By 1985, the real estate market in Manhattan was booming, record prices were being achieved for commercial properties.
Fueling this market was a growing economy, special tax benefits for real estate, the recognition that New York had become the capital of the world and the introduction of foreign buyers, most notably the Japanese, who were paying unheard of prices for trophy buildings in New York. It was therefore expected that the Plaza Hotel would fetch a decent price.
There was, in fact, fierce bidding on the hotel once it came to market. There was no asking price. Each qualified buyer was asked to submit a bid and any conditions to a closing. After a period of time, the field of buyers was narrowed down to two groups, Arthur Cohen and Phil Pilevsky, who had conditions tied to their bid, and Donald Trump, who said he would buy the hotel “as is” with no conditions other than a list of all the renovation and upgrades the hotel needed. He also committed to not suing the selling party. All of the banks, insurance companies and traditional lenders wanted to make the loan, so financing was not an issue.
Everyone, including the banks both domestic and foreign, wanted to say they were part of one of the most important property transactions in the history of the city. Trump offered $300 million but after protracted negotiations with Tom Barrack, who worked for the seller, the Bass family of Fort Worth, he agreed to a price in the range of $390 million, which represented about $500,000 per room.
This was an unheard of sum for a property given its condition and then-current income but it could be finally said that the Plaza Hotel had achieved a price substantially higher than its original cost of $12 million.
Trump put up about $20 million in equity and Citibank, as his lead lender, approved, after “careful” appraisal and internal review, a loan of $380 million. Given the income of the property and its physical condition, there was no way to rationalize such a huge purchase price or such a large loan. Trump didn’t care: For $20 million he had gained control of the Plaza Hotel, which, as he said, was truly one of the 10 best pieces of real estate in New York with an incredible location.
Trump recognized that continuance as a hotel would never maximize its value, especially given its age and high cost of renovation and maintenance. But conversion to condominiums would allow for huge profits.
Trump recognized that the parts of the hotel were worth more than the sum total of the property. Trump, however, failed to initiate the conversion plan upon closing and instead undertook a modest renovation of the public spaces and many of its rooms at a cost of $10 million under the supervision of his first wife, Ivana Trump. He knew that conversion of the hotel was an unknown quantity and he lacked the patience or discipline necessary to undertake such a complex effort. In any event, having made the conquest of the property he needed to get on with the next deal that would add to his portfolio and his stature and gain him more publicity.
Things would work out with the Plaza, he felt. As the market improved so did the value of the hotel, and with his branding of the hotel no doubt the Plaza was worth more a mere month after his purchase given the publicity of the sale and his name associated with the property.
Trump began to rapidly expand his real estate and business empire to include casinos in Atlantic City, the purchase of the Continental Airline Shuttle, which he quickly renamed the Trump Shuttle, as well as the development of the 75-acre site he had purchased on the Upper West Side, which required a vast expenditure of money for consultants, architects, engineers, attorneys, etc.
In order to achieve the purchase of the Plaza Hotel, develop the casinos in Atlantic City and pay for its cost overruns and buy the shuttle, all within a relatively short time period, he had to borrow vast sums of money, approximately $900 million. Initially, he financed the purchase of the Plaza Hotel with a first mortgage provided by Citibank whose real estate group was headed by Patricia Goldstein. The bank was eager to lend Trump vast sums of money—after all he was the hottest developer in town and, besides, the bank was booking huge fees for each loan made to Trump. Citibank and the consortium of lenders loaned Trump $380 million for the acquisition of the Plaza Hotel with Trump putting in about $20 million, a very poor loan-to-equity ratio.
When Trump needed more funds to deal with cost overruns and completion of the casinos he was building in Atlantic City, he borrowed several hundred million dollars more from Citibank. Finally, when Trump purchased the shuttle, he financed it largely with additional debt of several hundred million dollars, which the bank gladly provided. The total debt to Citibank and its consortium of banks in 1990 was approximately $900 million with less than $80 million in equity.
While this degree of leverage was clearly not prudent, Trump’s eternally optimistic view of things and a then-strong market convinced him that things would work out. He loved a challenge, a chance to take a risk. Well in 1988—the year he purchased the Plaza Hotel—he was surely taking one.
In 1989, the national economy failed and the real estate market sank into a depression.
Needless to say, hotel occupancy and rates, in general, were extremely low. Despite its uniqueness, this was also true at the Plaza Hotel. It had the additional burden of being a huge facility with high operating costs that could not be easily reduced. These costs were due to a number of factors: the entrenched unions, their pension plan and the general high cost of labor in New York City, high real estate taxes and the huge maintenance costs for a building that was nearing its 90th anniversary and was still using many of the original systems.
The hotel could not meet operating costs, undertake necessary refurbishments and keep current on mortgages on the property. Trump had to choose which of the bills he could pay. The mortgage was last in line for payment.
Concurrent with these events, the cost of fuel skyrocketed, thus causing the airline shuttle to lose huge sums of money.
Finally, Atlantic City was not going well. The national recession kept people at home and while the casinos created a new environment on the boardwalk, the rest of Atlantic City was in decay and people didn’t want to come to this crime-ridden city.
Suddenly Citibank began to close in on Trump. As eager as they had been to lend him money when he seemed to be a wonder boy who could do no wrong, they now demanded that their loans be brought current or repaid. When it became clear that the market would not allow that possibility, Citibank—the lead lender in a consortium of banks that made Trump the loans on the hotel, the casinos and the shuttle—made the decision that the Plaza Hotel should be sold. In addition, the decision was made by the bank to write down the debt on the hotel by setting a sales price of $300 million.
Trump quickly dusted off his original idea for conversion to condominiums. This was a possible, though untested, exit strategy for himself and the bank that could allow the bank to be repaid in full and give Trump a chance to make a few dollars. All he needed was a little more time. But Citibank, and Pat Goldstein in particular, made the decision to sell the hotel and hope they could recoup the remaining $600 million in debt in time through the sale of the shuttle and the Atlantic City casinos that Trump had built.
In addition to combining hotel rooms to convert them to condominiums, Trump additionally had come up with the idea of adding super-luxury condominiums on the roof and had gained approval for 20 such condominiums, which the Landmarks Preservation Commission had approved. Additionally, I came up with the idea of developing 60,000 square feet of retail space in the huge basement areas of the building that still housed the enormous boilers that had not been used to heat the building for years.
These areas of the hotel could be connected to the lobby, where there was an additional 10,000 square feet of space used for back-office operations that could become prime retail space.
I estimated that at $1,500 per square foot in 1992 Trump could generate more than $700 million in revenues after costs of renovation, thus repaying Citibank and allowing for a profit.
Citibank and others scoffed at the $1,500 per square foot number. Yet, within a year, Trump was achieving $1,000 per square foot at Trump International Hotel and Tower, a residential and hotel condominium developed out of the renovated Gulf and Western Office Building on Central Park West, just a few blocks from the Plaza Hotel. While this was a great building at an incredible location, it still didn’t have the caché, glamour or the location of the Plaza Hotel.
The bank refused to go along with Trump and retained a firm to market the hotel internationally. That decision by Pat Goldstein and her staff was to cost the bank over $600 million.
Because I had been so successful in dealing with the West Side Yards and finding a partner for Donald who paid off the $150 million mortgage held by Chase and invested several hundred million dollars in equity toward the project’s development, Citibank agreed to let me help in dealing with the Plaza Hotel. Additionally, if I could find an investor who would buy out Citibank they would sell the hotel to Trump and the investor.
Trump immediately called me into his office and gave me my second assignment: to find a partner to allow him to pay off the Citibank mortgages and go forward with his plans for the hotel’s conversion to condominiums. This task was probably even more difficult than the West Side Yards. There I had a blank canvass, I could sell a dream, a concept of a new city. At the Plaza Hotel I had to deal with the reality of a decaying property that was a New York City landmark that could not be changed on its exterior or interior. It was straddled with at least $300 million in debt, a number that was unheard of at the time for a hotel property. It had limited cash flow insufficient to meet mortgage payments or real estate taxes and the market was in free fall.
I knew that if I went out on my own I would be at a severe disadvantage to the firm commissioned by Citibank, who—with an international organization that circled the globe—were experts at buying and selling hotels and had access to people and entities that I hadn’t even heard of. With Trump’s permission, I approached Pat Goldstein and asked that I be made part of the official marketing group. I believed that if she said yes I would gain access to all meetings and be aware of what this brokerage firm was up to. At the same time, I would be pitching Trump to all potential buyers. I would meet with them separately to show them the plans that Trump had developed for the hotel indicating that all the approvals for the condominium plan for the hotel and the addition of the super-luxury suites on the roof were in Trump’s name. Additionally, I would point out that Trump was close to the hotel unions who were a major force in determining the future success of the property. Finally, I would indicate that in any event, Trump had a right of first refusal for the purchase of the property so that any purchaser had to deal with him.
Pat Goldstein granted my request. She felt that since I had been successful in dealing with the West Side Yards, why not let me help in this transaction. After all, I did know most of the moneyed players in Hong Kong. She thought I could only help her efforts. I was to be part of the team that would deal with the future of the hotel. Boy, she was naive; she didn’t know Donald and she surely didn’t know what I was capable of.
On a long forgotten day, I said my goodbyes to Donald and left with the senior vice president of the marketing firm for Singapore. This trip was to take me to Singapore, Hong Kong, Tokyo, Kuala Lumpur, Jakarta, Bangkok and Shanghai. I was to spend a total of six weeks in Asia in an attempt to “sell” the Plaza Hotel.
Two meetings in particular identified real opportunity for a buyer of the Plaza Hotel in Singapore. These two were, CDL Hotels headed by Kwek Leng Beng, a Chinese real estate developer who owned a major hotel chain and the Raj Brothers, Indians from Bombay who were extremely wealthy having made their fortune in oil, real estate and diamonds.
Kwek Leng Beng was a man in his mid-60s, austere in his dress and manner, inscrutable, a man of few words. He appeared to be extremely conservative and reserved. I knew that he had recently purchased two major hotels in New York City in a foreclosure sale. Harry Macklowe had built and owned these two hotels. One was located in the Wall Street area and was called the Millennium and the second was the Macklowe on West 44th Street. Kwek purchased both from Citibank after they had foreclosed on the properties.
Based on these two purchases I couldn’t tell how much more of an appetite Kwek would have for additional purchases of hotels in New York City. I did sense that he didn’t trust me and, more importantly, didn’t like or trust Trump. Based on his demeanor, it didn’t seem a logical match could be achieved between him and Trump.
I tried to present an image of Trump that would be far more pleasing to Kwek. I spoke of Trump’s family, his interests in golf and architecture, and tried to point out that he was, in reality, rather quiet and preferred dinner at home and that the public persona was more for marketing of his real estate and other ventures.
When I mentioned that I had graduated from the Columbia Graduate School of Business, where Kwek’s son had studied, he perked up. Perhaps I was making some inroads into his icy personality. I tried to explain that, no matter how high occupancies and rates became, the $300 million purchase price for the property, in combination with the high costs of operation, renovation and maintenance, was so great that the only thing that made sense for the hotel was conversion to condominiums. I tried to explain that the unions were so entrenched in the hotel that labor and pension costs were prohibitive. If the hotel closed for a year during the conversion to condominiums, the union contract could be voided. Furthermore, I pointed out that the hotel needed huge sums annually for maintenance and replacement of antiquated systems.
I pointed out that Trump was one of the best developers in New York City and obtained the highest prices per square foot of any builder in the city.
Deducting the cost of renovation and adding the value of the sale of the commercial space, amounting to some 60,000 square feet, would leave a profit in excess of $400 million after paying back Citibank their loan of $300 million. I tried to explain that adaptive reuse was the only direction that a building of this sort could take, that so many historic buildings had been demolished in New York historically because over time their original use didn’t make sense from an economic or financial viewpoint and no new use had been found.
Kwek was a hotel man and though he had huge real estate holdings through his company the Hong Leong Group, his CDL Hotel chain was his main interest. Going into the condo business in New York, especially with Donald Trump and an aged building was not exactly what he had in mind. Additionally, at the time, the purchase of the Plaza was not one of his priorities. After all, he already had a huge empire of hotels and didn’t have an ego to feed like some of the Plaza’s previous owners.
The second potential investors visited were the Raj Brothers from India, who were headquartered in Singapore. They owned a chain of hotels and were looking to do something in New York.
The two brothers were extremely friendly and courteous. They listened carefully but felt in the end that the New York market was soft, the renovation costs for the hotel would be too great and the asking price was exorbitant. They also did not understand the conversion of the building to condominiums.
There were numerous other meetings in Singapore, some I attended with the marketing firm and some alone, but after 10 days it became clear that nobody was in a rush to purchase the Plaza Hotel.
From Singapore, we flew to Hong Kong, where I knew I had two Chinese prospects who might partner up with Trump. The marketing representative knew this. Now he needed me and I would call the shots—at least I thought.
The first of these prospects was the Cheng family, who had become one of Trump’s partners on the West Side Project. They owned the Renaissance Hotel chain and a public development company called New World. Perhaps equally important, Henry Cheng and his father-in-law were two of the few Asians who could appreciate Old World splendor, and what better example of splendor than the Plaza Hotel. I met with them first. I showed them the book that I had prepared on the hotel, which provided financial and photographic information on the property.
Additionally, it provided the story on the conversion of the hotel to condominiums and the potential of the 60,000 square feet of retail space, which now sat in basements and sub-basements.
They were impressed, but they had just done a deal with Trump and they still weren’t sufficiently comfortable that the West Side situation would work out, so they deferred on the Plaza Hotel.
My second prospect in Hong Kong was the Kwok family. This family ran a real estate empire that made them the fourth wealthiest family in the world. Three brothers along with their mother ran the company. The key executive of the firm was Walter Kwok, with whom I had become friendly when attempting to do the West Side deal. He and his wife, Wendy, who had attended college in New York City, were good friends and spoke very openly. They are warm and friendly people. I would dine at their huge home overlooking Repulse Bay, or at Wendy’s mother’s apartment. I also spent weekends with them aboard one of their yachts sailing in and around Hong Kong.
During their trips to New York, I would often go with Walter to Chinatown for lunch or with Wendy, who loved a bargain, to Woodbury Common, in Harriman, New York, where she would spend the day shopping. She could afford all of the couture clothing shops on Madison Avenue but a good deal was more fun.
The Kwoks had a keen interest in hotels. They owned a number of Four Seasons properties and have since gone on to develop and own several St. Regis properties in Asia. They have just completed an 88-story Four Seasons Hotel in Hong Kong.
Walter clearly wanted to do something in New York. He saw and heard of the success of the West Side project and was clearly jealous that he had not done that deal.
I presented the condominium plan identifying costs, sell-out projections and potential profits as well as architectural concepts for the units, the public rooms, the retail space and the super-luxury condominiums in the roof. He was impressed and agreed to come to New York to see the property and meet with Trump in one month when taking one of their children to boarding school in Boston.
As promised, they arrived in New York and both Walter and Wendy got along famously with Donald. Walter and Donald were avid golf players and they played numerous times.
Meanwhile, I went with Wendy to Woodbury Common to do some shopping. She loved the place—so many bargains! Donald, Marla, Walter, Wendy and I went out each evening to the Four Seasons, Le Cirque, etc. I gave Walter a tour of the West Side project and showed him the first four 30-story residential towers that had been built to date. He was impressed and I could tell that he wished that he was involved in the deal. I assured him that the Plaza Hotel represented a better opportunity.
The Kwoks were staying in the Presidential Suite of the Plaza Hotel, as Trump’s guests. With over 7,000 square feet, a triple-height living room and terrace that overlooked Central Park, I thought they would be thoroughly impressed and this would help in consummating a deal.
However, several things were to occur to my dismay.
Though incredibly elegant, the Presidential Suite, like so much of the hotel, was in need of repair. One day I went to their suite to meet them for breakfast. Their bodyguard, who stood at the door to the suite knocked as I approached. There was no response. He knocked again, this time a bit more heavily. No response. He started to pound on the door and shouted “Mr.
Kwok, Mr. Kwok!” Suddenly there was this muffled sound from within saying “We can’t open the door. It seems locked.” Quickly, I called security, who in turn called for the maintenance staff.
Suddenly there were five people from the hotel’s staff working on the door. It had somehow become jammed and couldn’t be opened from the inside or outside!
The only solution was to break the door down, which the staff proceeded to do. About a half-hour later, the heavy door that dated from 1921, when this section of the hotel had been added, sat in splinters on the floor. More importantly, I felt, my opes for the Kwoks doing the Plaza deal lay in splinters.
Walter, Wendy, their two boys and servants rushed from the suite and I escorted them down to the Edwardian Room where we had a less than comfortable breakfast. The door was replaced by midday.
Toward the end of their trip to New York, Walter and Wendy sat with me in the Palm Court of the Plaza Hotel with strains of a Strauss waltz to be heard in the background. They were very direct. Wendy said $300 million was no problem, they could wire the funds tomorrow, but the hotel was in terrible condition, the market was poor and the condominium plan was a huge undertaking for their first project in New York. The sounds of the Struass waltz on the violin didn’t soothe or console me. I thought I was going to burst into tears. I had labored so hard and was defeated by a 70-year-old door.
It is difficult to describe how Donald reacted to all of this.
Heads would roll. Thunder and lightning bolts emanated from the executive level at Trump Tower that could have shaken all of New York that day. It was as if an 8.5 Richter-scale earthquake and tsunami had both hit Trump Tower from the sounds emanating from the 26th floor.
To the Kwoks he was apologetic and couldn’t be nicer. But to the staff at the Plaza, it was not a good day, not a good week or a good year. He fired everyone in sight, even people who didn’t work at the hotel and several guests who happened to be passing by.
The Kwoks went home to Hong Kong and I followed shortly thereafter as their guest at one of their hotels, where I stayed for a month while I sought out another partner for Trump on the Plaza Hotel. I would spend my weekdays in Bangkok, Kuala Lumpur, Jakarta and Tokyo meeting wealthy developers and hotel owners that I had identified or that Walter introduced me to. I would come back on the weekends to Hong Kong to relax.
It became clear to Trump and myself that nobody wanted the Plaza Hotel. Trump’s idea of adaptive reuse into condominiums made a lot of sense and would allow for the preservation of the building, but the people with money at that time, the Asians, weren’t into the renovation of an old hotel into condominiums. They built and owned hotels as well as condominiums but the two didn’t mesh in their minds in one building—especially one that was as old as the Plaza Hotel.
If the Asians didn’t understand the potential of conversion of the hotel to condominiums, then I would attempt to convince Citibank—specifically, Pat Goldstein, who had loaned Trump all the money on the hotel, the Shuttle and the Atlantic City casinos—to join with us in the conversion plan. Goldstein was not very receptive and said that she was a banker, not a developer. I pointed out that if she gave Trump a year he could repay the bank in full and allow them to reap huge profits.
Nevertheless, she said no. She was not going to go into the condominium business.
Several weeks later, Trump received a call from Citibank indicating that they had given the Hong Leong Group headed by Kwek Leng Beng a period of exclusivity to look at the hotel.
Trump was upset that I had not delivered a partner but I assured him that it was not too late. That all we had to do was establish a good rapport between him and Kwek and a partnership was possible. I spoke to Kwek’s staff and indicated that a meeting with Trump would be mutually beneficial. After all, Trump was the owner of the hotel, knew it inside out, was the best person to develop the condominium plan and was a great personality who added to the cache of the hotel. Kwek’s people agreed and a meeting was scheduled in London.
I immediately gave Trump a crash course on the Singaporean he was about to meet. I spoke of Kwek’s personality, his real estate holdings, his likes and dislikes. I wanted the two of them to get along.
Trump and I took the Concorde flight from JFK to London. This was my first trip on a Concorde and I was excited. With a huge roar of the engines and the bang at breaking the sound barrier, we were off. Four hours later, in the early evening, we arrived in London.
We were taken by limousine to the Lanesborough Hotel, a neo-classical palace, which resembled the White House. It was located across from Hyde Park and a few blocks from Buckingham Palace. The limo pulled under the porte-cochère of the hotel. The general manager of the hotel, in tails and top hat, opened the limo door and both Trump and I got out. He greeted Trump and indicated that he would like to give him a bit of history as it related to the property.
As the main entrance door of the hotel swung open, I was amazed by what I saw. The lobby was huge and was decorated with magnificent antiques. The furniture dating from the 18th and 19th centuries was incredible. Adding to the grandeur of the room were the colors and patterns of the fabrics displayed in draperies and on the sofas and chairs. There was an overall feeling of richness and warmth. Crystal chandeliers and a black and white marble floor covered with oriental rugs capped the beauty of the room.
As we began our walk from the main entrance to the front desk, the manager began his discourse. “Mr. Trump,” he said, “this structure was built over 200 years ago as a hospital for the indigent and was refurbished as a hotel a year ago.”
No sooner than these words were uttered Trump stopped in his tracks and turned to the general manager. He said, “Never tell anyone that this was a hospital. Do you know how many people died here or how much suffering occurred in this building?” Clearly, despite its current magnificence, Trump was feeling queasy. He went on to say to the general manager that if he worked for Trump, he would have fired him for this history lesson. For the next day, until Kwek arrived in London, Trump was to say to me that he couldn’t sleep: “Who knows if my suite wasn’t part of an operating room? How much blood was spilled on the floors?”
I, on the other hand, loved the place.
The following morning, I had breakfast at 6 a.m. The breakfast meeting with Kwek and Trump was scheduled in the dining room at 7:30 a.m. I couldn’t be eating during the meeting—I needed to keep myself totally absorbed in what was said and, if necessary, be prepared to add or modify a sentence or phrase uttered by my boss.
Kwek arrived a bit early. He was very pleasant. We spoke of my last visit to Singapore and the Plaza Hotel. Trump arrived and I introduced him to Kwek. I had given Trump a rundown on Kwek’s personality: reserved, calculating and inscrutable.
Trump was immediately able to find Kwek’s soft spot and the two of them got along famously. They talked about the hotel, New York, the recession in the U.S. and the condo plan for the Plaza. However, they spent most of their time talking about their favorite subject: women.
The meeting, which lasted for over an hour and a half, went gloriously, I thought. Kwek smiled and laughed. He seemed to really like Trump. He asked Trump how much cash he thought he would have to put up to satisfy Citibank and what terms did he think he could get from the syndicate of banks holding the mortgages on the hotel.
When back in New York, I began to fashion the outlines of a partnership between Kwek and Trump. Kwek would put up sufficient moneys to satisfy Citibank, approximately $100 million. Trump would manage the hotel for nothing and would be responsible for the development of the condominiums should the partnership decide to implement it. Kwek would get his $100 million back first with a preferred return and the partners would split the remaining proceeds in a fashion to be determined.
Additionally, I would be responsible for getting a loan so that Kwek could get his $100 million investment out of the hotel quickly. He and his staff seemed pleased with the proposal.
My plans failed to consider two events that were to occur: Prince Al Walid of Saudi Arabia, one of the world’s wealthiest men, who owned approximately 10 percent of Citibank’s stock, heard about the potential sale of the Plaza Hotel. Among his holdings was the Fairmont Hotel chain based in San Francisco. Not only was he looking for a high-end property in New York to anchor his hotel chain, but an opportunity for his management company to manage the facility. He approached Citibank, but they had given a period of exclusivity to CDL Hotels in the name of Kwek Leng Beng.
Citibank was in a dilemma: Do they get their key stockholder angry or do they lose what was beginning to appear as a sure bet in Kwek Leng Beng?
The bank began to think of matching Kwek with the Prince, but would Kwek go along with such an idea? Why would he allow himself to be pushed aside?
More importantly for me, if Kwek and the Prince were to strike a deal, I knew there would be no place at the table for Trump. Therefore, my goal was to sabotage any deal between them should one begin to materialize.
Sure enough, the hierarchy at Citibank decided to introduce the Prince to Kwek and have the two of them buy the hotel. Kwek, upon hearing of this suggestion by Citibank, became angry. He didn’t need any partners and he had his own management company. He didn’t need Fairmont. Furthermore, as I pointed out to Trump, it was a conflict of interest for Citibank to give its key stockholder preference in real estate it had a mortgage on. Citibank needed to get the best deal, not the one that would please its top stockholder.
The Prince’s representatives were introduced to Kwek and his people, and as I understand it, Kwek flew to Saudi Arabia to meet with the Prince. A deal was in the making and Trump was not part of it.
My plans for a deal between Trump and Kwek were being dashed. The only way to deal with the situation was to sabotage the proposed deal and cause the bank to start again.
The Kwek and Walid people came to New York to negotiate and tour the property. Both parties were staying at the Plaza Hotel and conducting their negotiations there—how foolish. After all, Trump was still the owner and manager and all of the staff was loyal to him.
They would meet in the Astor Suite, where the Kwek people were staying. Unknown to many people and relayed to me by an elderly doorman at the hotel whose father and grandfather had worked at various jobs in the hotel, a secret room had been created off of the sitting room in the Astor Suite.
Mr. Astor, who believed his wife to be unfaithful, could spy on her and hear her conversations as she entertained gentlemen.
There was a thin wall separating the sitting room of the suite from the walled-off room. I was able to sit in this room and hear all of the conversations of the Walid and Kwek people. Day after day from morning to evening I would enter this small, dimly lit room from the public hallway and take notes of the plans of the two parties for partnering on the property and financing it.
I was able to learn that they intended to finance $100 million of the purchase price with a loan from Sumitomo Bank in New York. I immediately spoke to a friend of mine at Sumitomo Bank in Chicago and arranged for a $100 million loan for the same purchase. This would effectively nullify the Kwek-Walid loan. It did, and they along with Pat Goldstein cried foul.
Through “third parties” the Building Department of the City of New York was notified of a number of “structural” problems at the hotel that included the facade of the building.
One day during the Kwek-Walid discussions the building department and fire marshals descended on the hotel and marched into the Astor Suite, stating that it was unfit for habitation and would have to be vacated.
For the next six days, till the city gave its okay, all of the potential buyers stayed downtown at Kwek’s hotel, The Millennium.
They had been concerned about the physical condition of the 90-year-old Plaza Hotel and this event confirmed their worst beliefs. They began to think twice about the purchase of the hotel, but when Pat Goldstein agreed to indemnify them against any structural issue, again I was thwarted.
This effort was followed by a number of other assaults, including a staged union rally for higher wages and increased pension benefits as well as an unstaged event where Mrs. Kwek was interrupted in the middle of the night by a hotel workman.
She had complained one afternoon that her television reception was poor. For some unknown reason, her complaint was responded to at 1 in the morning when she was fast asleep. The workman knocked on her door but, with no response, the maintenance person entered the suite with his house key. As he worked on the television, Mrs. Kwek awoke to see a very tall and heavy individual standing in her bedroom. She screamed out, and the workman fled. While I didn’t have anything to do with this event, it nevertheless fit into my plan to break up this potential axis of evil.
After three weeks of such maneuvering, Pat Goldstein called Trump and told him, “I don’t know how Wallach is doing it, but he had better stop his attempt to kill the Plaza deal” or she would not sign off on Trump’s attempt to go public with his casinos in Atlantic City.
One day shortly thereafter, Trump walked into my office and sat down. He said, I really appreciate all that you have been doing on the Plaza Hotel, but we would have to stop since he needed Pat Goldstein to sign certain documents that would allow him to take his casinos public. I would, therefore, have to stop my Kamikaze mission and let the Plaza be sold.
Recognizing what was at stake in Atlantic City, I understood but asked if I could attempt to salvage some position for him in the hotel. He agreed, so long as I acted above board.
I approached John Mechanic of Fried, Frank, the attorney for Kwek, and asked for a meeting. He reluctantly agreed but stated that representatives of the Prince and Kwek would have to be at the meeting. This would be my last opportunity to salvage something for Trump and I had better have something good to say, especially after all of my efforts to sabotage their deal.
At the meeting, I tried to point out that given the purchase price, which was in excess of $300 million, and the necessary renovations and replacement of infrastructure that would cost approximately $100 million, the hotel didn’t make sense in its current use. This fact was further reinforced by the low rates and occupancies being achieved at the property because of the recession in the U.S. I showed them numerous financial spreadsheets that I had prepared with various assumptions that indicated that even if the hotel market improved dramatically and occupancies were at 85 percent the hotel would still not make money. I indicated that adaptive reuse of the property was necessary in order to maximize potential profitability and that conversion to condominiums was therefore appropriate. I pointed out that the hotel was originally built with that intent and was only profitable when used as a residential property. I gave them a history lesson on the ownership of the hotel and its historical profitability. I pointed out that only Beinecke, the original builder and operator of the hotel, had made money on the property when it was used as a residential hotel with permanent occupants. That each of the succeeding owners had lost money operating the property and that the hotel sold over the years for less than it cost to build.
Finally, I switched gears and began to discuss the benefits of converting the hotel to condominiums and pointed out that all of the unused space in the basement and subbasements would make great retail space and add to the potential profits. I pointed out that Trump was an excellent developer who brought projects in on budget or below, was close with the unions and city officials and achieved the highest prices per square foot of any developer in New York when selling apartments.
Everyone listened intently and asked questions. Clearly, they were interested, but neither of the groups had done a condominium development in New York. Furthermore, this would be the most complex conversion in New York history. They were in the hotel business and could they entrust such a large deal to the litigious Trump?
After hours of discussion, they thanked me and said they would get back to me. Of course, I reported all of this to Trump, who said make the best deal you can.
Another meeting was held with the Kwek-Walid group, who by this time had settled their differences and had agreed to become partners and purchase the hotel. As part of their agreement, Kwek and the Prince would own the hotel equally with Citibank remaining in the deal with a 12 percent interest, thus giving the two other partners 44 percent each. Fairmont was to manage the hotel. In my mind, this also meant that Citibank was not getting much if any cash at closing.
If this was the deal what could possibly be left for Trump?
I came up with the following, and Trump and the Kwek-Walid interests, as well as Citibank, agreed. Trump would be a 10 percent partner in the new ownership structure, have a 10-percent interest in the annual profits of the hotel for a period of 10 years and would not be responsible for cash calls should they become necessary. Furthermore, if the hotel were sold within the initial 10-year period of ownership by this group, Trump would be entitled to 10 percent of the profits. Finally, should the partnership decide to implement the condominium plan, Trump would be responsible for its development as well as sales and marketing.
The deal was consummated and the property became a Fairmont hotel. The next 10 years was to see a continued flatness in the hotel market, first because of the national recession and then because of the terrorist attack on the World Trade Center, which was to decimate travel and hotel occupancy for two years or more.
In 2001, Citibank—after being in the deal since Trump had acquired the hotel in 1988—sold its 12 percent interest to the other two partners. While the exact sum that they got was never made public, given the difficult times for the hotel industry in that year, they clearly did not do well and I know never got close to their $300 million price tag.
The partners never invested the money necessary to make the hotel a first-class property. I stayed in the hotel once in 2004 and had to have my room changed three times until I got one that had a working television, shades that worked and drapes that weren’t frayed at the edges.
The cash flow from the property went from $42 million annually when Trump owned the hotel to less than $25 million.
In this environment, something had to happen. In 2005, it was announced that the Plaza Hotel had been sold to an Israeli company called Elad for the grand sum of $675 million. The new owners planned to convert the hotel to condominiums with a sellout potential value in the hottest condominium market that New York had ever experienced of close to $2 billion.
Upon hearing of the deal, I immediately called Trump, who I was no
longer working for, reminding him of the 10-percent interest that he had in profits during the initial 10 years of ownership by the Kwek-Walid group.
Trump immediately got on the phone to his lawyers and demanded that they quickly review the documents relative to the Plaza Hotel. After thorough examination of the legal documents, it was learned that the hotel had been sold four months after the 10th anniversary of ownership and Trump was therefore not entitled to any of the profits.
If Trump had not succeeded in his plans for the hotel, he had not really lost anything. He had only put up $20 million when he purchased the property and over the years had taken out large management fees, had his $500,000 wedding to Marla paid for by the hotel and gained enormous publicity.
Citibank was the big loser and the true fool in the deal.
First, they accepted the idea that the hotel was worth the $380 million that Trump paid for it. Second, they lent Trump too much to buy the hotel and didn’t require much equity from him. Then they compounded their mistakes by lending Trump more money when he purchased the airline shuttle and was developing the Atlantic City casinos. These mistakes were compounded when they didn’t keep the hotel with Trump managing it for just a year or two longer when the market began to improve. Did they think that a Singaporean or a Saudi prince better understood New York or the needs of the hotel better than Trump?
Had Citibank kept the Plaza Hotel with Trump, they could have achieved a sale to the Israelis for the same $675 million achieved by Kwek-Walid group. If Citibank had stuck with Trump they could have done the condominium plan with him and made a profit of at least $700 million claimed by Elad.
What fools!
on Aug 29, 2018