I first wrote about the fragility of the Trump fortune in April of 2018, and that theme has been followed by several more related posts in the years since. I sometimes feel that the financial chroniclers of the Trump Organization like myself and the far more knowledgeable David Farenthold of the Washington Post and Adam Davidson, co-founder of NPR’s Planet Money, have been “Chicken Little” here, forever predicting that the sky was about to fall on Trump. Obviously, the sky has not fallen.
Regardless of his current financial position, or perhaps because of it, there appears to be at least one more financial con in Donald Trump’s blood. Enter the “Save America Joint Fundraising Committee,” which was ostensibly set up to mount legal challenges to the 2020 presidential election and to fund rallies for the defeated president. Bloomberg recently claimed that he has at least $100 million in these funds, and a more recent fundraising event purportedly raised another $25 million.
Until Trump formally declares a 2024 candidacy, there is little restriction on what he can do with this war chest. Little to no money has been tracked actually going to the many post-election lawsuit filers or to other candidates running for office.
So, how does Trump personally profit from perhaps several hundred million dollars of donations coming in? You can jump to the last tag entitled “Cashing out campaign funds,” or stay tuned to look deeper into why the Trump financial crash has not yet happened. But first, a look at what a “mature” real estate development firm should look like financially. The Trump Organization does not fit this mold.
Growing old gracefully in real estate
In my definition, a “mature” real estate development firm is one that is not aggressively jumping into new commercial projects. That may be due to simple life cycles or even just the current economic environment where downtown office space and business travel hotels look to be pretty stinky investments in Covid World.
Mature real estate developers tend to scale back on acquiring new debt and instead focus on various strategies for maintaining positive cash flow while minimizing taxes. As I have previously noted, commercial real estate largely works by generating a positive cash flow while intentionally declaring an accounting loss on key projects, which acts as a tax shelter for other projects in the portfolio. This is possible because of large non-cash depreciation tax deductions even as the project is growing in market value. The wonders of the U.S. tax code!
Remember that accounting profit is an artificial number, in the old CPA joke often “whatever you want it to be.” Cash flow is where the real wealth lies. For older properties that start showing “too much” accounting profit, the tax code has a nice trick called a Section 1031 like-kind exchange, which allows for the deferral of a market value gain by swapping the property tax-free for another with more favorable depreciation deductions. At one point, reform of this tax loophole was in the Biden budget proposal, but I predict the loophole will survive. Support for this loophole among the very rich shows no partisan split.
But the Trump Organization is not maturing gracefully
These maturing developer strategies do not appear to apply to the Trump Organization. They have scaled back on new projects; indeed, new Trump real estate projects are hard to find. While Eric and Donald, Jr., had announced some hotel projects early in Dad’s presidency, these deals are reportedly dead.
More recently, the company is reportedly shopping around its flagship but leased Washington DC hotel, which has a loan of $170 outstanding but has lost 60% of its revenue since Trump has left office. Some properties are dropping the Trump name, and banker Wells Fargo has reportedly put its $100 million loan on the iconic Manhattan Trump Tower on its “watch list” due to slumping occupancy. That is not “maturation.” That is “troubled.”
The Trump Organization has often deviated from the standard real estate finance model, investing in more idiosyncratic properties, and using “fringe” financing partners, often undisclosed. Golf courses, a Trump specialty, have been a lousy business where, in some markets, the average age of a club’s membership seems to go up one year every year. This makes cashing out and covering debts much more difficult.
An official inquiry may soon be underway in Scotland looking into how Trump financed his two golf courses there, and why they seem to be unending but unexplained “sinks” for cash. U.K. reporting rules require much more transparency than is allowed in the United States, and so this is one of the most promising “beneath the covers” investigations in process. When it appears that a property must have been debt-financed, but there is no legal registration of that debt anywhere, then you are likely dealing with lenders who use “alternative” methods for getting their money back.
The Trump Organization has up to $1 billion in debts, according to Forbes. The Washington Post says that over $400 million of that is coming due very soon, much of this personally guaranteed by Mr. Trump’s personal assets as opposed to being secured by property mortgages (personal guarantees are another “no-no” in the property development world). That can’t be good.
The Trump cons of the past
The most famous con job pulled off by Donald Trump was his escape from the failed New Jersey casinos in the 1990s. As the Wall Street Journal reported, his creditors, to whom he personally owed $830 million apart from even more secured debt, realized that “the developer was worth more to them financially alive than dead.” The financiers (some pretty sketchy themselves) ate that huge debt rather than forcing Trump into personal bankruptcy. It is no accident that one of them, Wilbur Ross, eventually wound up in the Trump cabinet.
The Trump children may still be on the hook for the standard Trump con in more recent years, which was to sell condo units in expensive buildings by lying, both to potential buyers and potential lenders, about how many unit sales were committed before construction began. An inflated occupancy number hooks in both unsuspecting buyers and skeptical investors. But once ground has been broken, as either a condo owner or a debtholder, there is little you can do when you find out the occupancy reality except to sue Trump, which rarely ends well.
The entire Apprentice TV shtick was a con as well. I have often said that “Reality TV isn’t reality” and this was one of the best cases. He was never as rich as he claimed, his real estate business was always an insular family firm, and his personal involvement in the series was minimal. It primarily served as a big real-time cash inflow for maintaining his charade while his real estate cash flows were flagging, as well as promotion for his other branding businesses and, ultimately, his political career. The voters were the con’s primary marks here, and most still have not figured that out.
Most of the Trump cons were more petty, such as getting cash up front for branding dubious products, or in the case of Trump steaks, settling on a debt that, in the end, never got repaid. My own employer during Trump’s Atlantic City years owned a legal publishing company that fell victim to the scam that Michael Cohen would later admit running in more recent years. Trump would send goons to personally threaten the accounts receivable folks of a supplier to get them to write off debts that he had rung up for goods and services. The tactic often worked, including at my employer.
Cashing out campaign funds
So, how does The Donald escape failing properties and imminent demands for debt repayment? The most promising route is to somehow convert his growing pot of campaign cash in political action committees (PACs) into more “fungible” dollars. Federal Election Commission rules would seem to prohibit this, but the FEC has been a gridlocked and ineffective enforcer of campaign financing laws in recent years, especially in dealing with the “big fish.”
What is likely happening right now is the spending of the PAC money in ways only very loosely campaign-related. Trump can get away with claiming most of his travel, legal, and security costs, even if the link to political activity is weak, if he has not formally declared his candidacy for 2024. Indeed, there is no boundary anymore between the businessman Trump and the political Trump. This con is his current business.
My prediction is that Trump will be even more bold in converting these funds, or at least in using them in some kind of obscured collateral deal for holding off his creditors long enough to raise cash through more “normal” Trump means. On September 16, Trump openly expressed sympathy for the jailed January 6 Capitol rioters. and more recently extended his threats to the Georgia Republican Secretary of State for his role in certifying the 2020 election results. There appear to be no limits to where Mr. Trump will go as financial desperation sets in. This will not end well. And as for this being Trump’s last con, well, we Chicken Littles may not be even getting our wish on a falling star, let alone the whole sky.