability to identify profitable ventures a mile away. His aggression and one-sided focus are what allowed him to break down the existing barriers to obtain his goals of becoming successful as a developer. With all that said there is a sad and dark side to Donald Trump, I believe he suffers from an obsessive compulsive disorder. His OCD is to buy and build whatever comes to his mind is just plain crazy. His actions time and time again have proven that when he sets his sights on something; he just goes for it no matter what. Trump does not have any set strategies. Donald Trump’s impulsiveness is what many times does not let him see what will happen after he makes that first pivotal step in any direction. His OCD is best seen in his impulsive purchase of a bankrupt Eastern Airlines and a huge yacht he was never able to put into profitable use.

Donald Trump grew up assisting his father in his business ventures. Trump had a very comfortable childhood and was sent to a military academy where he learned discipline and completed his middle education. In military school he learned the true meaning of competition and how aggressive you must be to get what you want. While assisting his father Trump realized he did not like the rougher aspects of his father's business. Some of the jobs he did not like included rent collecting and the physical labor involved. Trump had a great interest in real estate and decided he would like to be involved in the Real Estate business but at a larger scale than his father had ever been. He studied finance at the prestigious University of Pennsylvania's Wharton School because of this.

During his college years, Donald Trump and his father decided to purchase an apartment complex in Ohio which was in bankruptcy. The purchase of this complex is striking because they obtained financing above the purchase price so they could do the necessary remodeling to the run down complex. The development purchased by Donald Trump with his father’s aid was called Swifton Village, a 1,200 unit apartment in Cincinnati, Ohio. It was purchased at a foreclosure sale for less than $6 million and sold within a year and half for about $12 million dollars. Without a penny of their own invested they were able to turn the apartment complex around by taking a strict approach at rent collection and by remodeling the appearance of the complex. Trump was able to see how the government would assist buyers in purchasing property with little or no financial backing. and best of all how do get such aid. This incident was the beginnings of the Donald Trump we know today. This event proved to be the single most important lesson Donald Trump learned

Donald Trump is known as the all American real estate developer. Donald Trump has shaped New York City into the likes of a modern impressionist painting. All his developments and projects have been new, original, modern, and awe inspiring. Donald Trump was one of the first developers to incorporate an indoor waterfall as a back wall to a restaurant which can be found at the Trump Plaza. Donald Trump breaks the rules of construction and development but always seems to manage to do the right thing. Trump’s actions have always proven to be one of the most reckless and aggressive approaches a real estate developer has ever shown. Is he crazy or does he have an incredible amount of foresight? Buying buildings, casinos, and property just because he can conceive the idea of ownership in his head proves he may be a little bit crazy. This proves Trump’s personal self gratification and not his intelligence is what has made him millions. This strange quality which Trump possesses has given him the edge he has needed and needs to keep going. Trump’s strive for greatness has pushed him to become the national emblem that represents cocky wealth.

Donald Trump didn’t always have it this easy. Even though Trump’s first investment had great success he was not satisfied. Donald decided it was important for him to be on his own. Trump always had his sights set on New York City. Trump believed New York City would be his gold mine. He rented an apartment in Manhattan. The apartment was dingy and old by his standards and he was embarrassed to bring people there. This move to Manhattan brought him into the heart of New York City and he was able to become familiar with all of the properties in his area. He would walk the streets to make note of the buildings and their condition. Always keeping his eyes open for the right investment. He decided these steps would be very important in making a name for himself.

His first attempts at becoming a developer in the early eighties in New York City went unnoticed. Even though his bids were lower and offered more then his contractors he lost out every time. Even when Donald Trump offered his advice the city would not accept it. It seemed his earlier acclaimed fame and luck had diminished. Why? Could it have been because he was the young new face in town? Donald Trump’s youth and inexperience put doubts into the minds of other older more experienced developer. Surprisingly, this did not deter Donald; he became even more determined and aggressive similar to the likes of a spoiled child throwing a tantrum when he does not get what he wants.

Trump’s goal, was to make his mark on New York City. His persistence proved fruitful. At the age of 28 New York City finally gave Trump his chance. He had convinced the city to build a convention center on what use to be the defunct Penn Central Rail yards, which he had secured for his own benefit with options. But, that was not all Trump was able to do, he also convinced the city and the Hyatt Corporation to renovate the Commodore Hotel, which later became known as the Grand Hyatt Hotel. Finally, after these two projects were accomplished Donald Trump’s presence and skill was known. He had proved that he was someone to be reckoned with and was rapidly becoming New York’s newest real estate tycoon.

Donald Trump’s ultimate show of power was when he built the Trump Tower, on Fifth Avenue. This project was what finally provided him with the national attention he had dreamed of for so many years. It contained a mixture of stores and million-dollar apartments; this building became Donald Trump’s trademark. Trump Tower brought forth masses of tourist and was his final show of what great financial success is. When competitors tried to beat him out of the market and lowered their prices he simply raised them. Donald did not once lower his prices. He felt that affluent people, which was the market he was trying to attract would not be concerned with price. This proved he had the ability to understand the psychology of the wealthy. Donald Trump had found his niche and was going to exploit if for as long as he could.

At the peak of his wealth in the year 1989, Trump's billion dollar empire included Trump Parc which contained more than 24,000 rental and co-op apartments, the Trump Shuttle Airline, ownership of the New Jersey Generals of the United States Football league, casinos in Atlantic City, Trump Castle, and his luxurious private homes. Trump's The Art of the Deal was his way of educating the public on business dealings and how to achieve success. I believe this was his conceded attempt to lecture America and rub his financial success in the faces of all who snubbed him. Trump states his style is very basic, in his own words he describes his approach by saying, "I aim very high, and then I just keep pushing to get what I am after" (The Art of the Deal). Donald Trump is a firm believer the deal making is an ability you are born with, it is in the genes. But obviously it was his personal whims, which played a major role in the reasoning behind his acquisitions and their management.

Trump was flying high and finally felt he had achieved everything he wanted. At the speed of light he acquired and developed assets that he had no experience in managing. This caused him to soon lose sight of it all. He was unable to balance his current assets against his outstanding debts that were rapidly coming due. The real estate market boom was heading toward a bust and the rampant tidal waves of the declining market claimed the investments of many and now Donald Trump was directly in its path of destruction. The first sight that something was wrong in Donald's glittery glamorous life started surfacing at the same time the press began reporting his personal problems to the world. Once the break up with his wife and Trump’s reported affair with Marla Maples came to light it distracted him even further from his already crumbling empire. Where were his investment strategies now? They were nowhere to be found. The reality was, Trump was stretched so thin using his name and his persona as a personal guarantee that the foundation of all of his project might as well been made out of sawdust. Donald Trump had no idea what to do. His empire was slipping through his fingertips and the most powerful man in New York was helpless.

During Trump’s near bankruptcy problems the big New York banks were not too far behind. They had lent fortunes to Trump, without paying sufficient attention to where profits would be coming from or how tight an operation Trump was really running. Banks that never lent money for gambling businesses before lined up to fund Trump's empire, more for his name, his golden touch and because of his earlier estate deals than something more concrete. Trump built huge casinos and gleaming apartment buildings, brought world-famous hotels and a fleet of planes and plastered his name over everything. Is this the sign of a man with great business or an over inflated ego? The banks were so blinded by Trump’s charm and past achievements that they felt it would be the easiest buck they would ever make. This later proved to be the worst mistake the Banks could have made. It was as if the Banks had signed their souls to the devil. They were in such an awkward position, if Trump went down so would they.

By 1990 Trump was facing bankruptcy, unable to meet payments on more than $2 billion in loans that were owed to the banks. He was able to secure some emergency financing on various occasions but in return he had to give up the operation and control of most of his real estate to the creditor banks as well as 10 percent of all revenue earned. Trump gradually gave up control of considerable parts of his empire including the Trump Shuttle, casinos, and The Plaza in order to secure more favorable debt financing to cushion his near bankruptcy situation. The lenders were cracking down hard and it had become a tug of war over whose name would be more tarnished, theirs or Donald Trump's. The banks wanted to lend Trump more money but they too had become constrained. The savings and loan crises had caused federal regulators to monitor banks closely, which led to them ending practices with Trump very abruptly.

What lead to Trump's downfall and near catastrophic ending in the early nineties? I believe it was in part because of his non existent strategies. For example by putting the word "Trump" on a building or an airplane he thought this would immediately make him money. There was no concrete backing to his notions and what made it worse was the public bought into it. This proved what a great sales person Trump was in selling and displaying his image to the public but never proved that he was the wonderful business savvy person he portrayed himself to be. Trump was no magician nor was he born with an instinct for real estate as he believed. Donald Trump was simply a speculator who was bound to eventually get knocked down by debt and the normal business cycle. Forbes magazine had charted Trump's rise and estimated that his increased debt and a drop in real-estate values caused Trump to lose more than two thirds of his net worth, from $17 billion in 1989 to $500 million in 1990 (Forbes April 3, 2000).

Donald Trump I believe has helped the arrival of a new age and has brought forth the most unforgettable era in real estate but the cost was almost to high for him to pay. He wanted to accomplish too much too soon with very little planning ahead. Not being able to place proper thought on things is not the best way to start of any type of project especially not multimillion dollar ones. Donald Trump was very smart with dealing with people but until he learns to control himself and focus history may repeat itself. Trump’s aura and image lures many people to invest in his ventures. This blinding affect although great for Trump and his ventures can be deadly to investors.

Trump is the perfect example of how fast a heavily borrowed fortune and the fame that comes with it can very easily disappear if one is not careful. Despite all his misfortunes, Trump at the age of 53, a good decade and a half after he came to national prominence, Donald Trump is possibly the most famous businessman in America. According to the Gallup Organization, 98% of Americans know who he is. None of the other masters of American business like Jack Welch, or Warren Buffett, and Steve Jobs, or even Ted Turner come close. The most impressive aspect of Trump's celebrity status is not his grandeur but its durability. Donald Trump will be a name that will resonate through time. This is best illustrated in this quote, "He has far outlasted the decade that produced him, but--unlike other products of the 1980s who've managed to stay in the limelight through self-reinvention like Michael Milken "the junk bond king". Trump has done this without any discernible personal growth. Like a cryogenically frozen body, he stands as a perfectly preserved specimen of the era (Forbes)." In this new age where wealth is paper, and most assets move electronically Donald Trump's tastes and love of money can be looked upon as a refreshing change. His love of money, success and fame will always keep Donald Trump thinking of bigger and better projects to surprise the public and have the city pull its hair out.

Among Trump's peers, other rich business people like himself, the situation is very different. When Fortune magazine asked several thousand of them to rank 469 companies for its 1999 list of Most Admired Companies, they put Trump's casino company last. They ranked it worst in quality of management, in use of its corporate assets, employee talent, long-term investment value, and social responsibility. This again proves Donald Trump does not use any business strategies in his purchases. He just speculates as to what will be hot and what will not. Trump’s wealth allows him to invest in many places and usually one out five investments will be a hit which will cover all his other loosing assets. Trump tries to shrug off such opinions, in one of his books, The America We Deserve he states, "Rich people who don't know me never like me. Rich people who know me like me." Does this mean he doesn't get the recognition he deserves as a businessman? "I don't think anybody knows how big my business is," Trump replied. "People would rather talk about my social life than the fact that I'm building a 90-story building next to the U.N. ... They cover me for all sorts of wrong reasons (The America We Deserve)."

Donald Trump’s Associates describe his uncanny ability for spotting and sorting out waste as well as his outstanding memory. Trump is so detailed that he routinely requires the city to close loopholes only he had the guts to exploit. What is true for Donald Trump is that he will not usually play it safe. Because of this insecurity Trump walks the construction sites every day, yelling that the concrete is the wrong kind, that the marble isn't flat enough, that the ceiling should be ripped out and redone. Trump must be in every part of the deal. He literally believes, if you want the job done right you do it yourself. Because of this you see Trump always brings the sheer power of his persona forth. He negotiates with subcontractors himself instead of relying on a purchasing department and isn't opposed to using his celebrity status to better the terms wherever he can. To seal one deal, Trump agreed to call the subcontractor's mother and wish her a happy birthday. "He has this ability to relate to the doorman, to the guy who's carrying the iron or steel, and make that guy feel good and important (Colony Capital CEO Tom Barrack).

While Trump's lifestyle hasn't changed much since the 1980s, his dealmaking approach has. He has become a bit more cautious of the sort of leverage that pushed him close to bankruptcy in the early 1990s, he refrains from putting up large sums, instead he tries to partner with financial backers among them is General Electric's pension fund. Many of who want to tap the power of his name as well and also retain him as a sort of jungle guide. In one instance, developers paid Trump a flat $5 million licensing fee for the right to brand a Trump Tower in Seoul. Trump's opponents will usually seize these opportunities to label him as a mere front man for financial interests. Trump has become to them a brand slapped on buildings he doesn't own, which in turn many times sends Trump into spasms of outrage. "I own at least 50% of everything I do," he says, not quite accurately. Trump is always defending himself by saying, "I'm the biggest developer in the hottest city in the world."

In truth, Trump's strategy resembles a village than a fast-expanding game of SimCity, which is to say he has a lot of big projects in the works. On Manhattan's East Side, he and partner Daewoo are putting up Trump World Tower, the 90-story massive building that is going to cast a shadow on the United. Over on the West Side, he and a group of Hong Kong investors have two buildings into an 18-building residential project along the Hudson River, which again creatively is titled Trump Place. This project will fill up on of Manhattan's last big parcel of undeveloped land. Condo sales from both are benefiting from the hottest real estate market anyone can remember once again the advantage Trump had in the eighties. As for the three trophy properties Trump calls "my other children" Trump Tower, 40 Wall Street, and the General Motors Building, which he purchased in 1998 with insurance company Conseco, he has successfully succeeded in jacking up rents. His attention to detail and to what potential tenants will want has remained impeccable.

Even though in some aspects he is doing well still Trump's self-defeating tendencies are evident with his casino company, Trump Hotels & Casino Resorts. Trump took it public in 1995 under the ticker symbol DJT. It was Trump's salvation at the time, raising $140 million that he used to pay off his creditors. Without the casino company, Donald would most likely not be alive today in the way we know him. Surprisingly after near bankruptcy and downright dumb investments his underlying assets are in decent shape. Trump's three New Jersey casinos command nearly a third of all gaming revenues in Atlantic City and a slow-growing market has withstood challenges from new megacasinos. All are well-run operations which have top skilled management; the New Jersey Casino Control Commission says they all have clean records. The Taj Mahal which has about 4,500 slot machines, throws off nearly $100 million in cash annually; the smaller Trump Marina has doubled its own cash flow to $53 million in just three years. If you add in Trump Plaza and a riverboat outside Gary, Ind., the company generates more than $240 million in cash a year. Donald Trump is not just blowing smoke when he says there is a lot of money to be made in this type of business.

True, some of his investments may be a cash cow, but most of the revenues earned goes toward the care and feeding of another beast. The $1.8 billion in high-yield debt that has weighed the company down almost since its inception. The debt servicing eats up $216 million of the cash flow, leaving the company with very little capital to reinvest in its properties and even less in earnings for shareholders. The company lost $134 million after depreciation and special items in 1999, and the S&P recently lowered Trump's bond rating from junk to junkier.

The most unnerving thing about Trump has been the accusations in the press about Trump's tendency to use the casino company as his own personal piggy bank. If you look at the $5 million bonus he drew one year, or the fact that the pilots of his personal 727 are on the casino company's payroll this little bit of gossip can hardly be overlooked. In 1996 he sold the Trump Marina to the company for what many shareholders considered to be a very high price. Trump insists it was a "good deal." Trump has angered investors in 1998 when he had the already cash-strapped company lend him $26 million to pay off a personal loan from Donaldson Lufkin & Jenrette. The weird thing is Trump denies misusing company funds and says he'll repay the $26 million when it comes due May 15. What does this say about Trump’s character? Donald Trump knows how to use the situation to the best of its ability. As if all this weren't enough to rubs Trump's Street credibility in the mud, the company was also accused of overstating last year's third-quarter results when it failed to disclose that $17 million in revenues came from a one time event.

A couple of people close to Trump which hold him at high regards suggest that he's unfit to be running a public company. Given that the low stock price seems partly a function of Wall Street's allergic response to Trump's showiness analysts have named it "the Donald factor." Many believe the solution is obvious, it would be better for Trump to remove himself from management. Industry executives speculate that this step alone would bring a 30% bump up in the stock. But Trump has always chosen the opposite track. To macho to prove he may be out of his league even after having paid little attention to the casinos for several years, Donald Trump now promises to become more involved with them. Now it appears Trump will attempt to deleverage the company by unloading one of the casinos within the next six months.

Another puzzling aspect of Trump's public image is that even though he runs two companies which employ 22,000 people together, you never get the sense of an organization underneath him. It is easy to come to the conclusion that he's not only a sole proprietor but a sole employee. Both current and former employees describe Trump as a loyal but not especially well-paying boss, citing stories of birthdays remembered, of sick relatives visited in the hospital. Yet some of them shrug at the popular perception of Trump as a one-man show.

Oddly enough for a man who all but lives in the media, Trump has no public relations to speak of. In a day when even petty tycoons protect themselves with platoons of spokespeople and media people, he relies only on his longtime assistant Norma Foederer and returns most reporters' calls personally, making him one of the most accessible businessmen anywhere. How ironic a man of his statue and money has to prove himself to the world everyday. Donald Trump is a very goal-driven person and I believe will always resurface no matter how his investments turn out. Trump summed his future in these few words, "Anyone who thinks my story is anywhere near over is sadly mistaken."