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May 6, 1990, Sunday

The Trump Shuffle

He's trying to sell assets to become king of cash, but the kingdom
could be smaller than he imagined
This article was prepared by reporters Harry Berkowitz, Walter Fee, Glenn Kessler, John Riley,
Susan Sachs, Edward R. Silverman and Allan Sloan. Research was provided by Roseann
Fochi. It was written by Sloan and Kessler.

LENGTH: 4580 words

DONALD TRUMP, cocky self-promoter and high-flying developer, is spending a lot of time these
days trying to convince the world that he's as rich, as liquid and as bankable as ever.
King of cash. That's his newest goal, Trump says, as he makes the rounds of television,
newspaper and magazine interviews, trying to staunch doubts about his solvency even as he
puts his assets up for sale.
He says he doesn't have to have the cash. He just wants it to hunt for bargains. And he claims
he'll end up with $ 2 billion in hand, maybe more, when the dust clears on deals in the works.
But the familiar Trump bluster has started sounding hollow, especially over the last week.
Contractors on his newest casino, the Taj Mahal, claimed in public that Trump owes them $ 35
million in unpaid bills. New Jersey gambling authorities announced they would start a review of
all of Trump's finances. The bonds he sold to finance his Atlantic City casinos were trading at
steep discounts - a sign that investors fear Trump might not be able to continue making interest
payments on the debt.
Meanwhile, newly disclosed figures on his two older casinos reveal they aren't producing much
cash, if any, for Trump. And Chase Manhattan Bank, the lender that has a $ 200-million
mortgage on Trump's vacant West Side property, has pressured him to restructure his heavy
debt load.
From Wall Street to Hong Kong Harbor, Trump's highly leveraged portfolio of hotels, casinos,
condos, airplanes, stocks and a money-draining tract of vacant Manhattan riverfront has come
under intense scrutiny in the past few weeks, as speculation mounts that Trump is caught in a
cash crunch - and that perhaps he is not as rich as he has proclaimed.

While Trump claimed last year he was worth $ 1.5 billion in a financial statement obtained by
Newsday, other documents and research by Newsday indicate soft spots in his empire. His
equity in Manhattan hotels appears much smaller than he claims. Sales at his Florida
condominium project, bought with much fanfare, have slowed to a trickle, despite an aggressive
marketing campaign in the Northeast and Japan.
The feisty 44-year-old entrepreneur does have a handful of top-quality assets. But the
consensus among financial analysts, real estate developers and hotel experts is that many of
his holdings would be difficult to sell or even refinance in today's risk-averse market - especially
at prices that would leave much cash left over after the bankers are paid off.
Trump's image has also taken a beating. Forbes magazine says he's worth only $ 500 million.
Business Week, in its latest edition, is less optimistic, putting Trump's worth at $ 400 million and
asserting that he lost $ 60 million last year.
In an interview Friday, Trump general counsel Joseph Silver couldn't say how Trump could raise
$ 2 billion by selling assets, or where the number came from. Trump, who mentioned the $ 2billion figure in an earlier interview with Newsday, was not available for comment.
Shrugging aside details such as heavy debts, Trump's executives say he is merely positioning
himself to take advantage of bargains and to refocus his investments in real estate and the
gambling business.
"We believe that the expansion of the Las Vegas market will permit us to buy properties at very
good locations for 30 cents on the dollar," Silver said. "We are currently negotiating with
somebody. I have had preliminary discussions.
Trump, ever combative, bristles at suggestions that he is on shaky financial footing. In a
Newsday interview, he denounced a Wall Street Journal reporter who writes about his casinos
with an expletive.
Forbes magazine "has been after me for years," he told ABC television interviewer Sam
Donaldson last week.
Others who suggest he is overextended are similarly dismissed with earthy expletives, or worse.
A veteran securities analyst, after saying that a winter drop-off in tourism will hurt the Taj Mahal,
found himself out of a job after Trump threatened earlier this year to sue his employer, Janney
Montgomery Scott Inc. of Philadelphia.
Trump's operating style makes it hard for outsiders to judge the relationship between his true
and his proclaimed net worth at any particular moment. "It's hard to analyze his situation. A lot of
his deals are private deals, where you don't know how much debt he has," said James Goonan,
a partner at the Roulac Real Estate Consulting Group of Deloitte Haskins & Sells. "It's a very
difficult business to figure out.
One unusual incident illustrates the point. In 1985, Chase Manhattan Bank, which has financed
many of Trump's deals, loaned him $ 8.5 million toward the purchase of his palatial Palm Beach
estate. But the bank didn't record the loan in the public records, although lenders normally insist
on doing so to protect their interests.

To any researcher or lawyer checking for liens on the property, it appeared as if Trump had paid
cash for the estate. The loan was disclosed only when Trump went to court in Florida in an
unsuccessful effort to lower the assessment on the estate. It turned out he had put up only
about $ 2,000 to buy the $ 10-million property.
His operations often are just as difficult to analyze. Trump holds a 50-percent leasehold interest
in the Grand Hyatt hotel at Lexington Avenue and 42nd Street. Leasing the hotel property has
saved Trump and his partner about $ 60 million in property taxes over the past 10 years.
But the city's auditor general has been refused access to the Hyatt's books by the Trump-Hyatt
partnership, in apparent violation of the lease agreement. The city has been able to audit only
the 1986 rent of its premises, and subsequently charged that the partnership had shortchanged
the city by $ 2.9 million in rent.
Trump himself has frequently given wildly exaggerated figures when boasting of his own deals.
He claimed he paid only $ 30 million for the St. Moritz Hotel in 1985, for example, when court
documents show he paid $ 73.7 million and had an $ 80-million loan from Bankers Trust. He
later sold it for $ 180 million.
His indebtedness also is elusive, in part because he has both personal lines of credit from
banks as well as mortgages secured by his real estate.
When it suits him, he claims not to know his net worth, although his lawyers say it's not the $ 5
billion that his estranged wife Ivana maintains. "Who the ---knows?" he once said in an interview
with Time magazine. There are, however, some clues:
Gambling on Casinos
Seven months ago, Trump appeared to be flying as high as ever.
The $ 1.1-billion Taj Mahal casino-hotel was under construction, apparently on time and at
budget. By the time it opened last month, it was six weeks late and about $ 65 million over
budget. Doubts since have surfaced about the Taj's long-term success, given its high overhead.
Trump's casino bonds have taken a pounding since April 27, when the Wall Street Journal
published an interview in which Trump said he wanted to be the king of cash. Since then, the
two Trump Castle bonds have plummeted 15 and 20 percent, respectively. The price of Taj
Mahal bonds fared a little better, dropping to about 71 cents on the dollar from about 78 1/2
About half of Trump's claimed net worth consists of the value of his Castle and Plaza casinos in
Atlantic City. His May 31, 1989, balance sheet valued them at $ 1.24 billion - $ 700 million
above their $ 550 million of debt.
Despite the high value that Trump places on them, the casinos haven't been putting much
money into Trump's pocket. That's because his ability to take cash payments from the casinos is
limited by terms of the bonds he issued to finance the two facilities.
Last year, according to documents filed with the Securities and Exchange Commission, Trump
actually put a total of $ 6 million into the two casinos, rather than taking money out.
Staying in Hotels

To be sure, Trump has some stellar properties. The Plaza Hotel, bought for $ 403 million in 1988
and now mortgaged for $ 425 million, has the kind of cachet that normally attracts recordbreaking prices from foreign investors.
How much the hotel is worth is an open question. Silver said that about six months ago, a
Japanese buyer was prepared to buy a 49percent stake as part of a deal that would have
valued the property at $ 830 million.
Silver said that the buyer, whom he would not identify, could justify such a high price because of
tax laws in Japan. Silver said the buyer pulled out when the Tokyo stock market plummeted.
Now, he said, the Plaza isn't for sale after all. Trump has said the same.
David R. Smith, a hotel industry consultant hired by Newsday to evaluate Trump's hotel
properties, believes the potential value of the Plaza in today's market most likely would be $ 400
million to $ 500 million, although the Plaza is a unique property.
With estimated income last year of $ 26.9 million from revenues of $ 103 million, the Plaza is
probably a cash drain for Trump, whose debt service on the $ 425-million hotel mortgage is
estimated to run about $ 40 million a year. A buyer willing to pay in the $ 800-million range
would either have to come up with a lot of cash or be willing to forgo profits in exchange for the
status of owning a landmark hotel.
While it's difficult to predict what a very motivated investor might pay, many of the trophyhunting, foreign hotel companies have already made their status purchases in New York, Smith
Trump's second hotel property, the Grand Hyatt, could generate some cash, according to Smith.
The potential market value of the Trump-Hyatt leasehold interest is between $ 157 million and $
196 million, based on an analysis of comparable sales around the country in which the return on
investment was assumed to be 8 to 10 percent.
Smith pegged the Hyatt's net operating income last year at $ 15.7 million, a figure derived from
the rent it paid the city, and said it normally has a higher rate of occupancy than the New York
Trump has said he is seeking to refinance the $ 30-million mortgage on the Hyatt with a new $
200-million loan. Refinancing, rather than selling, would give him his portion of equity without
having to pay the capital gains taxes he would be liable for if he sold his stake.
At Home With Trump
Despite his reputation as a real estate mogul, Trump owns a relatively small portfolio of New
York property. He does not own most of the buildings that bear his name because they are
condominium apartments, and most in Trump Tower and Trump Plaza have long been sold.
All but four of the condos at Trump Parc at 106 Central Park South have been sold. So-called
Trump City, the high-density development he wants to create along the Hudson River on the
Upper West Side, remains a phantom community, a dream that neighborhood activists vow will
never become a reality.

In the 68-story Trump Tower residential condominium on Fifth Avenue, Trump owns only his own
sprawling triplex. But after buying out his partner last year, he does own what is considered
extremely valuable retail space in the tower and the space now occupied by financially troubled
Bonwit Teller.
The marble and gilt tower, with its fountain and high-priced stores, draws thousands of out-oftown tourists like a magnet each day. At up to $ 500 per square foot, the rents paid by the stores
at the ground level of the Fifth Avenue mall are believed to rank among the highest retail rents in
the country.
"There has been a premium for the Trump name," said William Rubinstein, chief real estate
analyst for Smith Barney, Harris Upham & Co. "If the name stays on it, based on all the
Japanese tourists and others that I see there, my guess is that the premium would remain. He's
got a world-class location.
Trump's only project under construction in New York is Trump Palace, a 283-unit condominium
tower at Third Avenue and 69th Street. Asking prices range from $ 351,000 for a studio to $ 6
million for a penthouse. Luxury brokers in New York say that despite the confident statements of
Trump officials, sales are slow.
Could he sell the entire building in a block to another developer to market? Possibly, although
he probably wouldn't gain anything but time, real estate experts say. And that kind of sale would
have bad implications.
"Presumably, the buyer would smell blood and the price would reflect it," said Rubinstein.
West Side Story
The Trump City site is one of the most slippery of Trump's assets. He has said the 76-acre tract
is worth $ 650 million, a price scoffed at by many real estate developers considering the
location. Silver insisted, "We could sell it for $ 600 million tomorrow.
That opinion is not universally shared. "There's nobody who is going to finance an acquisition on
a speculative basis," said Stephen B. Siegel, president of Chubb Realty. "And that would entail
a tremendous amount of speculation.
Because it's vacant, the property hasn't produced a penny of income since Trump bought it five
years ago. Trump has said developer William Zeckendorf Jr. once offered $ 800 million for the
site, although a spokesman for Zeckendorf said no bid was ever made and "nothing
approaching that number was ever discussed.
Figuring its value today is difficult. There are no sites that have sold in recent years to compare
with it. Even assuming that a new owner would ask the city for a less radical increase in
allowable density than Trump wants, the delay in starting construction could last years. A certain
amount of low and medium-income housing might be required, as well as subway
improvements. Both would affect development costs and the size of apartment buildings.
A Flop in Florida
Trump also is holding a non-income-producing asset in West Palm Beach, Fla. Like many
Northern city slickers who came south to make a quick profit, Trump misjudged the quirky

Florida real estate market. He bought the two-tower condominium located on the less desirable
side of the Intracoastal Waterway from the exclusive town of Palm Beach, renamed it Trump
Plaza of the Palm Beaches, and tried to sell the apartments at prices starting at $ 300,000 and
going up to $ 1.8 million.
"I think he thought his name would sell the project, and not the property," said Michael Y.
Cannon, president of AREEA, Appraisal and Real Estate Economics Associates Inc., a marketresearch and appraisal firm in South Florida. "The problem with this project is that it should
never have been built.
Trump paid $ 41 million for the buildings in a foreclosure sale in 1986, when only 10 of the
condos had been sold. In 1987, Trump sold 36 apartments for gross revenues of $ 12.2 million,
according to AREEA's research. In 1988, he sold 32 units for gross sales of $ 12.6 million. By
the end of 1989, only seven more units had sold for $ 3.1 million. This year, only two resales
were recorded in public records so far.
With 60 percent of the units still in Trump's hands, the carrying costs are high. Monthly
maintenance charges due from these apartments would run about $ 66,000, or nearly $ 800,000
a year.
Assuming that Trump still owes about $ 40 million of the $ 60-million loan that helped finance his
purchase, Cannon said he could be paying as much as $ 600,000 a month in debt service,
sales and marketing costs and maintenance on his unsold inventory. With the Florida condo
market still sluggish even for the best of properties, Trump could face a long and costly wait
before disposing of his West Palm Beach venture.
A Flying Leap Into Airlines
In the past few years, Trump has ventured beyond his trademark real estate deals, first
investing in Alexander's Inc., the department store chain, and then buying the Boston-New YorkWashington shuttle from Eastern Airlines. Neither investment has taken off, and some of
Trump's own executives have wondered whether he can continue to diversify.
Trump Shuttle president Bruce Nobles, for example, said last year that the Trump organization
"seems to be getting bigger all the time," adding that Trump will "have to do a better job of
actually managing the place as opposed to making deals." At the time, Trump was pushing hard
to increase the shuttle's market share, planning a TV game show and studying the possibility of
launching a new baseball team.
The Trump Shuttle has since proved a disappointment. Trump predicted it would grab a 65percent share of the market at the expense of the Pan Am shuttle. He said recently that he had
achieved a 50-percent share. Both Pan Am and the Washington consulting firm of Airline
Economics dispute his claim and say Pan Am still holds a significant edge.
It's also unlikely Trump can get much more than the $ 365 million he paid to Eastern Airlines last
June. Officials familiar with the deal said that Eastern still retains a right of first refusal, and the
sale contract limits the resale of the shuttle to any of the other six major airlines for ten years,
according to a copy of the contract.

Trump purchased the shuttle and put up an additional $ 35 million in working capital, as required
by the federal government, by borrowing the entire amount - $ 400 million - through two bank
loans, according to a financial document obtained by Newsday. One of the loans, for $ 300
million, was borrowed by the shuttle, while another $ 100 million was borrowed personally by
Trump. Nobles said Trump also invested an additional $ 25 million of his own funds in the
Debt service just on his $ 300-million loan was expected to cost the airline $ 33 million a year,
according to a Trump report filed with regulators. Even in its best year, when Eastern ran the
shuttle and had a bigger market share than Trump has now, the shuttle made only $ 40 million
in operating profit. Most years, profits hovered between $ 25 million and $ 35 million.
The interest cost that Trump pays on his personal loan hasn't been made public. Nobles said
Trump gets a management fee that doesn't cover the debt service.
Seven months ago, Trump announced he was going to make his deal of deals - a $ 7.5-billion
takeover of American Airlines, the nation's largest air carrier. But financing for takeovers,
especially airlines, went out of style last autumn, and Trump's bid soon fizzled.
Trouble with Alexander's
Trump's grand design for Alexander's, based on redeveloping some of the chain's real estate
holdings, so far has fizzled, too. He has been unable to overcome local objections to a
Paramus, N.J. retail and office complex, and disagreements with other stockholders have
stalled his proposed reconstruction of the flagship Alexander's store in Manhattan.
Trump now says he might sell his 27.4-percent stake in the company, possibly in the next four
weeks. Given the gloomy outlook overall for the retailing industry and heavy discounting by its
hard-strapped competitors, Alexander's doesn't look like such a bargain. Last year's financial
results for Alexander's showed promise, but were attributed to special one-time gains.
Used Princess for Sale
Already on the block is the Trump Princess, his opulent 282-foot yacht, which is touring Asian
ports such as Taipei and Hong Kong to give lavish parties for potential buyers; it's now on its
way to Japan.
Trump says that status-seekers are standing in line to buy the Princess at his asking price of $
115 million. He paid $ 28.8 million, most of it borrowed money. Silver showed Newsday a
nonbinding letter of intent signed by an interested Japanese buyer offering $ 115 million for the
boat, and said a deal on the Princess could be closed soon.
The Outlook for The Donald
In the end, image may become reality for Trump, just as it did before. His flair for self-promotion
served him well during the go-go years of rising real estate values in the 1980s. Back then, it
didn't matter that he really wasn't the biggest developer in New York City, or that most of his
holdings were propped up by massive debts.
But that may now all change. Trump officials concede that the press speculation about his
finances has taken a toll. Silver confirmed that about a month ago, Chase Manhattan became
concerned about its loans backing the vacant and unbuilt Trump City.

And, Silver said, possible problems with the Taj Mahal also riled lenders. He said that no loans
were formally called, but meetings were held to allay fears. "All the banks became concerned,"
he said.
Trump's Bank Lines
Trump has been able to buy his properties mainly because of the generosity of his bankers, who
have extended him millions of dollars in credit. The Arthur Andersen report obtained by
Newsday lays out in detail Trump's lines of credit, and how much has been used, as of May 31,
1989. None of the banks listed in the report would comment on their relationship with Trump,
and whether any of the credit has been extended, reduced or other altered since May 31, 1989.
Most of Trump's bank loans are floating rate loans, usally at the prime lending rate or slightly
over that rate (11.5 percent at the time of the report.) Figures are in millions of dollars.
Lines of Credit
$ 63.0
$ 63.0
Midlantic National
$ 37.0
-Manufacturers Hanover
$ 35.9
$ 35.9
Bankers Trust
$ 25.0
$ 25.0
Chase Manhattan
$ 25.0
$ 0.2
National Westminster
*$ 20.0
$ 0.1
Boston Safe Deposit
$ 10.0
$ 0.4
First Chicago
$ 10.0
$ 0.2
UMB Bank
$ 3.0
$ 2.0
$ 228.9
$ 126.8

Other Credit Facilities

Manufacturers Hanover
$ 30.0
Manufacturers Hanover
$ 23.8
Bear Stearns
$ 6.8
$ 60.6
$ 289.5
*Includes $ 19 million letter of credit.

$ 29.9
$ 23.8
$ 6.8
$ 60.5
$ 187.3

A Tale of Two Trumps

Newsday has obtained two confidential assessments of Donald Trump's net worth. One, made
in 1987, was attached to the prenuptial agreement between Trump and his estranged wife,
Ivana. The other, made in 1989, was filed with a governmental body. The documents are not
directly comparable because Trump bought and sold a number of properties between the two
assessments, and they are not formal audits.
Nevertheless, the documents show that Trump's own assessment of his net worth - assets
minus liabilities - is far less than the $ 4 billion to $ 5 billion he has claimed. Also, these net
worth statements are Trump's own valuation of his properties, and some have challenged those
valuations as excessive. The financial statements were accompanied by letters from accounting
firms - Spahr, Lachner, Berk & Naimer, a Lake Success firm, in 1987 and Arthur Andersen & Co.
in 1989 - in which the firms said they could not vouch for the valuations. Some believe that
Trump's actual net worth is less than $ 500 million, leaving him highly leveraged and vulnerable

to any downturn in the value of his properties. Figures, which are in millions of dollars, may not
add up due to rounding.
$ 103.4
$ 129.8

Casino Properties:
Trump Plaza
Trump Castle
Trump Taj Mahal
-Atlantic City Land -Total Casinos


Other Real and Operating Properties:

Trump City
Trump Parc Condos
Trump Tower
St. Moritz
Grand Hyatt (50%)
out in
Trump Palace condos
Trump Plaza

Trump Plaza/Palm Beach 15.0

Other real property


Joint interests,
minus debt
Other assets
Trump Princess
Transportation assets -10.0
Personal residences
-Total Assets
$ 2,194.6
$ 4,047.5
Bank borrowings

Notes Payable, Casinos:

Trump Plaza
Trump Castle
Trump Taj Mahal
-Atlantic City Land


Total Notes Payable


Loans, Other Properties:

Trump Parc
St. Moritz
Trump Tower
Trump Palace condos
Palm Beach (personal) 9.5
Aspen, Colo., property 1.0
100 Central Parc S.
Trump Plaza
Other Loans
Total Loans

Loans Payable
on Other Assets
-Accrued Interest Payable -Minority Interest
-Total Liabilities
$ 1,101.4
Net Worth
$ 1,093.2


out in


$ 2,543.0
$ 1,504.5

*In June, 1989, Trump bought the Eastern Shuttle for $ 365 million. He borrowed $ 400 million
through two bank loans, and invested another $ 25 million of his own money, so the practical
effect of the purchase on his net worth is minimal.