Teflon Don: How Trump Survived a Real Estate Deal Gone Bad
His investors lost money. A judge said he broke the rules. So how did the GOP front-runner come through a blizzard of lawsuits unscathed?
On Nov. 5, 2013, surrounded by a crowd of attorneys, court officials, and four would-be condo buyers, Donald Trump sat down in a conference room in his flagship Fifth Avenue building and began to tell his version of a real estate deal gone awry.
Trump had licensed his name to a luxury condominium project in Fort Lauderdale, Florida, but the building was never completed and those who had put down deposits, ranging from $85,000 to $500,000, wanted their money back. More than 100 of them would file suit, with the largest group — which swelled to 81 people as it neared trial — suing for $7.8 million. By the time Trump sat down for his deposition, the other defendants in the lawsuits, those who were the actual owners of the building, had settled for undisclosed terms. Trump, who hadn’t invested his own money in the project or overseen any of the construction, fought on. He was fighting for the Trump brand.
“I’m in a unique position,” Trump testified when asked about licensing his name to buildings he didn’t own or develop himself. “I built up a great name, and the name is something that people like, and it has been very successful.”
But the name alone was not enough in the case of the Trump International Hotel and Tower, Fort Lauderdale, a 24-story, 298-room beachfront property designed by architect Michael Graves, known for buildings like the Denver Public Library, as well as the line of consumer products he designed for retailers like Target and J.C. Penney. No one disputed that the project had ended in failure, with the luxury building never even completed. Plagued by delays in financing, construction, and budgeting, it was ultimately sold in a foreclosure auction for $115 million, far less than the $200 million it cost to build. Would-be buyers didn’t get their money back. Trump’s name, the primary reason many of them had put down deposits in the first place, was removed from the project.
As a presidential candidate, Trump stresses his track record as a winner. Based on his experience, he says, he’ll pick the best people for his cabinet and put the best people in place to solve foreign crises. He says he doesn’t disappoint people. But a condo deal that was a huge disappointment to hundreds of people who wanted to buy into the Trump brand raises questions about the people Trump picks — and the way he wins.
Although the Fort Lauderdale project had ended in failure, Trump was determined to win its aftermath. He fought the buyers in court long after the other defendants had settled. His lawyers didn’t let them or their attorneys know a dwindling insurance policy was available to settle claims, depriving them of critical information they needed to evaluate settlement offers. A federal judge sanctioned Trump and his company, finding they had engaged in a “national litigation strategy” to selectively disclose the existence of the policy. And, in April 2015, almost six years after the project collapsed and two months before he announced his run for the White House, Trump opened a new front in the case, suing his former partners for damaging his brand and reaching settlements with the buyers.
Trump’s involvement in the Fort Lauderdale real estate project began sometime in 2003. In a deposition taken after the project collapsed, Trump said that Bayrock Group, a New York development firm, brought the proposal to him. Bayrock Group pitched deals with the Trump Organization all over the country — in Phoenix, Denver, and New York, where the two collaborated on the Trump SoHo condo/hotel. For the Trump International in Fort Lauderdale, Bayrock partnered with Roy Stillman, a New York developer, to build the project under the aegis of a corporation called SB Hotel Associates, formed in September 2004 for the purpose of developing the project. Trump signed a licensing agreement for the use of his name in June 2004.
The Trump International in Fort Lauderdale was a hotel-condominium project, a concept Trump pioneered with properties in New York, Chicago, and Las Vegas that he has developed and in which he retains an ownership interest. Buyers purchased a furnished condo they could stay in, at most, a few months a year. When they weren’t using it, their property would be rented out as a hotel room, with the owner receiving much of the proceeds.
Trump was front and center in the sales campaign that got underway in March 2005, documents unearthed in the court cases show. A Feb. 11, 2005, letter from Donald Trump Jr., Trump’s son, specified that “Donald J. Trump will be named a partner for advertising, marketing and public relations purposes. The project will be will be referred to as a Donald J. Trump Signature development.” And so it would be.
Glossy brochures sent to prospective buyers began with a letter from Trump. “It is with great pleasure that I present my latest development, Trump International Hotel & Tower, Fort Lauderdale,” it reads. Buyers who’d put down deposits to reserve units in the project received letters signed by Trump, congratulating them on their purchase. “This signature Trump property is one that I consider to be very unique and part of a distinguished circle. My newest development in Fort Lauderdale will join only three other select properties that include the flagship Trump International Hotel & Tower in New York City, as well as Chicago and Las Vegas.” Trump has an ownership stake in the latter three properties.
The Trump name boosted the price at which units could be sold. Paul Yanoshik, who sells real estate in Montgomery County, Maryland, a tony suburb of Washington, D.C., said he was willing to pay more than $1,000 per square foot — “a big premium at the time” — and put $119,000 down on a condo in Fort Lauderdale as soon as the sales office opened. “I did that because of the location, the architect, and the Trump management, the Trump name, the Trump involvement.”
On May 25, 2005, buyers received letters from Trump announcing that construction on the project was underway. “We are right on schedule to open our doors in the spring of 2007,” it reads in part. That proved to be premature. Four months later, buyers got another letter, this time from Maritza Meza, director of sales for the project, announcing that excavations — a prelude to construction — had begun.
Some of the delays were caused by the failure to secure financing. Stillman arranged for a loan in November 2005 with Corus Bank, a Chicago-based financial institution that, during the real estate boom, was betting heavily on financing construction of condominium projects. The loan did not close, according to an internal Corus Bank document, due to cost increases and construction delays, and final financing — for $139 million — wasn’t agreed to until October 2006.
Financing remained a problem. Corus Bank had bet heavily on condominium construction as the real estate market went into overdrive. When the market first started to cool in 2007 and then turn frigid in 2008, its financial situation grew more precarious. By 2009, when Stillman needed an additional $15 million to finish the project, Corus Bank was teetering on insolvency.
Although the property wasn’t finished — there was no first-class restaurant or other amenities promised to buyers in the glossy brochures and promotional materials — Stillman decided to try to close with buyers in April 2009, a move that would provide a cash infusion when their banks wired the outstanding balance owed on their units. When Trump heard about the plan, he threatened to cancel his licensing agreement.
In May 2009, the project collapsed amid infighting between Trump and the developers. SB Hotel Associates, the project’s developer, sent a letter to buyers asking them to close on their units within two weeks, even though the project wasn’t finished. That did not inspire confidence. Citing the “uncharted economic climate,” the letter said that if at least half of the buyers did not close, the project would not open. It also informed them that Trump had threatened to take his name off the building.
“It was insane,” Yanoshik told Foreign Policy. “They wanted us to settle, and you couldn’t settle because it wasn’t ready. It was a bizarre situation.”
The Trump Organization issued a statement — authored by Alan Garten, the general counsel and executive vice president of the Trump Organization — that it had no ownership stake in the project and had merely licensed its name. It advised aggrieved buyers who had paid premium prices to secure a spot in a Trump property to contact SB Hotel Associates.
“This was the first I heard that Trump wasn’t an owner,” Florida attorney Joseph Altschul, who represented Yanoshik and other buyers, told FP. “And I was already in litigation with them.”
Many of the lawsuits that would ultimately be filed against Trump for projects in Baja, Mexico; Waikiki, Hawaii; and the Florida snowbird cities of Tampa and Fort Lauderdale concerned properties to which he licensed his name but did not have an ownership stake. The promotional materials that lured buyers in identified Trump as a developer of the projects, and the real estate mogul did nothing to contradict them. Those suing Trump accused him of fraud.
Garten, who oversaw Trump’s response to the lawsuits, said that they had more to do with the real estate bubble bursting and Trump’s deep pockets. He dismissed charges that Trump had misled buyers, telling FP, “What was going on then? We had the worst real estate crash since 1929. The timing of it is not a coincidence. You had buyers who had overleveraged themselves, who bought at the top of the market and couldn’t close.”
For buyers who put deposits on condos that sold for $1 million at the peak of the real estate market and had lost half their value or more in the crash, there were two options. “You’re going to walk away or you’re going to manufacture grounds for a suit,” Garten said.
The legal battle that followed was anything but simple. “They put an extraordinary amount of resources into their defense,” Jared Beck, another Florida attorney who tangled with Trump in three separate cases, told FP. In the wake of the real estate crash, Beck handled hundreds of clients who’d lost money in a wide variety of cases — but none like the fight against Trump. “I can’t think of an analogous case where we were engaged at this level in a condo deposit lawsuit.”
Trump, who also faced lawsuits at the time from failed projects in Baja, Tampa, and Panama City, Florida, came to an understanding with Stillman and SB Hotel Associates, and entered into an agreement to share costs defending the Fort Lauderdale litigation. The agreement they signed specified that any settlement agreed to would free Trump and his organization from liability and that any party could cancel the agreement with a 15-day notice. In November 2012, SB Hotel Associates negotiated a global settlement with the buyers and offered Trump a chance to join the final agreement. He refused. SB Hotel Associates provided the 15-day notice and settled. Trump, who is currently suing Stillman and SB Hotel Associates over the breach of agreement, tried to block the settlements, ending up in a suit with the bank that still held some deposits in escrow, and fought on.
“If you’re going to pick a fight, Donald Trump is not the guy to pick it with,” Garten said. His boss was willing to spend what it took fighting in court rather than settle a case.
In federal court, that posture led a judge to sanction Trump’s attorneys. Defendants in a lawsuit must disclose any insurance coverage they have to plaintiffs at the outset. Although his lawyers did not disclose it to buyers suing him in the U.S. District Court for the Southern District of Florida, Trump had a $5 million policy that, among other things, covered his executives and directors for lawsuits arising from making misleading statements.
“I would go so far as to say that core claim against Trump was the misrepresentation of his role,” Beck said. He filed the federal lawsuit in May 2009, which initially also included SB Hotel Associates, Stillman, and Bayrock Group as defendants. Beck wouldn’t learn of the insurance policy until four-and-a-half years later, 16 days after Trump was deposed in Trump Tower in New York in November 2013.
He learned of it inadvertently through an email exchange. “After the deposition of Trump was over, Alan Garten motioned me into his office,” Beck told FP. “We had a brief, cordial conversation.” They discussed settling the case, something Beck’s clients were willing to do. There had been a number of settlement talks in the case, including in front of mediators, where Trump’s side had made offers. Beck and Garten exchanged emails, with Beck beginning with a number they had previously discussed.
“Since that offer was made, your clients settled with SB, their depositions were all taken, the parties moved for summary judgment, all of [the] other buyer cases in other jurisdictions have gone away and any insurance coverage which may have existed has dried up,” Garten responded.
“I see Garten making reference to an insurance policy that’s dried up, and it was a blazing bright red flag to me,” Beck said, “because for five years I’d been under the impression that there was no insurance policy to cover the Trumps.”
Had the policy been disclosed, Beck believes, the case might have ended sooner, for a number of reasons. The insurer would have been informed of the case and made a simple business decision on whether to settle. Beck’s federal plaintiffs — eight clients who had already settled with the other defendants — were seeking a little less than $1 million from Trump. Additionally, his clients might have been willing to settle if they knew that the insurance existed but other lawsuits could deplete it. “That would have been a very critical fact to know at the time we were considering the settlement offers.”
Judge Kathleen Williams held hearings on the issue, on Dec. 19, 2013, March 19, 2014, and June 11, 2014. From the outset, she took the issue seriously, saying at one point, “Unless there was an amnesiatic moment, or there was some reason that is clearly articulated that makes abundant sense to me, then there is an issue here, and there is a sanction that needs to be imposed.”
In the June 2014 hearing, she said that “there has been a national litigation strategy designed and implemented by Mr. Garten.” She added that if she accepted one of Garten’s explanations for the omission — that his views of which insurance policies were relevant were evolving — then “no corporate defendant would ever be held accountable for its answers at any time.”
Garten said the violation of the disclosure rule was his fault, not Trump’s. “If anyone was to blame for that, it was me,” Garten told FP. “Mr. Trump had nothing to do with that.”
Although Williams’s sanctions order included payment of the legal fees Beck’s clients incurred due to the lack of disclosure, the monetary award against Trump was dropped when Beck settled the case. “She never awarded any damages,” Garten told FP. “There was never one penny paid.”
A few plaintiffs took their cases all the way to trial. A Broward County jury heard testimony from Stillman, a Bayrock executive, condo buyers, and Donald Trump himself. Trump testified that if buyers had been able to close on their units in 2009, they would have been worse off — stuck with properties worth far less than what they paid for them. He argued that he was never the developer of the project, which in the end was done in by the financial crisis.
In March 2014, a jury agreed. That case is on appeal.
“I think the Fort Lauderdale case validated our position, not just there but all over the country,” Garten said. “It showed we were right. We were just the only ones willing to go the distance.”
And they still are.
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