Perhaps the most important thing I learned at Wharton was not to be overly impressed by academic credentials. It didn’t take me long to realize that there was nothing particularly awesome or exceptional about my classmates, and that I could compete with them just fine. The other important thing I got from Wharton was a Wharton degree. In my opinion, that degree doesn’t prove very much, but a lot of people I do business with take it very seriously, and it’s considered very prestigious. So all things considered, I’m glad I went to Wharton.
I was also very glad to get finished. I immediately moved back home and went to work full-time with my father. I continued to learn a lot, but it was during this period that I began to think about alternatives.
For starters, my father’s scene was a little rough for my tastes—and by that I mean physically rough. I remember, for example, going around with the men we called rent collectors. To do this job you had to be physically imposing, because when it came to collecting rent from people who didn’t want to pay, size mattered a lot more than brains.
One of the first tricks I learned was that you never stand in front of someone’s door when you knock. Instead you stand by the wall and reach over to knock. The first time a collector explained that to me, I couldn’t imagine what he was talking about. “What’s the point?” I said. He looked at me like I was crazy. “The point,” he said, “is that if you stand to the side, the only thing exposed to danger is your hand.” I still wasn’t sure what he meant. “In this business,” he said, “if you knock on the wrong apartment at the wrong time, you’re liable to get shot.”
My father had never sheltered me, but even so, this was not a world I found very attractive. I’d just graduated from Wharton, and suddenly here I was in a scene that was violent at worst and unpleasant at best. For example, there were tenants who’d throw their garbage out the window, because it was easier than putting it in the incinerator. At one point, I instituted a program to teach people about using the incinerators. The vast majority of tenants were just fine, but the bad element required attention, and to me it just wasn’t worth it.
The second thing I didn’t find appealing was that the profit margins were so low. You had no choice but to pinch pennies, and there was no room for any luxuries. Design was beside the point because every building had to be pretty much the same: four walls, common brick façades, and straight up. You used red brick, not necessarily because you liked it but because it was a penny a brick cheaper than tan brick.
I still remember a time when my father visited the Trump Tower site, midway through construction. Our façade was a glass curtain wall, which is far more expensive than brick. In addition, we were using the most expensive glass you can buy—bronze solar. My father took one look, and he said to me, “Why don’t you forget about the damn glass? Give them four or five stories of it and then use common brick for the rest. Nobody is going to look up anyway.” It was a classic, Fred Trump standing there on 57th Street and Fifth Avenue trying to save a few bucks. I was touched, and of course I understood where he was coming from—but also exactly why I’d decided to leave.
The real reason I wanted out of my father’s business—more important than the fact that it was physically rough and financially tough—was that I had loftier dreams and visions. And there was no way to implement them building housing in the outer boroughs.
Looking back, I realize now that I got some of my sense of showmanship from my mother. She always had a flair for the dramatic and the grand. She was a very traditional housewife, but she also had a sense of the world beyond her. I still remember my mother, who is Scottish by birth, sitting in front of the television set to watch Queen Elizabeth’s coronation and not budging for an entire day. She was just enthralled by the pomp and circumstance, the whole idea of royalty and glamour. I also remember my father that day, pacing around impatiently. “For Christ’s sake, Mary,” he’d say. “Enough is enough, turn it off. They’re all a bunch of con artists.” My mother didn’t even look up. They were total opposites in that sense. My mother loves splendor and magnificence, while my father, who is very down-to-earth, gets excited only by competence and efficiency.
4
THE CINCINNATI KID
Prudence Pays
IN COLLEGE while my friends were reading the comics and the sports pages of newspapers, I was reading the listings of FHA foreclosures. It might seem a bit abnormal to study lists of federally financed housing projects in foreclosure, but that’s what I did. And that’s how I found out about Swifton Village. It was a job that I bought with my father, while I was in college, and it was my first big deal.
Swifton Village was a 1,200-unit apartment development in Cincinnati, Ohio, and it was a very troubled place. There were 800 vacant apartments, the developers had gone under, the government had foreclosed and the whole deal was a disaster. But from our perspective that was great, because it gave us a terrific opportunity.
A lot of times, when you are dealing with a government agency on a foreclosure, they just want to get out of it as quickly as possible. They aren’t equipped to manage it. In this case, things had deteriorated so badly that no one else was even bidding.
Today you’ll find the same thing if you go out to the Sun Belt, where they built all that housing during the oil boom. Now you have huge developments with 30 and 40 percent vacancy rates. Developers are suicidal because banks are foreclosing on them. It’s a great time for a smart buyer, because you can get unbelievable deals.
My father and I put in a very minimal bid for Swifton, and it was accepted. We ended up paying less than $6 million for a job which had cost twice that much to build just two years earlier. We were also immediately able to get a mortgage for what we paid, plus about $100,000, which we put toward fixing the place up. In other words, we got the project without putting down any money of our own. All we had to do was go and run it. And if we did even a halfway decent job, we could easily cover our mortgage from the proceeds of the rent.
The fact that it was such a big job appealed to my father and to me because it meant we could focus a lot of energy on it without feeling we were wasting our time. It takes almost the same amount of energy to manage 50 units as it does 1,200—except that with 1,200 you have a much bigger upside.
After we negotiated the deal, success became a matter of management and marketing. The challenge was to get the place rented, and rented to good tenants who would stay there. The tenants who were living in the project when I took over had ripped the place apart. Many of them had come down from the hills of Kentucky. They were very poor and had seven or eight children, almost no possessions, and no experience living in an apartment complex. They crammed into one-room and two-room apartments, and their children went wild. They would just destroy the apartments and wreak havoc on the property.
The tenants not only didn’t care, many of them also didn’t see fit to pay rent. If you pressed them, they had a tendency to take off. What we discovered is that to avoid paying rent, these people would rent a trailer, pull it up in front of their apartments at one or two in the morning, and disappear into the night with all their belongings. That was fine by me, but I wanted to make sure we got paid first. Our solution was to institute a “trailer-watch.” We had someone on round-the-clock patrol.
After we got rid of the bad tenants, we set about fixing the place up to attract a better element. That required a substantial investment, almost $800,000 by the time we were done, which was a lot of money in those days. But it was more than worth it. In New York the laws prevent you from getting fair increases even when you make improvements, but in Cincinnati we were immediately able to charge and get much higher rents for the apartments at Swifton Village.
The first thing we did was invest in beautiful white shutters for the windows. That may not sound like a big deal, but what the shutters did was give a bunch of cold red brick buildings a feeling of warmth and coziness, which was important. It was also much more expensive than you’d guess, because you’re talkin
g about 1,200 units, each of which has eight to ten windows. The next thing we did was rip out the cheap, horrible aluminum front doors on the apartments and put up beautiful colonial white doors.
I made sure the whole complex was very clean and very well maintained. As I said earlier, I’ve always had a personal thing about cleanliness, but I also believe it’s a very good investment. For example, if you want to sell a car and you spend five dollars to wash and polish it and then apply a little extra elbow grease, suddenly you find you can charge an extra four hundred dollars—and get it. I can always tell a loser when I see someone with a car for sale that is filthy dirty. It’s so easy to make it look better.
It’s no different in real estate. Well-maintained real estate is always going to be worth a lot more than poorly maintained real estate. That’s been less true during the past few years in New York, when there’s been such a fever for real estate that people buy anything. But it’s a mistake to be lulled by good times. Markets always change, and as soon as there’s a downturn, cleanliness becomes a major value.
We painted the hallways, we sanded and stained the floors, we kept the vacant apartments immaculately clean, and we landscaped the grounds. We also ran beautiful newspaper ads for the project—at a time when not many people in Cincinnati were advertising real estate. People came to check us out, and the word of mouth started getting good. Within a year, the buildings were 100 percent rented.
Along the way we went through a half dozen different project managers before we found the one we wanted. We had managers who were honest but dumb, including one guy who literally painted himself into the corner of an apartment. Others were smart but didn’t know the first thing about managing. Fortunately, we went through them fast, because I tend to size people up pretty quickly.
Ultimately, we got a fabulous man whom I’ll call Irving. Irving was sixty-five years old and a real character. He was one of the greatest bullshit artists I’ve ever met, but in addition to being a very sharp talker and a very slick salesman, he was also an amazing manager. Irving was the kind of guy who worked perhaps an hour a day and accomplished more in that hour than most managers did in twelve hours. I learned something from that: it’s not how many hours you put in, it’s what you get done while you’re working.
The problem with Irving was that he wasn’t the most trustworthy guy in the world. I suspected as much from the first day, but it wasn’t until I tried to put a bond on him—something I do with any employee who handles money—that my instincts were confirmed. My insurance agent called me back after running a check, and he said, “Donald, you’ve got to be kidding about a bond. This guy is a con man.” It turned out that Irving had done all sorts of con jobs and swindles, and he’d often been in trouble with the law.
My philosophy has always been that if you ever catch someone stealing, you have to go after him very hard, even if it costs you ten times more than he stole. Stealing is the worst. But with Irving I had a dilemma: he was far and away more capable than any honest manager I had found, and so long as he was in charge, no one under him would dare steal. That meant I only had to keep my eye on him. I used to kid Irving. I’d say, “We pay you $50,000 and all you can steal.” And he would act all upset.
If I’d caught him in the act, I would have fired Irving on the spot, but I never did. Still, I figure he managed to steal at least another $50,000 a year. Even so, I was probably getting a bargain.
One day I walked into the office, and one of the girls who worked there was crying. It turned out that there was something they called a funeral fund, to which they all contributed in order to buy flowers for anyone they knew who’d died. They had about $80 in the fund. When I asked the girl what she was crying about, she said, “Oh, that Irving, he stole our funeral fund.”
I went to Irving and I said, “Irving, dammit, did you steal their money?” Of course he just denied it. He swore he’d get those girls, and he ranted and raved for half an hour. But I always assumed the girls were telling the truth. Irving was a classic. He had problems, but he was a classic.
I’ll give you an example of how Irving worked. You’ve got to understand that we are talking about a short, fat, bald-headed guy with thick glasses and hands like Jell-O, who’d never lifted anything in his life beside a pen, and who had no physical ability whatsoever. What he did have, however, was an incredible mouth.
As I mentioned, in the early days we had a good number of tenants who didn’t believe in paying rent. Sometimes, Irving would go out and collect himself. He’d ring the doorbell, and when someone came to the door, he’d go crazy. He’d get red in the face, use every filthy word he could think of, and make every threat in the book. It was an act, but it was very effective: usually they paid up right then and there.
One day, while Irving was on his rounds, he knocked on a door, and a little ten-year-old girl answered. Irving said, “You go tell your father to pay his f———ing rent or I’m going to knock his ass off.” And he went on like that, until the girl’s mother came out to see what was going on. As it happened, she was an absolutely beautiful woman.
Now Irving had a weakness for all women, and this woman was quite exceptional. So immediately, Irving started putting the move on her. He invited her out to dinner. The woman, whose husband was either a truck driver or a construction worker, had never experienced anyone like Irving and obviously didn’t know what to make of him. There was no way, however, that she was interested in Irving, and finally he gave up and we left.
About an hour later, Irving and I were sitting in his office when this huge guy, a monster, maybe 240 pounds, burst through the door. He was furious that Irving had cursed in front of his daughter, and he was ready to strangle him for coming on to his wife. The guy had murder in his eyes.
I expected Irving, if he had any sense, to run for his life. Instead, he started verbally attacking the man, flailing and screaming and chopping his hands in the air. “You get out of this office,” he said. “I’ll kill you. I’ll destroy you. These hands are lethal weapons, they’re registered with the police department.”
I’ll never forget how the guy looked at Irving and said, “You come outside, you fat crap, I want to burn grass with you.” I always loved that phrase: “burn grass.” And I thought to myself, Irving is in serious trouble. But Irving didn’t seem to think so. “I’d fight you any time you want,” he said, “but it’s unlawful for me to fight.”
All you had to do was look at Irving to know those hands were hardly registered weapons. But Irving was very much like a lion tamer. You’ve seen these guys, maybe 150 pounds, who walk blithely into a cage where there’s a magnificent 800-pound lion pacing around. If that animal sensed any weakness or any fear, he’d destroy the trainer in a second. But instead the trainer cracks his whip, walks with authority, and, amazingly, the lion listens. Which is exactly what Irving did with this huge guy, except his whip was his mouth.
The result was that the guy left the office. He was still in a rage, but he left. Irving probably saved his own life, just by showing no fear, and that left a very vivid impression on me. You can’t be scared. You do your thing, you hold your ground, you stand up tall, and whatever happens, happens.
As for Swifton Village, once Irving had it running well, I began spending less and less time there. I wasn’t really needed anymore in Cincinnati. So I cut back my visits to Swifton, first to once a week, and eventually to once a month.
Early on, I’d become particularly friendly with one of the newer tenants at Swifton. He was Jewish, an older man who’d been in a concentration camp in Poland. He’d started off in America as a butcher, then bought the shop, and by the time I met him, he owned perhaps fourteen butcher shops. He and his wife had taken two apartments in Swifton and put them together, and they had a great place, and they were very happy there. I had a lot of respect for this guy, because he had street smarts, he’d been around, and he was obviously a true survivor.
One day, a number of years after we first bought the plac
e, I was out visiting. I ran into my friend. “How are you doing, how are you feeling?” I asked. “Good, good,” he replied, but then he took me aside and whispered, “Donald, you are a friend of mine and I have to tell you, sell this job.” And I said, “Why?”
“Because it’s going real bad—not the job but the area. It’s being surrounded by people who are so bad they will cut your throat and walk away and not even think about it. I’m talking about people who enjoy cutting throats.” That was the exact expression. I never forgot it.
Now, I’m someone who responds to people I have respect for, and I listen. Again, it’s instincts, not marketing studies. So I spent an extra two days in Cincinnati, and I rode around, and I saw that there was trouble brewing, that neighborhoods were getting rough.
I put the job up for sale, and almost immediately we got an offer. We’d already done very well with Swifton Village, because our debt was very small relative to the size of the complex, and our rent roll, by the end, had reached about $700,000 a year. But selling was how we made a real killing.
The buyer was the Prudent Real Estate Investment Trust. Those were the go-go days when real estate investment trusts—partnerships that invested in real estate—were very hot. The banks were loaning money to any REIT. The only problem was that many of the people running the REITs were neither knowledgeable nor competent. I called them the guys with the white bucks. They were the sort of people who’d throw money into a project in Puerto Rico without even going to see it. Eventually they’d discover that the building they thought they’d bought had never even been built.
In the case of Prudent, they sent a young man out to inspect and evaluate the property prior to making a final decision on whether to go forward with the sale. This kid was about my age, but he looked like a teenager. Frankly, I was surprised they’d entrusted such a big decision to him.
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