The housing market is experiencing difficult times. The Covid-19 crisis affected the value of real estate, especially commercial developments in cities like New York. Investors who have debts with near maturity prepare for delicate negotiations with their debtors.
The negotiations will be even more delicate if the debtor is the president of the United States.
Virtually all of Donald Trump’s debt – which amounts to at least US $ 1.1 billion (R $ 6.3 billion, at the current price), according to his financial statements to the government and other documents – is backed by real estate assets, linked, in mostly to a small number of buildings and golf courses that form the core of the Trump business empire.
About $ 900 million ($ 5.1 billion) of that debt will mature during Trump’s possible second term, if he wins the November 3 presidential election.
On paper, Trump is not heavily indebted: his net worth was estimated by Forbes at $ 2.5 billion ($ 14.3 billion). But the economy remains in a precarious situation, and if there is pressure to pay off its debts, it can play hard with its creditors, as it has done in the past.
The situation is becoming more pressing for the American president because his main source of revenue in recent years – his television work – “is drying up,” according to an investigation by the New York Times.
Citing the statements made by the president to the tax authorities, the newspaper also said that a large part of this revenue was invested in golf courses that are in deficit. So, while the president is wealthy in assets, it is unclear how much cash he has access to. The Trump Organization declined to comment.
The president’s creditors can be divided into five groups.
1. Trump owes $ 447 million ($ 2.5 billion) as part of his partnership with the Vornado Realty Trust, involving buildings in New York and San Francisco.
Trump owns 30% of the 1290 Avenue of the Americas buildings in New York and 555 California Street in San Francisco, giving him a pro-rata share of the $ 1.5 billion debt (R $ 8, 5 bi) for the two buildings, which will expire in the next two years.
The debt is due by society, not by Trump himself, but changes in the value of the debt, or any default, would directly affect the value of its stake in the buildings.
The loan for building 1290 was initially given by Deutsche Bank, UBS, Goldman Sachs and the state-owned Bank of China, but these institutions sold it years ago, and it is not clear who the lender is now. Nor is it clear who owns the California Street loan. Vornado declined to comment.
California Street is a 167,000-square-meter office complex, and although the rental income for the property fell 5% in the second quarter of this year, its occupancy rate is 99%, according to Vornado documents.
The 1290 is a 195,000 square meter office tower and retail space in Midtown, Manhattan. Vornado’s most recent files do not include updated figures on its occupancy rate.
The value of each of the buildings was probably impacted by the Covid-19 crisis. Commercial property prices fell 5% and 13% from a year ago in San Francisco and New York, respectively, according to real estate research firm Green Street.
2. Or securities market: US $ 257 million (R $ 1.4 billion) in loans
The loans were taken out through several of Trump’s most famous properties and were bundled, along with some loans not granted to the Republican, into commercial mortgage bonds.
The banks that originated these mortgages sold them to a CMBS (commercial mortgage-backed securities) fund, bundling them with other loans and converting them into negotiable debt securities.
A collection agent is responsible for collecting payments from debtors. If they fail to make a payment, a special collector intervenes to get the debtor to pay again or to foreclose on the mortgage. It is these debt collectors who can become crucial if Trump’s real estate falls behind.
According to Trepp data, there are altogether four Trump properties, all in New York, involved in six CBMS deals. Most are office buildings and residential buildings.
The largest of these is a $ 100 million (R $ 573 million) loan on Trump Tower, at 725 Fifth Avenue, which accounts for just over 10% of a 2012 package closed with Wells Fargo.
Most of the loans granted to Trump are small enough not to be the driving force behind the CMBS fund’s performance. According to data from Trepp, all properties are up to date. Occupancy rates appear to have been little impacted since the Covid-19 crisis began.
But a loan – a $ 6.5 million mortgage ($ 37.2 million) on the Trump International Hotel in 1 Central Park West, New York – has been identified as being at risk since the revenue generated by the property fell heavily.
The property has two tenants, a parking lot and the Triomphe Restaurant, now closed. If your payments are further delayed, the property will be passed on to your special collection agent, Midland Loan Services, part of the PNC. Midland declined to comment.
3. Trump owes up to $ 340 million (R $ 1.9 billion) to Deutsche Bank
Trump’s biggest creditor bank financed its hotels in Chicago and Washington and its golf resort in Miami.
According to Trump’s tax statements released by the New York Times, both the National Doral in Miami and the International Hotel in Washington have been generating huge losses.
Doral suffered a loss of $ 162 million (R $ 928 million) between 2012 and 2018, and the hotel in Washington lost $ 55.5 million (R $ 318 million) between 2016, when it opened, and 2018.
4. Trump owes at least $ 25 million to four small banks and an asset management firm
All loans are between US $ 5 million and US $ 25 million (R $ 28.6 million and 143.2 million). Most will not win in the next four years.
Two are mortgages on Trump family properties in the suburbs of New York and Palm Beach, Florida; two involve Trump golf courses in New Jersey and Washington, and one, which wins this year, relates to a residential tower in Midtown, Manhattan.
The New York apartment market suffered a 17% drop in prices this year, according to Green Street.
5. There is a debt of US $ 50 million (R $ 286 million) with the Chicago Unit Acquisition Trust, which is guaranteed by the Trump International Hotel and Tower in Chicago.
Little is known about this debt. The fund is a corporation owned by DJT Holdings LLC – namely Donald J. Trump. It seems that Trump owes himself money.
Asked in 2016 by the New York Times about this unusual arrangement, Trump replied: “I have the mortgage. That’s it. Very simple. I am the bank ”.
But he is also the debtor, and it is not an ordinary mortgage; it is a loan that matures only under specific conditions – usually a credit-related event, such as a downgrade in credit rating. It has been suggested that this arrangement may be part of a strategy to evade taxes.