Tuesday, September 27, 2016

Trump’s False Claim He Built His Empire with a Small Loan From His Father

A big part of Donald Trump’s mythology is that he built a real estate empire by himself.

Let’s examine in more detail Trump’s claim that his rise to fortune was fueled by a “small loan.”

The building of the Grand Hyatt hotel in 1978 near New York’s Grand Central station was a key element of Trump’s first big deal in Manhattan, obtaining an option on old Penn Central railroad properties. The new hotel, which replaced an aging Commodore property, helped put Trump on the map. At the time, I worked in the area and watched the hole in the ground become his first hotel.

There was a nearly $1 million loan from Trump’s father that was part of the deal, Fred Trump’s Village Construction Corp. provided the loan to help repay draws on a Chase Manhattan credit line that Fred Trump had arranged for his son as he built the hotel. But that loan was only a small part of the father’s involvement in the deal.

Trump’s father was an essential silent partner in Trump’s initiative. In effect, the son was the front man, relying on his father’s connections and wealth, while his father stood silently in the background to avoid drawing attention to himself.

Fred Trump, along with the Hyatt hotel chain, jointly guaranteed the $70 million construction loan from Manufacturers Hanover bank, “each assuming a 50 percent share of the obligation and each committing itself to complete the project should Donald be unable to finish it,” according to veteran Trump chronicler Wayne Barrett in his 1992 book, “Trump: The Deals and the Downfall.”

Fred Trump’s signature on the guarantee ensured the new hotel would get built. “No document in the long paper trail attached to the Commodore deal better demonstrated the lack of bank confidence in the Donald or the project, and none made clear the limits of his promoter role,” Barrett wrote. Trump simply did not have the credit or connections to obtain such financing on his own. “It was Fred’s two-decade-old relationship with a top Equitable officer, Ben Holloway, that had helped entice them to do the project.”

Donald Trump makes no mention of his father’s secret, and essential, role in his 1987 memoir, “The Art of the Deal.”

In 1976, The New York Times published a fawning profile of Trump in which he was quoted as saying he was worth $200 million, even though he was only 30. But that figure, which has been widely cited, was false, according to examination of Trump’s finances in 1981 by the Casino Control Commission.

Trump’s tax returns at the time indicated his salaried income in 1976 was less than $100,000 a year, which he received as an officer in his father’s company. His father remained Chief Executive of the company. His income taxes reported $76,000 in income in 1975, $25,000 in income in 1976 and $118,000 in income in 1977. He paid no income tax in 1978 and 1979 as he reported negative income, likely because of tax shelters.

Trump also benefited from three trusts that had been set up for family members. In 1976, Fred Trump set up eight $1 million trusts, one each for his five children and three grandchildren, according to the casino document. That today would be worth about $4 million in inflation-adjusted dollars. The 1976 Trust paid Trump $19,000 in 1977, $47,200 in 1978, $70,000 in 1979, $90,000 in 1980 and $214,605 in 1981. Trump also received about $12,000 a year from a 1949 trust set up by his father and nearly $2,000 a year from another 1949 trust created by his grandmother. He also received a $6,000 gift every December from his parents.

The casino document lists several other loans from Trump’s father to his son, including a $7.5 million loan with at least a 12% interest rate that was still outstanding in 1981. On Sept. 23, 2016, The Wall Street Journal reported that a 1985 casino-license document showed that Donald Trump owed his father and father’s businesses about $14 million. This is the $14 million Clinton mentioned in yesterday's debate.

In 1993, according to the 2005 book “TrumpNation,” by Timothy O’Brien, the children of Fred C. Trump expected to receive about $35 million each when their father passed away. With his casinos failing in the early 1990s, Donald Trump needed to borrow about $10 million to fund his living and office expenses but could offer no collateral to his siblings. He later sought another $20 million but his siblings balked, and a smaller amount was arranged, O’Brien said.

Trump insisted to O’Brien he had made “zero borrowings from the estate” and later unsuccessfully sued the author for libel. In a 2007 deposition related to the lawsuit, Trump admitted he had borrowed “a small amount” from his father’s estate: ‘I think it was like in the $9 million range.”

As Trump’s casinos ran into trouble, Trump’s father also purchased $3.5 million gaming chips, but did not use them, so the casino would have enough cash to make payments on its mortgage, a transaction which casino authorities later said was an illegal loan.

Moreover, Trump’s claim that he built a real-estate fortune out of a “small” $1 million loan is simply not credible. He benefited from numerous loans and loan guarantees, as well as his father’s connections, to make the move into Manhattan. His father also set up lucrative trusts to provide steady income. When Donald Trump became overextended in the casino business, his father bailed him out with a shady casino-chip loan and Trump also borrowed $9 million against his future inheritance. While Trump asserts “it has not been easy for me,” he glosses over the fact that his father paved the way for his success and that his father bailed him out when he got into trouble.

NYC Wins When Everyone Can Vote! Michael H. Drucker
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