..... How did Trump amass that fortune? In the end it had little to do with TV paychecks and steak royalties. Rather, it came primarily via the business he grew up in: real estate. A booming market has greatly increased the value of Trump’s key property holdings. [ Thanks, Mayors Guiliani & Bloomberg ] He has also profited from an overlooked business in which he thrives—the unglamorous work of overseeing property development and management for other developers. Trump has reaped rich fees in that role on such projects as the current transformation of Washington, D.C.’s historic Old Post Office Building into a luxury hotel, alongside private equity firm Colony Capital. In these ventures, as with his campaign, he keeps his team small and is his own most trusted strategic adviser.
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We identified five overriding themes that provide a blueprint for running things the Trump way.
I.HE ALWAYS COMES FIRST
Over his roller-coaster career, a core part of Trump’s decision-making process can be summarized in four words: Trump always comes first. Whatever the deal, Trump must be the star. He routinely values two things above all, even over making money: being the boss and gaining publicity. No one values the Trump brand higher than Trump himself.
The obsession with seeing his name in lights has at times damaged his public shareholders and Trump himself. “He lives to see his name praised in the press,” says a former associate who has worked closely with Trump. “When it comes to choosing between getting more publicity and making good deals, I’d say it’s a tie.”
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II.HE WANTS YOU TO KNOW HOW RICH HE IS 
One of Trump’s favorite topics is his own net worth, and he’s not satisfied to let the numbers speak for themselves. Much has been made of his statement, under oath in a deposition some years ago, that his own calculation of his wealth changes depending on “how he feels” that day.
One thing that Trump hasn’t felt like doing is release his tax returns, so we can’t know everything about his money. But we have enough information to conclude this: Trump is exaggerating the size of his empire.
On July 15, 2015, Trump filed a personal financial disclosure (PFD) with the Federal Election Commission. The press release that accompanied the disclosure document stated that “as of this date, Mr. Trump’s net worth is in excess of TEN BILLION DOLLARS.” (The capitalization is his.) The release also declared that Trump’s income for 2014 was $362 million, “which does not include dividends, capital gains, rents, and royalties.”
But a close reading of the 92-page document shows that the items that make up that $362 million are actually Trump’s revenues, not his income (which would factor in expenses).
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III.HE SUES FIRST, ASKS QUESTIONS LATER
When Trump reads this, will he threaten a lawsuit? It wouldn’t be surprising. In 1984 he sued a Chicago Tribune architecture critic for $500 million after the writer criticized Trump’s plan to build a skyscraper in lower Manhattan. (The case was dismissed.) In 2006, Trump sued Tim O’Brien, author of TrumpNation, for $5 billion for suggesting that Trump’s net worth was lower than he claimed. (An appeals court later ruled for O’Brien.)
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Trump himself is currently the target of litigation. And out on the stump he has vowed that if elected, he will “open up our libel laws,” effectively overturning the U.S. Supreme Court’s 1964 ruling in New York Times v. Sullivan, which gave the press heightened First Amendment protections against defamation suits for articles about public figures—like Donald Trump.
IV.HE’S TAKEN ON DEBT RECKLESSLY
Trump claims that as President he would use his business prowess to tackle one of America’s most urgent problems: the skyscraper-high national debt. As evidence, he claims that the businesses he runs have “very low debt and tremendous cash flow.” That example, Trump has declared, demonstrates “the kind of thinking this country needs, with $19 trillion in debt, believe me.”
But a close examination of how Trump ran one of America’s biggest gaming enterprises demonstrates an entirely different kind of thinking from the belt-tightening rhetoric he spouts on the campaign trail. In fact, Trump has a record of recklessly piling on debt—with disastrous results.
Trump served as chairman and sometimes CEO of publicly traded Trump Hotels, later renamed Trump Entertainment Resorts, from mid-1995 to its second bankruptcy, in early 2009. Over that period he leveraged his gaming properties to such heights that he gravely impaired their prospects.
When Trump Hotels first went public in 1995, its big holding was a single casino: the Trump Plaza. Early the following year, Trump Hotels bought the Trump Taj Mahal, billed as the “Eighth Wonder of the World,” for $898 million. In the transaction, Trump Hotels took on a lot of really expensive debt—$817 million in junk bond borrowings at 11.25% interest. From the start, the Taj was losing ­money because of its big interest burden. “People will be shocked when they hear the numbers. The numbers are just huge,” said Trump at the time, hyping the merger.
Trump wasn’t done buying casinos—from Trump. In June 1996 he announced the purchase of another of his casinos, Trump’s Castle. Whereas he’d held just half the equity in the Taj, he owned 100% of the Castle. Trump Hotels agreed to buy the Castle for about $520 million—and Trump gave himself a premium. The announced price was a staggering 18 times cash flow (twice what the Taj had fetched). It’s not even clear the Castle was worth its debt load of over $350 million.
It didn’t take long for the debt to take its toll. When Trump Hotels went public, it had carried just $494 million in long-term debt; by the end of the next year, after the two big purchases, its borrowings had ballooned to $1.7 billion. By 2002, Trump Hotels’ debt was $2.1 billion, and its leverage ratio had expanded to 27, approaching the levels that sank Lehman Brothers during the financial crisis.
From its IPO in 1995 through two separate bankruptcies in 2004 and 2009, Trump Hotels—and its successor, Trump Entertainment—never made money. Year after year its operating profits were decimated by gigantic interest costs. Over the almost 15 years that Trump served as chairman, the casino company posted net losses, excluding extraordinary items, totaling nearly $1.7 billion.
V.HE THINKS HE’S GREAT AT EVERYTHING
Unlike most real estate titans, Trump has never stuck to real estate. He has frequently attempted to acquire and operate companies in industries outside his expertise. Several executives who worked for Trump, all of whom declined to speak on the record because they fear his wrath, say they were constantly warned by managers who knew him best that “Donald’s ego is so big, he believes he can run anything.”
In the late 1980s, Trump bought the Plaza Hotel and the former Eastern Shuttle (renaming it Trump Shuttle), then lost both businesses to excessive debt and weak management. He also led abortive takeovers of Bally and American Airlines. His buccaneering style was especially misplaced in gambling, an industry that’s extremely cyclical. While his rival Steve Wynn stuck to gaming and retrenched when he anticipated downturns, Trump never thought Atlantic City would do anything but boom—failing to foresee the threat from the spread of gaming to neighboring states.
The same approach is evident in Trump’s latest quest in politics. He clearly thinks he’s not just the best candidate for the job but also the best at running a major presidential campaign. “I’m the strategist,” he recently bragged to New York magazine, explaining that he has been the architect of his unorthodox campaign and unexpected political success. Once again, though, Trump might not know quite as much as he thinks he does. Pundits are predicting that his ineptitude in the intricacies of the process—especially in securing delegates—could potentially cost him the nomination at the Republican convention. Then Trump could go back to the business of being Trump full-time.
A version of this article appears in the May 1, 2016 issue of Fortune.
http://fortune.com/donald-trump-businessman/ |
