Trump Toronto Tower Owners Want Trump Out

2016-02-24 17:12:35

By Stephanie Baker and Tim Higgins, Bloomberg News

 

In Panama, his condominium owners are trying to fire him. In Canada and Turkey, his business partners want to cut him loose. In Scotland and Ireland he claims to be making millions but so far is losing money.

Donald Trump says his organization is in talks on more than 100 deals, 85 percent of them outside the U.S., and that if elected president he will bring to international relations the savvy he has demonstrated as a global deal maker.

But an examination of his operations abroad reveals that, while he has made many millions selling his name, he has chosen a number of inexperienced — even questionable — partners, sometimes infuriated buyers and associates and moved late into saturated markets, producing less income than advertised.

A number of naming-rights deals over the past decade have involved investors paying him multimillion-dollar sums, sometimes with a percentage of condo sales or a management fee to run hotel operations. In some places, such as the Philippines, there are strong early sales with projects due to be completed in the next few years. But others have gone far less well, descending into legal conflicts amid claims of broken promises and empty apartments.

Trump, the clear frontrunner for the Republican nomination, disputes the claims and dismisses them as outliers. “I’ve done very well internationally,” he said last week in a telephone interview from South Carolina, where he won the primary. “I don’t think there is a hotter brand in the world than the Trump brand.”

Istanbul

After he called for barring Muslims from entering the U.S. and spoke disparagingly of Mexicans, a new problem arose: some people demanded that his name be removed from buildings. In Istanbul, Turkish billionaire and media mogul Aydin Dogan is trying to break a contract to brand two towers with Trump’s name, according to a person familiar with the company. In campaign records filed last July that detail income for the previous 18 months, Trump says he was paid as much as US$5 million for the deal.

Trump acknowledged the difficulties from his campaign comments.

“That’s one where running for president is a complicating factor,” the billionaire said. “I have a problem because I have to do what I have to do.”

Executives concluded even before his campaign comments that the Trump name had not provided the premium they expected when they opened the $300 million complex in 2012, according to the person familiar with the company.

Toronto

Other Trump projects have also run into problems. In 2007 in Toronto, Trump donned a hard hat to mark the start of construction of Canada’s second tallest tower at the time. He’d sold his name’s use to Alex Shnaider, a Canadian billionaire who set up Talon International to develop the hotel-condo tower. Shnaider made a fortune in the Ukrainian steel industry but had never done a major real estate project.

After extensive delays, the tower opened in 2012, but there were so many five-star hotels in Toronto opening at the time that occupancy was below the Trump-Talon projection of 55 to 75 percent until room rates were slashed. Two of those who had bought the hotel units to be managed as investments say they found out just before closing that they had to pay a 3 percent annual management fee, according to their lawsuit.

Retiree Herbert Crockett put a large down payment on a US$900,000 unit and felt cheated.

“He owned hotels everywhere,” Crockett said in an interview. “The Trump name was all over the marketing materials. That was a big factor in the investment. I felt deceived.”

He and about 20 others sued Talon and Trump for marketing materials they said suggest returns could run as high as 21 percent. In July, an Ontario judge dismissed their case, saying they should have been more cautious. Two investors are appealing.

Canceling a Contract

Meanwhile, Talon is trying to cancel its licensing and management contract with Trump, according to court documents and Talon’s lawyer. In December, Trump filed an application alleging Talon was trying improperly to terminate the management contract in an attempt to unload 280 units, or about 70 percent of the tower’s total, in a bulk sale. Talon’s lawyer denied the allegations.

“Both Talon and the board want new management because they’re not happy with the Trump management,” Symon Zucker, the lawyer representing Talon, said by phone. “He’s not providing the value. There are other brands that will enhance the property.” The parties are in mediation, he said.

Trump called the Toronto hotel “a tremendous success” and said that is why the owner wants to sell. “Normally I would let them do that,” he said in the interview. “Maybe I will, maybe I won’t. I’d rather buy it.”

Trump collected US$543,094 in management fees from the project from Jan. 2014 to July 2015, according to his financial disclosures, less than what he collected in the first year of the tower in 2012.

The problems in Toronto echo some of his other soured deals and partners abroad, themselves reminiscent of problems in the U.S. Trump said some of his international partners haven’t worked out.

“Not Everything is Perfect”

“Not everything is perfect,” he said. “Sometimes you find out that people aren’t what you thought they were and sometimes you find out they are phenomenal.”

Trump was scouting for international partners in the mid-2000s when he thought he had found the right guide: Tevfik Arif. As chairman of New York-based Bayrock Group, Arif worked to put Trump’s name on hotels in Russia, Turkey, Poland and Ukraine, according to court testimony. Those plans and others to expand internationally never came to fruition, in some cases because of the sharp drop-off in luxury real estate around the world caused by the 2008 recession.

Arif did build Trump Soho in New York together with the Sapir Organization under a licensing and operating deal in one of the highest-profile flops in Trump’s real estate empire. After opening in 2010, the $450 million hotel-condo skyscraper struggled to find buyers, with two-thirds of the units unsold last year. Los Angeles-based CIM Group took control of the building in 2014 after foreclosing on Bayrock and Sapir. Trump remains the hotel operator.

Over the past six years, Trump has dispatched three of his children — Ivanka, Eric and Donald Jr. — around the world to seek new business, saying in the interview from South Carolina that he had more than 100 deals under discussion, 85 percent of them abroad.

Panama

One of the first attempts to export the Trump brand was in Panama, where his partnership is now tied up in legal wrangling. Panama’s then-president Ricardo Martinelli attended the ceremony when the Trump Ocean Club, with some 70 floors, opened in 2011. The developer, Newland International Properties Corp., agreed to a deal that could have paid Trump about US$75 million under a licensing agreement, based on sales price assumptions. That included a base fee of 4 percent on all gross revenue, according to a 2007 bond prospectus. Trump got an initial fee of $1.2 million and was slated to get a fee of 12 percent on leases of commercial space as well as royalties.

Like Shnaider in Toronto, Newland had no track record in real estate development on this scale. Once again, the project was plagued by delays and competition. Some buyers walked away from their down payments in 2011 as a glut of high-end apartments caused occupancy rates to plummet. Single-room units being offered for US$350,000 were reduced to about US$180,000. Newland missed a bond payment last year, less than two years after emerging from Chapter 11.

Roger Khafif, president of Newland who led the development, attributed the building’s problems to the decline of the Panamanian economy. “It would have been much nicer and much better if we would have finished the building before the crisis,” Khafif said in an interview. “It probably would have been the best real estate project in Latin America.”

Trump’s son Eric said in an interview that it was a big success, pointing to a study that their hotel outperformed other local luxury hotels in December. He added that both in Toronto and Panama, “We were brought in to be a great manager and be the best hotel in these respective cities and we’ve done a great job with that.”

The condo owners’ association in Panama moved to dismiss Trump’s management company last year, claiming it exceeded budgets and used its fees to cover hotel costs. Trump, in response, is seeking US$75 million in damages through a claim with the International Chamber of Commerce court of arbitration in Paris. Trump reported more than US$5 million on royalties and US$896,440 in management fees from the Panama deal in his financial disclosures from January 2014 to July 2015.

Azerbaijan

In Azerbaijan, a former Soviet republic where a planned Trump Tower was set to open last year, Trump signed with Anar Mammadov, the 34-year-old son of the country’s transport minister and chief executive officer of Garant Holding. The deal paid Trump a US$2.5 million management fee, according to Trump’s financial disclosures.

Rich Kauzlarich, a former U.S. ambassador to Azerbaijan, said in an interview, “If someone came to me and asked about doing business with Anar Mammadov, I would say, ‘Do some due diligence on the companies he claims he’s associated with.’” Mammadov and Garant didn’t respond to numerous requests for comment.

Trump defended his choice: “You can do due diligence and find the Willie Mays of development and they can turn out not to be good because they’re having a bad moment.” Trump said the tower is on hold, but could resume if the economy improves.

Scotland and Ireland

Trump’s golf courses in Scotland and Ireland offer a different set of issues. There, he did not sell rights to use his name; he invested. But he is losing money, according to income statements filed in the U.K. and Ireland.

In financial disclosures required for his presidential bid, Trump claimed income of US$20.3 million from Trump Turnberry, a course he bought for about 41 million pounds (US$58 million) in 2014. Yet the accounts for Golf Recreation Scotland, which owns the course, show a loss of 3.6 million pounds for 2014.

There’s a similar discrepancy with the accounts for two other golf courses. Trump claimed income of US$4.3 million from Trump International Golf Links Scotland — the course he built from scratch north of Aberdeen — yet accounts filed with Companies House show it lost £1.1 million in 2014, its third consecutive annual loss.

In Ireland, Trump reported US$10.7 million in income from Trump International Golf Links Ireland. The course, which he bought in February 2014, reported a loss of 2.5 million euros in 2014.

Trump said in the interview that the amounts listed in his financial disclosures are based on “projected future income.” He attributed the losses to ongoing construction projects and said he has yet to unlock the value in developing the properties for housing. “They’re only losing money because they’re not open,” he said.

Actually, his golf course and hotel in Aberdeenshire are open as is his hotel in Ireland, although that golf course is only partly open, the rest under renovation. Trump said he’s spending US$58 million on Turnberry which he closed last September for refurbishment.

Disclosure Rules

Campaign finance experts say the rules on disclosure require candidates to report payments they’ve received, not estimates for future income.

“This is supposed to be what you own and the income you made,” Larry Noble, general counsel at the Campaign Legal Center, said.

Elsewhere, Trump’s comments on Muslims have angered his partners. In Dubai in December, Lifestyle suspended sales of his home décor projects; Damac Properties, which branded part of its golf and luxury home development with the Trump name, took down a large billboard showing him swinging a club. And in Vancouver, more than 50,000 residents signed a petition calling for Trump’s name to be removed from a condo and hotel skyscraper being built by Holborn Group because of the statements.

Whatever happens to his presidential bid, Trump thinks it’s all been worth it. “Generally, what I’m doing has been helpful for the brand,” he said. “The heads of the countries all dig Trump.”

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