Agree to disagree, more or less… - Posted by Eric C
Posted by Eric C on July 30, 2003 at 08:41:16:
Hi -
I guess we’ll just have to disagree about some things. You’re certainly correct about Donald Trump being well known – both inside RE circles and out.
And I have to admit that the question about whether or not creative real estate techniques work or not does come up a lot.
I even will agree that “the Donald” can be of use as an example to newbies and others, but I have to say that he’s probably not someone most people will be able to emulate (nor will they wish to do so).
But then again, who am I to say?
Yes, I’ve read the Art of the Deal. Quite a self-serving little book, wouldn’t you agree?
But don’t stop there – why not check the last twenty years worth of business press, licensing and permitting records, credit reports, court transcripts, and SEC information (to name just a few sources)?
You’ll find that they’re not so flattering to Mr. Trump.
He has this disturbing tendency not to pay his debts. He doesn’t always plan too well (read that to mean he sucks at operations). And he prefers that everyone believe the fable that he’s done it all by himself.
Not.
You say that it doesn’t matter where or how he learned his methods. I disagree. Yep, it’s more important that he actually uses them than where he got his education, but most people would agree that:
- Having a father in the biz makes a big difference;
- If your father is extremely wealthy (say, 300 mil or so) even better,
- The ability to bounce questions, ideas, and dreams off a person like the elder Trump would certainly be useful; and
- The association with the father brought all sorts of wonderful bonuses, such as banking relationships, knowledge of city codes and officials, a skilled contractor base, trusted employees, and a nice fat paycheck – just to name a few.
Hey, you have to hand it to Donald – he’s aggressive. He’s not afraid to take risks (most of the time). And he dreams big.
All of those are admirable qualities.
But again, there’s that little thing about not doing what you promise. You know, treating partners fairly and repaying loans.
One of Trump’s favorite techniques is to borrow so much money that banks have to treat him differently. Better than other folks. In fact, he prefers that they fear his possible default.
But even this is not really original. People, corporations, and central bankers have been doing this for years. It?s called bluffing ? you know, like in poker.
So far, it?s worked pretty well for Mr. Trump. But that could always change ? after all, it has in the past (for others).
Years ago, I personally knew a man who employed the same technique. And, like Trump ? it worked well for him for about 20 years or so. He would borrow so much at small local banks (and regional ones) that they didn?t dare call his loans. He called it his ?evergreen revolver? ? a gun to the head of the bankers making them do as he wished. Year after year, loans would be rolled over once again, payment schedules recalculated, and terms made more forgiving.
As I said, it worked for a while. In fact, he was able to pyramid his debt-built empire up to about 400 million (give or take 10 mil). And, at that level he definitely had a nice lifestyle ? wonderful homes around the world, fantastic vacations anytime he liked, and lots of toys (cars, boats, and a personal jet ? a nice one too ? not as nice as mine, but definitely OK.)
Eventually the banks called his position. The local and regional banks were bought out by a multi-national which decided that even a debt of $400 mil (plus interest) could (and should) be declared in default.
No more homes. No more vacations. No more toys. And a new lifestyle ? one not nearly so enviable.
His take?
He thinks he didn?t borrow enough. That?s right ? he still doesn?t think there was anything wrong about not paying back the money, just that he didn?t borrow big enough to put fear into the heart of the multinational bank.
You know what? He?s probably right.
Ah, well I digress. Anyway, the point is that these techniques you mention do work ? along with many more that most folks don?t even know about. But techniques are merely tools and nothing more. They can be used wisely and well or they can be used poorly in which case they may actually cause harm both to yourself and others.
But as for the Donald, he can be a good example in two ways: positively and negatively. He illustrates what someone can achieve and accomplish (with a little help and knowledge). He also shows us what can happen when one doesn?t honor their commitments.
Maybe we?re all a little like that. I can certainly point to deals that I wish I hadn?t done and to people who were hurt ? either by my action or inaction. In almost every case, it wasn?t my intention to cause them any pain (or myself, for that matter).
But it happened. And nothing I do now or in the future will ever change that fact. But it did change me.
I?ve come to the sad conclusion that most of us only learn through our mistakes (and hopefully through the mistakes of others). These failures teach us far more about ourselves, our strategies, and our world than success ever will.
In that spirit, I offer at least two more examples of people who were once regarded as RE wizards and business geniuses only to discover that there are some mistakes from which you just don?t recover: Bill Zeckendorf (who was slicing and dicing NYC and other metros long before the world ever heard about Trump) and Paul Reichmann (who once believed he was too big to fail ? sound familiar?)
Thanks for the post (and for making me think).
Take care,
Eric C
PS ? as to how bad it actually got for Trump at one point is illustrated by the fact when his casinos were in trouble ? nobody would loan him money. All his renegotiation with the banks hung on his commitment to make the interest payment on time (a token one to be sure). Who finally stepped up to the plate? Daddy. But even he wasn?t completely sure that Donald would be able to repay him so he worked it to ensure that the State of New Jersey would guarantee the loan.
How? By bringing cash into Trump?s casino (3 mil or so) and buying chips. The casino ended the day about 3 mil long and Daddy had 3 mil of chips. At the time, should the casino (Trump) go BK for any reason, the State guaranteed all chips. Slick.
Gives you an idea that Donald may not be the only smart guy in the family.
PPS - there are always techniques that you can learn from people inside the RE biz and from those who deal in other fields. Here?s a link to a post that illustrates that fact nicely:
http://www.creonline.com/commercial-real-estate/wwwboard5/messages/3699.html
and at 70% or below market with only paint and carpet cleaning… AND renters wanting to stay ain’t that bad.