Newsweek BY KURT EICHENWALD ON 8/2/16 AT 6:10 AM
Trump boasted when he announced his candidacy last year that he had made his money “the old-fashioned way,” but he is no Bill Gates or Michael Bloomberg, self-made billionaires who were mavericks, innovators in their fields. Instead, the Republican nominee’s wealth is Daddy-made. Almost all of his best-known successes are attributable to family ties or money given to him by his father. His first project was revitalizing the Swifton Village apartment complex in Cincinnati, which his father had purchased for $5.7 million in 1962. After Trump finished his work, they sold the complex for $6.75 million, which, while appearing to be a small return, was a loss; in constant dollars, the apartment buildings would have had to sell for $7.9 million to have earned an actual profit. Still, Trump happily boasted about his supposed success with Swifton Village and about his surging personal wealth.The next year, he moved to Manhattan from the outer boroughs, still largely dependent on Daddy. In 1972, Trump’s father brought him into a limited partnership that developed and owned a senior citizen apartment complex in East Orange, New Jersey. Fred Trump owned 75 percent, but two years later shrunk his ownership to 27 percent by turning over the rest of his stake to two entities controlled by his son. Another two years passed, and then Fred Trump named him the beneficiary of a $1 million trust that provided him with $1.3 million in income (2015 dollars) over the next five years. In 1978, he boosted his son’s fortunes again, hiring him as a consultant to help sell his ownership interest in a real estate partnership to the Grandcor Company and Port Electric Supply Corp. The deal was enormously lucrative for Donald Trump, particularly since it just fell into his lap thanks to his family. Under the deal, Grandcor agreed to pay him an additional $190,000, while Port Electric kicked in $228,500. (The payments were made over several years, but the value in present-day dollars on the final sum he received is $10.4 million.)Soon Trump gained the public recognition he craved. Through a wholly owned corporation called Wembly Realty, Trump struck a partnership with a subsidiary of Hyatt Hotels. That partnership, Regency Lexington, purchased the struggling Commodore Hotel for redevelopment into the Grand Hyatt New York, a deal Trump crowed about when he announced he was running for president.He failed to mention that this deal was once again largely attributable to Daddy, who co-guaranteed with Hyatt a construction loan for $70 million and arranged a credit line for his boy with Chase Manhattan Bank. The credit line was a favor to the Trump family, which had brought huge profits to the bank; according to regulatory records, the revolving loan was set up without even requiring a written agreement. Topping off the freebies and special deals that flowed Trump’s way, the city tossed in a 40-year tax abatement. Trump’s “success” with the Hyatt was simply the result of money from his dad, his dad’s bank, Hyatt and the taxpayers of New York City.Despite the outward signs of success, Trump’s personal finances were a disaster. In 1978, the year his father set up that sweet credit line at Chase, Donald’s tax returns showed personal losses of $406,386—$1.5 million in present-day dollars. Things grew worse in 1979, when he reported an income of negative $3.4 million, $11.2 million in constant dollars. All of this traced back to big losses in three real estate partnerships and interest he owed Chase. With Trump sucking wind and rapidly drawing down his line of credit, he turned again to Daddy, who in 1980 agreed to lend him $7.5 million.As his personal finances were falling apart, Trump got a big idea for how to make money: casinos.In early 1980, he received a phone call from Alan Lapidus, an architect who was a friend of Fred Trump. Lapidus gave Donald Trump a hot tip—there was a parcel of land available in Atlantic City that was zoned for use by a casino hotel. Gaming had been legalized in New Jersey in 1978, and casinos in Atlantic City were already reporting big business. At the time, Trump was deep into plans to turn Bonwit Teller’s flagship department store into Trump Tower—a transformation achieved with the help of Roy Cohn, who fought in the courts to win Trump a huge tax abatement. Still, Trump jumped on the casino idea and had a lawyer reach out to the owners to negotiate a lease deal.In August 1980, the Trump Plaza Corporation was incorporated in New Jersey, and nine months later it applied for a casino license. Trump wanted to build a 39-story, 612-room hotel and casino, but the banks refused to finance his adventure. So, instead, he struck a partnership with Harrah’s Entertainment in which the global gaming company and subsidiary of Holiday Inn Inc. put up all the money in exchange for Trump developing the property. In 1984, Harrah’s at Trump Plaza opened, and Trump seethed. He had wanted his name to be the marquee brand, even though Harrah’s had an international reputation in casinos and he had none. He even delayed building a garage because his name was not being used prominently enough in the marketing.
According to court papers, Harrah’s spent $9.3 million promoting the Trump name, giving the New York developer a reputation in the casino business he’d never had before. And Harrah’s quickly learned the price—now, with Trump able to argue he knew casinos, financing opportunities that did not exist before opened up, and he was able to use Harrah’s promotion of him as a lever against the entertainment company. Soon after that first casino opened, Trump took advantage of his new credibility with financial backers interested in the gaming business to purchase the nearly completed Hilton Atlantic City Hotel for just $320 million; he renamed it Trump Castle. The business plan was ludicrous: Trump had not only doubled down his bet on Atlantic City casinos but was now operating two businesses in direct competition with each other. When Trump Castle opened in 1985, Harrah’s decided to ditch Trump and sold its interest in their joint venture to him for $220 million.Still, he wanted more in Atlantic City—specifically, the Taj Mahal, the largest casino complex ever, which Resorts International was building. This made the Casino Control Commission nervous because it could have meant that the financial security of Atlantic City would be riding on the back of one man. But Trump brushed those concerns aside at a February 1988 licensing hearing—after all, his argument went, he was Donald Trump. He would contain costs, he said, because banks would be practically throwing money at him, and at prime rates. He would be on a solid financial foundation because the banks loved him so much, unlike lots of other companies and casinos that used below-investment-grade, high-interest junk bonds for their financing. “I’m talking about banking institutions, not these junk bonds, which are ridiculous,” he testified.But Trump’s braggadocio proved empty. No financial institution gave him anything. Instead, he financed the deal with $675 million in junk bonds, agreeing to pay an astonishing 14 percent interest, about 50 percent more than he had projected. That pushed Trump’s total debt for his three casinos to $1.2 billion. For the renamed Trump Taj Mahal to break even, it would have to pull in as much as $1.3 million a day in revenue, more than any casino ever.Disaster hit fast. As had been predicted by some Wall Street analysts, Trump’s voracious appetite cannibalized his other casinos—it was as if Trump had tipped the Atlantic City boardwalk and slid all his customers at the Trump Castle and Trump Plaza down to the Taj. Revenues for the two smaller casinos plummeted a combined $58 million that first year.Meanwhile, another Trump disaster was brewing. Eastern Air Lines, which had been struggling, put its northeastern air shuttle up for sale. Trump persuaded the banks to lend him $380 million to purchase the route, and in June 1989 the Trump Shuttle began flying.Trump introduced the airline with his usual style—by insulting the competition. At an elegant event at Logan Airport in Boston, Trump took the stage and suggested that the other airline with a northeastern shuttle, Pan Am, flew unsafe planes. Pan Am didn’t have enough cash, he said, and so it couldn’t spend as much as the Trump Shuttle on maintenance. “I’m not criticizing Pan Am,” Trump told the assembled crowd. “I’m just speaking facts.” But Trump offered no proof, and others in the airline industry seethed; talking about possible crashes was bad for everyone’s business.He promised to transform his shuttle into a luxury service—bathroom fixtures were colored gold, and the plane interiors were decked out with mahogany veneer. He was spending $1 million to update each of the planes, which were individually worth only $4 million. With those changes, he boasted, he would increase the shuttle’s market share from 55 to 75 percent.But just like with casinos, Trump was in a business he knew nothing about. Customers on a one-hour flight from Washington to New York didn’t want luxury; they wanted reliability and competitive prices.Trump Shuttle never turned a profit. But it didn’t have much of a chance; even as he was preening about his successes, Trump’s businesses were falling apart and would soon bring the shuttle crashing down with them.