The Money Report April 2013

What Exactly Is Donald Trump's Deal?

Is he a buffoon? A genius? An exploration of the man, his brand, and his chronic bluster.

The perception of Trump’s enormous wealth is essential to everything Trump, whether his fortune is the $8 billion he now claims or the $3.1 billion that Forbes estimated in September 2012 or something else altogether. It’s why he jets off to Mar-a-Lago on the weekends in his new Citation X—“What I like about that is the speed,” he explained. “It’s the fastest private plane ever made. It goes Mach 9.3”—and why he is letting the Discovery Channel feature his Boeing 757 business jet on an upcoming show. (A three-minute YouTube video hosted by Amanda Miller, a Trump associate, lovingly shows off the jet’s dining area, the flatscreen TVs—complete with a button that immediately accesses Trump’s favorite films—and, of course, the bedroom. It’s Cribs for billionaires.)

America’s history is replete with men—it’s almost always men—who have traded profitably on the perception that their life traces an arc of uninterrupted, overwhelming, seemingly effortless success. The iconic self-made man may stand center stage in the culture, but not far to the side is his fun-house-mirror image, no less American and only a little less beloved: the sly huckster, the razzle-dazzler. It is too simple to say that Donald Trump is rich because you think he’s rich. He is, above all, a skillful developer, a highly creative thinker, and an extraordinary deal maker. Yet over the years, Trump’s image—the public perception that he has a Midas touch—has become increasingly important to his ability to make money. Paradoxically, as his business dealings themselves have grown more cautious and risk-averse since his earlier flirtations with, yes, bankruptcy, his bluster has become more essential—and he has missed few opportunities to turn up the volume.

O’Brien’s book “struck at the heart of the grand illusion which is behind [Trump’s] brand—his retail brand—that he’s the most successful guy that’s ever lived in real estate,” explained one Wall Street banker who knows Trump well. “His name, for the average American, is synonymous with being incredibly successful—multibillionaire, greatest real-estate developer of all time, ‘if only we could afford to be in on one of his deals.’ That’s the deal, right? And that’s only been reinforced by what he’s done on TV and the Miss Universe, or whatever pageant he has. It’s like selling a stock to an institution versus a mom-and-pop retail investor. His brand is for the retail market, not the institutional market.”

Trump is a graduate of the Wharton School at the University of Pennsylvania, but as parts of the two-day, December 2007 deposition he gave in the O’Brien lawsuit make clear, his preoccupation with his retail image sometimes crowds out conventional financial thinking when it comes to calculating his net worth. In the deposition, Trump showed little or no understanding of the concept of “net present value,” the idea that because of the time value of money, something that is expected to be worth $100 in the future is worth less than $100 today. The concept is essential to calculating what a business is worth. The subject came up in a discussion of how Trump valued his golf courses. After conceding that he was only “modestly” familiar with the idea of net present value, he said it had something to do with “the value of the land currently after debt,” which sounds more like a definition of the equity value of an asset, rather than its net present value. His methods of valuing assets are more creative than precise, although Trump has his own internal logic for them. For instance, in 2005, he was paid $400,000 for a speech at the Learning Annex, but bragged on Larry King Live that his pay was actually more than $1 million because, as he explained in his deposition, the speech was promoted in billboard, newspaper, radio, and TV ads around New York City, creating extra value for his brand.

“So when you say publicly you got paid more than $1 million, you’re including in that sum the promotional expenses they pay?,” Trump was asked during his deposition.

“Oh, absolutely, yes,” he replied. “That has a great value. It has a great value to me.”

He said in the deposition that he tries to be “truthful” in discussing his net worth, but the transcript reveals that he views the truth, in these matters, to be a function of emotion as much as hard science. “My net worth fluctuates, and it goes up and down with markets and with attitudes and with feelings—even my own feelings—but I try.” He’s no different than “a politician running for office,” he said. “You always put the best foot forward. So you don’t want to say negative things.”

O’Brien’s lawyers at Debevoise & Plimpton—among them Mary Jo White, who would become Obama’s 2013 nominee to chair the Securities and Exchange Commission—probed further into the idea that Trump’s net worth changes with his mood. “Yes, even my own feelings, as to where the world is, where the world is going—and that can change rapidly from day to day,” Trump said. “You have a September 11, and you don’t feel so good about yourself and you don’t feel so good about the world and you don’t feel so good about New York City. Then you have a year later, and the city is as hot as a pistol. Even months after that, it was a different feeling. So yeah, even my own feelings affects my value to myself.” He said it all depends on when the question is asked.

But the crux of the matter, he said in the deposition, was that O’Brien’s suggestion in The New York Times that he was worth some 20 times less than he believed had damaged his reputation and hurt his ability to do business. “And that is because you are perceived publicly, you believe, as a billionaire, correct?” a Debevoise lawyer asked.

“I am a billionaire,” Trump replied. “I’m not perceived. I mean, I am a billionaire. Of course, if you read Tim O’Brien’s writings and what was then transposed into The New York Times, you would certainly not think that. But I am a billionaire, many times over, on a conservative basis.” He said the implication that he was worth much less had hurt him. “And that was huge negative impact on me, for obvious reasons: for deal reasons, for psychological reasons,” he said. “I’m in a very big business—$150 million in my business is not very much when we’re building buildings that are worth, you know, hundreds of millions of dollars and even billions of dollars. And when somebody sees ‘Trump is worth $150 million,’ that is very damaging to me.”

In the deposition, Trump gave two concrete examples of deals he believed he lost because of the diminished perception of his net worth, both of which involved Howard Lorber, the chairman of Douglas Elliman, a real-estate brokerage that was then part of Prudential Finance. A month or so before O’Brien’s story appeared, Lorber had called Trump to see whether he wanted to work with the Italian owners of a building at 400 Fifth Avenue to develop it into a major hotel and condominium tower. Like other foreign real-estate investors hoping to make a mark in New York City, the Italians figured Trump could help them cut through the thicket of city regulations to get the building built and could use his considerable promotional skills to sell the condominiums. A group of Hong Kong investors did something similar with Trump in the 1990s in the development of a group of residential towers along the Hudson River, on the Upper West Side.

As it happened, Trump had been looking at the nearby Lord & Taylor site, at 40th Street and Fifth Avenue, but Lorber convinced him that the other site was better. Trump met with the Italians. “It looked like it was a deal made in heaven,” he told the lawyers. He loved the site, and even though the meeting was preliminary, he felt that everything added up. “What I do for a living is deals, and I know when they’re going to happen and when they’re not,” he said. Recalling his thinking at the time, he continued, “This is a deal that was going to happen.” He said he suggested a mixed-use purpose for the building along the lines of how he had redeveloped One Central Park West, at Columbus Circle. He figured he’d get a 25 percent stake in the project, without putting up any capital. “I said, ‘It will be a tremendous success,’ ” he recalled. “The market was blazing hot. And they were all excited about it. And they left my office extremely excited.”

Trump said his net worth “goes up and down with markets and with attitudes and with feelings—even my own feelings ... You always put the best foot forward.”

But then the Italians read O’Brien’s article, and his book. “And Mr. Lorber called me and he said, ‘They’re not going to make a deal with you.’ ” Trump asked Lorber why not. “ ‘Because they read the article in The Times, and they read the book. They’re not going to make a deal.’ ” Trump spoke with the Italians himself, but it was no use. “Houdini couldn’t have sold them on the deal,” Trump told the lawyers. “So I lost potentially a couple of hundred million dollars on that deal because of this false book.”

He and Lorber were also talking about a deal in which Trump would get an equity stake in a new company formed to sell high-end real estate. Trump would contribute his name and presumably his expertise, and Lorber’s firm would contribute a group of top-notch real-estate brokers. Trump was to get an initial stake of at least 25 percent in the venture. It looked like the company was going to be named Trump Realty. He said he had more than 20 discussions with Lorber about the project. “He loved this idea,” Trump said. “He liked it more than I did.” The day after O’Brien’s story ran in The Times, Lorber told Trump that plans had also changed for Trump Realty: “ ‘We’ve got to hold it off, because it’s not a deal that’s going to be good after this.’ ”

Lorber declined to be interviewed for this article, and his deposition in the O’Brien lawsuit was sealed, like much of the proceedings; Trump’s deposition became public when it was attached as an exhibit to a motion of summary judgment filed by O’Brien’s lawyers. But the fact is, 400 Fifth Avenue is now a gleaming 60-story hotel-and-condominium tower, designed by the star architects at Gwathmey Siegel, and built without Trump’s involvement. This does seem to lend credence to Trump’s argument that the kerfuffle over his fortune cost him some business.

Despite Trump’s bravado, not everyone considers him a top player in Manhattan’s clubby world of family-owned real-estate developers, where names like Tishman Speyer, Milstein, Silverstein, Durst, Ross, and Rose reign. Although his redevelopment of 40 Wall Street is impressive, the only office tower he built from scratch in Manhattan was Trump Tower, in the 1980s. His ambitious casino projects in Atlantic City in the late ’80s and early ’90s ended painfully; personal guarantees had him on the ropes for some $900 million before the debts were restructured—helping him stave off personal bankruptcy. His projects these days tend more toward those where he can put his name on some buildings—usually residential, or mixed-use residential and hotel. He develops or redevelops the site, manages the construction and design, and helps sell the units. He generally puts up none of his own capital and has no liability for the debt that the projects incur. Trump gets a fee and a minority stake for his trouble.

The major Wall Street firms are rarely involved in his deals. He is not a lending client at Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, or Bank of America. One former Goldman real-estate banker said he knew better than to mention Trump’s name at the firm. “I did not look at anything for Trump when I was at Goldman,” he told me, “but suffice it to say I didn’t attempt to.” Another Wall Street banker put it more bluntly: “If a major institution in New York—whether it was a Chase or a Goldman or a law firm or something—wanted to have a building built that they would anchor or fully occupy, I can give you almost 100 percent assurance that Donald would not be on the list for an RFP [request for proposals],” he said. In his opinion, Trump has not developed an “institutional patina.” He noted, too, that Trump is prone to litigation and has not built an office building in years. “He has devoted himself to the luxury and semi-luxury residential business and to the resort business, which is much more sort of a marketing/branding exercise.”

Trump told me his inactivity in the office-construction market in Manhattan is simply smart business. “I take that as a compliment,” he said of the suggestion that he is not anyone’s first choice to build an office tower. If high-end Manhattan office developers “don’t get $100 a square foot, they lose money, and they’re not getting $100 a square foot.” He pointed out, as an aside, that he does own 30 percent of two major office buildings, a fact few people know: 1290 Avenue of the Americas, in New York, and the Bank of America Tower in San Francisco. (His partner in both is Vornado Realty Trust.) He also said that he often wins RFPs in Manhattan, assignments many others coveted—for example, the Wollman and Lasker ice-skating rinks, both in Central Park.

In his deposition, he said repeatedly that he sees his approach—finding projects for which he doesn’t need to put up much of his own money but still gets a minority stake—as a virtue, and a mark of his growing stature. “I’ve seen the world go good, and I’ve seen the world go bad,” he said by way of explaining his strategy. By and large, it’s a different strategy from that of New York’s premier real-estate families, who would rather assume additional risk—putting up their own capital and taking on potential liabilities—for the chance of earning a greater financial reward if a project succeeds. Trump’s reluctance these days to write big checks or assume big liabilities may result from the shellacking he took in Atlantic City, or from his judgment of current market fundamentals, or perhaps simply from a shift in priorities toward wealth preservation as he has aged and realized he might be a mere mortal after all. (He proudly describes himself as a grandfather and a devoted family man—he has been married to his third wife, Melania, a former model from Slovenia, for eight years—and his friends confirm his devotion. He has five children, and the three oldest ones—Donald Jr., 35; Ivanka, 31; and Eric, 29—play important roles in his business empire.) Regardless of the reasons, Trump’s conservatism has made him more dependent on finding partners (on the front end of a project) and selling residential units or golf memberships (on the back end), which has only increased the importance of defending a Midas-like business image, and of keeping his name in the news.

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William D. Cohan is a contributing editor at Vanity Fair and a former investment banker. He is writing a new book about crime, race, sports, and privilege at America’s elite private universities.

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