Trump

by Donald J. Trump

  The construction was a terrible disgrace, and all the worse because no one raised a fuss about it. When I was invited to attend opening-day ceremonies in 1986, I refused. What happened at the convention center is that the city and state took a great piece of property and a great project and ruined it through terrible planning and ridiculous cost overruns. Even if the convention center is ultimately a success, it can never earn back all the money that was unnecessarily squandered to build it.

  The funny thing about devoting so much time and energy to the 34th Street site is that I never considered it anything to compare with the 60th Street yards. The problem was that developing 60th Street proved even more difficult than promoting 34th Street. The community opposition was stronger, the zoning was more complicated, and the banks were highly reluctant to finance a huge residential housing project in a city still teetering on the verge of bankruptcy.

  In 1979 I reluctantly let my option on the 60th Street yards expire so that I could concentrate on other deals that seemed more immediately promising.

  The first one, fittingly, was with Palmieri and the Penn Central—for the purchase of the Commodore Hotel.

  6

  GRAND HOTEL

  Reviving 42nd Street

  DURING THE PERIOD when I was trying to make something happen with the two West Side yards, I got more and more friendly with Victor Palmieri and his people. One day, late in 1974, I was in Victor’s office, and I said to him, half-jokingly, “Listen, now that I’ve got the options on the two yards, what other properties does the Penn Central own that I can buy for nothing?”

  “As a matter of fact,” said Victor, “we have some hotels you might be interested in.”

  It so happened that the Penn Central owned several old hotels within a few blocks of each other in midtown: the Biltmore, the Barclay, the Roosevelt, and the Commodore. The first three were at least moderately successful, which meant buying them was likely to cost more money than I wanted to spend. The only one in real trouble was the Commodore, which had been losing money and defaulting on its property taxes for years.

  As it turned out, that was the best news Victor could have given me. I decided very quickly that the Commodore, in the heart of New York at 42nd Street and Park Avenue, next to Grand Central Station, had potentially the best location of any of the four hotels.

  I still remember walking over to look at the Commodore the day Victor first mentioned it to me. The hotel and the surrounding neighborhood were unbelievably run-down. Half the buildings were already in foreclosure. The brick façade of the Commodore was absolutely filthy, and the lobby was so dingy it looked like a welfare hotel. There was one of those sleazy flea markets operating on the ground floor with a bunch of boarded-up storefronts on either side and derelicts lying in the doorways. To most people, it would have been a very depressing scene.

  But as I approached the hotel, something completely different caught my eye. It was about nine in the morning, and there were thousands of well-dressed Connecticut and Westchester commuters flooding onto the streets from Grand Central Terminal and the subway stations below. The city was on the verge of bankruptcy, but what I saw was a superb location. Unless the city literally died, millions of affluent people were going to keep passing by this location every day. The problem was the hotel, not the neighborhood. If I could transform the Commodore, I was sure it could be a hit. Convenience alone would assure that.

  I went back and told Victor I was interested in making a deal for the Commodore. He was pleased, because everyone else considered it a loser. I also went to my father and told him I had a chance to make a deal for this huge midtown hotel. At first, he refused to believe I was serious. Later, he told a reporter that his initial reaction to my idea was that “buying the Commodore at a time when even the Chrysler Building is in receivership is like fighting for a seat on the Titanic.”

  I wasn’t naïve. I saw potential, but I also recognized a downside. I could envision a huge home run, but I also knew that failing could bury me. From the very first day I went to work on the deal, I tried to keep my risk to an absolute minimum, and financially, I succeeded. But as the months went by, the deal became more and more complicated and difficult. I kept investing more time and more energy, and the stakes rose for reasons unrelated to money. I could talk big for only so long. Eventually I had to prove—to the real estate community, to the press, to my father—that I could deliver the goods.

  The Commodore deal was basically a juggling act, but a much trickier one than I originally imagined. First, I had to keep Palmieri’s people believing I was their best bet to buy the hotel, while trying to avoid, for as long as I could, putting down any cash. At the same time, I had to convince an experienced hotel operator to come in with me before I actually had a deal, knowing that such a partner would give me more credibility with the banks when I went to seek financing. And even a great partner wasn’t enough. I also had to try to persuade city officials that it was in their interest to give me a totally unprecedented tax break. That savings, I knew, would make it far easier to prove to the banks that the numbers for my hotel made sense—at a time when they were loathe to lend money even for projects in good neighborhoods.

  The funny thing is that the city’s desperate circumstances became my biggest weapon. With Palmieri, I could argue that I was the only developer around who would even consider buying a loser hotel in a decaying neighborhood in a dying city. With the banks, I could point to their moral obligation to finance new developments as a way to help get the city back on its feet. And with city officials, I could legitimately argue that in return for a huge tax abatement, I’d be able to create thousands of new construction and service jobs, help save a neighborhood, and ultimately share with the city any profits the hotel earned.

  In the late fall of 1974, I began talking seriously with Palmieri about a deal. Eight or nine months before, the Penn Central had invested $2 million on a renovation of the Commodore that was the equivalent of applying a coat of wax to a car that’s just been in a major accident. Even after the renovation, the Penn Central was projecting a huge loss for 1974, and that didn’t even include the $6 million that the hotel already owed in back taxes. The Commodore was a terrible cash drain on a bankrupt company.

  In a short time we came up with a basic structure for a deal. In simple terms, I would take an option to purchase the hotel at a price of $10 million, subject to my being able to get tax abatement, financing, and a hotel company partner—subject, in other words, to my putting the entire deal together before I made the purchase. In the meantime, I would put down a nonrefundable $250,000 for an exclusive option. There was just one problem: I wasn’t too eager to fork over even $250,000 on a deal that was still very much a long shot. In 1974, $250,000 was a huge sum of money for me. So I stalled. Contracts were drawn up, but I had my lawyers find plenty of little legal points to argue back and forth over. In the meantime, I went to work to try to put the rest of the deal together.

  What I needed first, I decided, was a really fantastic design—one that would get people excited. I set up a meeting with a young, talented architect named Der Scutt. We met at Maxwell’s Plum on a Friday night, and right away I liked Der’s enthusiasm. When I told him what I had in mind, he immediately started making sketches on one of the menus.

  The key thing, I told Der, was to create something that looked absolutely brand-new. I was convinced that half the reason the Commodore was dying was because it looked so gloomy and dark and dingy. My idea, from the beginning, was to build a new skin directly over the brick—bronze, if it could be done economically, or glass. I wanted a sleek, contemporary look, something with sparkle and excitement that would make people stop and take notice. And it was obvious to me that Der understood what I had in mind.

  After we ate, I took Der and another friend back to my apartment, the tiny studio I was still living in on Third Avenue, and I asked him what he thought about my furniture. Some people would just have said, “Fantastic, great,” but Der d
idn’t do that. “There’s too much of it,” he said, and he started moving furniture around, and even pushed several pieces out into the hallway. When he finished, he’d managed to make the apartment look much bigger, which I liked.

  I hired Der and paid him to come up with sketches that we could use in our presentations to the city and to banks. I also told him to make it appear that we’d spent a huge sum on the drawings. A good-looking presentation goes a long way.

  By the spring of 1975, we were pretty far along on a design. Then, one evening in the middle of April, Der called to tell me that he’d been fired from the architectural firm he worked for, Kahn & Jacobs/Hellmuth, Obata & Kassabaum. I knew he hadn’t been getting along with his bosses. At the same time, I didn’t want to hold up the project. I needed the resources and the prestige of a big firm to do a job this size, and I figured it was going to be a while before Der made a new association. But he formed an association very quickly with a firm named Gruzen & Partners, and I was able to use the situation to my advantage. The Obata group desperately wanted to keep the job, and so, of course, did Der. The competition gave me an opportunity to negotiate a lower architectural fee, which I did. In the end I went with Der, and paid him a very modest fee. I also told him that doing this job would pay off big in the end. “This is going to be a monumental project,” I said. “It’s going to make you into a star.” Der wasn’t thrilled about his fee, but later he admitted that I’d been right about the impact that doing the Hyatt—and subsequently Trump Tower—had on his career.

  During this same period, early 1975, I began to look for an operator for the hotel. The truth was that I knew nothing about the hotel business. I’ve learned a lot since then, and today I operate my own hotels. But at the time, I was only twenty-seven years old, and I’d hardly even slept in a hotel. Nonetheless, I was trying to buy this monster building, 1,500,000 square feet, and proposing to create a 1,400-room hotel—the largest since the construction of the New York Hilton twenty-five years earlier. It seemed clear that I needed an experienced operator. I also figured it probably had to be one of the large chains, and I wasn’t totally wrong. The chains may not be very exciting, but they do give you access to a national reservations system, good referral business, and basic management expertise.

  From the start, Hyatt was at the top of my list. Hilton seemed a little backward and old, Sheraton didn’t excite me for much the same reasons, and Holiday Inns and Ramada Inn didn’t have enough class. I liked the Hyatt image. Their hotels had a modern look, light and clean and a little glossy, and that was what I had in mind architecturally for the Commodore. In addition, Hyatt was very strong on conventions, which I thought could be a big business for a hotel in the Grand Central area.

  I also liked Hyatt because I thought I might have more leverage with them in making a deal. Chains like Hilton and Sheraton already had hotels in New York City, and they weren’t necessarily hungry to build new ones, particularly with the city in the dumps. Hyatt, on the other hand, was very successful in other cities but still had no flagship presence in New York City, and I’d heard they wanted one very badly.

  In late 1974 I called up the president of Hyatt, a guy named Hugo M. Friend, Jr., and we arranged to meet. I wasn’t terribly impressed with Skip Friend, but it turned out that I was right about Hyatt’s desire for a New York flagship, and we began to discuss a partnership on the Commodore. Fairly rapidly, I made a tentative deal with him, full of contingencies. I was very happy and very proud of myself. Then two days later I got a call and Skip said, “No, I’m sorry, we can’t do the deal that way.” This became a pattern. We’d negotiate new terms, shake hands, a few days would go by, and the deal would suddenly be off again. Finally, a guy I’d become friendly with at Hyatt, a high-level executive, called. “I’d like to make a suggestion,” he said. “I think you should call Jay Pritzker and deal with him directly.”

  I’d barely heard of Pritzker, which tells you something about how young I was at the time. I knew, vaguely, that the Pritzker family owned a controlling interest in Hyatt, but that was about all. My Hyatt friend explained that Pritzker was the guy who really ran the company. Suddenly it dawned on me why my deals kept coming apart: if you’re going to make a deal of any significance, you have to go to the top.

  It comes down to the fact that everyone underneath the top guy in a company is just an employee. An employee isn’t going to fight for your deal. He’s fighting for his salary increase, or his Christmas bonus, and the last thing he wants to do is upset his boss. So he’ll present your case with no real opinion. To you, he might be very enthusiastic, but to his boss he’ll say, “Listen, a guy named Trump from New York wants to make such and such a deal, and here are the pros and cons, and what do you want to do?” If it turns out his boss likes the idea, he’ll keep supporting you. But if the boss doesn’t like it, the employee will say, “Yes, I agree, but I wanted to present it to you.”

  By now it was the early spring of 1975, and I called Jay Pritzker, and he seemed happy to hear from me. Hyatt was based in Chicago, but Pritzker told me he was coming to New York the next week, and we should meet. Could I pick him up at the airport? I didn’t go around in limousines at the time, so I picked him up in my own car. Unfortunately it was a very hot day, and it was extremely uncomfortable in the car. If it bothered Jay, though, he didn’t show it. I realized right then that Jay is very focused when it comes to business. He can be fun-loving when he’s relaxed, but mostly he’s tough and sharp, and he plays very close to the vest. Fortunately I had no problem with that, so we got along pretty well. The other thing about Jay is that he doesn’t much trust people in business, which is the way I tend to be. We were wary of each other, but I think there was also a mutual respect from the start.

  We managed to make a deal in a short time. We agreed to be equal partners. I’d build the hotel and Hyatt would manage it once it was built. More important than coming to a tentative agreement was the fact that from then on I was able to deal directly with Jay when difficulties arose. To this day, though we’ve had our disagreements, the partnership is strong because Jay and I can talk straight to one another.

  On May 4, 1975, we called a joint press conference and announced that we’d agreed, as partners, to purchase, gut, and fully renovate the Commodore—assuming we could get financing and tax abatement. The announcement of the partnership with Hyatt, coupled with Der’s preliminary drawings and rough construction-cost estimates, finally gave me some ammunition to bring to the banks. By then I had hired Henry Pearce, a real estate broker with a special expertise in financing. Together, we went calling.

  Henry Pearce was the head of a firm called Pearce, Mayer, and Greer, and he was a fantastic guy. He was in his late sixties, but he had more energy than most twenty-year-olds, and he was unrelenting in his quest for financing for this job. His persistence helped, and so did his age. We’d go in together to see these very conservative bankers, most of whom had never heard of Donald Trump. In many ways I was much more conservative than Henry, but it reassured these bankers to see me alongside this white-haired guy with whom they’d been dealing forever.

  Our pitch was very much the one I made when I first met Victor Palmieri. I would talk about the great Trump Organization and all we had done. I would push very hard the fact that we built on time and on budget, because I knew that the banks were scared to death of cost overruns, which can kill even a good loan. We would show these bankers drawings and scale models of this huge gleaming new hotel I planned to build. We would talk about how the job was going to turn the neighborhood around, how it would create thousands of jobs. We would go on and on about the fantastic, incomparable Hyatt Company, and we’d even mention the great tax abatement we hoped to get from the city. This last point would usually stir some interest, but unfortunately we were in something of a Catch-22. Until we had our financing in place, the city wasn’t interested in seriously discussing tax abatement. And without tax abatement, the banks weren’t very interested in talking abo
ut financing.

  Eventually we decided to take a new tack. Realizing that the positive approach wasn’t working, we tried to play to their guilt and their fear and their sense of moral obligation. Forget us, we’d say; you owe it to New York. The city is in trouble, but it’s still a great city, and it’s our city, and if you don’t believe in it, if you won’t invest in it, how can you expect it to turn around? If you lend millions of dollars to Third World countries and suburban-shopping-mall magnates, don’t you also owe some obligation to your own city?

  Nothing seemed to work. On one occasion, we found a bank that seemed ready to say yes. Then, at the last moment, the guy in charge raised some trivial technical issue that just killed the whole deal. This guy was what I call an institutional man, the type who has virtually no emotion. To him it’s purely a job, and all he wants to do is go home at five and forget about it. You’re better off dealing with a total killer with real passion. When he says no, sometimes you can talk him out of it. You rant and you rave, and he rants and raves back, and you end up making a deal. But when a machine says no, it’s very tough. We gave this guy every argument in the world, and after listening, he didn’t flinch and he didn’t move. He just said very slowly and steadfastly, “The answer is no, Donald. No. No. No.” After that experience, I remember saying to Henry, “Let’s just take this deal and shove it.” But Henry refused to give up. He and Jerry Schrager, my lawyer, kept me going, and we continued to push.

  It was increasingly clear that the only way I was going to get financing was if the city gave me tax abatement. My hope rested in a program called the Business Investment Incentive Policy, which the city adopted in early 1975. It was designed, in a bad market, to encourage commercial development by providing tax abatements to developers. In the middle of 1975, I decided to approach the city, even though I hadn’t found financing. To most people, that would have been ridiculous. I took it one step further. I went in and asked for the world—for an unprecedented tax abatement—on the assumption that even if I got cut back, the break might still be sufficient. In a funny way, it was like a high stakes poker game in which neither side has very strong cards so both are forced to bluff. By this point, I almost couldn’t afford to walk away from the deal if I wanted to maintain any credibility. The city, meanwhile, was more desperate than ever to encourage development.