Back in March, 2020, we posted about the possibility that President Trump's already growing enthusiasm for "easing restrictions on movement sooner than federal public health experts recommend" was due to his personal financial interests. By that time, the Trump Organization, in whom Trump has the largest ownership share, had closed six of its seven biggest revenue producing properties, and was likely dreading the need to refinance considerable outstanding debt.
We wrote at the time: "This raises the strong and extremely worrisome concern that he is thinking of taking measures that may risk the lives of thousands or millions of people to preserve his wealth and personal power."
Since then, Trump became an even more enthusiastic proponent of rapid reopening. As we discussed in April, 2020, after the curve of the coronavirus pandemic began to flatten in the first heavily affected areas in the northeast US, supposedly popular protests broke out calling for the end of onerous social distancing measures to let the economy recover. President Trump then jumped in, calling for the "liberation" of multiple states from these measures.
Trump wrote: 'LIBERATE MINNESOTA' and then, 'LIBERATE MICHIGAN' and then, 'LIBERATE VIRGINIA, and save your great 2nd Amendment. It is under siege!'
After that, many Trump supporters among state and local politicians jumped in to "reopen" before the virus was fully controlled in their areas. Now, viral surges have occurred in many states, predominantly in those with such political leadership, such as Arizona, Florida, Georgia, Texas, etc. We summarized the worsening state of the pandemic in Arizona as an example here. Some headlines just from the last few days:
Arizona Reopened Early to Revive its Economy. Now, its Workers and Businesses Face Even Greater Devestation
Florida Hospitals Stretched to Capacity by Acute Coronavirus Outbreak
How Politics, Inequity and Complacency Undermined Texas's Fight Against COVID-19
Yet Trump has done nothing to deter his supporters' commitment to reopening even in the face of worsening viral surges. Meanwhile, more evidence has accumulated suggesting that Trump's laxness about fighting the pandemic may be due to the financial risk that he personally facing due to the virus and the effects of measures taken to combat it.
First, the Trump Organization is clearly under increasing financial threat. Next, the organization is taking increasingly drastic measures to temporarily fend off that threat. Finally, these measures include its own premature reopening of properties, potentially enabling spread of the virus.
Before we review some of the specifics, keep in mind that Trump's financial dealings are extremely opaque. Unlike other US presidents, he has never revealed any recent tax returns, nor other important details of his apparently large and complex financial picture. Nonetheless, we have learned some important things.
Trump Organization is Increasingly Under Financial Threat
Trump Organization Closes More Properties, Cuts Costs and Lays Off Workers
On April 3, 2020, the Washington Post reported:
The Trump Organization has laid off or furloughed about 1,500 employees at hotels in the United States and Canada as the coronavirus pandemic inflicts further pain on the president’s private business.
With most of President Trump’s hotels and clubs closed amid stay-at-home orders around the world, the Trump Organization has responded by slashing costs, much like other companies in the hospitality and tourism industries. The Trump Organization has laid off or furloughed employees at hotels in New York, the District of Columbia, Miami, Chicago, Las Vegas, Vancouver and Honolulu, according to public filings and people familiar with the properties, including union officials.
Seventeen of Trump’s clubs and hotels have closed. The remainder of Trump properties are operating at a fraction of their normal capacity: hotels running with restaurants closed, golf clubs operating with clubhouses shut down, and golfers warned not to share carts or touch the flagsticks.
All told, the closed properties generated an average of $650,000 in revenue for Trump per day, according to Trump’s past financial disclosures.
The Post also noted that by then:
As of Friday, 17 of Trump’s 24 clubs and hotels around the world were closed. The latest to close was Trump’s hotel in Vancouver, Canada — which announced its closure Thursday.
[Trump's business partner in Vancouver, Joo Kim] Tiah said that 213 workers had been laid off and 18 kept on, with 11 of those working reduced hours.
In Chicago, the Trump hotel told investors on Friday that it had made the 'heartbreaking decision to' lay off two-thirds of its staff, required the remaining staff to work on two to three days a week, and suspended 401(k) contributions for all. Even the lights had been turned down to save money. 'In an effort to conserve energy, most common areas . . . are illuminated and heated at a minimum level,' the hotel told its investors in a letter obtained by The Washington Post.
The estimate total of laid off and furloughed workers would soon rise. On June 12, 2020, the Washington Post reported:
Interviews with current and former Trump Organization employees and tenants, and emails obtained by The Washington Post, show the pandemic in particular has rattled operations at the company. With thousands of Trump’s hotel rooms empty, the company laid off or furloughed more than 2,800 employees and scoured for even the smallest savings. It eliminated flowers, chocolates and newspapers at its New York hotel and turned off lights in common areas in its Chicago hotel to save on electricity, according to letters that hotel management sent to investors.
'This was not just a step down,' Eric Danziger, the chief executive of Trump Hotels, told board members of Trump’s Chicago hotel on April 22, according to an account of his phone call obtained by The Post. 'This was a steep dive.'
Trump Organization Likely Is Losing Rental Income and Revenue from Sales of Real Estate
Revenue losses were not just from hospitality income. The Trump Organization rents space in hotels, clubs, and other properties to businesses whose ability to pay rent was also decreased due to the virus and measures to fight it.
On June 12, 2020, the Washington Post reported:
One of the tenants in Trump-owned buildings that is almost certainly asking to pay less is Starbucks, which wrote to its thousands of landlords May 5 asking for a year’s worth of reduced rent beginning June 1. The coffee chain rents space at Trump Tower in New York and at Trump’s D.C. hotel. In Washington, Starbucks pays Trump $14,118 per month, increasing to $15,787 a month in 2023, according to Trump Organization documents obtained by The Post.
Also,
A massive Italian restaurant had been scheduled to open later this summer on the ground floor of a Wall Street skyscraper owned by Trump. But instead, as the coronavirus spreads, Nero.lab’s Italian Food Zone will probably have to adjust its initial concept — an 18,000-square-foot food hall where diners were to share communal tables and wait in lines for gelato and espresso.
And,
Another tenant at 40 Wall Street is Neapolitan Express, which operates pizza restaurants and food trucks in New York. The company has rented space in the building since 2015, said owner Max Crespo.
Crespo’s business has cratered — revenue dropped 27 percent in March, 55 percent in April and 90 percent in May
The Trump Organization also makes money by selling condominiums. However, on July 20, 2020, the Chicago Sun-Times reported:
It doesn’t take so much do-re-mi to buy into Chicago’s Trump International Hotel & Tower as it once did, and that’s striking sour notes for owners in the building.
Prices have fallen so hard that, if you have a mind to, you can get a unit on the cheap, relatively speaking. Some condos that are hotel rooms in the 98-story building can be had for less than $200,000.
In particular,
sales of the residences for the first half of this year averaged $566 a square foot, down 42% from the same months two years ago and 25% from 2019.
The prices are their lowest since the Great Recession of 2008 and its attendant housing bust. The building in the best of times has cleared its benchmark of $800 a square foot but has seldom reached its aspirations of $1,000.
And the same property was already having big problems renting business space,
Lastly, there’s the tower’s retail space, which Trump has never been able to lease. He sought Michigan Avenue prices for space unlikely to draw Michigan Avenue traffic.
[Trump Tower Chicago]
Finally, Trump might have been looking forward to raising considerable revenue by selling his lease on the Trump International DC Hotel, a flagship property,but that now looks like a non-starter.
As reported in the Washington Post, March 31, 2020:
The commercial real estate industry has ground nearly to a halt because of coronavirus shutdowns, forcing buyers and sellers of major properties, including President Trump’s company, to put their plans on hold.
The Trump Organization, which he still owns, has had to press pause on the proposed sale of its D.C. hotel lease because of the stock market collapse as potential buyers wait for banks and investors to return to normal operations.
The company’s sales representative, Jeffrey Davis of JLL, confirmed to The Washington Post that the proposed sale of Trump’s lease to the federally owned Old Post Office Pavilion has been set aside as the industry recovers.
Note that the above references stock market collapse was due to the economic effects of the then uncontrolled pandemic.
Trump May Have Difficulties Refinancing Existing Debt
Note that our original post suggested that loans from Deutsche Bank could be a major source of stress. By June 30, a report in Mother Jones suggested that stress from the need to finance existing debt was even bigger than it first appeared:
On financial disclosure forms, Trump has reported holding 14 loans on 12 properties. At least six of those loans, representing about $479 million in debt, are due over the next four years. Some are guaranteed by Trump himself, meaning a creditor could come after his personal—not corporate—assets if he defaults.
In particular,
Trump’s biggest creditor is Deutsche Bank, which in the late 1990s took a gamble on the real estate developer whose history of corporate bankruptcies made him untouchable by most other lenders. Although Trump and the Frankfurt-based bank pulled off several profitable deals, eventually Deutsche’s commercial lending division learned the hard way one reason why other banks considered him persona non grata: If pushed by his creditors on payments, Trump shoves back. In 2008, after he defaulted on a loan for his Chicago hotel and condo development, he filed a multibillion-dollar suit accusing Deutsche Bank and others of contributing to the recent financial meltdown, which he blamed for his inability to repay the loan.
Nevertheless, Deutsche’s private banking division, which caters to wealthy clientele, continued to lend to Trump, giving him $125 million, spread over two loans, to finance the purchase and renovation of his Doral golf resort in 2012. Both are floating rate loans, meaning the interest rate fluctuates based on market conditions, which lending experts say usually indicates they are interest-only loans. If so, Trump probably hasn’t paid down much if any of the principal and will owe something close to the whole $125 million when the loans come due in 2023.
In 2014, Trump took out a separate floating loan from Deutsche’s private bank to bankroll the development of his luxury hotel in Washington, DC. The balance of this $170 million debt is payable in 2024. That year, Trump will also owe Deutsche between $25 million and $50 million in connection with his Chicago hotel and complex.
In addition,
Trump has received additional loans from a company named Ladder Capital, a financial firm that specializes in bundling commercial debt into mortgage-backed securities. Companies like Ladder are often lenders of last resort for people and companies that, for one reason or another, have difficulty obtaining money from traditional banks (ahem, Trump). Such firms are willing to take risky bets because they securitize the debt and pass the responsibility for it on to investors. Trump has two Ladder loans due over the next several years: a $100 million interest-only mortgage on Trump Tower and a roughly $13 million loan against Trump Plaza. The Trump Tower loan is up in September 2022.
Trump may have considerable trouble refinancing these loans:
Nancy Wallace, a real estate finance professor at University of California, Berkeley’s Haas School of Business, says the scrutiny that Deutsche Bank has faced may scare off other banks. 'I think any bank I can think of in the United States would have exactly the same response: He is toxic. Exposing yourself to that kind of oversight under the current regulatory reality, for lenders who are large enough to provide capital to him, is just a nonstarter.'
Instead,
Commercial lending experts say a firm like Ladder Capital, which relies on a more cold-blooded financial calculus, might be more amenable to lending to Trump again. But with his business taking a sharp hit to its revenues for possibly years to come due to the pandemic, Trump might not like the terms, which could be less favorable than those of his original loans.
So the Trump Organization has lost large amounts of revenue from its hospitality operations and real-estate operations while it is facing the need to soon finance considerable existing debt under unfavorable conditions.
Dire Measures to Fend Off Financial Threat
So it is not surprising that as the pandemic continues, the Trump Organization is taking more drastic steps to raise money, cut costs, and fend off the financial threat.
Trump Organization Sought to Defer Loan Payments and Other Financial Obligations
As first reported by the New York Times on April 2, 2020:
With some of its golf courses and hotels closed amid the economic lockdown, the Trump Organization has been exploring whether it can delay payments on some of its loans and other financial obligations, according to people familiar with the matter and documents reviewed by The New York Times.
Representatives of Mr. Trump’s company have recently spoken with Deutsche Bank, the president’s largest creditor, about the possibility of postponing payments on at least some of its loans from the bank.
And in Florida, the Trump Organization sought guidance last week from Palm Beach County about whether it expected the company to continue making monthly payments on county land that it leases for a 27-hole golf club.
A few weeks later, on April 21, 2020, the New York Times reported that since the Trump Organization would not be able to quickly sell its lease on Trump International DC Hotel, it was trying to reduce its lease payments on the property:
President Trump’s signature hotel in the nation’s capital wants a break on the terms of its lease. The landlord determining the fate of the request is Mr. Trump’s own administration.
Trump International Hotel, just a few blocks from the White House, had been a favored gathering place for lobbyists, foreign dignitaries and others hoping to score points with the president. But like most hotels, it is now nearly empty and looking to cut costs because of the coronavirus pandemic.
In recent weeks, the president’s family business has inquired about changing its lease payments, according to people familiar with the matter, which the federal government has reported amount to nearly $268,000 per month.
The Trump Organization owns and operates the luxury hotel, but it is in a federally owned building on Pennsylvania Avenue. As part of its deal to open the 263-room hotel, the company signed a 60-year lease in 2013 that requires the monthly payments to the General Services Administration.
As an aside, the article went on to mention that the Trump Organization's negotiations with Deutsche Bank, Palm Beach County, and now the GSA all generated their own conflicts of interest, eg,
The G.S.A. did not immediately respond to a request for comment, including about whether its other tenants had made similar inquiries. The White House also did not respond to a request for comment.
> Companies across the country have pleaded for relief from lenders and landlords, but the Trump Organization’s submission presents a particular predicament.
If it denies the request, the agency risks running afoul of the president, who appoints its leader; but if it accommodates the Trumps, the agency is likely to draw fire from critics.
If anything, this minimizes the issues. Since the GSA is part of the executive branch which the president leads, he is essentially negotiating with himself, a huge conflict of interest. Furthermore, were the GSA to reduce the lease payment, this amounts to the federal government making yet another payment to Trump. Yet the US Constitution's "domestic emoluments clause" prohibits the President from receiving "any other Emolument [payment, thing of value] from the United States, or any one of them." (See our post on Trump's vast conflicts of interests here.)
Trump Organization Asked for Aid from European Countries for its European Properties
As Bloomberg reported on April 22, 2020:
The Trump Organization is seeking U.K. and Irish bailout money to help cover the wages for bartenders, bagpipers and other employees furloughed from its European golf properties because of the coronavirus lockdown.
These resorts were already operating at losses before the pandemic:
Trump has invested several million dollars over the past decade to buy and revamp the three resorts in Scotland and Ireland, which have continued to lose money, according to their government disclosures. It's unclear whether Trump has financed the resorts through bank loans or the Trump Organization's cash flow.
At least one local official in Scotland, Martin Ford in Aberdeenshire, opposed the bailout:
The huge tab for this will be borne throughout the whole population through higher taxes. If what he says about his personal wealth is true, Trump doesn't need the money, and I don't see why U.K. taxpayers of the future should be helping out.
Again, should the Trump Organization receive such a bailout from a foreign government, it would again be in violation of the US Constitution's "foreign emoluments clause," which prohibits the President from receiving "without the Consent of the Congress, accept of any present, Emolument [payment, thing of value], Office, or Title, of any kind whatever, from any King, Prince, or foreign State." (See our post on Trump's vast conflicts of interests here.)
Trump Pushing to Open Properties Quickly, Possibly Subjecting Employees and Guests to Increased Risk of COVID-19
Finally, Trump's push to increase revenue, presumably augmented by all the stresses above, may be leading to premature openings and enhancement of operations at Trump Organization properties. As reported by the New York Times on June 23, 2020:
the reopening of Trump National Doral, the most important source of revenue for the president’s strained family business, came as new cases of the coronavirus spiked in surrounding Miami-Dade County and public health officials urged caution about resuming normal activity.
Virus cases in Florida exceeded 100,000 on Monday, with more than 3,100 deaths. About one-quarter of the cases have been in Miami-Dade County, a per capita rate twice the number statewide. On Tuesday, the county reported an average positive test rate of 12.4 percent in recent weeks. The latest single-day positive rate rose to 25.9 percent.
Nonetheless,
Poolside at President Trump’s resort near Miami, dozens of guests sunned last weekend on lounge chairs and chatted in cabanas. Golfers fanned out across multiple courses, and the hotel lobby hummed with activity for the first time in months.
Despite the local surge,
many visitors and some staff members did not wear masks — something the president himself has been reluctant to do in public.
Similarly, the Trump Organization has rushed many other properties back into operation:
With the reopening on Monday of the Trump Organization’s Ferry Point golf course in the Bronx, all of the 20 Trump properties in the United States are up and running again, at least in part; even the tasting room at the Trump Winery in Charlottesville, Va., is once again welcoming visitors.
We have discussed previously how Trump and some political leaders who support him have personally acted in ways that may have increased the spread of coronavirus. There is reason for concern that the rushed reopening and expansion of operations at Trump Organization properties may further spread the virus Per the NY Times article:
Experts say it is possible for businesses like Trump National Doral to operate safely, but they also acknowledge that the president’s properties present a special case.
'The bottom line is, can a leader lead by example?' said Dr. Aileen Marty, an infectious disease expert with Florida International University who helped design Miami-Dade County’s safety protocols for businesses. “That’s what needs to happen at every type of business — wear a mask, practice hygiene, social distance.”
When the president recently visited his golf club in Bedminster, N.J., while in the area to speak at the West Point graduation ceremony, temperature checks were required, but only when he was on the property, a person familiar with the situation said. There is no requirement that golfers or guests at Bedminster wear masks, and almost no one has done so, other than food service employees, the person said.
Discussion
There is mounting evidence that the rapid reopening of parts of the US has led to a big surge in COVID-19 infections, and now we are seeing the resulting surge in hospitalizations, severe illness, and deaths. Many hospitals in the affected areas, chiefly in the southern US among states led by governors who are political supporters of Trump, are under increasing strain. At least one rural county in Texas is now triaging admissions, that is, barring admission for coronavirus by patients judged to have poor chances of survival (look here). Such emergency triage has rarely been necessary lately in the country that spends more than any other per capita on health care.
President Trump was clearly an effective cheerleader for rapid reopening (look here). Some have suggested he did so because of his strong focus on the economy, and distress that stay at home orders, lock-downs, and forced business closings led to recession. Less charitably, others thought that he was worried that the economic decline undermined his major political accomplishment, a previously growing economyh. An even worse reason for pushing premature reopening, however, would be conflicts of interest, Trump's concern for his own personal fortune. Yet there certainly is now a lot of circumstantial evidence that supports that theory.
There certainly is voluminous evidence of Trump's and the Trump family's conflicts of interest and corruption during his presidency (look here). There are many possible ways that they have compromised Trump's decisions, making them more responsive to his personal and family interests than those of the country he was sworn to protect and defend. Now there is reason to suspect his conflicts may have led to a rising toll of disease, morbidity and mortality.
Yet up to now, protests of his conflicts of interest and corruption have been feeble, while the country has been distracted by each new surprise from a presidency run like a reality television show. How much longer can the country survive our lack of focus on how we are threatened?
The Trump Organization, which he nonetheless owns, has needed to press pause at the proposed sale of its D.C. lodge hire due to the inventory marketplace fall apart as capacity shoppers await banks and traders to go back to regular operations.
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