As Trump’s businesses struggle, the most profitable asset in his real estate empire is at risk
While Donald Trump is undergoing a second impeachment trial in Washington, he is also facing a grave threat to the crown jewel of his real estate holdings, according to a person familiar with the matter.
The threat posed by a highly profitable real estate partnership that brings sizeable cash to the Trump Organization is putting pressure on the former president as his real estate and hospitality businesses grapple with heavy debt and severely reduced revenues, largely due to the coronavirus Pandemic.
The partnership owns two premier commercial buildings – one on Sixth Avenue in New York City and one in downtown San Francisco – and is the single most profitable property in the Trump empire. The Trump Organization has a 30 percent stake in the buildings, while its partner Vornado Realty Trust, a large public real estate company in New York City, has a 70 percent stake.
Tonight, watch Cynthia McFadden on NBC Nightly News with Lester Holt for more of the story.
But now Steven Roth, Vornado’s powerful founder and chairman, is considering withholding the partnership’s cash flows from Trump, said a person familiar with the matter. Such a move would lower the Trump organization’s cash receipts, forcing Trump to sell his stake back to Vornado at a discount, making him a smaller profit and eliminating a crucial source of money.
In an interview, Eric Trump, Trump’s son, declined to answer questions about discussions with Vornado on the file. “We are incredibly proud of these two buildings,” said Trump, executive vice president of the Trump Organization. “They are two of the best commodities in the world.”
A Vornado spokesman did not return a call or email asking for comment.
The Wall Street Journal first reported that Roth is considering ways to end its partnership with Trump, including limiting the partnership’s cash flows. Control partners in such transactions have a great deal of leeway to conduct their business at their own discretion.
Trump has owned the two buildings for more than a decade, and his minority stake was recently valued at $ 784 million, according to Forbes magazine, subject to Trump’s stake in the buildings, which is estimated at $ 285 million.
Nearly $ 400 million in debt, partially covered by the Trump International Hotel in Washington, DC, and the Trump National Doral Golf Resort in Miami, will fall due in 2023. And while selling its partnership to Vornado would provide some cushion, paying off that debt and getting the best dollar on the stake is crucial.
The money generated by the Trump Organization’s ownership of the two buildings with Vornado is essential given the Covid-19-related economic downturn affecting its other properties. Most of the properties are bleeding proceeds, according to Trump’s financial reports filed last month.
For example, revenue at the Doral property declined 43 percent year-over-year last year, while revenue at the Trump International Hotel in Washington’s old Post Office building fell 63 percent to $ 15.1 million.
Revenue from Trump’s Florida retreat in Mar-a-Lago rose 13 percent and two of the golf courses saw single-digit sales increases, but most Trump properties saw sales declines last year starting in 2019.
According to experts, large amounts of money are required to obtain these properties.
“Failure to keep facilities in good condition and up-to-date will affect their ability to attract future businesses,” said Adam J. Levitin, a professor at Georgetown University Law Center who specializes in bankruptcy and commercial law. “He needs money to keep the facilities running,” Levitin said, and if the facilities don’t spend enough to pay off the debt and sustain themselves, “it can start a downward spiral.”
The idea that Vornado could withhold cash flows from the partnership arose recently, the person familiar with the matter said after the January 6 riot at the U.S. Capitol and unsuccessful attempts last year to pledge the buildings for around $ 5 billion sell or refinance. Some banks associated with Trump have also cut ties with him.
After the riot, reports reported that some of its tenants in other buildings had asked to terminate their leases. One of them was the Girl Scouts of America in his office building on 40 Wall Street in New York.
Litigation would be likely if Vornado decides to withhold Trump revenue generated by the partnership’s properties, real estate experts said. But because Trump’s other operations are not going well, he is not negotiating from a position of strength.
Trump’s high debt and loss of revenue from his business activities put Vornado in a good position to force Trump to pay a discounted price for his partnership stake, the person familiar with the matter said.
Even before the Capitol uprising, Trump’s fortune had plummeted, according to Forbes’ billionaire rankings. At the beginning of his presidency, the magazine estimated his net worth at $ 3.5 billion. Now the estimate is $ 2.5 billion.
“If you polarize your company by becoming a political figure, you will lose a lot of potential customers,” said Dan Alexander, Forbes executive editor and author of “White House, Inc: How Donald Trump Made the Presidency a Company.” “” He’s still a commercial real estate mogul at heart. If his big clients, who are tenants, are paying millions and millions of dollars a year when those leases expire, we’ll find out what the real impact of all of this was. “