Trump

by Donald J. Trump

  Before very long, Hoving, who’d agreed at first to stay on as a consultant, got fed up and left. That just made things worse. As long as Hoving ran Tiffany, for example, you’d never see peddlers out front on the street, selling fake watches and cheap jewelry, blocking pedestrians, and degrading Fifth Avenue. Whenever Walter Hoving saw a peddler, he’d go to his people, and he’d start screaming, in his dignified manner, “How dare you let them do that?” And within minutes, the peddler would be gone. But as soon as Hoving left, a dozen street peddlers immediately set up shop in front of Tiffany, and they haven’t moved since. However, I learned a lesson from Walter Hoving. I now employ some very large security people who make absolutely sure that the street in front of Trump Tower is kept clean, pristine, and free of peddlers.

  Once I got Tiffany’s air rights, there was just one more parcel I needed. Adjacent to Tiffany’s along 57th Street and leased by Bonwit was a tiny site, perhaps 4,000 square feet, that was critical if I was going to build the building I had in mind. Under the zoning regulations, you’re required to have a minimum of thirty feet of open space—a rear yard—behind any building. Without this last piece, I would have been forced to chop the rear yard out of the building we’d already designed, and that would have been a disaster.

  The piece I wanted was owned by a man named Leonard Kandell. By buying the overall Bonwit lease, I effectively controlled the site, but once again, my problem was a short lease. It had less than twenty years to run and also included provisions that made any zoning changes practically impossible. Fortunately, Leonard Kandell, like Hoving, is a totally honorable man. Leonard began in real estate by buying apartment buildings in the Bronx in the thirties and forties. But unlike most small landlords, he decided to get out when he saw rent control coming. He sold all his buildings and came to Manhattan, where he began buying up leaseholds on prime property—meaning the land under buildings. As the market rose, Leonard became very rich, and with none of the problems of having to run the buildings himself. Meanwhile, the landlords who stayed in the Bronx went down the tubes, because, sure enough, rent control proved to be a disaster for them.

  One reason I’d left Brooklyn and my father’s business was to escape rent control, and so from the start Leonard and I had an affinity. My problem was that Leonard wasn’t a seller. It wasn’t a matter of price, or that he had any particular attachment to his 57th Street parcel. It was simply that Leonard didn’t sell anything, on the theory that in the long run, land prices in Manhattan were headed in only one direction and that was up. He was exactly right, of course, and though we got along fine, Leonard wouldn’t budge. Then one day I discovered an unexpected bonus in my Tiffany deal. I was reviewing my air-rights contract when I came across a clause that gave Tiffany an option to purchase the adjoining Kandell property within a certain time frame.

  I said to myself, Holy Christmas, this could give me a lever to make a deal with Leonard. So I went back to Walter, and I said, “Listen, you’re never going to buy that Kandell site, so would you mind if I also bought your option, as part of my deal?” Walter agreed, we put it into my deal, and immediately I exercised the option. At first, Leonard took the position that I didn’t have the right to exercise the option because it belonged to Tiffany and therefore was nontransferable. Leonard may have been right but it was also possible, in a litigation, that I would win the right to exercise the option.

  When I pointed this out to Leonard, we sat down together, and in no more than twenty minutes, we made a deal that was good for both of us. I agreed to withdraw my exercise of the option, and in return, Leonard agreed to extend my lease on the site from twenty years to one hundred years, which was long enough to make it financeable. He also rewrote the lease to eliminate any prohibitions against rezoning. And while I agreed to pay a slightly higher rent, it was still very low for a long lease on such a prime site. Leonard and I shook hands, and we’ve remained very good friends.

  It’s funny how things turn around. Leonard is an older man, and in the past couple of years, he’s begun giving thought to his heirs and his estate. Early in 1986, he called and said he’d like to make me a gift of a 15 percent interest in the land under the Ritz Carlton hotel on Central Park South, which is one of his more valuable holdings. In addition, he gave me control over the disposition of the land when the hotel’s lease comes up in approximately twenty-five years. His purpose, Leonard told me, was to put the land in the hands of someone he thought would get the most value from it—which in turn would benefit his heirs, who retain a majority ownership. Leonard is a very generous man and he is also very smart. I’ll be fighting like hell for the Kandell family.

  By the time I got the Kandell site on 57th Street, it was December 1978, and I was in a delicate situation. I’d pieced together everything I needed, I’d managed to keep the deal completely secret, but I still had no contract with Genesco. As 1979 began, my lawyers were still discussing a few final points with the Genesco lawyers, and we expected to sign contracts no later than February. But in mid-January, word finally began to leak out to the real estate community that Genesco might be making a deal to sell the Bonwit site. Just as I’d predicted, Genesco was immediately besieged with interested buyers for the property, among them wealthy Arabs with oil-boom money to burn. And sure enough, Genesco suddenly began trying to back out of the deal. Even as our contract was being prepared, it became clear that if Genesco could find a way to break the deal, it would.

  It was then that I thanked my lucky stars I’d gotten that one-page letter of intent from Jack Hanigan. Without it, there was zero chance my deal would have gone through. I’m not at all sure the letter would have proved legally binding, but at the very least I could have litigated it and held up any sale of the Bonwit property for several years. Naturally, I let Genesco know I fully intended to do just that if they reneged on my deal. With creditors breathing down their necks, Genesco, I knew, didn’t have a lot of time.

  On the morning of January 20 I got a call that proved to be a blessing. It was from Dee Wedemeyer, a reporter from the New York Times, who wanted to know if it was true that I was about to make a deal with Genesco to buy the Bonwit building. Genesco, still seeking a way out, had declined to give Wedemeyer any comment. But I decided to take a calculated risk. I’d tried very hard to keep the deal as secret as possible until I had a signed contract, because I didn’t want to prompt a bidding war. But now the rumors were circulating, and I had a seller who was balking. So I confirmed for Wedemeyer that I’d reached an agreement with Genesco for the property—and that because I anticipated building a new tower on the site, Bonwit would most likely be closed within the next several months.

  My idea was to put public pressure on Genesco to live up to their agreement. What I didn’t calculate was a secondary benefit. No sooner did Wedemeyer’s article appear the next morning than all of Bonwit’s best employees began heading over to Bergdorf Goodman, Saks Fifth Avenue, and Bloomingdale’s to look for new jobs. Suddenly Bonwit began losing its best people in droves, and it was becoming almost impossible to run the store. That, I believe, was the straw that broke Genesco’s back. Suddenly, they stopped balking. Five days after the New York Times article appeared, we signed our contract. The company’s desperation saved my deal.

  On the other hand, desperation can be a double-edged sword. Because Genesco needed cash so badly, and so quickly, they insisted on a very unusual contract. In a typical real estate deal, you put down a 10 percent deposit when you sign a contract, and the remaining 90 percent at closing. Instead, Genesco demanded that I put down 50 percent at contract—$12.5 million—and the other half at closing. My lawyers advised me not to agree to such a demand. The way they saw it, there was a reasonable risk that the company might go bankrupt before we ever got to closing. If that happened, a bankruptcy judge—who has powers you wouldn’t believe—might choose to take my deposit and use it to pay off other creditors. For me to put so much money at such risk, my lawyers said, was totally imprudent.


  I looked at it another way. I wasn’t thrilled about putting $12.5 million on the line, but at the same time I believed that the more cash I gave Genesco, the more money they’d have to pay off debts—and keep their creditors at bay. Also, my period of risk would be relatively short, since it was in our mutual interest to close the deal as quickly as possible. The time between contract and closing is often six months or more. In this case, we set it at sixty days.

  In addition, I already had a good deal of time and money invested in the deal. As far back as August, following my first meeting with Jack Hanigan, I’d begun working on plans for the site, and I’d started negotiating with the city for zoning. Actually, within minutes of leaving Jack Hanigan’s office, I had called Der Scutt and asked him to meet me at the Bonwit site. When he got there, I pointed to the building, and I asked him what he thought. It was obviously a super location, he said, but what did I have in mind for it?

  “I want to build the most fantastic building in New York,” I told Der, “and I want you to get working right away, because I want to know how big a building I can legally build.”

  From the start, size was a top priority. With such a great location, the more apartments I could build, the better the return I could hope to get on my investment. Moreover, the higher I could go, the better the views—and the more I could charge for the apartments. A guy named Arthur Drexler, from the Museum of Modern Art, put it very well when he said, “Skyscrapers are machines for making money.” Drexler meant it as a criticism. I saw it as an incentive.

  From the start, everyone I talked with was skeptical that I could get approval to build a huge glass skyscraper along a stretch of Fifth Avenue filled with short, old, limestone and brick buildings. I’d heard the same thing about the Hyatt, of course, and so I didn’t take the warnings too seriously. Even putting commercial considerations aside, I felt a tall building would be much more striking than a short one. Very quickly, Der got caught up in my enthusiasm. When someone complained at a community board hearing that the building we had in mind was too tall and would block too much light, Der answered, only half kidding, “If you want sunlight, move to Kansas.”

  For any new building, the permissible height is determined by something called Floor Area Ratio (FAR). Specifically, the total square footage of a building can be no more than a certain multiple of the square footage of the building lot. It was possible to get some bonuses, but on this lot, for example, the absolute maximum FAR was 21.6. Naturally, that’s what I intended to go after. I knew it was going to be an uphill battle. When Der did his first computations, using just the Bonwit site without Tiffany’s air rights or the Kandell parcel, he determined that our maximum FAR was 8.5—which he said translated into a twenty-story building with 10,000 square feet of usable space per floor. Immediately, I told him to transform it into a forty-story building with 5,000 square feet per floor. Not only would that give me apartments with better views, it would also mean fewer apartments per floor, which is another luxury for which buyers will pay a premium.

  Of course I had no intention of settling for a low FAR. For starters, my FAR would increase substantially when I acquired the Tiffany air rights. In addition, developers can get extra FAR by providing certain amenities that the City Planning Commission deems desirable. On this site, for example, I could get a bonus by building residential units instead of just offices, on the theory that office buildings create far more pedestrian traffic and congestion. In addition, I could get a bonus by building a public area for pedestrians—something called a through-block arcade—on my ground floor. I could get a third bonus by building more than the minimum retail space required by law. And I could get a final bonus by building a public park within the shopping area and arcade.

  Eager for every advantage I could get, I began talking to Der about designing an atrium with several levels of shopping. As a business, a retail atrium seemed a long shot. Enclosed shopping malls have been a hit all across the country, but they’ve almost never succeeded in New York City. The typical suburban mall is clean, controlled, safe, and antiseptic, which is exactly why most people feel so comfortable in them. New Yorkers, on the other hand, seem to thrive on gritty street life and are quite happy to do business with street vendors.

  But the way I figured it, even if the atrium wasn’t terribly successful, the bonus I’d get for building it—several extra floors in my residential tower—would more than make up for its cost. It wasn’t until much later, when I began to see how magnificently it was turning out, and when we started to attract the best stores in the world as tenants, that I realized the atrium was going to be something special, a hit on its own terms.

  In the early stages, I focused more of my attention on the design of the building itself. I wanted to create something memorable and monumental, but I also knew that without a unique design, we’d never get approval for a very big building. The standard four-sided glass box just wasn’t going to fly with city planning. Der went to work. He probably did three to four dozen drawings, and as we went along, I picked the best elements from each one.

  At first, we started out with a glass tower built on a rectangular limestone base, but that just didn’t look good. Later, we tried a design with three exterior glass elevators. That appealed to me, but it turned out that they’d use up far too much of our saleable interior space. Finally, Der came up with the concept of a series of terraces stepped back from the street to the height of the adjacent Tiffany building. My wife, Ivana, and I agreed that the setbacks created a certain compatibility and gave our building a less bulky feeling than it would have with straight sides, like most skyscrapers have. On the higher floors, we settled on a sawtooth design, a zig-zag effect that gave the building twenty-eight different sides, as if you took the steps of a staircase and turned them on their side.

  The design was obviously going to be more expensive to execute than something more standard, but the advantages seemed obvious. With twenty-eight surfaces, we’d be creating a striking, distinctive building. Also, the multiple sides would ensure at least two views from every room, and in the end, that would make it possible to charge more for the apartments. To me, we were creating the best of all possible worlds. It was a great-looking design, but it was also very saleable. To hit a real home run, you need both.

  The next challenge was to have the design approved by the city—which meant, among other things, getting zoning variances. In one key case, we were able to prevail simply by using logic. The zoning law required that we build a ground-floor through-block arcade that ran north-south, meaning from 57th Street to 56th Street. That would have meant putting the entrance to the building on 57th Street, rather than on Fifth Avenue, and the latter was obviously more prestigious. We simply pointed out to city planning that the IBM Building, between our site and Madison Avenue, already had a north-south through-block arcade, so that ours would be redundant. By running our arcade on a west-east axis, we could connect from Fifth Avenue through to IBM’s atrium, and therefore all the way out to Madison Avenue. Remarkably, everyone agreed that was the best solution. The result was that we got the variance that allowed us to create our spectacular entrance on Fifth Avenue.

  What the city balked at, from the very start, was the size of the building we were proposing—seventy stories high, with square footage at the maximum 21.6 FAR. As early as December 1978, even before I’d closed my deal with Bonwit, city planning let us know that they considered our proposed building too big. They said they intended to oppose letting us use bonuses to increase our FAR and that they were very concerned about the issue of compatibility with the smaller, surrounding buildings on Fifth Avenue.

  Fortunately, by the time I closed my deal in early 1979 and we entered into serious discussions with city planning, I had some ammunition of my own. For starters, I could have chosen to build something called an “as of right” building—one that doesn’t require any variances. Much the way I’d done earlier with Walter Hoving, I had Der prepare a model of the “as of rig
ht” building to show city planning. It was hideous: a thin little four-sided box going straight up eighty stories, cantilevering over Tiffany’s. We took the position that if the city wouldn’t approve the building we wanted, we were prepared to build “as of right”—and we showed them the model and the renderings. Naturally, they were horrified. I’m not sure they believed we’d ever build it, or even that it was buildable, but there was no way they could be sure.

  The next thing I was able to use in my favor—unexpectedly—was Bonwit Teller itself. At first, I assumed I’d just tear down the store and that would be the end of it. But very shortly after I’d signed my deal for the site, another company, Allied Stores Corporation, made a deal with Genesco to purchase the twelve remaining Bonwit Teller branches in locations ranging from Palm Beach, Florida, to Beverly Hills, California. Soon after that, the president and CEO of Allied, a terrific retailing executive named Thomas Macioce, approached me.

  Allied itself had been very close to bankruptcy when Macioce took it over in 1966. But over the next ten years, he’d transformed it into one of the strongest retailing companies in the country. Macioce explained to me that while several of the Bonwit stores he’d just purchased were quite successful, he felt it was critical to continue to have the flagship Bonwit in Manhattan. And ideally, he said, he’d like to keep the store at 57th Street and Fifth Avenue, not only because it had been there for fifty years, but also because the location was unbeatable.

  I told Tom, right off, that there was no way I could give Bonwit nearly as much space as it previously had. On the other hand, I said, I could give him good space, fronting on 57th Street, and connected directly through to the atrium I intended to build on my ground floor. I showed him my plans, and in a very short time, we were able to strike a deal.

  It was very good for Tom, because we signed a long-term lease, at a rent-per-square-foot far below what I later got for other retail space in the building. But it was also very good for me. I leased 55,000 square feet to Allied—giving them a store less than one quarter the size of the original Bonwit—for an annual rent of $3 million, plus a percentage of their profits. I’d paid $25 million to purchase Bonwit’s lease and building, and with a 10 percent mortgage, my carrying costs were approximately $2.5 million a year. In other words, I was paying out $2.5 million to own the site, and getting $3 million back from Allied for leasing them a small portion of the total space. That meant I had a profit of $500,000 a year and owned the land for nothing—all guaranteed before I even began construction. Better yet, since I was giving the new Bonwit only a small portion of my site, I could rent the rest to other retailers.