In the 1980s, Donald Trump was among the most well-known real estate moguls in New York City. A born-and-raised New Yorker, Trump went from building subsidized housing with his father in Queens and Brooklyn to constructing multimillion-dollar luxury apartments in Manhattan.
The Art of the Deal is Trump’s autobiography of his early life and career. Trump writes about the family and childhood that formed him, the professional experiences that taught him, and the deals that made him notorious.
Trump was aggressive from a young age; when he began creating trouble as a teenager, his father sent him to the New York Military Academy. There, Trump learned the discipline to channel his aggression into work.
Whenever Trump was home during school breaks, he worked with his father, who had a business building and managing low- and middle-income housing. Trump’s father, Fred Trump, was tough, driven, and a shrewd businessman. Donald learned from watching his father’s tactics:
Fred had a successful business, but he had to work hard and keep costs down in order to make a profit. Donald would follow his father’s example, but he had his sights on luxury buildings and bigger profits.
After high school, Donald enrolled in Fordham University and later transferred to Pennsylvania’s Wharton School of Finance, where he earned his degree. After graduating from college, Donald joined Fred’s business full time.
Trump lists 11 principles that have guided him through his business decisions, and you see them manifest in many of the stories in the book. (Shortform note: In addition, we’ve included a few more principles that are recurring themes in the stories of his deals.)
We’ll see these principles play out in the following stories.
Trump was still in college when he made his first big deal: An apartment complex called Swifton Village in Cincinnati. Trump bought Swifton with his father, and they scored a great deal because Swifton was foreclosed, two-thirds of the apartments were vacant, and the property was in deteriorating condition.
They discovered that tenants were damaging the property and sometimes refusing to pay rent. The Trumps determined that raising rents would bring in more desirable tenants and reduce problems, so they spent about $800,000 on improvements, including:
Although many improvements were fairly minor, they had a big impact on the look and feel of the complex. By the following year, Swifton had no vacancies.
After several years, Trump heard that the area around Swifton Village was getting dangerous. Seeing a downward trend, Trump decided to sell.
The Trumps made a deal with Prudent Real Estate Investment Trust. They added two unusual clauses to the contract so that Prudent couldn’t walk away from the deal or lower the agreed-upon price. By the end, Prudent bought Swifton for $12 million—$6 million more than the Trumps paid for it.
Trump’s first deal in New York City was 100 acres of riverfront land in Manhattan.
Real estate development in NYC had dropped off dramatically, which created the opportunity for Trump to get a great deal on the property. However, he was still a young, unproven developer.
The landowning entity was bankrupt and needed the cash from selling its assets, which worked in Trump’s favor. Additionally, Trump emphasized how undesirable the neighborhood was and how difficult development would be on the site. Ultimately, he got the deal he sought plus a second riverfront property on West 34th Street.
Trump planned to build middle-income housing on the land, but poor economic conditions made him turn to plan B: building a convention center on the 34th Street site.
When critics rallied against his proposal, Trump capitalized on the resulting media attention and used the opportunity to promote his project.
Ultimately, city officials decided to buy the 34th Street site but to take on the project themselves instead of letting Trump lead it. Trump earned more than $800,000 in broker’s commission.
Trump let his purchase option on the other riverfront site expire so that he could focus on other projects.
Trump’s next major project was the Commodore Hotel, a failing, dilapidated hotel surrounded by many foreclosed buildings, which created perfect conditions to get a great deal. The hotel was also in a prime location next to Grand Central Station, so it had huge potential. If Trump could give the hotel a facelift, the location would ensure success.
Trump got an exclusive purchase option for the property, contingent upon him paying $250,000 and securing financing, a hotel operator, and an unprecedented tax abatement from the city.
Hyatt agreed to be the hotel operator, contingent on financing and the tax abatement.
When he approached the bank for financing and the city for approval on his tax abatement, Trump leveraged the city’s poor economic condition.
First, Trump told the banks that it was their moral obligation to help the city by financing the project because the development would create jobs and improve the surrounding neighborhood.
Then, Trump told the city that the renovation was essential to revitalizing the Grand Central neighborhood. Additionally, Trump encouraged the Commodore’s seller to publicly announce that the hotel was losing so much money that soon it would permanently close.
The pressure convinced the city to approve the tax abatement. The Commodore opened as the Grand Hyatt in September 1980 and immediately turned millions of dollars in annual profits.
At the same time that the convention center proposal and the Commodore renovation were in the works, Trump eyed a building at 57th Street and Fifth Avenue.
Since Trump hadn’t completed any projects yet, the building’s owners refused to sell. Trump kept in contact, and when the company later faced financial issues, Trump got the deal.
But in order to construct the building he envisioned—which would become Trump Tower—Trump still needed:
Trump found a negotiating angle for each piece:
With all the pieces in place, Trump set out to build Trump Tower, a skyscraper with luxury apartments, high-end retail, and a jaw-dropping atrium.
He invested in features like an 80-foot, $2 million indoor waterfall. Trump designed and marketed the apartments to wealthy tenants who valued luxury and exclusivity.
Trump faced criticism for building the towering skyscraper. However, the backlash brought more attention to the project and he saw an uptick in apartment sales as a result.
In addition to staggering profits, Trump Tower gave Trump credibility as a developer, which would be invaluable in his future deals
Trump realized that casino profits could far exceed hotels, so he looked to Atlantic City.
New Jersey was preparing to vote on legalized gambling, and real estate values shot up in anticipation. However, Trump was hesitant to buy in such a hot market before legalization was certain; in fact, even after gambling was legalized, Trump held out for a few years before he found a good deal on a boardwalk property.
When Trump was finally ready to buy, the casino construction rush had calmed. The property he was considering had several issues, including multiple owners and existing agreements; these factors would make development complicated, but they also helped him leverage a better deal.
After Trump bought and straightened out issues with the land, he needed to address logistics for operating the casino, which would be named Trump Plaza Hotel and Casino.
First, Trump needed a gaming license. To save time, many casinos started construction and applied for their gaming license at the same time, but lost money when their applications were delayed or denied. By contrast, Trump decided to spend the time securing the gaming license first to avoid risking millions in construction costs.
Second, Trump needed a casino operator. He brokered a 50/50 partnership with Holiday Inns, pending the board’s approval. Trump orchestrated a spectacle on the construction site for the board’s visit—with every piece of machinery he could get on the site doing mostly aimless tasks—and the optics impressed the board enough to approve the deal.
The facility brought in about $35 million gross operating profit in 1985 during its first year. Trump bought out Holiday Inns and installed new management during the second year, and finished 1986 with a gross operating profit of $58 million.
After his first Atlantic City project, Trump considered buying Hilton’s Atlantic City casino-hotel, which was denied a gaming license just 12 weeks before its grand opening.
Hilton planned to file for another hearing, but Trump told the company that he’d be interested in buying if anything changed. Eventually, Hilton accepted his offer and sold for $320 million.
Trump renamed the facility Trump Castle, which grossed $226 million in its first year.
In 1981, Trump bought a mid-priced hotel and an adjoining rent-controlled and rent-stabilized apartment building in a premium location on the edge of Central Park.
Both buildings brought in meager profits, especially considering their location and potential. Trump planned to demolish both buildings and replace them with luxury condos. However, Trump faced fierce opposition from tenants wanting to protect their rent-controlled and rent-stabilized apartments, which were worth several times what the renters paid.
Trump took various measures to encourage the tenants to leave, but they formed a tenants’ association, hired lawyers, and sued for harassment. Trump fought and won the suit. Despite the ill will, Trump renewed the tenants’ leases.
Meanwhile, Trump needed to switch to plan B: He did construction only on the hotel site and left the apartment building intact.Architectural trends were moving toward classic styles, so instead of rebuilding the hotel from scratch, he added luxury features while maintaining the original architectural details. The project ended up costing less than half the price of rebuilding.
Circumstances had caused the projects to stray far from Trump’s original plans. But because Trump had backup plans and rolled with the punches, he pivoted to a project that cost less and brought in more profits than his initial plan.
In a departure from real estate, Trump took a chance on the United States Football league (USFL) and bought a team called the New Jersey Generals. The league was struggling, but Trump was confident he could help resolve the league’s two major challenges.
First, the USFL needed top-quality players, competition, and marketing to draw fans, press, and money.Trump and other USFL team owners poached several star NFL players and focused on recruiting promising college players; Trump signed Boston College quarterback Doug Flutie, whose first game more than doubled the prior season’s average broadcast ratings.
Second, the USFL was a spring league, but Trump didn’t think spring football would draw fans or broadcasting contracts. Eventually the team owners agreed to move the season to the fall.
However, when the USFL announced its move, talks with CBS and NBC about broadcast contracts suddenly stalled. Trump assumed the NFL pressured the networks not to create competition by airing the USFL in the fall, so he and the other owners filed an antitrust case against the NFL.
The USFL won the case, but was awarded only one dollar in damages—instead of the $1.32 billion it sought. (Shortform note: Jurors found the NFL guilty of just one of the nine charges, and they awarded such a small amount because they determined that the NFL’s actions did virtually no damage to the USFL.)
The USFL team owners appealed the ruling and suspended the league’s season in the meantime.
In 1980, New York City officials began renovating Wollman Ice Skating Rink, which they projected would take two-and-a-half years and cost $2 million. Six years and nearly $13 million later, the officials announced they were starting over and projected two more years until completion.
Frustrated by the project’s mishandling, Trump offered twice to take over the project. The city initially refused, but criticism from the media pressured NYC officials to make a deal with Trump, who committed to finish Wollman Rink’s renovation in merely six months.
He planned thoroughly, acted decisively, and consulted experts to avoid delays and cost overruns. Trump finished the project in four months—two months ahead of schedule—and more than $750,000 under budget.
Six years after Trump’s purchase option for the West Side rail yards expired, he bought the site for about $95 million.
As Trump created his plans, he tailored it to the site’s strengths—the views of the Hudson River and the cityscape—and the area’s needs—basic shopping. But in order to get the zoning approvals, Trump had to convince city officials that NYC would also benefit from his plans.
Trump learned that NBC was considering a move from its headquarters at Rockefeller Center to New Jersey. Trump courted NBC to move to his site, and he used his plan to convince the city that approving his zoning and tax abatement could keep the network in New York.
However, in the end, Trump couldn’t get the zoning approvals he wanted and decided to wait to move forward on the project.
Trump details opportunities, curveballs, and strategic maneuvering in his accounts of these deals. Through them all, several primary principles guide him in his ascension from rookie real estate developer to well-known mogul.
To open the book, Trump gives a rundown of his activities every day for a week—from nearly daily conversations with his investment banker to phone calls with Calvin Klein and Don Imus.
Here are some of the key takeaways.
First, Trump keeps his schedule fairly open and flexible to leave room for impromptu meetings. Too much structure hinders your creativity and openness to opportunities that arise. In the week Trump outlines, this approach allows him to tour a prospective school for his young daughter, take a friend’s call about a potential business opportunity, and even take a visit from David Letterman for a Late Show segment.
Second, Trump makesdozensof phone calls each day—often more than 100—and they typically spill over into nights and weekends. Many calls are with his investment banker, his contractors, and his attorney about various deals. Additionally, some calls are more about making contact, staying in touch, and checking on rumors he’s heard that could open up opportunities for deals; for example, he calls a U.S. senator to commend him for his opposition to a tax law that Trump opposes, as well as Calvin Klein to congratulate him on his store’s success in Trump Tower.
Third, Trump’s days are full of meetings, many of which are impromptu and less than 15 minutes long. All of Trump’s meetings and phone calls tend to be brief and to the point, which allows him to fit in so many activities related to so many ventures, including potential deals, ongoing construction, and personal projects. He seldom even goes out for lunch because he considers it a waste of time.
Finally, Trump makes time to go over details. One minute he’s on a phone call about an ongoing lawsuit he’s involved in, and the next minute he’s signing off on Christmas decorations for the atrium in Trump Tower. He even has a meeting about what color to paint the window frames on a condominium building he’s putting up.
For Trump's full schedule and the outcomes of the week's deals and conversations, refer to Chapters 1 and 14 in the book. For the sake of brevity and coherence, we've omitted Chapter 14, which follows up on the events listed in Chapter 1.
Some of the stories and details about Trump’s involvement, practices, and profits in The Art of the Dealhave been questioned or contradicted since its publication. In fact, the book’s ghostwriter Tony Schwartz has said that writing the book was his greatest regret and suggested that the book be “recategorized … as fiction.”
We’ve included Shortform notes to point out several factual discrepancies, though these may not be exhaustive.
Trump loves making deals. Profits motivate him, but the challenge and fun of deal-making drive him even more.
According to Trump, you need four things to be a successful deal maker:
Beyond his natural aptitude, 11 principles have guided Trump through his business decisions. He outlines them in this chapter, and you’ll see them appear again and again in the stories that follow.
Dream big. Many people limit their goals because they’re afraid of making big decisions and, ultimately, afraid of success. (Shortform note: Trump doesn’t elaborate on what scares people about success.)
While his father built low- and middle-income housing in Brooklyn and Queens, Trump always had his sights set on more glamorous and profitable buildings in Manhattan.
In order to think—and achieve—big, you need total focus. Many successful business people possess a “controlled neurosis,” an obsessive drive and single-mindedness that they channel into their work.
No matter how optimistic you are about a deal, you have to be ready for the possibility that it will fall through. If you act conservatively and prepare for the worst-case scenario, you guarantee your success, even if it means settling for slightly less than you initially wanted.
In other words, if you swing for a home run every time you’re at bat, you’ll often strike out. But if you make the most of every pitch, you can make steady progress by getting to first, second, and third base.
While building a casino in Atlantic City, Trump delayed construction until his gaming license was approved, even though he had to pay carrying charges on the property in the meantime. He could’ve started construction while he waited for the license, but if he didn’t get approved then he’d have lost millions on the construction costs. Paying the carrying charges cost him a little more in the short term, but it was worth avoiding the risk of losing even more. (We’ll talk more about the Atlantic City project in Chapter 8).
Always have a plan B, plan C, and even plan D—and don’t get too attached to any one of them.
The majority of deals fall through, so your long-term success depends on your ability to be flexible and change course if need be. When you need to pivot to your backup plan, you won’t waste valuable time coming up with an alternative and figuring out how to approach it—you’ll have had it in mind the whole time.
Trump’s original plan when he bought a large undeveloped site in Manhattan was to build middle-income housing. But when the city’s public housing subsidies dissipated, he agilely shifted to his backup plan of building a convention center on the site. (More on the 34th Street convention center in Chapter 5.)
Successful people know their audiences. This is true for movie directors, authors, salespeople, and real estate developers. Anytime you’re creating or marketing some kind of product to other people, you need to know who you’re targeting, what they want, and how they think.
Trump believes that understanding your target audience is an instinct—and that he has it. This is why Trump seldom bases decisions on marketing surveys or consultants; instead, he asks people he trusts to gauge others’ opinions and ultimately goes with his gut.
By the same token, Trump doesn’t give much credence to critics. For example, critics didn’t like the size and design of Trump Tower (as we’ll discuss in Chapter 7), but Trump was confident it would appeal to his target audience of renters and shoppers.
There’s an inevitable power dynamic in deal-making: If you’re in a position of strength, you can push the other party to concede more. Sometimes circumstances naturally put you in the position of power—but sometimes you can gain power by making the other person think she has the power.
When you understand the other party’s perspective, wants, needs, and weaknesses, you can pitch the deal in a way that makes it seem like a win-win. You don’t have to ask for less, you just have to reframe it. You need to be creative, and you need to be able to sell it. Understanding your opposing party is just as important as understanding your audience.
For example, when Trump was pushing the New York City Planning Commission to approve his plans to renovate the Commodore Hotel, he got the Commodore’s owners to announce that the hotel would be closing. This helped him convince the city that it was in the city’s best interest to approve the plans and reopen the hotel rather than letting the building sit vacant and boarded up. (More on this in Chapter 6.)
“Location, location, location” isn’t about buying the best location at a premium cost—it’s about getting a great deal on a location you can enhance through marketing and psychology.
To do this, you must recognize assets that you can play up. For example, a waterfront view gives a location great potential even if the neighborhood is in poor shape. Even if you don’t have the means to change the neighborhood, you can focus your marketing on the assets and create an image of a one-of-a-kind waterfront location.
If you market well and succeed in attracting influential, wealthy, and fashionable people, then you’ve already enhanced the location; presumably more change will follow. In other words, marketing makes a location appear more desirable, which leads to changes that actually make the location more desirable.
Be your own publicist. You know your product best, so spread the word about how great it is, because it doesn’t matter how good your product is if no one knows about it.
Promoting your work through the media is more economical than traditional marketing: It costs money to take out print or broadcast ads, but if the paper runs a story about your project it costs nothing. Plus, people are more likely to be skeptical of advertising than of a third-party report.
Don’t aim for negative press, but use it to your advantage if it occurs. Bad publicity brings more attention and, if you leverage it, that can help business.
Use and understand the press. The media wants a good story, and you can make a good story even better if you add an element of novelty, boldness, or controversy; Trump endorses what he calls “truthful hyperbole,” or harmless exaggeration. (Shortform note: Tony Schwartz, the book’s ghostwriter, has said that Trump justified lying by calling it “truthful hyperbole.”)
When you talk to the press, know the story you’re selling. Even if a reporter asks a tough question, you can always frame your answer positively. Promote yourself with enthusiasm and bravado that can infect others. Know your audience, including what they want to see and hear.
The more successful you become, the more people will try to take you down out of envy and spite, so you have to stand up for yourself. Don’t be afraid to fight for what you think is right, even if it means offending some people in the process. You may not always win, but if you stand up for what you believe in, you give yourself a chance of winning, and you can feel confident that you did all you could.
Trump even fights when it costs him more than he may gain. He doesn’t necessarily recommend that everyone takes that approach, but he attributes it to his personality.
All the marketing and bravado in the world falls flat if you don’t have the substance to back it up. You may be able to fool people into believing you for a little while, but they’ll eventually catch on if you can’t deliver on your promises.
A strong product is the difference between appealing marketing and real success.
When Trump renovated the Commodore Hotel, he pushed the banks and the city to get on board by emphasizing that the hotel’s success would be critical to revitalizing the neighborhood and giving the city an economic boost. He was still a novice developer, and he knew his credibility depended on executing the project well to deliver on his promises.
Don’t hesitate to spend money when things are worth the expense and truly add value to your work, but never spend more than you have to.
Trump challenges contractors when he feels they’re overcharging him even $5,000—in a multimillion-dollar project, this is pennies. But pinch enough pennies and they’ll add up to dollars in your pocket.
If you’re not enjoying what you’re doing, why do it? The money is an undeniable bonus, but the pleasure comes in the sport and the art of deal-making.
Don’t worry too much about what’s in the past or future—just enjoy the present.
In addition to the 11 principles Trump lists, there are a few other recurring themes in the stories of his deals.
Trump makes a habit of capitalizing on bad situations. If a seller is encountering hurdles or the market is down, it creates leverage that you can use to get a good deal. This requires the kind of thinking that you need when reframing.
Often it’s also a matter of timing: You must be ready when the tides turn and an opportunity arises. Being ready can mean having the money on hand to make the deal, or it can mean having already established a relationship with the seller.
Presentation can make or break a deal. Despite the massive size of his projects, Trump puts as much attention into the details as he does into the grand plan. If he’s building luxury apartments and plans to charge astronomical rents, he’ll ensure even the smallest fixtures are of high quality.
Similarly, if you’re selling your car and spend a few dollars getting it washed and detailed, you can probably sell it for a few hundred dollars more than if it looked dusty and dingy. The return is more than worth the investment.
Sometimes the best business decision is to sell or opt out of a deal. Trump fights for his deals but he also knows when to call it quits.
Just as important as being flexible enough to pivot to your backup plan, you must be willing to sell if things are going south or to forgo a deal altogether if it’s not worth your time, money, or effort.
Trump’s business principles can help you navigate negotiations at work and in everyday life.
Which of these principles do you want to practice or improve on?
How could this principle have helped you in a recent situation?
What do you expect to be the most challenging part of applying this principle?
How can you overcome or mitigate that challenge?
How could you apply this principle in your current or next negotiation?
Trump is a born-and-raised New Yorker. He and his four siblings grew up comfortably, but their parents always instilled in them the value of hard work.
Trump was aggressive from a young age; he even gave his teacher a black eye in second grade because he didn’t think the teacher was qualified.
As Trump got older, he started creating trouble, so at the age of 13, his father sent him to military school. The New York Military Academy instilled the discipline that taught Trump to funnel his aggression into work.
Trump became captain of the cadets his senior year, and he was also captain of the baseball team. His baseball coach, a teacher and former Marine drill sergeant, was an imposing man who had a big impact on Trump. This teacher was physically and emotionally tough and intimidated most people—not unlike Trump’s father—but Trump forged a relationship with him by showing respect for the teacher as well as confidence in himself.
Although he didn’t care much about schoolwork, academics came fairly easily to Trump. He enrolled at Fordham University, but after two years transferred to the University of Pennsylvania’s Wharton School of Finance. The most important things he took away from Wharton were:
Trump combined these experiences with lessons from his father to eventually create his own business.
Trump’s biggest influence was his father, Fred Trump, who was tough both personally and professionally. Donald learned about business, motivation, toughness, and efficiency from watching and helping his father in his business, building and operating rent-stabilized and rent-controlled housing in Brooklyn and Queens.
Fred Trump was born the second of three children in New Jersey in the early 1900s. His father—a Swedish immigrant and restaurant owner—died when Fred was just 11. As the oldest son, Fred took on the role of man of the house: He worked odd jobs, including some on construction sites. That’s where his interest in construction began.
As a teenager, Fred took night classes, such as plan-reading and carpentry, to learn more about the construction business. Before he’d even graduated high school, Fred had his first business building and selling prefabricated garages.
After high school, Fred worked as a home-builder’s assistant. Fred’s natural intelligence, ambition, and hard work—along with the skills he’d learned in his night classes—helped him excel.Within a year, he’d built and sold a single-family home for a 33 percent profit margin.
That was the beginning of his company, Elizabeth Trump & Son. Fred tapped into an eager market for his single-family homes: working-class families in Queens who’d long lived in small apartments and were excited to have a home with more space. Over time, Fred built bigger homes to sell for larger profits.
When the Depression devastated the housing market, Fred dabbled in a mortgage-servicing business and a self-service supermarket, both of which he quickly sold for profit. Then Fred returned to building cheaper homes in low-income areas of Brooklyn and Queens and his business success grew.
Fred was a demanding businessman, constantly pushing contractors on the construction sites to work quickly and produce quality work.
Anytime Fred started construction at the same time as nearby competitors, he’d finish his building months before his competitors. In addition, Fred made his buildings slightly nicer than average rent-controlled buildings—with amenities as simple as a better-looking lobby or larger bedrooms—which attracted renters. (Principle: Appearances matter.)
Often, Fred’s competitors went bankrupt before finishing construction and Fred would swoop in and buy the projects. (Principle: Their loss is your win.)
Fred’s business was successful but difficult. Since rents were low, he had to keep costs down in order to profit. (Principle: Keep costs low.) Fred managed this by:
Although Donald didn’t follow exactly in his father’s footsteps, he adopted several of Fred’s tactics, including pushing contractors to finish projects quickly and coaxing contractors with the promise of more work.
Donald and his brother had accompanied their father to construction sites since childhood. He’d work with his father during school breaks, and as soon as he graduated from Wharton, Donald joined Fred’s business full time.
Donald enjoyed much of the business, but a few aspects of building and running rent-stabilized and rent-controlled buildings didn’t appeal to him.
First, Donald wanted a business with bigger profits. Not only would that mean more cash in his pockets, but also that he could be more creative with the design of the buildings. Donald wanted to construct buildings with luxury and stunning design details—like the glass curtain wall he’d later include on the facade of Trump Tower—that would be excessive and out of place in middle-income apartment buildings.
Second, a small portion of tenants in the rent-stabilized and rent-controlled buildings was disrespectful and even violent. Collecting rent could be dangerous when tenants didn’t want to pay. Additionally, some tenants trashed the property out of ignorance or indifference. Donald wanted a different kind of clientele.
Ultimately, Donald had his sights set on more glamour and bigger profits in Manhattan. While he inherited his father’s work ethic, he got his mother’s love for grandeur. The combination of the two helped him to create bold buildings and large profits.
Trump was still in college when he made his first big deal: An apartment complex called Swifton Village in Cincinnati. He bought the site with his father and learned lessons that he’d carry into future projects.
During college, Trump regularly scanned the listings of foreclosed Federal Housing Administration (FHA)-financed housing projects. Browsing foreclosures is the epitome of gaining from someone else’s loss: Once banks foreclose on a property, they typically want to get it off their hands as quickly as possible, which gives buyers leverage to swoop in and get a good price.
In the case of Swifton Village, two-thirds of the apartments were vacant and the development was in such bad shape that Trump and his father had no competing bidders. They ultimately bought the apartments for $6 million—less than half of what the developers paid to build them a few years prior—and secured a mortgage that covered the $6 million plus $100,000 for improvements.
They didn’t have to put any of their own money in, and once they got things up and running, rents would cover their mortgage.
The tenants were the source of most of the problems at Swifton Village. Many tenants had never lived in apartments before and didn’t know how to maintain them, so they ended up doing a lot of damage to the apartments and the property. Others didn’t pay rent, and some even moved out in the middle of the night to avoid paying.
Trump and his father suspected they’d have fewer problems from tenants who could afford higher rents. They spent about $800,000 (keep in mind this was in the 1960s) to make significant improvements to the building and the property so that they could charge higher rents.
After the renovations, the Trumps ran newspaper ads for the apartments and had zero vacancies by the following year.
(Shortform note: The Trumps were sued for housing discrimination after a black prospective tenant was turned away. They gave the man an apartment and settled the case.)
In order to attract higher-paying tenants to Swifton Village, Trump’s renovations included some unexpected changes, including:
The improvements were meant to make the building feel nicer and more inviting than the drab, dreary look associated with lower-income housing.
Some of these changes may seem extraneous, but these kinds of details can make a building look like it’s worth more; investing a relatively small amount in improving appearance and cleanliness can add much more in value.
Several years after the Trumps bought Swifton Village, one of the tenants told Donald that the area was getting dangerous. The tenant said that the people who were moving in were bringing the whole area down, and that Trump should sell Swifton.
Trump spent a few extra days in Cincinnati and talked to people around the city and near Swifton. Everything he heard and saw confirmed that the area was going downhill, so he decided to sell Swifton Village.
Prudent Real Estate Investment Trust put out an offer and sent an employee to check out the property. The representative seemed to be more interested in trying a local restaurant he’d heard about than closely evaluating Swifton, so he took a tour and spent the rest of the afternoon having lunch. This is the opposite of how Trump approaches business—he scrutinizes every aspect of the project to ensure he’s getting a good deal—but as the seller, it worked in his favor.
Although the Trumps decided to sell Swifton Village because they saw trouble on the horizon, they still had zero vacancies when they were drawing up the contract.
In order to protect themselves, the Trumps slipped in two unusual clauses that helped ensure them a good deal:
Prudent ultimately bought Swifton for $12 million, meaning the Trumps walked away with a nearly $6 million profit because they had little debt and were bringing in $700,000 a year in rents.
(Shortform note: A Washington Post report fact-checked Trump’s claims about his success at Swifton Village and found several discrepancies. The report found that the Trumps’ profit was likely a million dollars or less, rather than the $6 million he claims, and that Fred was a much larger player in the deal than Donald.)
Trump always aimed to work on projects in Manhattan, but in the early years of his career, he couldn’t afford any properties that he felt were worth their prices. Until he could do business in Manhattan, he decided he could at least live there, so he got a small apartment on the Upper East Side.
Coming home to Manhattan every day—though he was still working in Brooklyn—gave him a new perspective and different access to Manhattan life and business. Through persistence, he became a member of Le Club, an exclusive club whose membership included many successful business people. Trump considered his outings at Le Club both social and professional, as he rubbed elbows with people he’d later do business with.
Trump soon went after his first deal in Manhattan—and it was a massive one.
In 1973, New York City’s real estate development began to drop off dramatically for several reasons:
Perpetually finding opportunity in others’ struggles, Trump saw the silver lining of this downturn: He could get properties at low prices, and he trusted that New York would always be desirable enough that real estate values would inevitably rise.
Specifically, Trump eyed 100 acres of abandoned rail yard from 59th Street to 72nd Street along the Hudson River. The Penn Central Railroad, which owned the land, was bankrupt and selling off assets. Trump put in an offer for the rail yard.
When Penn Central was selling the land, the area was full of welfare hotels and drug dealers. Still, Trump couldn’t resist the lure of undeveloped riverfront property—plus, much of it was still near Central Park and desirable residential areas.
Trump was confident that developing the area would revive the neighborhood. Attracting a different kind of traffic through the area would inevitably lower crime and other issues and allow the land to live up to its full potential.
Trump was just 27 years old and didn’t have any construction projects on his resume—besides those he watched his father lead. However, he had the gumption to make a move on the ambitious project, and that drive is what he emphasized to Victor Palmieri, the man Penn Central had hired to sell off the railroad’s assets.
In addition, Trump framed the deal as if he was doing Penn Central Railroad a favor:
Ultimately, Palmieri accepted Trump’s bid and even offered him a second property, the rail yards on West 34th Street. Trump got options to buy both sites for $62 million with no money down.
The 60th Street Yards and West 34th Street site were major projects for an unproven young developer, so Trump used promotion to create a bigger image of himself.
First, he began calling his company the Trump Organization. His logic was that the word “organization” added gravitas to inflate the perception of his experience and ability.
Second, Trump flaunted his connection with politicians, including NYC Mayor Abraham Beame. Trump’s father knew Beame because he belonged to the same Democratic club, but the connection ultimately did nothing to help Trump get approval for his project plans.
(Shortform note: A 1979 Village Voice article contradicts this, reporting that Trump got this deal because of his political pull, particularly with Mayor Beame.)
Third, Palmieri helped promote Trump’s drive and enthusiasm in the media. Trump had gotten Palmieri to believe in him, and Palmieri’s backing helped Trump gain credibility.
Trump initially planned to build middle-income housing on the two rail yard sites. However, in 1975, New York City’s economy got even worse and the city pulled financing from nearly all new housing construction. In addition, the state stopped financing low- and middle-income housing for five years.
Trump turned to plan B: He proposed building a convention center on the West 34th Street site.
But he faced some obstacles:
Trump needed to convince the city that 34th Street was the best location for the new convention center, and his tactic was to bring as much attention as possible to himself and his plan.
Trump called a news conference and made a few key points to frame the issue:
When critics rallied against Trump’s proposal, it created more media attention for Trump and gave him the opportunity to promote his site’s assets.
Ultimately, Trump’s persistence outlasted his opposition. When the next administration took office under Mayor Ed Koch, it chose to move forward with the 34th Street site.
However, the city and state decided to buy the site and take on the construction project themselves . The $12 million sale earned Trump more than $800,000 in broker’s commission, per the deal he’d made with Penn Central.
Trump asked multiple times to build the convention center—at one point even offering to cover any overruns if the project cost more than $200 million—but the city turned him down each time.
Adding insult to injury, Trump felt the city mishandled the project:
Even considering all the time, energy, and money Trump put into 34th Street, he faced even more challenges developing the 60th Street site, which had been his initial interest.
His plan was still to create housing on that site, but he struggled with zoning approvals and financing while the city was still in bad economic shape. Making little progress, Trump let his purchase option expire in 1979 so that he could focus his resources on other projects.
Years later, he’d get another chance at the site; more on that in Chapter 13.
Through Trump’s relationship with Palmieri, he found out about another project: the Commodore Hotel, at 42nd Street and Park Avenue.
For years, the hotel’s books had been in the red and it had defaulted on its property taxes. Additionally, the building and area around it were dilapidated, with many nearby buildings in foreclosure. All of this created a prime opportunity to get a great price.
At the same time, the hotel’s location next to Grand Central Station assured Trump that the value would only rise. A steady stream of professionals passed by the hotel every day, creating plenty of opportunity for business. It was a case of buying good and making it better: If Trump could give the hotel a facelift, the location would ensure success.
Despite the premium location, Trump recognized that the project carried a lot of risk with the city still on the verge of bankruptcy. If he fell short, he could lose a lot of time, money, and credibility within the real estate community.
Trump’s deal with Penn Central gave him an exclusive purchase option contingent on him paying $250,000 and securing financing, a hotel operator, and an unprecedented tax abatement from the city.
It was a tricky situation: He needed the hotel partner and a guaranteed tax abatement in order to convince the banks to finance. He needed all three to get the deal. But without the deal, it’d be difficult to convince a hotel operator to come on board.
In the meantime, he didn’t want to lose the deal but also didn’t want to risk losing $250,000 before he knew he could get all the pieces together. He stalled on the payment while he worked on getting everything in place.
Trump needed a proposal that would inspire confidence among the banks and the city, so the first thing he did was work with an architect to create a design.
Trump felt that the Commodore’s dark, outdated appearance was hurting its potential. He wanted to make the building look contemporary by covering the brick exterior with either bronze or glass.
When he and the architect had settled on the design, Trump told the architect to make the drawings look more expensive than they were.With his proposals as with his buildings, Trump is convinced that an impressive presentation makes an invaluable impression.
While looking for a hotel partner to run the Commodore, Trump considered what would give him the best chance of success given the kind of business and clientele he envisioned:
Trump leaned toward Hyatt, first because its hotels fit the modern, polished design he envisioned for the Commodore. Second, Hyatt held a lot of conventions, which made perfect sense for the location across the street from Grand Central.
Finally, Hyatt didn’t have any major hotels in New York City, as Hilton and Sheraton did. Trump knew he could use this as leverage to convince Hyatt’s executives that it was in their best interest to jump at the Commodore.
Trump was able to select the most effective hotel operator because he knew the Commodore’s assets, he could anticipate the type of clients it would draw, and he was familiar with the various hotel companies’ businesses. He also used this knowledge to make a convincing pitch to the Hyatt.
Trump made a deal with Hyatt to buy, renovate, and operate the Commodore with him—contingent on getting financing and the tax abatement.
Trump used the city’s poor economic condition as leverage on several fronts:
Although Trump hadn’t yet secured financing when he approached the city—in fact, he needed the tax abatement in order to get financing—he asked for an unprecedented abatement. His logic was that even if they offered less it’d still be enough.
The city was eager for development, and Trump emphasized that the Commodore’s renovation and success were essential to kickstarting revitalization in the Grand Central neighborhood. He agreed on a tentative deal and waited for the Board of Estimate to give final approval.
Trump wanted to tip the scales in his favor, so a week before the Board of Estimate’s decision, he encouraged Palmieri to go public with the Commodore’s financial struggles. Palmieri announced that the Commodore had lost money that year and its losses were projected to be even worse the following year, so the hotel would soon be permanently closed.
Adding to the pressure, newspapers ran stories about how the Commodore’s closing was pushing tenants out, putting hundreds of employees out of work, and hurting neighboring businesses.
Despite opposition and a competing bid, the Board of Estimate ultimately approved the 40-year tax abatement by unanimous decision.
The tax abatement helped Trump secure financing, and the project was soon underway. But as Trump closed the deal with the bank, he saw an opportunity to build in more long-term security for himself: He included an exclusive covenant, a clause that required Trump’s permission for Hyatt to build any competing hotels in New York City.
Trump knew Hyatt would be against this clause, so when he was alone with the bank executive he underscored that the bank was making a big investment, and it could be jeopardized if Hyatt quickly put up another hotel nearby. The bank executive then demanded that Hyatt include the clause and gave the company an hour deadline to agree.
The head of Hyatt was out of the country, so while Hyatt’s representatives tried to reach him for approval, Trump took it upon himself to draft the clause. By the end of the hour, the Hyatt executives had signed the clause, and now Trump and his heirs own the right to approve or deny construction of any future Hyatts in New York City.
The Commodore reopened as the Grand Hyatt in September 1980 and immediately turned millions of dollars in annual profits. The economy turned around soon after, and room prices skyrocketed.
(Shortform note: Trump’s unprecedented tax abatement reportedly cost New York City more than $410 million in foregone revenue over 40 years. Additionally, the Grand Hyatt is set to be demolished and replaced with brand-new hotel rooms as well as office space.)
Knowing how to leverage a situation will help you get what you want in negotiations.
Describe a recent negotiation in which you were in the weaker negotiating position.
Think about the other party’s perspective and desires. How could you have reframed things to give you more negotiating power?
In your current negotiation, what is the big sticking point between you and the other party?
What is one thing that you could reframe to make the other person feel she’ll benefit by giving you what you want?
In the midst of his campaign to build a convention center at 34th Street and his project to transform the Commodore into the Grand Hyatt, Trump took on one of his most notable projects: Trump Tower.
Since his move to Manhattan, he’d eyed a building at 57th Street and Fifth Avenue where the luxury department store Bonwit Teller was located. It was a large parcel in a great location, and Trump considered it the best real estate in New York City.
With no completed development credits to his name, Trump met with Franklin Jarman, the head of Genesco, which owned Bonwit Teller. Jarman heard Trump out but firmly refused to make a deal.
Trump kept in touch. He wrote a letter thanking Jarman for meeting with him, and another a few months later reiterating his proposal. Trump kept writing letters regularly, though Jarman never relented.
However, a few years later, Genesco faced financial issues and replaced Jarman with a man named Jack Hanigan, who was tasked with saving the company from bankruptcy. Trump called Hanigan as soon as he’d learned of the change, and Hanigan agreed to a meeting.
Hanigan didn’t know exactly how valuable the Bonwit Teller property was, and Trump knew that if other developers heard it was for sale he’d face fierce competition.
As a safety net, Trump suggested a letter of intent stating that the two sides would go through with the deal as long as all the necessary documents were prepared. Hanigan agreed and, with some nudging, signed it on the spot.
They made a deal that Trump would buy the Bonwit Teller building as well as Bonwit’s lease of the underlying land for $25 million. Trump would still have to buy the underlying land—as well as a few other elements—to create the building he envisioned.
But first, Trump needed financing.
When Trump approached the bank to finance the $25 million deal, he anticipated some pushback.
Since the lease for the underlying land expired in 29 years, the bank was hesitant to make such a large investment when the land’s owner could take over when the lease was up. Trump offered two backup plans.
First, he could turn the site into an office building with retail on the ground level. The project wouldn’t cost much, and he could easily make enough to pay the rent on the lease plus make a profit over the course of the 29 years.
His second and preferred plan was to buy the underlying land from its owner, Equitable Life Assurance Society. The banker was much more enthused with this option, so Trump set out to put many moving pieces in place.
As with his Commodore deal, Trump needed to secure several interdependent commitments in order to see this project through. He carefully reframed the deal to get all parties to essentially give him what he wanted.
Trump offered Equitable the opportunity for a 50/50 ownership of the building if Equitable contributed the underlying land to the project. But he had to make the offer appealing to Equitable, which could have opted to continue profiting off the lease for the next 29 years.
Trump emphasized the fact that if Equitable didn’t agree to the partnership, the company would earn only the lease’s rent, which was established when New York real estate values were lower. By contrast, a partnership on Trump’s proposed building could bring Equitable much higher profits.
Trump also told the Equitable executive that he had an alternative plan to build an office building. In reality, Trump wasn’t sure that the bank would even finance his office building proposal, but Trump wanted the Equitable executives to think he had other options. In other words, to make his negotiating position appear stronger, Trump wanted the Equitable executives to think that Trump was offering them a great opportunity and that they needed to jump on it before he switched to his other plan.
Ultimately, Equitable agreed, as long as Trump could get the other pieces in place.
Trump had the building and the land beneath it—now he needed the air space above it.
Air rights are a valuable asset in New York real estate, in particular. They are an aspect of zoning that determines how large and dense a building can be, and they can be bought and sold among landowners and developers.
The high-end jewelry store Tiffany was located next to Trump’s site, and Tiffany’s owner owned the air rights above Trump’s site. Buying the air rights would allow Trump to construct the massive building he envisioned.
This was a crucial aspect of the deal, so Trump played to the owner’s pride in the company’s prestigious image. Trump told Tiffany’s owner that selling the air rights would allow Trump to construct a building worthy of standing next to the Tiffany store, and it would prevent the threat of anyone trying to build over Tiffany or demolish the existing building.
Trump presented Tiffany’s owner with two drawings he’d had his architect create:
Tiffany agreed.
Per zoning regulations, Trump needed a small piece of land behind the Bonwit location to create the building of his dreams. The property was fairly small, but provided the space for the 30 feet of rear yard required behind each building; without this land, Trump would have to cut into the building to create that space.
The landowner, Leonard Kandell, had leased the parcel to Bonwit Teller, but the lease’s term and provisions were too restrictive for Trump’s project. However, Kandell refused to sell because he believed the land’s value would only rise with time.
Trump was stuck—until he found a clause in his contract with Tiffany that stated Tiffany had the option of buying that small parcel of land. Tiffany agreed to sell Trump that option as part of their deal, and Trump immediately returned to Kandell with his option.
Kandell doubted the validity of Trump’s option, but when Trump threatened to push the issue in court, which could have been a long and expensive process, they worked out a deal: Trump agreed not to exercise his option, and in exchange, Kandell extended the lease to 100 years and revised the provisions that limited rezoning. This compromise was enough to allow Trump to get the project financed and design the building the way he wanted.
With the pieces in place, Trump was finalizing his deal with Genesco to buy the Bonwit Teller site when murmurs of the sale started to get around the real estate community.
The letter of intent proved pivotal as developers made offers to buy the Bonwit site, and Trump sensed Genesco wanted to find a way out of their deal. Whether or not the letter would have been legally binding, Trump told Genesco he could at least pursue the issue in court longer than Genesco could afford to wait, given their financial debts.
Trump upped the pressure a little more when a New York Times reporter asked for a comment about the deal. Since the deal was no longer a secret, Trump confirmed to the reporter that he and Genesco were making a deal and that Bonwit would soon be closed for the new building’s construction. His comment pushed the deal forward in two ways:
Less than a week after the article’s publication, Genesco signed the deal.
Trump’s efforts to get the properties and air rights were all with size and height in mind: He knew that the taller the building, the more apartments with impressive city views, the more he could charge for rent, and the bigger his profit.
But the city resisted his 70-story proposal.
As he did with Tiffany’s owner, Trump had his architect prepare two drawings to present to the City Planning Commission: The building he wanted to construct, and an alternative that wouldn’t require zoning variance approvals.
The alternative design was unattractive enough to scare the city.
Additionally, Trump offered the new owners of Bonwit Teller’s 12 other locations the chance to keep their New York City flagship location that he’d bought, albeit in a smaller space. From the city’s perspective, approving Trump’s zoning would keep the highly desirable store in New York.
Ultimately the commission approved zoning for the 68-story building—just short of the 70 stories Trump had proposed.
Trump was literally aiming high with his design for Trump Tower, and part of the reason he got approval from the city was because of the amenities it would offer.
According to zoning laws, a building’s allowable height is determined by its Floor Area Ratio (FAR), which factored in the square footage of the lot and the building. The city granted additional FAR if builders included certain amenities, such as additional retail space, residential units, and a public area. Trump maxed out his FAR by incorporating all three.
As a public and retail space, he designed an atrium, a six-story retail center at the base of the building. At minimum, the atrium got him bonus FAR and would bring in profit from retail rents, but Trump wanted the atrium to be an attraction and a spectacle in its own right.
First, he chose a rare Breccia Perniche marble to line the floors and walls. The marble is a warm combination of peach, pink, and rose, and Trump felt it was inviting, invigorating, and perfect to put visitors in a mindset to shop.
Trump didn’t want any of the white veins that appeared in much of the marble, so he went to the quarry to hand-select the pieces he’d use for his atrium—and threw away the rest.
Second, Trump created an extra-wide entrance from Fifth Avenue. Zoning regulations actually mandated this feature, and Trump initially resisted because he didn’t want to forego the retail space. However, in the end, he felt that the large entrance added to the atrium’s grandeur.
Finally, Trump constructed an 80-foot, $2 million indoor waterfall.
These features and the expense to build them weren’t necessary, but Trump wanted to create a mystical, enchanting space. He aimed to achieve the same effect in the building’s apartments.
Trump knew the kind of tenant he was designing for: wealthy people who put a premium on luxury and exclusivity. He tailored his construction and marketing to appeal to his target tenants.
First, Trump balanced his desire to create as many apartments as possible with the understanding that this clientele would want large apartments. He limited the number of apartments on each floor, giving every apartment ample square footage.
Second, Trump designed the apartments so that each main room had views in at least two directions—of the East River, the Hudson River, the Statue of Liberty, or Central Park. The lowest apartments were on the 30th floor, so Trump knew the views were his biggest asset.
Third, he didn’t invest as much time or energy on the details of the apartments’ interiors, because he presumed that such wealthy tenants would hire designers and rework the space.
Finally, he charged high prices, continually raised prices, and never jumped at interested buyers. Trump’s targeted tenants wouldn’t be attracted by low prices or seemingly desperate salesmen—they wanted the best and most exclusive, and were willing to pay for it.
While Trump was planning and building Trump Tower, two experiences reaffirmed his conviction that there’s no such thing as bad press.
First, as Trump pushed the City Planning Commission to approve his zoning, he got an unexpected boost from the New York Times architecture critic. Although the critic generally opposed skyscrapers and wrote that the building was too big, she also included a few lines endorsing the design. That was all Trump needed for the review to intrigue some readers and potential tenants. The biggest endorsement was the headline, “A New York Blockbuster of Superior Design.”
Second, once demolition began, the Metropolitan Museum of Art asked Trump to preserve and donate the decorative friezes on the building. Trump agreed—until he learned that it’d cost significant time and money to save the friezes.
The image of Trump’s construction crew demolishing the friezes was printed on the front page of The New York Times, epitomizing developers’ supposed greed and insensitivity. People were outraged, but the story was everywhere, spreading the word of Trump’s grand plans for a massive luxury building. Trump saw an uptick in apartment sales following the controversy.
Part of Trump’s plan was to secure a standard tax exemption that gave developers a 10-year break on real estate taxes.
Most projects were approved for the exemption without hesitation. However, given that Trump Tower had been an expensive project in an affluent neighborhood and would likely make impressive profits regardless of any tax break, the mayor pushed back on granting Trump the exemption. The city rejected Trump’s application.
Trump felt that the circumstances of his project shouldn’t impact his eligibility, so he filed to overturn the decision. The court sided with Trump and ordered the city to reconsider Trump’s application, but the city rejected it again.
Again Trump filed to overturn the decision, and again the court ruled in his favor. This time, the court ruled that the city must grant the exemption.
Eventually, Trump bought out Equitable’s share of the project.
All in, the Trump Tower project cost about $190 million. Apartment sales brought in $240 million—from which Trump made more than $10 million in commissions—and the retail and office space rents brought in millions of dollars a year.
In addition to staggering profits, Trump Tower gave Trump credibility as a developer, which would be invaluable in his future deals.
Trump realized that no success he could achieve in hotels would compare with the profits a casino could bring in. So he visited Atlantic City.
At the time, New Jersey was preparing to vote on whether to legalize gaming in Atlantic City. Before the initiative had even passed, Atlantic City real estate values shot up.
Trump wasn’t willing to risk buying property in Atlantic City while the prices were hot and legalized gambling wasn’t a sure thing. If the gaming initiative failed, he’d lose his entire investment.
If the initiative did pass, Trump preferred to pay more with that certainty—and he figured the cost would still be a drop in the bucket compared to his inevitable casino profits.
The referendum ultimately passed, but prices rose so high that Trump decided to continue holding out for a good deal. After about three years, he heard about a Boardwalk property that might be for sale.
By the time Trump considered buying, several factors caused the casino construction rush to cool off:
In Trump’s view, Atlantic City’s struggles could help him secure a great deal.
Others had already attempted to develop the boardwalk site Trump was eyeing, so he’d have to deal with:
Real estate professionals advised him to avoid such a convoluted project, but again, he felt the property’s issues would help him secure a better deal.
Trump needed to get all the landowners on the boardwalk site to sell so that he could build the casino-hotel he envisioned.
With Trump Tower on his resume, he played off his credibility: Trump assured the owners that he could give them a fair offer and that he’d finish the project. Given the property’s issues, Trump also leveraged the fact that the owners might not get any other offers because no developer wanted to take on this project.
After a long negotiation, Trump secured all the pieces of the Boardwalk site.
Trump decided to get his gaming license before starting construction because he knew the licensing process was lengthy and unpredictable.
Many casinos had started construction while they applied for their gaming license, only to lose money when their gaming applications were delayed or denied. Trump didn’t go this route because he wanted to avoid:
The fact that casino construction had stalled in Atlantic City worked in Trump’s favor, since state officials would be eager to have a successful casino up and running. However, that was still no guarantee that Trump’s gaming application would be approved, or that he’d get the decision anytime soon (it was a notoriously slow process).
Trump met with New Jersey’s attorney general and pointed out that he’d already invested millions in the Boardwalk site and made it clear that, while Trump was excited by the prospect of building in Atlantic City, he was prepared to walk away. Specifically, Trump told the attorney general he refused to start building until his license was approved, and he wasn’t willing to wait more than six months for the decision.
The attorney general couldn’t guarantee approval, but he assured Trump his gaming application would be processed within six months. True to his word, Trump received a decision nearly six months later—and he’d been approved.
Now that Trump was in business, he needed an experienced casino operator.
Michael Rose, the chairman of Holiday Inns, had heard about Trump’s project and reached out and proposed they form a partnership. Trump didn’t want to appear desperate, so he told Rose that he didn’t need a casino operator, but that he was willing to hear Rose out.
Rose said he was impressed by Trump’s reputation for finishing projects on time and within budget, and Rose was especially impressed that the project was already under construction.
Trump and Rose agreed on a 50/50 partnership, plus Holiday Inns would contribute $50 million toward construction, reimburse Trump’s investment up to that point, and guarantee Trump against any operating losses for five years. But the deal was subject to the board’s approval.
The board decided to hold its next meeting in Atlantic City so that the members could see the site before making their decision. The problem was that construction wasn’t as far along as Rose thought, so Trump told his construction supervisor to get every piece of heavy machinery he could onto the site and in action for the board’s visit, even if they were just digging dirt from one spot and moving it to another.
When the board visited the construction site, it looked like the workers were doing an unbelievable amount of work. The optics impressed the board members so much that they approved the deal.
While many other projects in Atlantic City went past deadline and over budget, Trump planned to finish under budget and ahead of schedule.
Three factors helped Trump save money:
Trump opened Harrah’s at Trump Plaza in time for Memorial Day weekend, making it the first Atlantic City casino-hotel to finish under budget and by its deadline.
After some time, Trump and Holiday Inns disagreed about how to manage the business, so Trump bought out Holiday Inns. He renamed the facility Trump Plaza Hotel and Casino and hired a new general manager.
Everyone Trump asked had recommended Stephen Hyde, the executive vice president and chief operating officer at the Golden Nugget. Hyde had an impressive resume in the casino industry and had the right personality for the job.
Trump poached not only Hyde, but he also poached Hyde’s best former employees. In order to maximize his businesses’ successes, Trump always aims to hire the best.
When looking for managers to run his buildings, Trump’s strategy is to:
The facility brought in about $35 million gross operating profit in 1985 during its first year, under Holiday Inns’ management, and was projected to reach $38 million in 1986. Trump’s management took over in May of 1986 and finished the year with a gross operating profit of $58 million, far exceeding the projection.
The success at Trump Plaza made Trump consider which other companies that owned casinos he could buy. Holiday Inns owned another casino in Atlantic City and two in Nevada, and Trump’s dispute and buyout made the company a natural target
Just two months after he’d bought Holiday Inns’ out of Trump Plaza, Trump started buying stock in the company—so much stock that within the first month he owned almost 5 percent of the company. Trump could do two things, and he considered them both good options:
When people started to notice that Trump was buying so many shares of Holiday Inns, its stock prices rose. Within a couple of months, they reached a price that inspired Trump to sell; although he decided to forgo the option of a takeover, he made a multi-million dollar profit in the end—ironically, it was almost enough to cover what he’d paid to buy them out.
Learn from others’ mistakes and act cautiously to avoid losing big.
Describe the last situation or project where you didn’t prepare for the worst and ended up losing time, money, or progress.
Describe a recent situation when you acted cautiously and it paid off.
How can you prepare for the worst in your current project?
How could you build in a process to identify and mitigate risks at the start of your future projects?
With one Atlantic City venture under his belt, Trump considered buying Hilton’s Atlantic City casino-hotel.
The Hilton company had made some poor business decisions in the previous few decades, and it was losing its lead against competing hotel chains. Hilton bought two casinos in Nevada to give the company a boost—and it worked, so Hilton considered a casino-hotel in Atlantic City.
Hilton pulled out all the stops for this facility, with a huge site and ambitious construction plans. In its zeal to open for business in Atlantic City, Hilton filed for its gaming license and started building at the same time, but made several critical mistakes:
Ultimately, the Casino Control Commission denied Hilton’s gaming application just 12 weeks before its scheduled grand opening.
With more than $300 million already invested, Hilton planned to file for another hearing. The company was still hiring hundreds of employees in preparation for the casino’s opening; if Hilton’s application was rejected again, the company would face a huge financial loss and be forced to sell for any price it could get.
Trump called Barron to offer his sympathies and—more importantly—express his interest in buying the property. Barron still planned to move forward with the gaming license rehearings, but Trump had planted the seed.
Not long after, the head of the Golden Nugget started positioning himself to take control of the Hilton company, which was possible because Barron had inherited only enough shares to make him a minor owner of the company. The takeover attempt helped Trump in a few ways:
Barron sold the casino to Trump for $320 million, allowing Hilton to break even with his investment in the facility.
Learning from his experience at Trump Plaza, Trump appointed his wife to run Trump Castle instead of hiring a general manager.
Under her direction, the casino-hotel grossed $226 million in its first year.
In 1981, Trump had the chance to buy two adjoining buildings on the southern tip of Central Park, a few blocks from Carnegie Hall and Columbus Circle. The buildings were:
Despite the premium location, Trump was able to negotiate a good price because:
After he bought the properties, Trump had a few options for what he could do with the properties.
First, despite how little the buildings were earning, Trump was confident the location was so desirable that he could turn around and sell the properties for a profit even if he didn’t build anything.
Second, Trump could do relatively minor renovations on the Barbizon-Plaza hotel, raise room prices, and raise rents for the stores on the building’s first floor. For the rent-controlled and rent-stabilized apartments at 100 Central Park South, he could simply wait until tenants moved or died and then list their apartments for market rates, which would be much higher than what the tenants were currently paying.
Third, Trump could demolish both buildings and replace them with a luxury condominium building. This was his first choice because he felt it would bring the biggest profits, but he faced two issues:
Given the challenges to his plan, it was critical that he had alternatives in mind.
Trump hired an outside company to offer tenants help relocating, but he underestimated how hard the tenants would fight to protect their low rents and desirable apartments. They formed a tenants’ association and hired lawyers.
Trump continued to provide essential services such as heat and hot water, but he cut down on other expenses: He got rid of the doormen’s uniforms to save on dry cleaning, put low-wattage bulbs in the hallways to save on electricity, and stopped allowing tenants to use a telephone in the lobby for free.
(Shortform note: Legal documents claim that Trump, in fact, cut heat and hot water, among other things.)
However, the tenants claimed these changes—along with the relocation offers—constituted harassment and sued Trump.
Some of Trump’s actions inadvertently strengthened the tenants’ case:
Trump refused to settle and fought the lawsuit, despite the cost of legal bills. But given the ongoing battle, Trump decided to build only on the Barbizon-Plaza site and simply rent out apartments at 100 Central Park South as they became available; once vacant, he could rent the units at market rate. New York real estate values had risen dramatically since Trump bought the properties, so he stood to earn a lot of money on the market-rate rents.
The state supreme court ruled against the tenants, and an appellate court agreed. Trump ultimately stopped pursuing evictions and renewed the tenants’ leases—he even forgave three months’ rent for every tenant in the suit in exchange for receiving back rent from tenants who’d been refusing to pay.
Since coming up with his initial plans for the properties, architectural trends had moved away from the sleek skyscrapers Trump favored to older, classic styles—so Trump modified his plans for Barbizon-Plaza accordingly. He still intended to demolish and rebuild, but when he learned that zoning laws would require the new building to be much smaller than the original, Trump opted to gut and renovate the existing structure.
The only major change Trump had to make to the Barbizon building was to enlarge the windows, to make it fitting for luxury apartments. Ultimately, the project not only maintained the prized original architectural details, but it also cost less than half the price of rebuilding.
While Trump was working on these two properties, he’d also made multiple offers on the hotel for sale directly across the street from his site.
The owners of the St. Moritz Hotel refused Trump’s offers for being too low, but every other buyer they worked with ended up falling through. Eventually, they worked out a deal with Trump.
Soon after Trump bought the St. Moritz, he closed the Barbizon-Plaza for renovations. The St. Moritz was the closest comparable hotel, so he captured the profits when the Barbizon clients inevitably went across the street to stay at the St. Moritz.
Trump projected a profit of over $100 million, and he credits the fact that the tenants’ battle forced him to change his plans. Because Trump had backup plans and rolled with the punches, he pivoted to a project that cost less and brought in more profits than his initial plan.
You can keep your project alive by knowing when to fold on your current plan and having a backup plan.
Describe the last time you hit a roadblock in a project that prevented you from carrying out your original plan. What did you do?
What contingency plan do you have in place if something similar happens in your current project?
How will you know if you’ve reached a point where you need to switch to plan B?
How can you build flexibility into your future projects so that you know when a plan isn’t working and you’re able to switch gears without losing progress?
In a departure from real estate, Trump took a chance on the United States Football League (USFL).
He went against his guiding principle to prepare for the worst and be conservative in investments when he bought a team called the New Jersey Generals, despite the fact that the USFL was struggling. Three factors influenced Trump to take the risk:
Trump felt he could resolve the USFL’s two major challenges, which were:
In order to draw fans, get press, and sell tickets, the USFL had to offer exciting football games with talented players.
Trump and other USFL team owners poached several star NFL players for a boost of talent and attention. But Trump also thought the USFL needed to prioritize recruiting the best college players.
Trump’s team had Herschel Walker, a Heisman winner who later played for the Dallas Cowboys and several other NFL teams. Trump was also after Boston College quarterback Doug Flutie, who was up for a Heisman Trophy and got a lot of media attention after throwing a 50-yard touchdown (the “Hail Flutie”) during his final college game. Not only was Flutie likely to help the Generals win more games, but he’d also help create buzz around the team and the league and drive up ticket sales.
Trump signed Flutie to the Generals for more than $1 million and personally guaranteed his five-year contract. Trump typically makes a point not to put himself on the line financially, but in this case, he felt the uncertainty of the USFL’s future and the importance of getting Flutie merited it. (Shortform note: Flutie’s contract was reported to be far more than $1 million—between $5.5 and $7.5 million.)
Flutie’s first game with the Generals was broadcast on ABC and had more than twice the previous season’s average ratings. (Flutie later played for the NFL as well as the Canadian Football League.)
Trump was convinced that if the USFL moved its season to the fall, one of the three major television networks—ABC, NBC, or CBS—would agree to a contract to broadcast the league’s games. Televised games on a major network would make the USFL more competitive with the NFL, and bring in more viewers and money.
If no network agreed, Trump had a backup plan: He felt it would be evidence for an antitrust case against the NFL because the NFL’s season was in the fall and it would have a monopoly on broadcasting. If the USFL won in court, the USFL could use the money from the settlement or damages payment to make necessary improvements.
However, not all USFL team owners were willing or financially able to fight. Many owners were hesitant when Trump suggested a vote on moving the league’s season, but they eventually voted and agreed to move the season to fall.
The USFL had been in talks with CBS and NBC, but conversations stalled as soon as the league announced its move to the fall. Trump assumed the NFL was pressuring the networks not to create competition by airing the USFL in the fall.
Trump and the other owners agreed to file an antitrust case against the NFL. The suit proposed that the NFL could have contracts with only two of the three networks and requested $1.32 billion in damages.
Trump’s instincts were right about the case: The jury determined that the NFL’s contracts with all three networks violated antitrust laws. However, the jury awarded the USFL only one dollar in damages. The NFL essentially got a slap on the wrist, and the USFL didn’t get the money it hoped would revive its league.
The USFL team owners agreed to appeal the ruling and suspend the season in the meantime; the appeal was still in progress at the time of this book’s publication. (Shortform note: The USFL ultimately lost its appeal.)
In 1980, New York City officials closed a 30-year-old ice skating rink in Central Park for renovations. The project was scheduled to take two-and-a-half years and cost $2 million.
Trump’s apartment in Trump Tower overlooked Wollman Rink, and year after year he watched as the construction dragged on. Meanwhile, he’d see articles reporting that the project still had no end in sight and was running way over budget.
In 1984, Trump contacted the NYC parks commissioner and offered to take over the project for no fee, but the commissioner refused.
In 1986, after NYC officials announced they were starting over and projected two more years until completion, Trump offered again—and, again, the commissioner refused.
Trump sent Mayor Ed Koch a letter saying that the rink’s delays and budget overruns signaled incompetence. In the letter, Trump offered to pay for and build the rink, and then operate it and lease it to the city after its completion. Furthermore, Trump said he could have the rink ready to open within six months.
Koch’s reply balked at Trump’s proposal to operate the rink, but he said Trump could pay for and oversee the renovation. Not only was the tone of Koch’s letter patronizing, but Koch released it publicly, presumably thinking he’d embarrass Trump.
However, Koch’s plan backfired: Within days, the press was criticizing Koch for his response and for the city’s mismanagement of the project in the first place.
Whereas Trump can capitalize on even negative publicity, Koch’s position as an elected official was more threatened by bad press. Soon after the public criticism, Koch made a deal with Trump to take over the project.
As Trump began work on the rink, he continued getting questions from reporters. Trump sensed that there was interest not only in Wollman’s progress but also in the surrounding drama between Trump and the city, so he scheduled press conferences to give project updates.
Trump continued holding press conferences when he hit new milestones, such as pouring concrete. Although these weren’t momentous achievements, he capitalized on the media’s interest, and the reporter turnout was steady.
Koch’s letter had piqued public interest in the feud and the outcome of the project, and Trump capitalized on the free press as promotion for Wollman Rink.
When Trump took over the Wollman Rink project, one of the biggest problems he identified—at the root of the project’s mishandling—was a lack of leadership.
He recalled a day during the city’s reign when he had walked past the construction site twice, and both times the workers appeared to be doing nothing. Stalled progress leads to delays and cost overruns, so Trump visited the site nearly every day to make sure things were moving along.
Trump insists on two principles that hearken back to his father’s influence:
Trump’s decisiveness helped him avoid the financial problems and project delays caused by the city’s indecisiveness and poor planning.
One example was when the city selected and installed the ice-making system. There were two types of systems:
The city initially planned to use the Freon system and began installing the expensive copper piping it required. However, incomplete planning delayed other aspects of the project, and meanwhile, the delicate pipes were exposed to the elements and some pieces were even stolen for resale.
The joints of the pipes became loose under the weight of the concrete, and when the system was tested, the pipes leaked and couldn’t create enough pressure to freeze the ice. Contractors tried unsuccessfully to repair the leaks.
Finally, six years after the renovations began and nearly $13 million spent, the city decided to switch to the brine system and start the entire renovation from square one. This is when Trump took over, and he came to the same decision that the brine system’s durability and reliability made it the best option.
Although the brine system initially seemed more expensive, it was the wiser and more cost-efficient choice in the long run. If the city had decided on the brine system from the start—rather than being tempted by Freon’s energy-saving potential—it could have saved years of work and millions of dollars.
Trump finished the project in four months—two months ahead of schedule—and more than $750,000 under budget. As a result, he was able to use the extra money to renovate the skatehouse and restaurant, which added to Wollman Rink’s overall value and success.
Bringing projects in under budget requires strong, decisive leadership.
Describe a situation when incomplete planning or indecisiveness led to higher costs on a project.
In which aspects of your current project could indecisiveness negatively affect costs?
How can you proactively approach these decisions to avoid unnecessary costs?
In future projects, how can you build in a process to identify and address the aspects in which indecisiveness affects costs?
Six years after Trump reluctantly let his option expire to buy the West Side rail yards, he bought them back for about $95 million.
Compared to the $500 million another developer paid for a smaller site nearby, Trump got a great deal on the West Side yards for several reasons:
In the meantime, New York City real estate values had multiplied several times over.
When Trump had the purchase option for the yards a few years earlier, he was a young developer with little money and no track record. This time around, Trump had the benefits of experience, money, and several successful projects.
The property's seller was a wealthy Argentine bridge builder named Francisco Macri. Macri was generally qualified, but he was new to NYC real estate development.
Macri made several fatal errors in handling the West Side yards project:
Outside circumstances put Macri in a tight financial situation, and he started looking to sell. Trump had already been in contact with Macri, so when the time was right he stepped in and made a $100 million cash deal.
When Trump took over the project he decided to start from scratch; he wanted no association with Macri or his plans. As Trump created his plans, he tailored them to the site’s strengths and area’s needs.
In Trump’s view, the property’s biggest asset was its views. His buildings would be tall to maximize the view, and they’d be designed so that every apartment had unobstructed views of the Hudson River or the Manhattan skyline.
Trump also planned to include retail shopping because he knew the area had a dearth of basic shopping options, such as grocery stores and pharmacies.
To ensure a profit, Trump needed much more generous zoning approvals than Macri had gotten—and he was willing to push as hard and wait as long as he had to in order to get them.
To get the zoning approvals he wanted, Trump had to convince city officials that NYC would also benefit from his plans.
Trump found his angle when he learned that NBC was interested in relocating from Rockefeller Center—and that the network was considering a move to New Jersey. If NBC moved across the river to New Jersey, it would hurt New York on multiple fronts:
Trump wanted to court NBC to relocate to the West Side yards, and he’d use his plan to convince the city to approve his zoning. The site had enough space to build larger studios than the network had at Rockefeller Center, and Trump could offer low rent because he’d gotten such a good deal on the land.
Even if NBC declined, Trump was confident that building studios would be a good investment for his site. So he named it Television City.
When the project was done, Trump would have a lot of apartments to fill; he needed to create excitement about the project to draw in buyers. Instead of waiting to promote the units until they were built, Trump wanted to start marketing them right away.
Trump wanted to construct the tallest building in the world, and he knew that would create the buzz he needed. His plans had the building at 150 stories and 1,670 feet tall.
Constructing a building taller than 50 stories generally costs so much that you’re better off building multiple shorter buildings. But in this case, Trump felt that the world’s tallest building would draw enough visitors and profits to justify the expense.
When Trump announced his plans for the site—including the residential units, the commercial and retail space, and the TV studios—the press jumped all over the prospect of the world’s tallest building.Trump had ignited the excitement he’d intended.
Naturally, some of the buzz about the world’s tallest building was negative.
Some felt that building a 150-story building was excessive. Others were convinced Trump wouldn’t be able to build it.
Some—including the New York Times architecture critic—didn’t like that the building would be such a departure from the style of the surrounding neighborhood. However, Trump viewed that as the building’s biggest selling point. Trump had faced the same resistance when he renovated the Commodore and covered the exterior in reflective glass, and most of the criticism ultimately turned around.
The backlash eventually died down, but in the meantime, it brought more attention to Trump’s tallest building in the world.
Progress was held up as Trump waited for the city to approve his proposal.
The City Planning Commission wanted Trump to add several features to his project, including more waterfront access, street extensions, and a relocation of the world’s tallest building farther south.
Trump would fight for his plans, but he also understood he needed to negotiate.
Trump replaced his outside-the-box architect with one who had a track record as an urban planner and had even served on the planning commission. The architect added features to please the city while largely keeping the same total square footage, and the commission responded more positively.
As Trump courted NBC to move to Television City, the network was still considering a site in New Jersey.
NBC was projected to save as much as $2 billion over 20 years if it moved to New Jersey instead of staying in New York. Trump needed the city to approve a tax abatement in order to make NBC a competitive offer.
In a gamble to get the city to sign off, Trump proposed that he’d build NBC’s headquarters in Television City, subsidize its rent for 30 years, and give the city a quarter of Television City’s profits for 40 years. He’d be paying tens of millions a year, and he asked for a 20-year tax abatement on the entire property in exchange.
After weeks of negotiations, the city refused.
A battle ensued between Trump and Mayor Koch that was similar to what happened at Wollman Rink: Trump wrote Koch a letter saying that the city was essentially allowing NBC to leave and, again, Koch responded in a way that further pitted himself against Trump.
The press weighed in, some supporting the mayor and others backing Trump. Ultimately, Trump decided to wait to move forward on the project until he could get the zoning approvals he wanted—regardless of NBC’s decision.At the time of publication, he was still waiting.
(Shortform note: Trump later defaulted on loans for the development and sold the site to Chinese investors. NBC is still at Rockefeller Plaza.)