TRUMP Strategies For Real Estate

TRUMP

TRATEGIES

FOR

EAL

STATE

TRUMP

TRATEGIES

FOR

EAL

STATE

Billionaire Lessons for the Small Investor

GEORGE H. ROSS

with

Andrew James McLean

OHN

ILEY

& S

ONS

, I

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Ross, George H., 1928–

Tr ump strategies for real estate : billionaire lessons for the small

investor / George H. Ross with Andrew James McLean.

p. cm.

Includes bibliographical references and index.

ISBN 0-471-71835-1 (cloth)

1. Real estate investment. 2. Real estate development. 3. Real estate

investment—United States—Case studies. 4. Real estate

development—United States—Case studies. 5. Trump, Donald, 1946– I.

Title: Billionaire lessons for the small investor. II. McLean, Andrew

James. III. Title.

HD1382.5.R67 2005

332.63′24—dc22

2005000053

Printed in the United States of America.

10 987654321

This book is dedicated to my wonderful wife, Billie

the solid foundation on which the happiness and success

in my life was built.

ONTENTS

OREWORD BY

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vii

CONTENTS

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NDEX

223

viii

OREWORD

Donald Trump

(In the author’s copy of The Art of the Deal)

o George—

There is no one like you. Only you and I know how important a

role you played in my success—Thanks for everything!

Best wishes,

Donald Trump

REFACE

’

VE SPENT

YEARS

as a lawyer, business advisor, and deal nego-

tiator for real estate tycoons at the top of the world’s toughest real

estate market—New York City. I’ve represented or negotiated with

great real estate minds like Harry Helmsley, Sam LeFrak, Bill Zeck-

endorf, and Donald Trump. It’s been my good fortune to spend many

of the best years of my career as Donald’s right-hand man.

These days most people know me best from the TV show, The

Apprentice, where Carolyn Kepcher and I help Donald make tough

decisions about whom to fire and whom to keep. The show has been

fun, but most of my work for Donald over the past 25 years has been

in the world of real estate. I have been an advisor, negotiator, and

lawyer on many of his biggest and most successful real estate invest-

ments, including the acquisition and renovation of the GM building,

Tr ump Tower on 5th Avenue, the Grand Hyatt Hotel, and my per-

sonal favorite, 40 Wall Street.

Throughout my career, I have had the opportunity to acquire a

great deal of knowledge and experience in real estate investing,

which I hope to pass on to you in this book. For example, during a

10-year period from 1956 to 1966 when Sol Goldman and Alex

DiLorenzo Jr. became two of the biggest property owners in New

York, I personally bought 702 individual properties on their behalf. I

have been intimately involved in many of New York City’s most

spectacular projects, such as the Chrysler Building and the St. Regis

PREFACE

xii

Hotel, which I helped one of my clients buy. I’ve also had the oppor-

tunity to watch Donald Trump in action as he made some of the

greatest real estate investments in history.

This book explains the strategies Donald Trump used to make

his real estate fortune, and how small investors can apply them to in-

vestments of any size, right down to a one-family rental property. I

describe how Trump implements some of his signature strategies

such as creating luxury, perceived value, exclusivity, and attention to

detail, which all come together to maximize the value of his invest-

ments. (This is why his properties earn far more money, square foot

for square foot, than his competitors’.)

A number of the chapters focus on a particular real estate invest-

ment that I was directly involved in negotiating or advising Trump

on. Using this example, I draw out the lessons and explain how the

same strategies that Trump used to make huge profits on his deals

can work for you—the small investor. Although Trump does things

on a grand scale and his target market is usually an elite, luxury cus-

tomer, Trump’s basic real estate strategies will be of interest to:

•Anyone who is interested in owning or developing real estate

•Anyone unsure of how to negotiate a real estate transaction

•

Anyone who isinrealestateonasmallscalebutwouldliketo

do more

•

Anyone interested in learning how Donald Trump does

hismagic

This is the first book on Trump’s strategies for the real estate

investor. Although it has a lot of nuts-and-bolts guidance and in-

vesting principles, the book alone will not make you a great in-

vestor. As I tell the students who take my negotiation course at New

York University, “There’s no way in 15 hours that I can make you

REFACE

xiii

an excellent negotiator. It is impossible! All I want to do is open

your mind to the possibilities and the power of negotiating, and

some basic techniques. Then, when you run into a specific situation

you can go back to your notes, and say, how did George handle this?

Or, what did he suggest?” You already have some ideas about real

estate, but I’ve learned many things in my 25 years working with

Tr u mp a nd 50 years in the real estate business, that I’d like to pass

along to you. If I am successful, this book will help you negotiate

far better deals, arrange better financing, make better investments,

and earn significantly more money in real estate.

I recall the day I first met Donald Trump in 1974. He entered my

office at the law firm of Dreyer and Traub beaming with enthusiasm

about a project he wanted to do with the old Commodore Hotel on

42d Street in New York City. He was just 27 years old at the time, and

I was a senior partner known for completing complex deals, but I

agreed to see him out of courtesy because I represented his father,

Fred Trump. Fred had spoken enthusiastically about Donald’s promise

as a future star in the real estate world.

Donald laid out his incredibly complex plan for buying the huge,

dumpy, rundown hotel next to Grand Central Station and turning it

into a first-class, state-of-the-art business hotel. I told him it was a

brilliant idea, but there was no way it would ever work, given the num-

ber of powerful people and governmental agencies he would have to

convince to grant him major concessions. Nevertheless, if he was will-

ing to pay the legal fees, I was willing to help him take a shot at it. We

spent the next two years negotiating with railroad executives, city and

state officials, lenders, and Hyatt executives making the deal happen.

During those tumultuous two years, Donald and I developed a great

working relationship and mutual respect. When he miraculously

pulled off the deal, I was so sure he would be a huge success in real es-

tate that I became his closest advisor and lawyer.

PREFACE

xiv

AREER

TARTED

When I was young, growing up in Brooklyn, New York, I planned to

go to MIT to be an engineer, but my father died suddenly when I was

16 and that plan died with him. At 17 I enlisted in the U.S. Army be-

cause they offered to send me to college. When I went on active duty,

I was trained as a cryptanalyst (a code breaker) and spent most of my

short army career in Washington, DC. The analytical skills, pa-

tience, and tenacity I learned as a code breaker helped me when I was

faced with seemingly unresolvable real estate problems.

With the help of the GI Bill, I obtained my BA degree at Brook-

lyn College and entered Brooklyn Law School. Working three jobs

concurrently and with the support of my working wife, I graduated

and was admitted to the New York Bar in 1953.

While looking for a job, I saw an ad in the Law Journal for a law

clerk. As luck would have it, the person who answered the phone was

Bill, a friend from law school. He was working for Dreyer and Traub, a

well-known real estate law firm. Bill said, “You don’t want this job.

Yo u’ll be nothing but a messenger and it only pays $25 a week.” But I

took it anyway! That was the inauspicious beginning of my legal career.

Although Dreyer and Traub was a law firm dealing primarily with

real estate matters, they handled litigation as a courtesy for their

clients, and Bill and I worked in the litigation department. Several

months later there was an opening upstairs in the real estate acquisi-

tion and leasing practice, the place where real money was made.

It was

an excellent opportunity for advancement and Bill was slotted for

the job. I was to take his spot in litigation. But before he could start,

he was drafted into the army and recommended me for the real es-

tate position. Once upstairs, I had the good fortune to apprentice to

Murray Felton, a very tough taskmaster. He was so demanding that

if I put a comma in the wrong place, I would hear about it for days.

But Felton was a superb technician and highly regarded in the

REFACE

world of real estate attorneys. I knew that working with him was a

great opportunity to learn the intricacies of real estate law from a

perfectionist. So I soaked up every bit of helpful information I

could from him. I became adept at drafting leases, real estate docu-

ments, and participating in all types of transactions. My prior liti-

gation experience added to the perception that I was a competent,

though young, real estate attorney.

EARNING THE

EAL

STATE

USINESS

In 1955, one of my clients asked me to draft a commercial lease for

him even though he was to be the tenant. Usually, the landlord’s at-

torney drafts the lease, but in this case the landlord told my client to

have his lawyer prepare the lease. So I drew up the lease and inserted

a provision stating that the tenant didn’t have to pay any rent before

the landlord made a certain elevator operational. My client moved in

and, as it turned out, the elevator inspector for New York City re-

fused to accept the elevator repairs the landlord made, insisting that

only a brand new elevator would get his approval. The elevator stayed

out of operation for a very long time, but throughout that period my

client was still able to carry out his normal business operations.

Theowners, Sol Goldman and Alex DiLorenzo Jr. had a “tenant

in possession” utilizing the premises for its normal business opera-

tions, but because of that clause in the lease, the tenant was not paying

them any rent! Although the landlords were very unhappy they were

helpless.

In the mid-1950s, Goldman and DiLorenzo, who were both

mul

timillionaires, had decided to invest in real estate on a huge scale.

I had decided to leave Dreyer and Traub because I had been told that

there was no possibility for me to become a partner in the firm. I

happened to mention my impending departure to Sol Goldman and

PREFACE

xvi

he called me a few days later and said, “George, Alex and I would like

you to be our counsel.” I said, “Why me?” He said, “Well, we al-

ready paid $90,000 in the form of lost rent just for the privilege of

knowing you! We’ll make it worth your while if you say yes.” I ac-

cepted their offer.

VERY

ROBLEM

AS A

RICE

Very quickly I learned something that every real estate investor

should understand: There is a huge difference between the legal as-

pects of real estate and the business of investing in real estate. I had

to restructure my whole way of thinking. Whenever I discovered a

legal problem with a real estate deal, Goldman would say, “Is it seri-

ous enough to blow the deal?” If I said, “No.” Then he would say,

“How much can I get off the price for the problem?” Most lawyers

simply advise their clients not to do a deal if they find legal problems;

lawyers cannot or will not make business recommendations for their

clients. Goldman forced me to think like a businessman, not just a

lawyer, and realize that almost every problem has a price tag. He

forced me to look at legal problems strictly as a way of improving the

deal. He’d say, “What can I get if I overlook this problem?” To find

that answer, I had to dig into the problem.

For example, Goldman and DiLorenzo contracted to buy Har-

borside Terminal in Jersey City, New Jersey, from the railroad that

owned it. The property consisted of a huge cold storage warehouse of

almost two million square feet abutting the Hudson River, right

across the river from downtown Manhattan. The purchase price

seemed reasonable even though it was to be an all-cash deal. How-

ever, the title report contained an exception for possible claims of the

State of New Jersey to a strip of land that the warehouse straddled. It

became clear to me why the railroad was having difficulty finding a

REFACE

xvii

buyer. No lawyer would let a client buy the property with such a de-

fect and certainly no bank would place a mortgage on it. The problem

related to land under water that was filled in sometime in the 1800s.

A law was passed stipulating that if the land under water was filled in

by the adjoining landowner before 1849, the landowner had good

title to it. If it was filled in after 1849, the State of New Jersey owned

it. I couldn’t prove when it was filled in and who filled it nor could

the State of New Jersey.

I told Sol we should get a price reduction and also convince the

railroad to take back a long-term purchase money mortgage at a low

interest rate since no lender would make any loan because of the title

defect. The railroad agreed to reduce the purchase price by $400,000

and to take a sizable mortgage, so we closed the deal. Several years

went by but the title impediment still stuck in my craw. I was certain

that the State of New Jersey must have encountered the same prob-

lem in the past since much of the land abutting the Hudson River was

filled-in land. I contacted the State and learned that they were aware

of the problem and rather than sit with a dubious claim they had

passed a statute giving the State the right to give up its claim in ex-

change for the value of their interest in the disputed land. Following

the procedure outlined in the statute, we paid a minimal amount and

received a quitclaim deed to the land in dispute from the State of

New Jersey. As a result, the property appreciated in value so much

that a bank made a first mortgage loan in an amount exceeding the

total purchase price paid by Goldman and DiLorenzo.

From 1956 to 1966 Goldman and DiLorenzo were New Yorkreal

estate. When I arrived at Goldman and DiLorenzo in 1956, they

owned18properties; when I left in 1966, they owned 720. I negoti-

ated and handled almost all of these purchasesby myselfwith very lit-

tle supervision from them. We were buying Manhattan ground leases

by thedozen, warehouses in New York harbor, and multimillion-

dol

lar office buildings. We were dealing in big num

bers, and much of

PREFACE

xviii

it was done with cash. Many times I walked into a closing on a prop-

erty with a certified check for millions of dollars inmywallet.Iwas

also given a standing million dollar deposit by Goldman and

DiLorenzo with which to negotiate. Goldman and DiLorenzo

would tell me what typeofdealtheywantedandmyjobwastomake

it happen. They were not anxious buyers, so if I didn’t think the

deal met their terms, I would kill it and goontothenextone.

That’s what enabled them to acquire so much real estate so quickly.

During that 10-year period, I bought the Chrysler Building, the St.

RegisHotel, the land under the Plaza Hotel, Harborside Terminal

in Jersey City, and numerous ground leases on their behalf. (A

ground lease isalong-term lease for land on which a building sits,

andgives the tenant all the rights and obligations of operation and

ownership except title to the land.)

Goldman and DiLorenzo’s appetite for real estate was voracious.

They had excellent financing connections which enabled me to close

transactions quickly. As their lone lawyer and business representa-

tive, I had almost unlimited authority to negotiate but not to in-

crease the purchase price. I negotiated with Harry Helmsley, Bill

Zeckendorf, and Morris Karp to name a few. These were all the big

names in New York real estate at that particular time—pretty heady

stuff for a 30-year-old lawyer.

For the first few years I worked for Goldman and DiLorenzo,

I was in way over my head. At Dreyer and Traub, I was handling

closings on single-family homes in New Jersey. I had never done a

contract and closing on any office building of any size. Now I was

thrust into an arena involving the purchase and operation of huge

office buildings. I really had no prior training or experience. Yet ev-

eryone thought, because I was so young and represented these mil-

lionaires in huge transactions, I must be brilliant so they treated me

as an equal. I knew how green I was, but I wasn’t going to dispute

their assessment of me! I learned as fast as I could from everyone I

REFACE

xix

came in contact with, including all the people on the other side—the

lawyers and other professionals and the real estate moguls them-

selves. I concentrated on what they did, how they did it, how they

acted and reacted in certain situations, and anything else that would

fill the void of my ineptitude. I was like a sponge absorbing every bit

of information I could. Before long my crash course in real estate

paid off and I began to give my clients well-reasoned opinions as to

which deals were good and which were not and what price to pay.

This gave me a unique combination of talents. Most lawyers don’t

know the business of real estate, and therefore, they are not

equipped to make business decisions. They are ready to render ad-

vice on any legal issue, but leave the business decisions to their

client.

ADIO

AYS

Any good lawyer will make lots of money while practicing law, but

since lawyering is a service business, the income stops when you step

down. I recognized the need to invest in some enterprise that would

be of value in my later years. In 1966, my brother-in-law, Martin

Beck, was leaving the Katz Agency, a big name in the business of sell-

ing radio time. He suggested that we look for investment opportuni-

ies together. He thought radio broadcasting on Long Island would be

profitable. I told him, “I don’t know anything about the radio busi-

ness.” He said, “I know all about radio but I don’t know how to raise

the capital necessary for a venture.” I told him, “You find and run the

stations and I’ll find the money to make it happen.” In 1966, we

formed Beck-Ross Communications Corporation and bought our first

radio station in Long Island, WGLI, for approximately $450,000.

Marty knew how to make money in radio broadcasting. Using the

profits from WGLI and by expanding our financial contacts, we

PREFACE

barked on a plan of expansion. FM broadcasting was in its infancy

but the superiority of the sound made it an attractive prospect. We

purchased several other stations—both AM and FM—increased

their market share, and then sold them at huge profits. In 1986,

Marty and I bought out all of our investors for 25 times their origi-

nal investment. In 1987, we were faced with a decision that many in-

vestors confront at some time, to expand the business or sell out to

someone who would. We chose to take a substantial profit and leave

the expansion to the buyer.

But the radio business was only a sideline to my law career. In

1966, after 10 years with Goldman and DiLorenzo, my reputation

had grown to the point where I could have received a partnership

with any quality law firm with a real estate department. I opted to re-

turn as a partner to my old firm, Dreyer and Traub, where I was

being accepted as a senior partner. I realized that since only two

young attorneys had become new partners in the past 10 years and

the old partners were reaching retirement, it would be my firm

within a few years. That’s exactly what happened. By the early

1970s, I became one of four senior partners running one of the best

real estate law firms in New York with as many as 120 lawyers. I led

that firm for more than 20 years.

Eventually, I got tired of dealing with partnership politics, gave

up the active practice of law, got a severance package, and joined the

Edward S. Gordon Company where my role for the next 10 years was

to supply real estate expertise to major clients like United Technolo-

gies, IBM, the New York Times, and AT&T.

I C

AME TO

ORK FOR

ONALD

RUMP

Although I left the active practice of law in 1987, I remained friendly

with Donald Trump, and though I had worked with him on many of

REFACE

xxi

his most successful projects, I was no longer his lawyer. When the

New York City real estate market tanked in 1990, Trump hit the

rocks. It was not due to a lack of business acumen; rather, his phe-

nomenal success had created an air of invincibility. Because he had

been so incredibly successful, he began to think that any business he

touched would turn to gold.

The banks would throw money at him. If he asked to borrow $60

million for a building, they gave him $80 million. When the bottom

fell out of the New York City real estate market, he was vastly

overextended and was over $990 million in debt. He owed so much

money that the lenders knew if they forced him into bankruptcy it

would have a disastrous effect on the real estate market. They had

many bad loans that they didn’t want to write off. So they came up

with a plan that would enable him to work his way back by agreeing

to accept a substantial reduction if the loans were repaid by a certain

future date.

Even though I was no longer a member of a law firm, I

wanted to help. I told Donald that if he ever needed legal advice or

counsel while he was in trouble, I would be happy to do it for him

without charge. He was impressed and asked me why I would do

that. I said, “Donald, I think a lawyer has a responsibility to repre-

sent a client when he’s down, not only when he’s on top. I’m here if

you need me.” Trump never accepted my offer because it’s not his

style to get something for nothing. But I’m sure he appreciated the

gesture. My philosophy has since paid off in spades—with Donald

Tr u mp, loya lty goes a long way.

In the mid-1990s, Donald had two deals going, the new Nike

Building adjoining Trump Tower and 40 Wall Street. Both were

plagued with problems because of the lawyers involved, and very lit-

tle was getting accomplished. Donald knows when to use delay tac-

tics, but he also hates deals that drag on and on. So he hired me to

eliminate the roadblocks and get those deals done. While I was

PREFACE

xxii

working on them, I told Donald that I was bored with my life at

Gordon and was planning to retire. He asked me to join the Trump

Organization on a full-time basis. He said, “I’ve got a lot of great

things going and you’ll have fun.” We quickly agreed on terms (I

only work four days a week) and 10 years later, I’m still an important

part of the Tr u mp team.

My title is Senior Executive Vice President and Senior Counsel for

the Trump Organization and my primary function is to give Donald

Tr ump business and legal advice. I offer my opinion as to the feasibil-

ity of his proposed projects, which he is free to accept or reject. He

likes to bounce things off me before reaching his own decision. He

knows that I will call it like I see it and give him an unbiased opinion.

I’m currently responsible for developing many foreign investments for

Donald and supervising the leasing and operation of 40 Wall Street

and Trump Tower.

Additionally, I teach a course at New York University on negoti-

ation. Negotiation is a subject that I have made a study of throughout

my career, because it is such a critical part of real estate success. I

could easily fill a book on this subject. For a discussion of some of

the principles and techniques, used by Trump, that I think are most

valuable, see Chapters 3 and 4.

Tr ump has been a great man to work for. In 10 years, he has

never once asked me where I’m going or what I’m doing. That’s the

kind of trust we have. When he gave me responsibility for 40 Wall

Street, I took the building from where it was—a one-million-square-

foot nearly vacant structure he purchased for $1 million—to where

it is now—a thriving office building worth in excess of $350 million.

After 40 Wall Street had been rented and had become extremely

profitable for Trump, I said to him, “I think I’m entitled to a bonus

for 40 Wall Street.” Trump’s reply was, “How much do you think

you’re entitled to?” I gave him a figure. He said, “You’ve got it.” It’s

this kind of recognition that makes it a pleasure to work for him.

REFACE

xxiii

Fred Trump once said to Donald when he needed a lawyer, “You

would be hard-pressed to find a wiser, more loyal, or a better advisor

and lawyer than George Ross.” I’m delighted Donald took that ad-

vice and gave me the opportunity to work with a true real estate

genius. Now I hope to pass on to you some of the powerful investing

strategies I’ve learned from some of the greatest real estate minds in

the business.

CKNOWLEDGMENTS

My gratitude to Donald J. Trump for becoming such an important

part of my life as a friend and for giving me the unique opportunity

throughout my career to help turn his visions of spectacular projects

into realities.

ELL

OURSELF

IKE

RUMP

Five Personal Qualities You Need to

Succeed in Real Estate

OINTS

•Use your enthusiasm for the project to inspire others.

• Build relationships with everyone involved in a deal.

•Showmanship is a real estate strategy.

•Be better prepared than anyone else.

•Be tenacious.

Grand Hyatt

ONALD

RUMP BECAME

a billionaire in real estate by making a

series of incredibly creative and successful investments in New

York City properties. He is now the largest real estate developer in

New York and is widely acknowledged to be one of the most brilliant

real estate investing minds anywhere. For example, in the early

1980s, with the building of Trump Tower on 5th Avenue, he single-

handedly created the market for high-end luxury residences in New

York City. He continued with a string of successes and in 2003, 9 of

the 10 highest selling apartments were in Trump buildings—apart-

ments that sold for millions of dollars each.

What can the small real estate investor learn from a billionaire

developer like Trump? After advising Trump on many of his biggest

investments over 25 years, I’m convinced that small investors can

successfully use many of the same principles that earn him millions.

It’s not the scale of your real estate investment project that counts.

Whether you are investing in a single-family rental, a four-unit

rental, or a multimillion-dollar office building makes no difference to

the financial success of your particular project, what’s important are

the real estate investing strategies used to acquire and develop the

property, and how you design and market the property to buyers or

tenants. Many of the same basic principles that work for one of

Tr ump’s $300-million skyscrapers work just as well for smaller prop-

erties. Anyone interested in investing in real estate can benefit from a

study of Trump’s real estate investor strategies.

For example, you can’t make big real estate investments—or re-

ally profitable small investments—without projecting certain per-

sonal qualities that inspire confidence in others, and make them want

TRUMP STRATEGIES FOR REAL ESTATE

to help you or to see things your way. The key personal qualities you

need are enthusiasm, relationship-building skills, showmanship,

preparation, and tenacity. Donald Trump has these qualities in

spades as he demonstrated on his first big real estate deal, the trans-

formation of the dilapidated Commodore Hotel on 42nd Street in

New York City into the magnificent Grand Hyatt. Remarkably,

Tr u mp u sed very little of his own money in this transaction, yet later

sold his half interest to Hyatt for $85 million.

This chapter will describe how these five key personal qualities

helped Trump make the Commodore-Hyatt deal work, and how

small investors can use these same qualities in their own real estate

investments to negotiate better deals, sell properties for more money,

and dramatically improve real estate profits.

INVESTING CASE STUDY

RUMP

’

OMMODORE

-H

YATT

ROJECT

This real estate investment was a monster as far as complexity was

concerned. It was 1974, New York City was struggling to survive,

and Trump decided that this was a great time to buy a huge, dilapi-

dated, nearly empty building on 42nd Street next to Grand Central

Station. Like many of the best real estate investors, he looks at prob-

lem properties and sees opportunities. Trump’s plan was to convert

this old building, the Commodore Hotel, into a 1,400-room first-

class convention hotel—the largest since the New York Hilton was

built 25 years earlier.

When 27-year-old Donald Trump explained his grandiose idea to

me during our first meeting, I told him that based on existing condi-

tions he was chasing an impossible dream that would never happen.

I thought the idea was brilliant, but it was totally unrealistic given the

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economic environment and the huge cast of characters who would

have to embrace a set of entirely new concepts for the idea to work.

Tr ump would have to win major financial concessions from:

1. Penn Central, a bankrupt railroad that owned the land on which

the Commodore Hotel was built;

2. New York City, which was facing bankruptcy;

3. The State of New York, which had no money to contribute to any

venture;

4. A lender who was holding many defaulted loans on New York real

estate;

5. A major hotel chain that was not pursuing new facilities in New

Yo rk City since tourism and occupancy rates were extremely low;

and

6. Existing tenants occupying the building.

The deal involved successful negotiation of several treacherous in-

terconnected transactions. If Trump failed to conclude any one of

these transactions, it would sink the entire project. Using the five

personal qualities outlined in this chapter he had to:

1. Obtain an option to buy the Commodore Hotel from the Penn

Central Railroad for $12 million dollars;

2. Convince the representatives of Penn Central Railroad to turn

over the $12 million purchase price to New York City, which was

owed $15 million in back taxes from the Penn Central;

3. Convince New York City to accept the $12 million to cover $15

million in back taxes and agree to the creation of a long-term

lease that would give the city a share of profits in lieu of future

real estate taxes;

4. Convince the Urban Development Corporation, a New York State

Agency, to accept title to the property, then grant a long-term

TRUMP STRATEGIES FOR REAL ESTATE

lease of the property to Trump and to use its right of eminent do-

main to obtain possession from existing tenants;

5. Find a major hotel operator willing to participate in the owner-

ship and operation of the new hotel to give credibility to the cre-

ation of profits in which New York City would share; and

6. Find a bank willing to lend $80 million to cover all of the costs in-

volved in purchasing and developing the property.

This was as complex as it sounds. Something like this had never

been done before.

To jump ahead to the end of the story, Trump pulled it off,

convincing all these parties to work with him, using his enthusiasm,

relationship-building skills, showmanship, preparation, and tenacity.

In September of 1980, the Grand Hyatt opened—and it was a great

success from day one. The renovated Hyatt helped revitalize the

whole Grand Central Station neighborhood in New York City, which

in turn played a major role in reversing the failing, bankrupt image of

the city in the 1970s. By 1987, gross operating profits at the Hyatt

exceeded $30 million annually. Years later, after recouping his mod-

est cash investment in the property, Trump sold his half interest to

Hyatt for $85 million.

Here’s how Donald Trump used critical personal qualities to clinch

that monumental real estate deal. You can use the same qualities in

your own dealings regardless of their size or complexity.

OUR

NTHUSIASM FOR THE

ROJECT TO

NSPIRE

THERS

Enthusiasm is a crucial element of the investment game because your

success depends largely on capturing the imagination and securing

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the cooperation of key players—buyers, sellers, lenders, tenants, con-

tractors, and others. If you’re not enthusiastic about your real estate

investment idea, there’s no way you can get someone else to sign on.

Remember that people will initially be skeptical of whatever you say.

So be like Trump, sell hard. If you can maintain your level of com-

mitment and enthusiasm in the face of initial doubts, you’ve taken

the first step toward getting the support you will need to succeed.

Tr u mp k nows that enthusiasm is contagious.

For example, Trump’s enthusiasm for the Commodore-Hyatt

project and the way he envisioned it benefiting the entire city of New

York were boundless. He communicated his vision over and over to all

of the people who were involved in the various governmental agen-

cies, including the mayor’s office and the railroad. He argued that

this one project could help turn around the entire blighted midtown

Manhattan area. They all agreed that it was important to do some-

thing about this eyesore, the Commodore, because of its critical loca-

tion next to Grand Central Station. Trump’s enthusiasm convinced

them that he was the only person capable of putting all the pieces to-

gether. For example, he told the city, “Forget real estate taxes and

concentrate on the money you’ll earn from room taxes, income taxes

paid to the city on the salaries earned by the employees working in

the new hotel, and the profits from the hotel operation.” (Trump of-

fered to make New York City a partner in the profits.) “Think about

how the new construction will bring desperately needed jobs to New

York and reestablish New York City as the capital of the world.”

Tr ump’s enthusiasm was the catalyst for getting key people,

whose support he needed to achieve success, interested in the deal

and to getting the city to embrace the idea. He prepared charts and

graphics showing the dreary existing conditions of the area, the like-

lihood of an extended recession in property values leading to further

erosion of the city’s tax base. He explained, “This is what you’ve

got

now but here’s what I can do for you.” He would then display a

TRUMP STRATEGIES FOR REAL ESTATE

dramatic color rendering of the building as it would appear when ren-

ovated and sell this as the linchpin of revitalizing the Grand Central

area—which in turn was the cornerstone of the reconstruction of the

image of New York City. All he initially sought was the city’s ac-

knowledgment that this was a great idea coupled with a loose com-

mitment to cooperate in bringing it to fruition, if they got

everything they wanted. He never talked numbers with the key play-

ers in this deal until after he got an initial expression of interest and

support for his plan. He knew that talking numbers too soon would

give people a reason to say no to his plan. It’s a valuable lesson for

you to remember in any real estate investment of yours: Enthusiasm

(and focusing initially on the large outlines of a deal rather than the

financial details) can overcome many obstacles.

How Small Real Estate Investors Can Use Enthusiasm

The Hotel Commodore conversion was a huge project that took over

two years and 23 drafts of a complicated and intensely negotiated

ground lease to finish. But no matter what the size or complexity of

your real estate project, at various stages of the transaction you’ll

need to convince other people to help you, and do what you want

them to do. This takes enthusiasm and perseverance. Share with the

seller, your lenders, contractors, and others what you envision for the

property you want to buy or renovate. Tell a great story about how

you found it, what your inspiration was, and the difficulties you have

already overcome. Play up what you see as its best or most unique

features. Trump knows that people like to be excited. You just have

to find creative ways to excite them.

If you’re not enthusiastic, the people you’re trying to convince to

lend you money, sell you a property, or invest in your partnership are

not going to stick their necks out. But if you can tell a great story

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about your investment idea, if you are articulate and enthusiastic

about the opportunity you are offering others, you are on your way

to developing the requisite rapport with buyers, sellers, lenders, or

other decision makers.

UILD

ELATIONSHIPS WITH

VERYONE

NVOLVED IN A

EAL

The success of any real estate investment or any business deal, for

that matter, is not strictly a matter of dollars-and-cents. A lot of it

comes down to personal relationships—your ability to forge strong

cooperative relationships with all parties, whether they are directly

or even tangentially involved. Trump does this by taking the time

necessary to gain insight into the people he is dealing with—who

they are, what they do, how they do business, who are their family

members or friends, and if appropriate, what their hobbies are. If you

can establish a rapport and a feeling of mutual trust it invariably

makes for an easier negotiation and a faster, more amicable conclu-

sion to any problems that arise. The principle here is, “No one in-

tends to buy a bucket of trust but they will pay for it if it’s delivered.”

Give people reasons to trust you by building a relationship with

them, and you will be laying the foundation for long-term real estate

investing success.

The reason you have to build relationships, especially at the be-

ginning of a real estate transaction, is that people are naturally sus-

picious of others. Until you have built up a level of trust, it is likely

that what you say will be somewhat discounted.

One way to build a good relationship is to assume that the pres-

ent transaction you’re working on is only the beginning of negoti-

ating many deals with your counterparts. Work hard to create the

TRUMP STRATEGIES FOR REAL ESTATE

impres

sion of being “a nice person to deal with.” Some of Trump’s

best deals were the result of recommendations from adversaries with

whom he had past dealings. Leaving pleasant memories is the best

personal advertisement in any real estate transaction.

Here’s a great example of Trump’s relationship-building skill in

action from the Commodore-Hyatt deal. Trump had never met Vic-

tor Palmieri, an executive with Penn Central Railroad, which owned

the Commodore Hotel, but Trump knew Palmieri would have to play

a key role if Trump’s idea were to become reality. With full confi-

dence in his project and his salesmanship, Donald Trump called

Palmieri, introduced himself, and said, “Give me 15 minutes of your

time and we can reverse the decline of the City of New York and in-

crease the value of your Penn Central holdings.” In the meeting,

Tr u mp got Palmieri’s attention and a solid working relationship was

created. Without Trump building a strong cooperative relationship

with Victor Palmieri, the decision maker for Penn Central, he would

have never had the opportunity to purchase the Commodore from

Penn Central, let alone get Palmieri’s help in pressuring the city for

its cooperation, which became critical later on.

Small investors tend to think that they have no basis for building

a personal relationship, and therefore no negotiating power. Nega-

tive thoughts create their own problems. You may be dealing with

someone who’s much more successful, or who works for a large, im-

personal bank. You may think they can’t (or won’t) relate to you, but

that’s not true. You can relate to each other as human beings. Look

for anything at all you may have in common.

If you’re going into a meeting with someone, learn as much about

them beforehand as you can. Ask someone else about them, find out

what they know. If you’re going to meet with an owner of a rental

property, speak to one of his tenants beforehand. Ask questions, such

as, Is it a good property? What do you think about the landlord?

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Now you have information that may help you establish rapport

with the owner, and probably some ammunition that will be useful

when you enter into negotiations.

HOWMANSHIP

EAL

STATE

TRATEGY

Once you have conviction about how your real estate investment

can benefit not just you but the other people whose help you need,

and you’ve started to build relationships, the next step is to find

concrete ways to communicate your vision to your potential real es-

tate partners. Anyone who is involved with a real estate transaction,

especially a fixer-upper project or new construction, has undoubt-

edly spent a lot of time and effort thinking about the details of it:

how it will work, why it will be good for everyone involved, how it

will be successful, and what the end reward will be. The challenge

now is to condense everything that you’ve done and thought into

something that you can show or tell other people so that they get

the same degree of enthusiasm. It’s difficult, but that’s your chal-

lenge. Keep in mind that other people whose help you need are

starting off cold. They haven’t spent the weeks or the months living

with this project that you have. To get them to share in your

dream, you have to come up with a way of making it interesting to

them. This is called showmanship—and it is one of Trump’s signa-

ture traits.

One great example of Trump’s showmanship was his hiring of

Henry Pearce, a dignified, New York City banker with decades of

experience, to assist him in obtaining the financing for the Com-

modore. Trump was only 27 and he knew bankers would be skepti-

cal of lending so much money to someone so young. Showmanship,

in this case, meant conveying a powerful symbol of reliability and

TRUMP STRATEGIES FOR REAL ESTATE

safety to the conservative bankers, and this is exactly what Trump

did when he sat down at the table with Pearce at his side. Instead of

seeing a 27-year-old asking for millions of dollars, the bankers

saw Trump with someone they had been dealing with for years—

even though the reality was that he was just a temporary hired gun

for Trump.

An even better example of Trump’s showmanship is the way

he used flashy architecture to get people excited about the

Commodore-Hyatt deal. Using eye-catching, conversation-starting

architecture is one of Trump’s signature tactics, and it’s something

every real estate investor, no matter how small, should consider

doing. A good design and some flashy ideas from an architect can

easily add far more value to a project than the cost of the architect’s

fee. If you can create something impressive and distinctive, you will

be able to get premium rents or a premium selling price for your

property.

Tr u mp felt that the Commodore was going down hill because it

looked so dark and dingy. His plan was to build a new façade directly

over the building’s old skeletal structure in glass, or bronze if that

was feasible, otherwise he would demolish the existing building and

build a new one. It had to embody “showmanship”—a building with

sparkle and excitement that would make people stop and notice. He

hired a young, talented architect named Der Scutt, to help him real-

ize this vision.

Next, Trump used showmanship to get New York City to agree

to a massive 40-year tax abatement in order to make this deal work,

and instead, take a share of the profits. This was a critical piece of

his plan. But Trump knew that convincing the politicians and bu-

reaucrats in New York City government to go along with this plan

would be extremely difficult. To imagine that the run-down Com-

modore Hotel, mostly vacant and mired in unpaid property taxes,

could evolve into one of the busiest and most luxurious hotels in

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Manhattan was a tough proposition for anyone to believe. He had to

give the Board of Estimate something physical to look at, to touch,

in order to make his vision real.

Tr u mp h ad t he architect come up with sketches and renderings

that he could use in his presentations to the city and the lenders. He

told Der to make it appear that he had spent a huge sum of money on

the drawings. A beautiful presentation can be very impressive. It

worked. People began to believe in the idea.

How Small Investors Can Use Showmanship

There are plenty of inexpensive ways to use showmanship in small

real estate investments. For example, instead of showing prospective

buyers a vacant piece of land, show them a rendering of what the

project will look like after it is built. Hire an artist if necessary. It

may be worth investing in a scale model of your property so that buy-

ers can visualize the final product.

Also, how you dress, your appearance, says something to the peo-

ple you’re trying to influence. Donald Trump always dresses in a way

that will make a good impression on the people whose help he needs.

To spearhead a luxury hotel deal in the heart of Manhattan, a pin-

stripe suit and silk tie are the safest bet. But because appearance

communicates adaptability as well as respectability, Trump knows

that khakis and a polo shirt are appropriate for golf course negotia-

tions, or a hard hat for on-site construction projects. Your dress

should be chosen to give people confidence that you can do what you

say you’re going to do.

Think about the people whose help you need to make your in-

vestment successful. When meeting withabankyoumaywantto

wear a suit—but very high heels or excessive makeup might com-

promise the impression you want to make. If you’re meeting with a

contractor, trytokeep it casual, don’t overdress, but try to wear a

TRUMP STRATEGIES FOR REAL ESTATE

casual outfit that still looks impressive. First impressions make a

powerful statement.

ETTER

REPARED

HAN

NYONE

LSE

Most people don’t realize that there’s a lot of preparation involved in

getting people to respond in the way you want them to respond. The

key is anticipating problems and questions that other people will ask

about your proposal and having answers ready. Donald Trump

spends significant amounts of time preparing for important meet-

ings in which he needs to persuade a key person or group.

Here’s an example for small investors: You want to sell a home to

a potential buyer. The buyer says that he wants to buy the house, but

his purchase will be subject to getting a mortgage. Here is where

your planning pays off. If you have already done your homework and

contacted a bank, which has agreed to make a mortgage on the house

for x amount of dollars, you anticipated this potential problem. Now

you can tell the buyer, “I already have the ideal bank for you to go

to.” I have now directed you to one source, instead of you going to

ten sources and getting confused.

You could be selling a house with a very old refrigerator, and you

don’t want to buy a new one. You anticipate a buyer’s objection by say-

ing (if the objection comes up), “I’ll guarantee that if the refrigerator

doesn’t last a year, I’ll buy you a new one.” You have anticipated a po-

tential problem. So instead of the buyer asking for a discount because

he wants a new refrigerator, you simply give him a one-year warranty.

Whatever the situation, whether you are buying or selling, try to an-

ticipate any likely potential problem.

You do this by taking an objective look at what it is you’re try-

ing to accomplish. You say, “If I were the buyer, what would I find

objectionable?” Put yourself in the shoes of the other party and

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raise the questions they would raise, then find the answers to the

questions. There’s always some wrinkle in the transaction, some-

thing that you will need to address so that you can quickly move

on so the other party doesn’t dwell on it. Keep your goal in mind

and think through any potential obstacles and have possible solu-

tions ready.

If you are preparing for a meeting, you need to think about how

you can use the meeting to build rapport, but also focus on what

your objective is. Perhaps you want others to invest; maybe you want

them to accept your capabilities, whatever the case you must prepare

for that meeting: What you’re going to say; what you’re going to do;

and who the audience is; who you’ll be playing to. This way you can

have the maximum effect. If you don’t prepare, you’ll fall flat.

There was a researcher named Ziff who made a study of negotia-

tion. He expanded a concept called Ziff ’s principle of least effort,

which proved that most people will put the least amount of effort in

a transaction that they can in order to proceed. When I read about

the theory, I immediately realized it was true in real estate. Most

people are not willing to put in a lot of time to prepare before mak-

ing big real estate decisions, and you can make this work to your ad-

vantage if you are willing to do what most other people won’t.

Knowing that others want to put in very little effort, successful peo-

ple like Trump take the role of filling the gap and doing all of the ef-

fort that’s required in a transaction. They do it on behalf of the

other people involved in the transaction who don’t want to do it.

Tr u mp a lway s does more preparation than other people are willing to

because it gives him greater control in a fluid situation.

For example, if Trump is creating a plan to attract investors in a

property, knowing what he does about human nature, he’s not going

to expect you to spend a lot of time and effort reading the details.

He’ll do all the mathematics for you in the plan and at the bottom

he’ll write, in big type, “Return on your money: 20% a year.” Most

TRUMP STRATEGIES FOR REAL ESTATE

people are going to go right to that “20% a year.” They’re not going

to delve into the details. They’re enamored with the 20%.

When Trump has a person interested in a transaction, he will do

everything he can to make his involvement in that transaction easy.

For example, “I’ll do this so you don’t have to; I’ll send you this; I’ll

take care of that phone call.” You want to keep other people, as much

as possible, out of the nitty gritty of the actual transaction, so you

can control the details. Take advantage of the fact that most people

are not willing to spend time on preparation.

Tr ump spent huge amounts of time preparing for the New York

City Board of Estimate, which first met to approve his entire Com-

modore transaction in late December 1975. One of the things he did

a week beforehand, was to go to Victor Palmieri, the executive from

Penn Central Railroad who owned the Commodore Hotel and ex-

plain to him that if he wanted the city to take our abatement case se-

riously, we needed to get out the message that the Commodore was

going downhill fast and that it was not going to survive much longer.

Palmieri agreed with him. On December 12, Palmieri made a public

announcement to the media that the Commodore Hotel had lost an-

other $1.2 million during 1975, was anticipating worse losses in

1976, and as a result intended to shut down the hotel permanently no

later then June 30, 1976. This announcement by itself didn’t change

the Board of Estimate’s mind, but they agreed to hold several more

meetings with Trump. However, from the beginning of negotiations,

the single event that nobody in city government wanted to see was the

Commodore closed down and boarded up. So the news release prior

to the December meeting helped get the Board of Estimates worried

about a closing of the Commodore. Then, next spring, on May 12,

1976, one week before the Board of Estimate, for the fourth time, was

to vote on Trump’s tax abatement, Trump got Palmieri to announce

that Penn Central would permanently close the Commodore in six

days. Palmieri explained to the media that the occupancy had de-

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creased from 46 percent the previous year to 33 percent, and that op-

erational losses for 1976 were projected at $4.6 million.

Adding fuel to the fire, on May 19, was the front-page news in

allthe local newspapers about the remaining tenants being forced

out of the Commodore. The news featured stories about the hun-

dreds of employees who were now looking for work, and the dismay

thelocal retailers were feeling in anticipation of a boarded-up Com-

modore Hotel.

On May 20, thanks in part to Trump’s strategic preparations for

his four meetings with the Board of Estimate, the Board finally

voted unanimously to give Trump the full tax abatement deal he had

sought. Over the 40-year term, the tax abatement saved him tens of

millions of dollars. This is typical of how Trump thinks strategically

about preparing for critical meetings. He will go to great lengths to

create conditions that will work to his favor during the meeting.

How Small Investors Can Use Preparation to Their Advantage

Suppose, for example, you need a temporary construction loan for a

fixer-upper. Before you ever ask for a loan, talk to other people who

have received constructionloans.Whatdidtheyhavetodotoqual-

ify? What kind of fees and ratesdidthelendercharge?Werethey

happy with the lender? Do as much networking as you can to find peo-

ple who have direct experience and are knowledgeable about the kind

of loan you want, and who can give you the inside story on what it

takes togetthatkindofaloanwithfavorableterms.Gettinginforma-

tion from insiders or people who know more than you is the best kind

of preparation you can do for an important meeting or negotiation.

Preparation is important in all phases of a real estate investment.

It shows up in how well conceived your plan for fixing up and selling

a property is, and how many contingencies you have prepared for;

it’s in how you present yourself to a lender and if you have properly

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profitable projects have been those such as 40 Wall Street (to be dis-

cussed later in the book) where he picked up a property for very little

because a string of earlier investors had failed with the property—

and only he had the tenacity and vision to make it work. Everything

that is really successful was the result of hard work that nobody else

wanted to do. The only thing that held the whole Commodore-Hyatt

deal together was Trump’s tenacity—he was like a hungry pit bull.

For example, during early negotiations with New York City over

theCommodore Hotel, one of the city’s key concerns was who would

runthisnew hotel. They said, “You say you’re going to pay us rent,

and that you’re going to give usashareoftheprofits,butwhatdo

you, Donald Trump, know about running a first-class hotel?” And at

first, he didn’t have an answer. But he said, “All right, I’ll go out and

get a major player to run it.” And the city responded with, “Okay, if

you bring in a major hotel operator, we’ll go along with it.” That ten-

tative commitment from the city gave him a strong position from

which to negotiate with a hotel company, and he ended up bringing in

Hyatt as a partner. Once again his tenacity helped him turn a road-

block into anadditional benefit for this investment.

One ofthebiggest roadblocks the small investor will encounter is

themortgage lender. Tenacity can help a lot here. If the first lender

you approach denies you a loan, keep trying with other lenders. Make

inquiries with friends and neighbors about who is making mortgage

loansinyour neighborhood. If you look hard enough, you will find a

lender, though you may have to pay a premium for the loan.

Another potential roadblock could be a stubborn seller. Here you

have to find out exactly why he or she does not want to sell, then in a

determined way, answer each issue.

Other possible roadblocks could be denial of a zoning variance or

a building permit. Again, you have to approach the problem tena-

ciously. Find out what the bureaucrats’ specific concerns with your

plans are, then address these issues.

TRUMP STRATEGIES FOR REAL ESTATE

Everything worth doing is difficult, and in order to accomplish

it, you have to be tenacious.

UMMARY

I deliberately started this book with a chapter on personal qualities

because most people don’t realize the role that people skills play in

real estate investing success. It is not just a matter of financing, buy-

ing the right property, getting tenants, and so on. All these elements

are built on a foundation of having the right personal qualities. Great

real estate investors like Trump are also great entrepreneurs. They

know that they know how to get people excited about their bold

ideas, and they are undaunted by the setbacks, problems, and disap-

pointments that cause most people to give up.

HINK

How Trump Chooses

Properties to Invest In

OINTS

•Be willing to pay a premium for a prime location.

•

Don’t buy without a creative vision for adding

significant value.

•Four things Trump looks for in a location.

•Creative problem solving leads to big profits.

•Write a preliminary business plan before you buy.

’

VE HEARD THE

cliche about the three most important things

in real estate being “location, location, location.” Trump thinks

this is misleading. Location is important, but having a great location

doesn’tguarantee anything. It’s a starting point for what could be a

great investment. However, an inept real estate investor could own

property at a great location and lose a fortune. One of the corner-

stones of Trump’s philosophy is “Improve any Location.” In other

words, use creativityandvisiontochange the way your location is

utilized. Trump never gets involved with something that’s just ordi-

nary—it has to be very special. If he’s building an apartment building,

it has to be the most luxurious, and the biggest and best in the area.

Small investors can adapt this principle by doing something radical to

their property, changing the zoning, changing the way the property

is used, or renovating it sostrikingly that people think about the lo-

cation in a new way. That’s what he decidedtodowhenheconceived

theideafor Tr umpWorld To weratthe United Nations Plaza.

DEAL CASE STUDY

RUMP

ORLD

OWER AT THE

NITED

ATIONS

When Donald first discovered this property in 1997 it contained a

sprawling two-story building situated across the street from the

United Nations in New York City. The building was the headquarters

of an engineering society whose officers decided to sell the building

because the value of land for new construction had skyrocketed, and

TRUMP STRATEGIES FOR REAL ESTATE

given the prime location they believed they could get a high price and

move their offices into better space nearer the business hub of New

Yo r k C i t y. The zoning ordinance affecting the site limited the size of

any new building on the property to a 10:1 ratio: Any new structure

could be no bigger than 10 times the square-footage of the land. Since

the land area was approximately 37,000 square feet this would have

limited Trump to constructing a 370,000 square foot building on the

site. Trump knew that the property was very expensive but it was an

entire block from 47th Street to 48th Street with an unparalleled view

of the United Nations headquarters and the East River. He felt he had

to build something extraordinary that would justify the high price of

the land and take advantage of the sight lines of the property. Fortu-

itously, the existing zoning covering the property permitted the trans-

fer of unused “air rights” from one parcel of land to a contiguous

parcel on the same block. When the city wrote its zoning law, it

wanted to limit the amount of bulk on a particular block but not nec-

essarily building height. It didn’t care if the bulk was in one building or

20 buildings. In other words, if a building on Parcel A was 10,000

square feet but the zoning permitted a 30,000-square-foot building,

the owner of Parcel A could sell the excess 20,000 square feet of

building coverage (“air rights”) to the owner of Parcel B. In fact, the

building department liked the idea of the bulk being in one structure

because it gave you more light and air everywhere else in the neigh-

borhood. Since there was little likelihood that the owner of the un-

used air rights would ever use them, their sale to an adjoining owner

who wanted them could fetch a price far in excess of their worth to

the owner who had them.

After making preliminary evaluations, Trump, “thinking big” as he

typically does, decided to build a huge luxury condominium tower

using air rights from adjoining underbuilt properties. No other devel-

oper recognized this possibility, and it was the key to Trump turning

this “ordinary” property into something extraordinary. But the process

HINK

Tr ump World Tower at United Nations Plaza

TRUMP STRATEGIES FOR REAL ESTATE

would be extremely difficult. First, Trump would have to agree to buy

the engineering society’s property. Then he would have to convince

the owners of the adjacent properties to sell him their unused air

rights. In complete compliance with the law, Trump could then incor-

porate these air rights with the parcel he was buying and get a build-

ing permit for a much larger building. If he could buy enough air rights,

he could build something really unique—the tallest residential building

in New York City.

The keytomaking this concept work was to acquire the air rights of

adjacent buildings quietly. Building owners in New York City with ex-

cess air rights are often willing to sell them freely because they con-

siderthe dollars they get for the air rights as “found money.” But if

word got out to nearby building owners about what Trump was doing,

theprices for those air rights on parcels on the same block might have

escalatedthrough the roof. A difficult problem to be overcome was

that only air rights on contiguous parcels were of value. He had to

makeadeal for the air rights on one parcel adjoining the one he was

buying,and then work his way down the block to acquire the air rights

on several parcels that adjoined one another. So he took options on

various properties, offering the owners a high price, subject to his

abilitytoacquire the air rights needed to form the chain permitted by

thezoning. The outright purchase of all the adjacent parcels was im-

possible because one of the parcels was a church that might be willing

to sell its air rights but never the church.

Thus, we had several negotiations going on concurrently, and we

had to conduct all the negotiations secretly. To help keep our negoti-

ations for air rights simple, we offered the same price per square foot

for the air rights to all adjoining property owners. If one owner got a

higher price per square foot, we agreed that all other owners would

get that same price. That way no owner could feel cheated. In some

cases, we actually told an owner, “This is the price per square foot

HINK

we agreed to pay John Smith for his air rights, and we are offering

you the same deal.”

Having assembled air rights from seven adjoining parcels, we ap-

plied to the building department for a building permit to build a

towering 677,000-square-foot building with 376 condominium

units—the tallest residential building in New York City. We showed

the City that we were in full compliance with the zoning resolutions

and were entitled to the issuance of a building permit. We would be

building as “a matter of right” meaning we didn’t need any special

permission from the zoning board. The building department of the

City of New York agreed. Some representatives said, “We might not

like the proposed building, but it’s perfectly legal to build it.” They

felt that if they denied issuing a building permit, their denial would

be overturned in court and possibly lead to a huge damage award.

So, the building department issued the permit. Trump immediately

began construction. He did this to gain the advantage of having al-

ready broken ground, in the event a lawsuit was filed seeking an in-

junction against construction.

As the scope of the building as the tallest residential building in

New York City and maybe the entire world became evident, a num-

ber of prominent residents in the community decided to oppose it.

They tried to use political pressure but were told Trump was acting

well within the law. A group of wealthy residents in the area, includ-

ing Walter Cronkite, filed a lawsuit to stop construction, arguing that

“the zoning in this neighborhood was intended to permit something

completely different; you can’t build a 90-floor monster right in front

of the U.N.” We explained that it wasn’t 90 floors, it was 72 floors (it

was 90 stories high because of higher than normal ceiling heights

(ceiling heights did not affect permitted square footage). The opposi-

tion didn’t like that fact either, but what we did was entirely within

the law.

TRUMP STRATEGIES FOR REAL ESTATE

It is easy to understand that when this lawsuit was filedtostopthe

building, the lenders who had agreed to finance the construction of

the buildinggot nervous. They felt that there was a real possibility

that the building might never be built as Trump envisioned it. But

Tr ump had a Plan B. He established a relationship with Daewoo—

one of the largest corporations in Korea—who was willing to be his

partner and would guarantee repayment of the loan if the planned

building did not materialize. So now the mortgage lender wasn’t wor-

ried about the adverse publicity or the lawsuit because they had this

billion dollar company, Daewoo, which is the equivalent of General

Motors in Korea, to guarantee repayment of the loan if necessary.

Meanwhile, the building kept going up. The opposition tried to stop

the construction. They claimed that if Trump’s building was allowed to

be built they would lose their beautiful views of the East River. They

filed a lawsuit against Donald Trump and the City of New York for

wrongfully issuing the building permit; but Trump filed a countersuit

that sought damages as a result of the opposition’s lawsuit and a judg-

ment that the building permit was properly issued. The court basically

ruled that the city had every right to issue the permit and Mr. Trump

had every right to build the building under the permit. They were not

going to issue an injunction in this case because the damages would

be horrendous and it was unlikely that Trump’s position would be

overturned on appeal. They allowed the construction to proceed.

The opposition lost in the lower courts and eventually took their

lawsuit to the Court of Appeals—the highest New York State court.

The Court of Appeals didn’t even review the case to consider over-

turning it. Their comment to the plaintiffs was, “If you don’t like the

zoning law, change it. But any subsequent change to the zoning law

will not affect this building which is being built in accordance with

the law as it now exists.”

Tr ump World Tower isnowone of the most luxurious resi-

dential towers in the world and enjoys a five-star rating. Many of

HINK

the apartments have maids’ rooms, wood-burning fireplaces, and

16-foot ceilings. A four-bedroom condominium sells for as much as

$13.5 million. The building was a huge success and the construc-

tion loan was paidofflongbefore its due date from the sale pro-

ceeds from units.

Ironically, once the Trump World Tower was completed, some of

the people who fought the construction because it blocked their

views bought units in Trump World Tower because of its superior

construction and far superior views.

RINCIPLE

1: B

ILLING TO

AY A

REMIUM FOR A

RIME

OCATION

EORGE

...AS

TORY OF

MART

VERPAYMENT

Perhaps the best example of paying a premium price for a piece of

real estate occurred in 1962 when I was counsel for Sol Goldman and

Alex DiLorenzo Jr., the multimillionaires I worked for early in my ca-

reer. Since they were considered to be the most aggressive purchasers

of real estate, they would get dozens of listings sent to them every

day. Part of my job was to screen the sale offers and get Sol’s opinion

as to which ones were of interest to him. One day, a disheveled old

broker came into my office and handed me a crumpled piece of paper

listing an apartment house in Brooklyn Heights that was for sale by

the family who had built it and owned it for over 40 years. The asking

price was $860,000 which, at that time, was a lot of money. I didn’t

know whether the price was high or low but I did know that Brooklyn

Heights was a desirable neighborhood, so I brought the listing into

Goldman. I told him the broker was a “nobody” and I doubted his

(Continued)

TRUMP STRATEGIES FOR REAL ESTATE

ability to bring in anything worthwhile but I thought it was worth

bringing it to Sol’s attention. Goldman took a quick look at the list-

ing and said, “George, find out how many people the broker has of-

fered this apartment house to.” I did as I was asked and when I went

back into Sol’s office I said, “He knows you’re the number one

buyer of property in Brooklyn so you are the first person who is

aware of this offer.” After listening to me, Sol said to me, “I know

everything about this property, the type of apartments, the rentals,

how well it was built and operated, and I have been secretly trying

to buy it for years without success. If the listing gets out in the

maketplace, a bidding war will take place for the property and I

want to avoid that at all costs. Go out and tell the broker your odd-

ball client will pay $1 million for the property.” I said, “Sol, they’re

only asking $860,000 for the building, so you could probably buy it

for $825,000, why offer $1 million?” Sol insisted that I do as he di-

rected. I pleaded, “How can I possibly get the broker to understand

the excessive offer.” Sol said, “Hey, you’re the lawyer, be creative.”

I went back to the broker who was still sitting in my office and said,

“My client likes the property but there is a serious problem. The

price is too low!” Thinking he heard wrong the broker said, “You

might be able to buy it for $820,000 if you move quickly.” I replied,

“You’re going in the wrong direction, unless you up the price to

$1 million my client isn’t interested.” The broker had a look of total

bewilderment on his face and asked, “Why would anyone pay $1

mil-

lion for a piece of property that could be bought for $860,000?” I

replied, “My client is a very eccentric millionaire, he thinks anything

that costs less than $1 million is beneath him. So if you come back

with a sales contract indicating a purchase price of $1 million, I’m

authorized to sign it and give you a deposit of $100,000 immedi-

ately. But, I suggest you move quickly before my client comes to his

senses.” The broker came back with the contract the next day; I

signed it and gave him the deposit. The amazing thing is that be-

fore title had even passed, Goldman obtained a first mortgage on the

HINK

property from a bank for $1.4 million—the property was that good.

So Sol now owned a building he always coveted, and had pocketed

$400,000. The seemingly exorbitant price in reality was an incredi-

ble bargain. By overpaying, he made sure the property stayed off

the market. There’s an excellent lesson here for the small investor. If

your instinct tells you a piece of real estate has your name on it, and

is significantly undervalued, go for it and forget the price tag!

There will always be a demand for a prime location, and people will

always pay a premium price to get a prime location. You have to

avoid the trap of looking only at the average selling prices in your

local real estate marketplace, and be willing to “overpay” if overpay-

ment is warranted. In other words, the so-called “average market

price” of property is computed based on limited general information

relating to an entire neighborhood, not the value of a specific prop-

erty which may have a desirable size and a better location. You may

have to pay 50 percent to 100 percent more to get a good property in

a great location, but it’s worth it if that will allow you to attract su-

perior tenants or buyers, and if you can improve the site to get max-

imum value out of it.

Tr u mp Wor ld Tower was a perfect example of overpaying for a

prime location. When Trump found it, the property contained an

outdated two-story office building owned by an engineering frater-

nity. The amount of money they wanted for the site was outrageous.

But Donald Trump paid it, because he knew other buildings on the

block had unused air rights that could be purchased at reasonable

prices and then he could build something extraordinary.

Tr u mp i s always willing to pay a premium for a prime location,

but he also knows that “there’s no right price for the wrong prop-

erty.” He will not buy something just because it’s cheap, if he can’t

see a way to add significant value. The reality is that in small or

HINK

cation if he can devise a plan that will dramatically change the way

people perceive and value the property. To be attractive to Trump or

to any intelligent investor there has to be undiscovered potential for

adding significant value to the property—value that is not already

factored into the selling price of the building.

For example, if the officers of the engineering society had known

that it was possible to build a 90-story building on their property

they could have sold the concept to many other developers for a much

higher price. Most people looking at the site would have seen only

the potential for a 370,000-square-foot 20-story building, the limit

permitted under the then existing zoning restrictions of the city.

What made the deal successful was Trump’s creative vision for buy-

ing up the surrounding air rights, and using them to build a towering

667,000 square foot structure with high ceilings, floor-to-ceiling

windows, thus capitalizing on the site’s potentially magnificent

views. The genius of Trump was that he was able to put all the pieces

together at a price that was consistent with the anticipated sales

prices he would get for the condominium units.

Though you may be a small investor, if you want to be extremely

successful make sure that you too have a vision for adding significant

value to any property you buy. Think about your vision for adding

undiscovered value before you get serious about putting any money

down for the property. You have to think creatively about the ways

to get the highest and best use out of a property. For example, you

might buy a fixer-upper in a great neighborhood and renovate it, or

build an addition, increase the number of units or the quality of the

tenants. Other creative options are to build another building or

amenities on the property, change the use from residential to com-

mercial or vice versa, or seek a variance or a change in the zoning.

These are all ways to enhance the value.

The bottom line is, whenever you are considering buying an in-

vestment property; explore ways to “Improve the Location.”

TRUMP STRATEGIES FOR REAL ESTATE

RINCIPLE

3: F

OUR

HINGS

RUMP

OOKS FOR IN A

OCATION

Great Views

What Tr ump liked best about the location on which he built Trump

World Tower was the potential for stunning views over the East

River. Without that, he would not have bought the property. In fact,

views were also an important factor behind the success of his 40 Wall

Street building (great views of New York Harbor from the upper

floors), Trump Tower (which overlooks Central Park), Trump Inter-

national Hotel and Tower (also overlooking Central Park), and his

We st Side Towers that overlook the Hudson River. For a small in-

vestor, good views may mean something slightly different, and more

modest, but just as important to the value of the property. For exam-

ple, a modest residential building may have views onto a grove of

trees at the back of the property. Turning them into a park-like set-

ting could raise the value of the building. In one of his buildings,

Tr ump went so far as to cut larger window holes out of the existing

structure, to enhance the building’s views of Central Park. The im-

portance of views depends on the particular use of the property you

have in mind. Certainly, nobody wants to live near a dumpsite or a

sewerage treatment plant but a quiet street is a good view for a mod-

est residential building. At a minimum, look for a view that is com-

patible with the life style of the occupants of your property and

you’ve passed the view requirement.

Prestige

Tr umpalso looks for locations that have prestige, and in the case of

Tr u mp Wor ld To wer, he liked the prestige of having a building next

to theUnited Nations. Trump knew that many governments would

HINK

be eager to buy luxury apartments for their senior diplomats across

the street from the UN building. TrumpTowerhasa5thAvenue

address which is very prestigious as is the Wall Street address of the

Tr u mp building at 40 Wall Street. A small investor purchasing a

real estate parcel should consider whether or not the location or the

address is desirable for the people you intend to attract. If your tar-

get is high-income families, then you have to buy in an area that al-

ready contains luxury residences. If your intended target is

middle-income families or low-income families, pick an area con-

sideredtobedesirable among members of that group.

Growth Potential

Any real estate acquisition by Trump must have some growth poten-

tial or it won’t pique his interest. The most important questions to be

answered are: “Will this investment keep up with changing times?

Will rents keep up with inflation? Is the area stable, getting better,

or deteriorating?” Any serious investor in real estate should be ask-

ing and answering the very same questions if you expect to be suc-

cessful. One of the best places to look for undervalued property is in

marginal areas that are near very successful locations.

Land banking may be appropriate in many cases. Land banking is

buying land on the theory that, in time, it’s going to go up in value,

perhaps because it’s in a strategic location. Meanwhile, you’re going

to pay the taxes and other carrying charges on it. To the extent you

have no offsetting income—that’s your investment. You may not in-

tend to develop it or build on it yourself. Your intention may be to

own it until the value of its location increases. In New York City, a

good example of land banking might be acquiring an existing parking

lot in the midst of surrounding underutilized parcels. Your immedi-

ate intention might be to continue the property’s interim use as a

parking lot, until a more profitable use comes into view.

TRUMP STRATEGIES FOR REAL ESTATE

Land banking is always a risky investment but one that can be ex-

tremely profitable if you guess right. It’s a good idea to go into land

banking with money you’re willing to lose or tie up for a long time. It

works especially well when there’s an area or neighborhood that is in

transition, or it looks like it’s in transition. For example, you see a de-

pressed area, and an area not far away which is starting to flourish,

being rebuilt, and on the rise. You might say to yourself, “Hey, I can

buy here while it’s cheap, because sooner or later the growth will come

my way and I want to be there when it happens.” So you buy on the

theory that there will be an uptick at some time in the foreseeable fu-

ture. You never know how long it will take for that to occur. You have

no control over if it happens or when it happens. However one thing is

for sure. The earlier you buy it, the cheaper the price and conversely,

the later you buy it—once the growth in the neighborhood gets hot—

the higher the price.

Convenience

Another thing Trump looks for in a location is the convenience of

the location for his intended customers whether they are apartment

owners or office tenants. Convenience encompasses the proximity of

shopping facilities, transportation, schools, houses of worship, and

other amenities. Availability of a suitable labor force is a factor to be

considered in determining the desirability of office or commercial

space. If you intend to live or work in the property you are planning

to buy, just ask yourself does this property meet your needs; can you

picture yourself being happy there and in the neighborhood. If the

answer is “yes” it should be a good buy. Your future buyers will prob-

ably have the same response. If it’s not a place you would feel com-

fortable, I suggest you pass.

HINK

RINCIPLE

4: C

REATIVE

ROBLEM

OLVING

EADS TO

ROFITS

In my 20 years of representing major estate developers before I met

Donald Trump I earned my reputation as a problem solver, and it’s one

of the reasons he hired me. It has been the key to my success in real es-

tate and in law, and I encourage every small real estate investor to

think of real estate problems, especially in the acquisition stage, as

“opportunities.” In fact, Donald and I both tend to view things that

are considered “impossible” by other experts, as simply taking longer.

This is what happened on the Commodore Hotel deal I described in

Chapter 1, and this common perspective has been one of the founda-

tions of our work together. We became a formidable combination that

still exists today.

As I mentioned, one of the things I learned from working with New

York real estate mogul Sol Goldman, is that “every problem has a price

tag.” Many small real estate investors are intimidated by problems, but

to entrepreneurial minds like Trump’s, a problem is like a key to the

vault—a reason to get an even lower price on a building. Some of

Tr ump’s biggest profits have come from properties he bought cheap be-

cause they had complex problems nobody had been able to solve. After

he solved the problem, he reaped millions of dollars in profits (40 Wall

Street, which I discuss in Chapter 3, is a good example). Ambitious real

estate investors should look at a problem property (provided it can be

bought at a correspondingly large discount) as a great opportunity.

Unfortunately, lawyers are too often trained to kill deals when

problems arise, rather than translating legal problems and risks into fi-

nancial terms,sothatabusiness decision can be made. Many times real

estate deals run into problems that can only be solved with creative,

“out-of-the-box” thinking. That’s how Donald and I put together a

deal that brought Niketown to a prime location in New York City.

TRUMP STRATEGIES FOR REAL ESTATE

Creative Problem Solving: Trump, Ross, IBM, and the

Nike Building on 5th Avenue

In the process of putting together the property to build Trump

Tower (I tell that story in Chapter 5), Trump acquired the Bonwit

Te ller building on 5th Avenue. However, the ground lease for this

site was owned by a veteran New York investor named Leonard Kan-

dell. Bonwit Teller was leasing the site for a below-market rent and in

1990 fell on hard times. They wanted out of their lease and were

willing to pay for the privilege. Gallerie Lafayette, a premier French

department store chain wanted a New York store, so Trump sold

them on the idea of taking over the Bonwit Teller store—at a rent

which topped the old Bonwit rent by over $3 million a year! He then

agreed to cancellation of the Bonwit lease and Bonwit paid a few mil-

lion to get off the obligation. The success Gallerie Lafayette envi-

sioned never happened and in 1993–1994 they too wanted out and

were also willing to pay for the privilege. At that time, Nike desired

to build a flagship store on 57th Street. The Bonwit/Lafayette/Kan-

dell site with its 50-foot frontage was too small but Trump also had a

long-term lease on a site owned by IBM that was next to the Kandell

site and also had 50 feet of frontage. Trump asked Nike, “If I can

combine both sites giving you 100 feet of frontage and 100 feet of

depth would you agree to a long-term lease?” Nike loved the idea and

agreed to a rent averaging $9 million a year. They also agreed to de-

molish the buildings on both sites and then construct a new $50 mil-

lion Niketown building at their own expense. Now the problem

Tr ump was faced with was convincing two separate ground lease

owners (Kandell and IBM) to revise and extend their ground leases

with Tr ump to permit Nike to build. Trump had previously been a

long-term client of mine but I hadn’t represented him for seven

years. At that time, I was the attorney for Leonard Kandell. Trump

sent two of his associates to renegotiate the Kandell ground lease

with me. Although I wasn’t working for Donald, I wanted to be help-

HINK

ful if it benefited Kandell. Trump’s representatives said that they felt

the Kandell site had a value of $2.5 million and they were willing to

pay a rent starting at $250,000 a year. I told them I couldn’t agree

with the value they placed on the site because there was one “0” miss-

ing. $25 million was the right number. They were shocked by my an-

swer and went back to report to Trump their lack of success. They

complained, “You told us we could make a fair deal with George Ross

but what he wants is outrageous.” When they told Trump the offer

they had made, he said, “What did you expect? You tried to low ball

him and he did you one better. I’ll handle it myself.”

Donald called me and arranged a meeting. At that meeting he told

me about the Nike deal and asked me what I could do to help him do

it. Once again I was impressed with the creative problem-solving ge-

nius of Trump in envisioning this complex plan. I told him if the in-

creased rental was adequate I could get Kandell to agree to a revised

lease that would enable the Nike deal to be made, but obtaining a revi-

sion of the IBM lease was his problem and Ed Minskoff who repre-

sented IBM would be very difficult to convince. I was right. Minskoff

raised obstacles that were difficult or impossible to overcome, such as

asking for control of the Kandell site. As each problem arose Trump

would call me and ask my advice. I said to him, “Donald, what you

need is to get Minskoff to agree to a co-ownership agreement which

sets forth the rights of Kandell and IBM when the Nike lease expires.”

Donald said, “I’ve never seen a co-ownership agreement.” I replied,

“Neither did I until I needed one years ago and couldn’t find anyone

who did one. I spent a full month drafting one which touches all the

bases.” I told him I would send it to him and if Minskoff wanted to

modify it, he could call me. Minskoff liked the co-ownership idea and

told Tr ump if they could agree to a revision and extension of Trump’s

lease with IBM he had a deal. Trump and Minskoff agreed to terms

and the Nike building became a very profitable reality. As is so often

typical in real estate investing, this deal would have failed at many

points without continuous creative problem solving.

TRUMP STRATEGIES FOR REAL ESTATE

EORGE

...C

REATIVE

ROBLEM

OLVING AT

LYMPIC

OWER ON

VENUE

As I mentioned earlier, I learned how to stop thinking like a lawyer and

think like a problem solver while I worked for Sol Goldman, who

forced me to put a price on every real estate problem. In the early

1970s, my problem-solving expertise eventually endeared me to

Arthur Cohen, another creative genius where real estate was involved,

and principal of Arlen Realty and Development Corporation, a publicly

traded entity. Cohen came up with the original idea of erecting a

mixed-use building on 51st Street and 5th Avenue in New York City

with stores on the ground floor, offices above for approximately 20

floors, and finally topped by another 20 floors containing luxury coop-

erative apartments. However, the only property he could control was

a narrow plot in the middle of the block. The plot fronted on 5th Av-

enue and was occupied by Olympic Airways, a company that was

owned by Aristotle Onassis. Cohen’s original idea was to buy the air

rights over Best & Co. which owned a large parcel of land on the cor-

ner of 5th Avenue and 51st Street. Then he would also buy the air

rights over the Cartier building on 5th Avenue and 52nd Street. The

Olympic site would be used for elevators to a sky lobby servicing a

new building that would cantilever over the Best & Co. building. I

christened this novelty building the “popsicle.” But it never came to

pass. Instead something else interesting happened on the site.

Cohen became a close friend of Meshulam Riklis who owned

Best & Co. Riklis agreed to sell Cohen the Best & Co. site so that a

normal looking building called Olympic Tower could now be built on

the site—but only if I could resolve a dispute that arose between

Riklis and Aristotle Onassis, each of whom wanted office space on

the highest floors of the new building. Since Riklis was committing

to lease several floors as part of the sale of the Best & Co. site, he

insisted on taking the top four floors. But Onassis’s ego would not

tolerate his offices being lower than Riklis. I had to find a way to

appease both of these men or the project would abort. So I sold

HINK

them on the idea of checkerboarding their space. Onassis would

lease the top floor. Riklis would lease the floor below. Then Onassis

would lease the next lower floor until the each had the amount of

space they wanted. It was a cumbersome solution but they bought it

and Arthur Cohen’s vision became reality. This is the kind of creative

problem solving successful real estate investors need to learn to do.

As it turned out, the project needed more creative approaches to

challenges and opportunities that arose. Olympic Tower was the first

mixed-use building of its type in New York City. Cohen took advan-

tage of a statute that permitted a larger building if a public area was

provided on the street level. (I helped Trump do the same thing years

later in Trump Tower, described in Chapter 5.) Cohen also filed for

the benefits of 421a, a statute that gave favorable tax treatment for a

new building built on undeveloped land. (Again Trump would do the

same thing for Trump Tower.)

While Olympic Tower was being constructed, the concept of con-

dominium ownership was gaining popularity. The idea of owning a

unit rather than renting one under a lease from a cooperative corpo-

ration had merit since the unit would be taxed separately, could be

easily mortgaged or sold, and would be entitled to the tax treatment

available to real estate owners. One day, Arthur Cohen called me and

said, “George, I’d like to turn Olympic Tower into a mixed-use con-

dominium, can it be done?” I said, “Arthur, I never heard of such a

thing, but let me check it out and see what I can come up with.” I

paid a visit to the New York City Building Department to see if there

was any prohibition to such a building. I was told there is no statute

either permitting it or prohibiting it, and they would review any

building plans that were submitted. Since the state attorney general’s

office must approve any condominium plan or cooperative plan, I

had the partner in my firm that handles such plans find out from his

contact with the attorney general’s office whether a mixed-use

condominium plan would be acceptable. He reported back that

none had ever been filed but there was no prohibition for a mixed-

use

building but any condominium on leased land was prohibited.

(Continued)

TRUMP STRATEGIES FOR REAL ESTATE

Relying on this information, I told Arthur the condominium plan was

possible. I told my partner to draft the condominium documents. In

the middle of drafting them, he asked, “I have to prepare an estimate

of expenses that each unit owner will pay. What number should I use

for real estate taxes?” I didn’t have any idea of the thinking of the tax

assessor’s office as to allocation of the taxes on the land, so I paid

the tax assessor a visit to get the information. The tax assessor said,

“I don’t have the slightest idea since the question has never come up.

As of today, there are no mixed-use condominium buildings in the

city. Figure it out for yourself but my best guess would be that the

land taxes would be apportioned based on the ratio that the square

footage of the residential portion bears to the square footage of the

nonresidential portion.” If the assessor’s office took that approach,

the amount of land taxes the unit holders would bear for the very

valuable land on which the building stood would price the units out

of the market.

Now I had another obstacle to overcome. How could I reduce

the exposure of the unit owners for real estate taxes? The answer

was simple—eliminate their ownership of the land. But the attorney

general would not approve any condominium plan for a building that

does not have an ownership interest in the land on which it sits.

After much thought, an innovative and unusual solution came to

mind, I decided to deed to the unit holders as a group the land

under the 24 columns that supported the building. I prepared and

filed a deed for 24 pieces of land each being four square feet and

identified with a typical metes and bounds description. Except for

the 24 pieces, the unit owners had no rights to any of the land. The

rest of the land was owned by the owner of the unit that covered all

of the building below the residential units. My concept was ac-

cepted and the Olympic Tower was a huge success. After the

Olympic Tower was completed, legislation was passed governing

mixed-use condominiums and the allocation of real estate taxes.

Years later, when Donald Tr ump decided to build Trump Tower, we

drew on my Olympic Tower’s experience to creatively solve prob-

lems wherever it was feasible to do so.

HINK

RINCIPLE

5: W

RITE A

USINESS

LAN BEFORE

Once Trump intends to purchase a property, he has his associates

prepare a projected business plan containing the following items:

•Anticipated costs of various items,

•Nature and cost of available financing,

• Estimates of income,

•A projected timeline indicating when expenses will be incurred

and when income will be received.

Creating a preliminary business plan is an important discipline

for you to adopt because it forces you to think through the most im-

portant elements of owning a particular piece of property. It also

forces you to think of your future plans for the property, and the tim-

ing of an eventual sale. Are you looking for a safe or speculative re-

turn on your money, or are you looking for a situation in which

you’re going to buy and do something to it, dramatically increasing

the value based on your creative vision and then sell all or part of it to

make a profit? (Obviously, Trump prefers the latter approach.) The

key to buying or not buying is the answer to the following question,

“Does the purchase achieve the intended goal as part of your invest-

ment portfolio.” Ask yourself, “Am I looking to make a capital gain?

Will it be short term or long term? Am I looking to buy and hold this

property as part of my estate? Am I looking for a transaction that has

great tax benefits, at the expense of other monetary benefits?” It de-

pends on the nature of your goals at that time as to whether or not a

particular purchase is consistent with that goal. It’s very possible, log-

ical, and desirable for a small investor to purchase different properties

with different goals.

For example, you might buy a piece of land on the outskirts of

town, build it up, and plan that in three years you’ll sell it and double

TRUMP STRATEGIES FOR REAL ESTATE

your money. Or, in another part of the city you might buy something

that can be leased to a reputable tenant giving you a safe return of

8 percent on your money. In another neighborhood, you might con-

sider building something new from the ground up with a view to-

ward sale, lease, or long range ownership.

Here are somequestions to answer in your business plan for

the property:

•How are you going to increase the value of whatever it is you

intend to buy?

•What are the projected costs for refurbishment, income, and

expense? Make a financial analysis of the property to find out.

•Is it going to be a short- or long-term investment? Are you

planning to flip the property or buy and hold?

•How do you intend to manage the property?

•How will you finance the property? Do you intend to get in-

vestors, or finance it through a bank by yourself?

• If you need investors, how will you pitch them? What percent-

age return on their money will they get?

•What is your strategy and timeline for selling the property?

Careful crafting of a business plan will not only help you explain

more convincingly to lenders the great plans you have for the property,

it will also help you be realistic about costs, and projected profits.

HE ABILITY TO

negotiate intelligently is the key to the comple-

tion of any successful real estate transaction, large or small.

The problem is, the art of negotiation is far more complex than just

haggling over a selling price. It’s mastering preparation, knowledge

of human nature, learning how to uncover and exploit weaknesses,

learning special skills, and many other intricacies. Good real estate

negotiation principles are developed with the aim of getting others

to agree with your ideas.

If you can adopt some of the negotiation principles Donald

Tr ump used when he bought 40 Wall Street in New York City, you

will give yourself a powerful advantage in your next real estate trans-

action. This chapter explains five key negotiation principles from

that deal. Following the case study presentation is an explanation of

each principle, along with examples of how Trump used them, and

how small investors can do likewise.

INVESTING CASE STUDY

RUMP

’

40 W

ALL

TREET

UILDING

In 1994, 40 Wall Street was a huge old building in downtown Man-

hattan that nobody wanted. It had over one million square feet of

space in a great location, but over the years had been totally mis-

managed. To make matters worse, the building was almost entirely

vacant and in a state of total disrepair.

Built in the 1920s, it was once the tallest building in the world and

had been a renowned New York landmark. When Trump got interested

TRUMP STRATEGIES FOR REAL ESTATE

in the property, and asked me to handle the acquisition for him, the

land on which the building was built was owned by a wealthy German

family who had granted a long-term lease to a bank that had built the

building as its headquarters.

Unfortunately, the building had a very troubled past with many

building operators. At one time, Ferdinand Marcos, the infamous pres-

ident of the Philippines owned it, and during his tenure the building

was run into the ground. Eventually, it went into foreclosure and was

sold to a member of the Resnick family who had loads of real estate

experience, but who still couldn’t make it work. He let it go into fore-

closure and the holder of the mortgage took it back. Then it went to

Kinson Group out of Hong Kong. They put millions of dollars into it,

but they also failed dismally. Nobody seemed able to come up with a

plan that could transform 40 Wall Street from a loser to a winner.

The underlying problem was that the ground lease (the lease for the

land on which the building was built) was antiquated and contained

provisions that were hostile to potential occupants, making it difficult

for anyone to finance a purchase of the lease or needed building ren-

ovations. Although they tried, none of the previous owners could ever

get the ground lease modified to eliminate the deficiencies it con-

tained. Percy Pyne was the man who represented the German prop-

erty owner, and nobody was able to bypass him in order to negotiate

directly with the owner. Pyne was a difficult man to deal with and

continually placed unacceptable obstacles in the way of every deal

that was proposed.

While the Kinson group poured millions of dollars into the prop-

erty, they also forced most tenants out of the building, leaving it al-

most vacant, except for a law firm that occupied seven floors on a

long-term lease. Kinson left the building with virtually no services

and in terrible shape, and to make matters worse, their failure to pay

contractors resulted in the filing of several mechanic liens adding up

to almost a million dollars against the building. Since there was no

RINCIPLES OF

EGOTIATION

40 Wall Street

TRUMP STRATEGIES FOR REAL ESTATE

better alter

native, the Kinson group agreed that it would give Trump

an option to buy the building for $1 million. (The huge building was

one million square feet, which meant Trump could buy the building for

a dollar per square foot—a ridiculously low price.) Trump also as-

sumed liability for the $1 million of liens.

Tr ump realized he could never make a deal with Percy Pyne, so in

a stroke of pure genius he flew to Germany and met directly with the

owner of the property. He was following one of the basic principles

that good salespeople know—find a way to get around the gate-

keeper and talk directly to the decision maker.

Tr ump t old t he ow ner, “If you work with me and give me a fair

ground lease, I will make 40 Wall Street a very successful building

that you will be proud of. But, he added, I can’t pay you any rent for

at least a year while I am renovating the building. I know you have

had a parade of failing tenants but I guarantee I won’t join the list.”

Tr umpwon over theowner,who agreed to rewrite the lease to make

it financeable and feasible for either an office or residential building.

Part of what Trump loved about this deal was thefactthatno one

else had been able to make the building work. He loved the chal-

lenge. What made it even more enticing was the location: it had won-

derful viewsofthe NewYorkHarborand fantastic potential. Also,

Tr ump t hought the rental market would turn around, the building was

huge, and where intheworldcouldyoubuyaprime-locatedoffice

buildingfor $1 a square foot even with all its problems? It’s unheard

of. Even though in 1996, the downtown New York City area was still

adisaster,Trumpexercisedtheoptiontobuy40WallStreet.

Tr ump had an advisor named Abe Wallach who played an instru-

mental role in the purchase of 40 Wall Street and was of the opinion

that it could never be successful as an office building. He thought the

only feasible solution was a conversion into residential co-operative

apartments. At this particular time, there was a glut of office space,

and in fact, the city was offering developers incentives to convert

vacant office space in the downtown area to residential units. So

RINCIPLES OF

EGOTIATION

Tr ump said to me, “George, I’m thinking of turning 40 Wall Street

into co-op units, because that’s what everybody else is doing. I

want you to analyze the situation and tell me what you think I

should do.”

A number of well-known brokers had analyzed the building and

determined that there were no tenants looking for office space down-

town. They said that even if the office rental market improved, the

higher floors were too small to be attractive, and the lower floors

contained huge columns that interfered with efficient space usage.

Their sentiments were unanimous: “It will never work as an office

building even if by some miracle the market for downtown office

space improves.”

But there was a major roadblock to residential conversion. Before

any workcouldbecommencedadealwouldhavetobemadewith

theseven-floor law firm to give up their lease. Based on my exten-

sive experience in dealing with holdouts and knowing the principals

of the law firm, I knew this would be a time-consuming and expen-

sive settlement.

Not satisfied with the advice of others to turn the building into co-

op apartments, I did my own analysis and about a week later I went to

Donald and said, “I studied the best use of the building and came to

the conclusion that it actually can work as an office building. The ex-

perts have been taking the wrong approach and reached the wrong

conclusion. You don’t have one office building, you have three. They

just happen to be on top of each other. You have 400,000 square feet

of small office space on the top portion of the building. I don’t care

what the others say; I think that ’s rentable at $17 per square foot

(which was $2 per square foot over the average market rent) because

a tenant will have the prestige of renting an entire floor, and a fantas-

tic view of New York harbor.”

IalsotoldhimthatIworked out the financial projections based on

his total cost of acquisition and renovation. I concluded that: “If we

cantake the 400,000 square feet at the top of the building and rent it

TRUMP STRATEGIES FOR REAL ESTATE

for $17 per square foot, you’ll break even. On the next 300,000 square

feet going down, the floorsarelarger, so even without the views we

should still be able to average $17 a square foot in rent. If I can do that,

youwillmake a profit. As for the bottom 300,000 square feet, it

doesn’tmatter if you never rent it as office space. You’re in so cheap

at $1 per square foot; it won’t make any difference what you do with it

so long as you can cover the cost of renovation for an occupant.”

Ioutlinedmygameplan:“Firstyou’llhavetodoatotalmakeover

of the lobby to make it luxurious, à la Trump style. Second you’ll have

to renovate the infrastructure to bring it all up to state of the art. This

will include the elevators, air conditioning, electrical, and plumbing

systems. Third, to be competitive with more modern buildings, all of

the latest telecommunication and data systems must be installed and

available for tenants. If you agree to do that, I’ll do the leasing.” Trump

replied, “George,makeithappen.”

Tr ump borrowed $35 million from Union Labor Life Insurance

Company to be used for renovations. They loved the idea of renovat-

ing this building because it would put many of their union members

back to work. They even stipulated that only union members could

be used in construction or renovation. Although the loan was for $35

million, it wasn’t nearly enough if we signed tenants and made the

improvements that would be required. I told Trump: “If the building is

a huge success, it’s a terrible loan but if the building bombs, it’s a

great loan.” Nevertheless, based on the past history of failures with

the building and the economic climate at that time, it was the only

loan Trump could get at that time.

I settled the mechanic liens that existed on the building (almost $1

million) for $60,000. I told all the parties that had the liens, “Look,

there’s no way you’re going to get paid the amount of your claims. But

I will give you first crack at renovation work on the building if you give

up your liens.” Most of them agreed to it, and I gave them an opportu-

nity to bid on the work.

RINCIPLES OF

EGOTIATION

Tr ump successfully refurbished the building and I started leasing it.

The first lease I made was with a major financial firm at a rental of

$23 a square foot—far higher than the $17 per square foot I had pro-

jected. The building had assumed the mantle of credibility and

achieved the recognition of superiority that Trump ownership con-

notes. As the market rebounded and the building became extremely

popular, I rented 400,000 square feet at $24 per square foot on the

lower floors to American Express. Later on I rented another 400,000

feet to Continental Casualty Co. at a good rental number. With the

influx of tenants Trump replaced the original mortgage with a huge

mortgage at a very reasonable interest rate. I’m still involved in leas-

ing and managing it, and today the building, which he bought for $1

million, is worth between $340 and $400 million. It’s called the

Tr ump Building and it ’s a tremendous success.

NSIST ON

EGOTIATING

IRECTLY WITH THE

ECISION

AKER

, N

OT A

EPRESENTATIVE

Tr ump’s style of negotiation is face-to-face. He rarely lets others ne-

gotiate for him. In the Commodore-Hyatt deal described in Chapter

1, Trump negotiated directly with Jay Pritzker, the CEO of the

Hyatt Company. But not before spinning his wheels with no results

trying to negotiate with Pritzker’s underlings. Learn from his early

mistake, and as a general rule, don’t let others negotiate on your be-

half. If you want credibility, do it yourself. Meet important people.

Go to the highest level, the decision maker. That was the break-

through for Trump with 40 Wall Street.

Tr u mp ’s instincts were that the ground lease owner of 40 Wall

Street could not be as bad a businessman as he was portrayed to be.

The man obviously would want a good tenant in the property. Yet,

the building was in disrepair and barely occupied, the rent wasn’t

TRUMP STRATEGIES FOR REAL ESTATE

being paid, and Percy Pyne created the impression that the ground

lease owner was unreachable and all negotiations had to be done with

him. Listening to Pyne, one would believe that, in fact, he was speak-

ing for the owner.

Tr ump’s instinct was that if he wanted to make the deal, he had to

get to the owner and talk to him directly, to see whether or not some-

thing was being lost in the translation from Percy Pyne. He couldn’t

believe that a foreign owner of real estate would tolerate this property

in its present condition. So he got on a plane and flew to Germany to

meet directly with the ground lease owner. There he was able to es-

tablish a working relationship of mutual trust that led to successfully

negotiating a new ground lease that satisfied both parties. In fact,

Tr ump’s relationship with the landowner was so good that while

Tr u mp was refurbishing the building (at greater expense than origi-

nally planned), Trump asked the owner to waive the rent for a second

year. The owner agreed because he was so thrilled with all the work

that was going on to make it a first-class building. The waiver saved

Tr ump another $1.5 million in rent. So, by the time Trump had to

start paying rent on the ground lease, he had a rental income suffi-

cient to cover all his obligations. As we discussed in Chapter 1, suc-

cessful, long-term real estate investing is always based on building

good personal relationships with the key people involved.

The 40

Wal l St reet de al has a lot to teach small real estate investors about

negotiation. Following are explanations of five key principles that

Tr ump used to turn around 40 Wall Street, and how you can use

them in your real estate transactions.

RINCIPLE

1: C

REATE THE

URA OF

XCLUSIVITY

One of the most fundamental principles of human nature is that peo-

ple want something that everyone else wants or no one else has. If

RINCIPLES OF

EGOTIATION

you tell someone that a property you own is not for sale there is a

good chance they will want it even more. They may even hound you

until you name a price. The simple statement that something is a

limited edition creates a desire for ownership. For example, the suc-

cess of any auction sale depends on the number of bidders and the

emotional frenzy of a heated bidding environment. Because every

parcel of real estate and every building is unique in some way, the ex-

clusivity principle is already at work to drive up the price, but you

can get a much higher price, if you can create more exclusivity for

your property. Later chapters explain in more detail how Trump does

this, but you can create the aura of exclusivity by the way you talk up

the features of any property: its location, size, neighborhood, in-

creasing value trends, bargain price, lack of comparable product, or

any other selling point that might impress potential tenants or buy-

ers. Embellishment is the order of the day to create excitement and

get your target to say “It’s a deal.”

Using 40 Wall Street as our example, let’s look at how Trump

created exclusivity. First, he used the variety of floor sizes as a

unique selling point. By marketing the building as if it were three

separate buildings, one on top of the other, he could offer a tenant a

full floor as small as 6,000 square feet and as large as 37,000 square

feet. He played up the fact that 40 Wall Street was the only building

in the financial area that had such flexibility. The smaller floors at

the top of the tower had magnificent views of New York harbor and

had the prestige of a full floor for a boutique firm. Visitors would be

impressed by seeing a receptionist’s desk instead of multiple doors

and nameplates as the elevator doors opened. Trump sought out ten-

ants whose space needs were small but who would pay an above mar-

ket rent to be in a totally refurbished Trump building that catered to

their individual needs and gave them great views from all windows.

Second, Tr ump created exclusivity by insisting that all construc-

tion be of the highest quality and workmanship. He redesigned

TRUMP STRATEGIES FOR REAL ESTATE

the lobby entrance to create soaring ceiling heights and adorned the

floors and ceilings with matching marble slabs from one of the finest

quarries in Italy. The heating and cooling equipment and the electri-

cal and plumbing systems were upgraded to those found in new

construction. The old elevators were replaced with new cabs and

controls that were state of the art.

Third, Trump had the electrical system reconfigured to take

advantage of two separate power grids each coming from separate

substations. This was used as another exclusive selling point—a

breakdown of one substation would not blackout the building. For fi-

nancial firms on Wall Street, this is a key benefit.

Fourth, Trump applied for and received tax abatements that were

available for owners of downtown property willing to undertake ren-

ovations. Some of the tax savings could benefit the tenants directly,

thus reducing the cost of occupancy. He also was able to convince

Con Edison to supply power to the building at a substantial rate re-

duction which he could pass on to tenants. These exclusive bene-

fits—not offered by other buildings in the area, were incorporated

into the marketing campaign. The result was a high rate of occu-

pancy at rental rates much higher per square foot than competitive

buildings in the area.

RINCIPLE

2: D

’

ISLED BY THE

URA OF

EGITIMACY

The “aura of legitimacy” traps all who are unaware of the danger it

creates. It is the tendency of people to believe things they see in

print, or spoken by the media or some other apparently authorita-

tive source. It is insidious and influential in affecting the decision

making of all people under its spell. Here are some examples of how

it works:

RINCIPLES OF

EGOTIATION

•A document to be reviewed and signed bears the notation:

“Standard Form of Contract of Sale” or “Standard Form of

Lease” or similar language. This is intended to convey an aura

of legitimacy and dissuade buyers or tenants from negotiating

terms. But the reality is, there is no such thing as a standard

form. It is merely the work product of someone trying to con-

vince the reader that the document is nonnegotiable. EVERY

DOCUMENT IS NEGOTIABLE UNDER APPROPRIATE

CIRCUMSTANCES! You just have to find who has the author-

ity to make revisions and deal directly with that person. If he or

she really wants to make a deal with you, you can negotiate the

contract or the lease.

•Every new vehicle in a dealer’s showroom has an elaborate doc-

ument prominently displayed on a back window which bears

the legend: “Manufacturer’s Suggested Retail Price” (the

MSRP). It starts with the so-called basic price of a stripped-

down vehicle that nobody would actually want to buy. Then it

lists, at an inflated, unrealistic price, the value the manufac-

turer places on every item, which is not included in the basic

price. These are characterized as “optional features.” This cat-

egory can include air conditioning system, sound system com-

ponents, adjustable sideview mirrors, floor mats, a larger

engine (which the vehicle really needs), a special paint color,

and other features. At the bottom is the grand total. But in re-

ality the MSRP bears little resemblance to the price that the

dealer is willing to accept. So when the buyer gets a discount of

several thousand dollars off the MSRP he believes he got a

“great deal.” The aura of legitimacy created by the MSRP gives

that illusion.

•A real estate listing by a major real estate broker specified a

condominium apartment for sale at a price of “$3.6 million,

firm.” The word firm was inserted in the printed description of

TRUMP STRATEGIES FOR REAL ESTATE

the property so that the buyer would come in with an offer

close to the asking price. When a friend asked my advice as to

how much he should offer for the unit—which sounded like his

dream home, I asked: “What offer did you have in mind?” He

replied, “Since the seller said $3.6 million firm, I intend to

offer him $3.4 million.” I told him: “Offer $1.8 million.” He

replied, “The seller will be insulted with such a ridiculous offer

and I’ll lose the deal.” I said, “Try it, and see what happens.” He

took my advice and eventually bought the apartment for $2.1

million. The aura of legitimacy almost cost him $1.3 million.

A typical instance where the aura of legitimacy can mislead real

estate investors is when, for example, reputable real estate brokerage

firms turn out a report indicating the current status of the rental or

sales market. They have created this aura. They have compiled a sur-

vey from a limited sample they have selected; they have arrived at the

figures; and they have published the information. And from all this

input they arrive at a figure of 13.8 percent vacancy rate for type A

office space. Anyone reading this report might conclude, “If the top

real estate brokerage firm says that the vacancy rate for my type of

building is 13.8 percent and the vacancy rate in my building is only

10 percent, I’m really doing great.” But it’s just not so. These kinds

of market statistics are always averages. They may bear no relation to

your particular building. In fact, Trump properties usually sell or

rent for much higher than the market average.

When we first started out to lease 40 Wall Street, we interviewed

several leasing brokers who wanted the assignment. All were of the

opinion that we would never achieve a rental of more than $17 a square

foot in the foreseeable future. They gave us a whole bunch of statistics

showing the rents at other vacant buildings in the area. But they didn’t

investigate how 40 Wall Street differed from the norm. We felt 40 was

special because of its harbor views and unbroken floor areas, and we

RINCIPLES OF

EGOTIATION

were right. The first lease we made on 40 Wall Street with a major fi-

nancial company was at $23 a square foot. Moreover, the average rent

in the building ended up being over $30 a square foot.

Don’t be misled by the aura of legitimacy. It is often created by

sellers who cloak and tailor their figures with information they

picked up from dubious sources to make something appear as gospel.

Be skeptical of the expenses and income that are reported on any real

estate building, that you are interested in purchasing, and verify all

this information for yourself.

Trump versus the Aura of Legitimacy

In the 1990s, New York City helped create an aura of legitimacy for

converting downtown office buildings to apartments in the form of

tax incentives and other benefits. All types of inducements were of-

fered, including reduced rates for electricity, property tax reductions

or abatements, and credits for rehabilitation costs, all of which were

designed to reduce the glut of office space and turn it into residential

housing. This would give the city increased tax revenue from the

converted buildings. Thus, the city created the aura of legitimacy

that residential conversion was the way to go. We also had the real es-

tate brokers pointing to an array of statistics that indicated that 40

Wall Street was doomed as office space. If we succumbed to the aura

of legitimacy going residential with 40 Wall Street would have been

the thing to do.

Smart real estate investors refuse to accept the aura of legitimacy

without intensive investigation, so Trump investigated. He gave me

the project and told me to make an independent analysis and tell him

what to do. I told him that based on my own firsthand research I

thought it could work as office space if he used the aura of legitimacy

to his benefit. He began an extensive renovation plan to create new

vitality and a new image for a building that had suffered in the past.

TRUMP STRATEGIES FOR REAL ESTATE

He put the Trump name on the building creating the aura of su-

perb management and operation. We created brochures showing the

fantastic harbor views and the flexibility of various floor sizes. We

boasted of state of the art facilities and the availability of the latest in

communication systems. We promised quick approvals of lease terms

and quick payment of brokerage fees. And in the end, that’s how we

leased it as exclusive office space at over $30 per square foot when the

“experts”—the aura creators—said it could never be leased, not even

at $17 per square foot.

HowYou Can Avoid the Hypnotic Effect of the Aura of Legitimacy

Don’t take everything you read or hear from brokers, sellers, buyers,

tenants, experts, or see on television as if it were etched in stone. Be

willing to dig to confirm the facts behind whatever type of project

you get involved with. For instance, say you’re interested in purchas-

ing a four-unit apartment building in a certain area. First, you might

go to a local real estate broker and make inquiries about vacancy

rates in that area. The broker says, “Well, the statistics I have show

that the area has a very low vacancy rate of 3.6 percent and rents are

high.” That’s a start, but you can’t just take his or her word for it. In

addition, you should do your own survey of apartments in your area

to find out what, in reality, the vacancy situation really is and what

the asking rental rates are. Otherwise, you might make an erroneous

investment decision based on an aura of legitimacy that indicates a

low vacancy rate. In fact, the market in your immediate neighbor-

hood could be glutted with vacant units available at distressed rents.

HowYou Can Use the Aura of Legitimacy Principle to Your Benefit

Now that you know the effect the aura of legitimacy has on others,

it’s easy to make it work for you. Create eye-catching literature

RINCIPLES OF

EGOTIATION

with appropriate favorable newspaper articles, reports from appar-

ently authoritative sources and favorable handpicked comparable

properties.Createadvertisements or media which stress “last avail-

able units,” “builder’s closeout,” “final reduction,” “special offer,”

“one of a k ind,” or something equivalent that will createtheaura

you desire. Use your imagination but everything must be plausible

to be effective.

RINCIPLE

3: E

VERY

EGOTIATION

EQUIRES

REPLANNING

In Chapter 1, I described how Donald Trump uses “Ziff ’s Principle

of Least Effort,” which states that people will expend the least

amount of effort necessary to conclude any transaction. This dove-

tails perfectly with the power of preplanning in a negotiation. Most

people either don’t know how to preplan for a negotiation or even if

they have the requisite knowledge are too lazy to spend the time

doing so. This is always a huge and often a costly mistake. If you can

anticipate the questions you may be asked in a negotiation then you

can structure the most plausible and favorable responses to them.

At the beginning of a negotiation, what you say and how you say

it can be tailored for maximum effect. For example, the ability to

give a prompt well-conceived answer to a sensitive question elicits a

feeling of satisfaction in the questioner. Although you may have

practiced an answer before the question was raised, preplanning per-

mits you to deliver the response with spontaneity as if you just

thought of it. You can say: “How about this idea?” or “I just thought

of something that might work.” The fact that your impromptu man-

ner of thinking is similar to theirs creates an atmosphere of comfort

and mutual trust. Preplanning should also include finding newspaper

or magazine articles to reinforce any of your positions. Statistics

TRUMP STRATEGIES FOR REAL ESTATE

from seemingly reliable sources are also effective and convincing

since they convey the “aura of legitimacy.”

Real estate investors have a tendency to think that buying or

selling real estate is only one negotiation that only involves one

round of planning. It’s not. It’s a series of perhaps hundreds of ne-

gotiations at various stages. Each telephone call is a negotiation;

each letter is a negotiation; each communication is, in fact, a nego-

tiation. And they all have to be treated separately, so that the end

result is what you want. Every time you communicate, for example,

with a potential partner, buyer, seller, or anyone else, you need

to set aside time to prepare in order to get the response you’re look-

ing for.

RINCIPLE

4: A

VOID A

UICK

EAL

If you try to negotiate a quick deal it is a truism that one party will

forget something important. Moreover, this will only become ap-

parent after the deal has closed and it’s too late to correct the over-

sight. Overly fast negotiations often leave one party feeling bitter. A

quick deal violates many basic negotiating principles and is rarely

the right approach. However, in the hands of a skilled, experienced

negotiator, rushing a deal can be an awesome weapon to achieve a

result that might never happen if the other side spent more time in

careful consideration of important factors. Use extreme caution

when accelerating the speed of any negotiation. It’s usually best to

negotiate slowly.

The reason is that satisfaction of the egos on both sides of a ne-

gotiation is essential to a mutually agreeable conclusion. Remember

that the word negotiation has “EGO” in it. Each participant must

feel he has won a number of hard-fought concessions from his ad-

versaries to satisfy his ego that he has done his job well. Here’s a

RINCIPLES OF

EGOTIATION

good example: I put an ad in the paper to sell my late-model

Porsche. It’s in great shape, nice year, with low mileage, and with a

price of $30,000. It’s a great price and a fair deal. You call me up

and say I’ll give you $25,000 for the Porsche. And I immediately

say, “You have a deal.” You just bought a $30,000 automobile for

$25,000. But are you happy? No! Because, I accepted your offer so

fast, you feel that you could have bought it for $20,000. This was a

bad negotiation because the buyer isn’t happy. If he can, he may try

to find a way to back out. The same is true in negotiating over

real estate.

Now take the reverse scenario. I put an ad in the paper to sell the

same Porsche for $30,000, but this time you phone me and offer

$20,000. And I say, “No, the price is $27,000.” And you immediately

reply with, “Okay, I’ll give you the $27,000.” Now the question is,

am I happy? No! Because you went so fast from $20,000 to $27,000.

If I had stuck to my guns you probably would have gone a little higher

and paid the $30,000. I got what I wanted, and you got the Porsche

for what you were willing to pay, yet neither of us are happy because

we didn’t spend enough time going through the bargaining process.

In a successful negotiation, I have to convince you, the buyer, that

you got it for the cheapest price. And you have to convince me that I

sold it for the highest price, so that I feel I got the most out of the

transaction. All this takes time, haggling, arguing, and discussing to

accomplish. It takes extended negotiation.

So if you are negotiating over a piece of property, go through the

motions, even though you might already be satisfied with the price

and terms. Because unless the other party has satisfied his ego, he is

not going to make the deal, or he is going find a reason not to close

on the deal. The other party has to be convinced he is making a good

deal. The “invested time philosophy” that I discuss in the next sec-

tion also involves increasing the amount of time spent in pursuit of a

final agreement.

TRUMP STRATEGIES FOR REAL ESTATE

How Trump Avoided a Quick Deal

When Trump flew to Germany to meet with the owner of 40 Wall

Street, he knew the existing ground lease had to be changed com-

pletely to reflect what he had in mind—creating a lease that would

permit the flexibility of major renovations, leasing of space, and

covering the possibility of a residential use for the building. This

meant that he would have to carefully negotiate every point and

change all of the provisions of the existing lease. But as a prerequi-

site to discussing a deal he had to create an environment conducive

to success. Trump had to overcome the fact that the building had a

long history of failures, bankruptcies, and mismanagement. To

make an acceptable deal, he would need to use lots of preparation,

relationship building, and showmanship. First he learned every-

thing he could about the German landlord. From his connections

with banks that did business in Germany he learned that the

landowner was an 80-year-old multimillionaire who also was the

patriarch of the Hinneberg family that was well respected and in-

fluential in Germany.

Tr u mp assumed that someone of that stature owning a property

over 3,000 miles away wanted the benefits of ownership without the

headaches and aggravation that came with the renovation, leasing,

and operation of a one-million-square-foot building in a distressed

area. So Trump had to amass an arsenal of weapons designed to im-

press. He assembled pictures of the buildings he had built to show

the quality and prestige. He was ready to outline his plans for res-

urrecting 40 Wall Street to the grandeur it had when it was initially

built. He had available for display full color renderings showing the

difference between the lobby as it presently existed and the lobby

after proposed renovation. He had an explanation of how and where

he would invest millions of dollars to re-create a building that

would make the ground leaseholder proud.

RINCIPLES OF

EGOTIATION

But all this preparation was just the foundation for Trump’s ini-

tial meeting. The ultimate purpose of that meeting was to find out

what Walter Hinneberg really wanted and construct a scenario that

would work for both parties. Hinneberg was impressed that someone

of Donald Trump’s stature would fly to Germany to meet with him

and this enabled Tr ump to establish the atmosphere of mutual trust

that was essential to consummation of the deal.

Tr u mp k new that the history of mistrust that Hinneberg en-

dured with prior building operators could only be overcome with the

passage of time, relationship building, and constant negotiation to

address the concerns of both parties. Instead of trying to sign a quick

deal, Trump took almost a year to hammer out the intricate terms of

the new ground lease, one of which was a total rent abatement for a

period of three years. Both parties were detail oriented and had to

expend a great deal of time, energy, and money. But this also meant

they were both committed to making the deal work. Without the

time investment, the deal probably would have aborted.

Why You Should Avoid a Quick Deal

If you want to buy, sell, or invest in real estate, you must remember

that people are willing to spend time with someone who seems gen-

uinely interested in them and what they have to offer. Trying to make

aquick deal sends the opposite message to the person you are dealing

with. Likewise, it will be much easier for a seller to brush you off, if

you are only interested in the selling price of a property, and show no

curiosity about the history of the property, or owner’s goals, reasons

for selling, and so on. The more questions that are asked and answered

over extended periods of time in a real estate transaction, the more

useful information you willhave to bring to the negotiating table.

Asking questions and gathering information also cement the impres-

sion of a sincere and continued interest Moreover, it is personally

TRUMP STRATEGIES FOR REAL ESTATE

gratifying to the seller orthebuyer,andpersonalsatisfactionisanes-

sential element in the consummation of any deal. The harder the nego-

tiation and the more time spent, the greater the satisfaction both sides

willhaveover ahard fought victory.

RINCIPLE

5: T

NVESTED

IME

RINCIPLE

This is related to principle 4, “Avoid a quick deal.” The “invested

time principle” says that the more time a person has invested in a

transaction, the less likelihood he or she’s going to give it up. In a

negotiation, you can use this to your advantage by getting the other

party to spend time on the deal, with reasonable requests for infor-

mation, a slow, drawn-out negotiation (when appropriate), and so on.

Because people hate the idea of having wasted time on something

that doesn’t work out, after they have spent enough time on some-

thing, they’ll do everything they can to salvage the transaction. It’s

very hard for someone to say, “forget the whole thing” and walk away,

after putting in a great amount of time and effort.

How Trump Uses It

In the 40 Wall Street deal, Trump had to negotiate an existing

ground lease that was a terrible document from his standpoint, but a

great document from the owner’s point of view. Trump and his at-

torneys had to negotiate every point, every clause, and every part of it

in order to come up with a document that both parties would be willing

to sign. That was and had to be a very tedious and time-consuming

transaction.

Tr u mp co uld have said, “I can live with all these unfavorable

clauses because they’re not critical to making the building a success.”

But he knew the desirability of building up the invested time of both

RINCIPLES OF

EGOTIATION

parties in the deal. It happens naturally when all of the clauses are ne-

gotiated separately, continually, and then revised again and again. By

doing the negotiation carefully and slowly the lawyers could arrive at

language that might be unusual but acceptable to both sides. Of

course, it takes a lot of money to pay the fees of the lawyers and the

negotiators involved in the drafting of documents. It required many

discussions between lawyers and clients to craft solutions to antici-

pated problems. But everyone involved could say, “We’re moving in

the right direction. We’re constantly revamping and revising but we

believe we come out with something both sides can live with.” By uti-

lizing the invested time principle, Trump’s list of open issues slowly

declined and the mutually agreeable solutions increased until there

was only one item in dispute between the opposing lawyers. At the

last item they each dug in their heels claiming their position was

the

only one and recommending that the lease not be signed unless

the other party gave in. To solve the stalemate Donald called me to

intervene and resolve the disputed issue. The issue involved the

agreed split of a condemnation award if the property was taken by the

government under eminent domain. I told Donald that the likelihood

of a governmental taking was remote and giving more money to the

owner in that event was a business risk worth taking. He agreed, and

that was the end of a long but very successful negotiation.

How You Can Use the Invested Time Philosophy

to Your Advantage

Get all people employed by the other side involved in some phase of

the negotiation. Get the buyer or seller to review or create financial

information and ask them to make projections of income, expenses,

cash flow, profits, and tax implications whenever possible. Solicit

questions and then give them answers enabling them to rework their

calculations. Get the engineering experts to examine the property

TRUMP STRATEGIES FOR REAL ESTATE

and report their findings. Have a title search run and relay any prob-

lems to theother side.However, never forget that the invested time

philosophycould color your decisions as well, if you and your people

are the ones putting in an extensive amount of time and effort. Keep

the work you and your team do to the minimum necessary and get the

other team to expend as much time, money, and energy as you can.

UMMARY

Consider how a gourmet chef prepares a special dish. The chef starts

with one basic ingredient and then blends it with other items and

spices designed to enhance the overall flavor to please a discerning

guest. Just think of the negotiating principles in this chapter as the

basic ingredient and the negotiating techniques in Chapter 4 as the

enhancers. I have seen all these principles work wonders in multimil-

lion dollar real estate deals, and I know they can help you work

through difficult negotiations with amazing results.

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AND

ACTICS

OINTS

•The basics of negotiation.

•The goals at the start of any negotiation.

•The sources of negotiation power.

•The five characteristics of a skilled negotiator.

•Critical dos and don’ts of successful negotiation.

•P.O.S.T.-time for negotiators.

•Telephone negotiations.

•Using deadlocks, deadlines, and delays to your advantage.

•More tactics and countermeasures.

HAVE BEEN NEGOTIATING

real estate transactions for giants in

the industry for 50 years. But when I was a young lawyer I knew

very little about negotiation and as a result, I am sure I unwittingly

left a lot of my client’s chips on the table. Early on, I recognized my

own shortcomings and decided to make an intensive study of the

field of negotiation. I researched the tricks of the trade from books

and from the more experienced lawyers or negotiators who were

often my adversaries. When they did something that was effective, I

made it part of my style.

Then, after 20 years of experience in real estate negotiations, I

started working with Donald Trump, a negotiating genius from

whom I learned even more. This chapter is a compilation of tech-

niques I’ve learned from negotiating over a thousand real estate

deals, coupled with Trump’s extremely successful variations on the

art of negotiating. We have both learned a lot from our association

and if you follow the concepts set forth in this chapter and Chapter

3, you will learn much of what I wish I had known when I was a

young attorney.

By the way, almost all of the techniques that are discussed in this

chapter and the negotiating principles found in Chapter 3 are appli-

cable to the case studies on Trump investments that appear through-

out this book. Once you have digested the meat of Chapters 3 and 4,

it will be easy for you to spot how Trump and I used these principles

and techniques in the investing case studies.

The real estate community is a tough breed to negotiate with.

Because each parcel of real estate is unique—its location, views, and

topography are but a few of its characteristics. Therefore, each real

TRUMP STRATEGIES FOR REAL ESTATE

estate negotiation is also unique. Developers and landlords are often

big risk takers and typically shrewd negotiators, whether dealing in

small properties or in multimillion dollar properties. But if you fol-

low the guidelines set forth in this chapter you will be able to swim

with the “sharks” without becoming their lunch.

ASICS OF

EGOTIATION

Although each of us has been negotiating our entire lives, we know

little about it and just do what comes naturally. That’s a huge mis-

take! Negotiation is such an important part of life I am constantly

amazed at how little time people spend developing a good technique.

One of my main purposes in writing this book is to help you improve

your understanding of negotiation and develop the skills necessary to

achieve success.

What Is Negotiation?

In my negotiation seminars at New York University, I ask my stu-

dents every year: What is negotiation? The three best answers I’ve

heard are these:

1. It is one aspect of life where there are no governing rules.

Lying is not only permitted, it is an accepted practice.

2. It is accepting an available compromise as a substitute for that

which you really thought you wanted.

3. It is a journey to an imaginary destination without a road

map where all the signposts and directions are intentionally

misleading.

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Now let me tell you what negotiation is not:

•It is not a science (all the key concepts are abstract).

•It is not a problem which has a right or wrong answer.

•It is not a situation in which winning is everything.

•It is not an event with continuity.

OALS AT THE

TART OF

EGOTIATION

The ultimate goal of a negotiation, especially a real estate negotia-

tion is to profit from it. But there are several forms of profit. Of

course, the first one is monetary, such as a better price or interest

rate. But there can be other valuable outcomes to a negotiation, such

as acquiring knowledge about a property. More subtly, often the par-

ties in a transaction also have the unconscious goal of obtaining sat-

isfaction from a negotiation and feeling good about the outcome, or

at least not losing face. This is another form of “profit” that you want

your opponent to feel they have earned.

However, at the beginning of a negotiation, real estate in-

vestors (or anyone in a negotiation) should focus on the following

immediategoals:

• Learn the other side’s position. If we learn what the other parties

want we can attempt to structure a transaction that meets their

needs. There is always a reason or reasons why the other side is

willing to consider doing a deal. If you “find the story” of what

they really want and think is important, you can address their

concerns.

•

Understand the constraints surrounding the transaction. Every

transaction has some controlling factors such as a time frame,

competing offers, tax implications, or required approvals. If you

learn what they are you can use them to your advantage.

TRUMP STRATEGIES FOR REAL ESTATE

• Define “fair and reasonable.” What these words mean to each ne-

gotiating party may be very different. Understanding that there

is a difference in what each side considers “fair and reasonable”

is necessary before you can start to reduce the gap in percep-

tion between the two sides.

• Assess “your side.” The personality, knowledge, and skills of the

people on your team are equally important to know.

•

Assess the “other side.” It is essential to know the personalities,

knowledge, and desires of your opponents. Are they sophisti-

cated, or abrasive, or people you can be comfortable negotiat-

ing with? If you think they are untrustworthy, you should run

for the nearest exit! One thing that should be perfectly clear in

negotiating: There is no way you can ever protect yourself

against a thief. No legal document can protect you. Nothing

can. If you get involved with someone who is a thief, you’re in

big trouble.

Do You Really Want to Do Business with These People?

After you’ve researched and digested all the available information

about the parties you’re dealing with in a real estate transaction, it’s

time to trust your instincts. Everyone develops instinctive reactions

as a result of prior learning experiences, and when your instincts

prove right in a situation, you gradually begin to learn to trust them

in the future. When an instinct proves wrong, you quickly learn to

abandon it. The result of this sorting process is the creation of a set

of instincts that your experience tells you can be trusted.

Yo ur instincts are usually pretty close to being right, especially

once you have developed a style of negotiation you are comfortable

with. If the deal doesn’t feel right; if you instinctively feel like you’re

dealing with someone who’s shady, don’t deal with them. You may

never be able to prove it, but it is your instinct that has triggered a

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response. And usually your instincts are right because you have de-

veloped them over a long period of time. If you think the deal is too

good to be true, it probably is. Or, if you think the person you’re get-

ting involved with is someone who seems to remind you of the snake

oil salesman in old movies and is prone to exaggerate, or you can’t

trust what they say, then don’t get involved with them.

Here’s an example I often use that confirms the value of instinct.

Yo u’re walking down the sidewalk and farther down you see a group

of men. They appear to be a gang of rowdy teenage boys. Instinc-

tively you sense trouble, they’re doing something that you sense

could become a problem or be a source of danger. So, instinctively

you cross the street and begin walking on the other side. And you do

this because of something that has happened in your past that tells

you instinctively what to do.

Also, if someone comes across as a straight shooter but you feel

they’re just too good to be true—you shouldn’t do business with

them. Rely on your gut feeling. I’m not saying you shouldn’t trust

people, but investigation is a necessity. I will take at face value any-

thing thatissaid by somebody whom I think I can completely trust,

but I’ll check everything out later. In fact, I always start out with a

lot of assumptions about a real estatedealorpeople involved in a deal,

but I assume that every assumption is wrong. Then I’m surprised

when an assumption proves right. I always assume that I am dealing

withatrustworthy individual. But I investigate and do a background

check to verify the validity of my assumption. Then I’ll be satisfied

that my assumption was right.

However, I may end up with a situation where I checked this

person out and he seemed trustworthy, but along the way he does

something that changes my opinion. What should you do when

you’re dealing with partners you feel you can’t trust? Get out!

That trust can never be reinstated. Never! Your partner says he’ll

never do it again, but once the trust has been breached, it can never

TRUMP STRATEGIES FOR REAL ESTATE

be corrected. It’s like the husband who cheats on his wife, and

he says “Honey, I’ll never do it again.” The wife is crazy if she be-

lieves him!

OURCES OF

EGOTIATING

OWER

Negotiating power is the ability and resources to influence others.

Some subtle forms of negotiating power include:

•

Good record keeping. Having good records favors the party who

has them when there is a disagreement about what or when

something was said. He who has better records and better notes

wins the argument about what was said when, and who promised

to do what.

• Preprinted forms. These favor the party supplying them. For ex-

ample, if a contract is titled “Standard Purchase Agreement”

people assume it’s nonnegotiable.

• Company policy. The mere statement: “That’s our company pol-

icy” usually puts an end to many disputes.

• Knowledge. Revealing that you have a lot of knowledge or infor-

mation about a transaction can intimidate the other side so

they will ask for fewer concessions. Often people think: “He’s

too smart for me to try to get this concession.”

• The willingness to take risks. AssumeIhavetossedacoin50times

andeachtimeitcameupheads. So I say to you: “I’ll give you 10

to1odds that it will come up heads again.” Now there’s a bet

you would be inclined to take since you know the real odds are

50–50. Assume that your entire fortune at that time is $100,000

andIsay:“It’s my million against your $100,000, okay?” Some-

how you start thinking: “With my fortune on the line, it’ll

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probably come up heads again, andI’llloseeverything.”Your

willingness to take ariskhas entered the negotiating arena and

colored your decision.

• Time. Time is the ultimate negotiating power. Every real estate

transaction has a time frame within which the parties must

work if they want to make a deal. He who controls the timing

controls the deal.

IVE

HARACTERISTICS OF A

KILLED

EGOTIATOR

A renowned researcher in the field of negotiation conducted a survey

in which CEOs of major corporations were asked to rate, in order of

importance, the requisite qualities of people they would utilize to ne-

gotiate on their behalf. Even though I had developed my own ideas,

their choices surprised me. Here they are:

1. Personality. They believed that a good personality was more

important than knowledge. (That shocked me.)

2. Knowledge of the subject matter. Ithought that would have been #1!

3. Ability to organize information. This speaks volumes for the im-

portance CEOs placed on good work habits such as record-

keeping and efficient filing and retrieval systems.

4. Knowledge of human nature. Wouldn’t you think this would have

a higher ranking?

5. Ability to find and exploit weaknesses. CEOs were interested in

utilizing people who had the brainpower and mental agility to

probe the other side without setting off any warning bells, and

then use the information gained to their advantage.

The next section of this chapter describes how you can develop

these five negotiation skills that CEOs value most highly.

TRUMP STRATEGIES FOR REAL ESTATE

Improve Your Personality

Be a “nice person” to deal with. Be friendly. Make others feel “com-

fortable” in talking and dealing with you. This is essential. If people

like you they’ll go all out to please you. Look for common ground to

establish a good rapport with the other side. Find a common theme

for discussion. Look around their offices or desks. If they’re inter-

ested in sports—talk sports. Look for family pictures and ask ques-

tions about them. “Is that your grandchild? She looks like a tomboy,

is she? How many grandchildren do you have? How many boys? Do

you see them often?” The greater interest you show in them, the

more you engender a “warm and cozy” feeling.

Exhibiting a good sense of humor is usually an excellent ice-

breaker, but stay clear of anything that might be considered offensive.

Let it be known that you are a deal maker, not a deal breaker. Con-

vince the other side of your sincerity and desire to reach a mutually

amicable conclusion.

Learn flexibility. In negotiation, you rarely get exactly what you

want. Getting close or achieving an acceptable alternate is equivalent

to total victory.

Establish a reputation of trustworthiness. If you promise to call,

do so. If you say, “I’ll get you that information,” get it. Remember

there is a severe discount factor for lack of trust. You can never quan-

tify the amount of the discount. No one ever asks for a pound of

friendship or a bucket of integrity but they are always willing to pay

(in the form of granting concessions) if you deliver friendship and

integrity in the negotiation process.

Display Knowledge of the Subject Matter

An interesting phenomenon I mentioned earlier in this chapter is

that if you convince your adversaries that you have extensive knowl-

edge—even though you really don’t, you may win many points when

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your adversaries overestimate how savvy you really are. They may

abandon a negotiation strategy thinking: “He’s too smart for that to

work.” The kind of knowledge you want to display to your adversary

in a negotiation falls into two categories:

1. Actual knowledge. This is the knowledge obtained by one’s own

private experiences and education. You can easily increase

your store of knowledge by talking to outside professionals

prior to and during negotiations. Never be afraid or shy to ask

questions from someone in the know. The only stupid ques-

tion is the one you didn’t ask! Having discussions with experts

or people on your side is essential to obtaining the information

you need to shape your approach to any upcoming negotiation.

2. Apparent knowledge. This is the broad, or even superficial infor-

mation that a negotiator exhibits when discussing a particular

subject. When coupled with a smooth authoritative delivery it

can prove very effective. It may involve knowledge that the ne-

gotiator gained from comparable negotiations with comparable

adversaries in comparable situations. For example, if you’re

dealing with a loan officer from a new bank and you’ve dealt

with loan officers from other banks, you can assume that the

same corporate procedures and mentality will be found. Dis-

playing your knowledge of loan procedures to the new loan of-

ficer will make the officer less likely to pad the bank’s fee, and

more likely to make the adjustments you ask for.

Organize Your Information: Donald Trump’s Spiral

Notebook and Other Tools

If you want to develop this highly desirable characteristic it is essen-

tial that you develop a work habit and an infallible method of filing

information for immediate retrieval. You will find this a lifesaver

TRUMP STRATEGIES FOR REAL ESTATE

when you’re under stress. I suggest you use a simple spiral notebook,

not a loose leaf one where pages are removable. If you look at Donald

Tr ump’s desk you will see his spiral notebook in which he chronicles

all his telephone calls and things to do. If it’s an important work

habit for him, why not for you? Stop writing notes, telephone num-

bers, or other information on the back of envelopes or on those

treacherous little colored tags that stick to anything and tend to dis-

appear when you try to find them.

Another great technique is creating a checklist of open issues,

which is subject to constant revision. As you get more involved in

real estate you will find that one deal looks like many others and it

becomes difficult, if not impossible, to keep the status of negotia-

tions separate. An up-to-date checklist helps immensely.

Another valuable tool is a “we-they list” of the different positions

taken by each of the parties. This will clarify the zone of uncertainty

mentioned earlier. It helps tremendously to write down the key facts

about which you and the other party have fundamentally different

and conflicting perceptions and beliefs. These need to be faced and

attacked to enable the transaction to reach a mutually acceptable

conclusion.

I supplement this “we-they list” with a “wish list” in which I jot

down how I would like to resolve certain issues, or get the other side

to accept a new concept. This is a valuable aid because it forces me to

think of possible solutions and scenarios to make them a reality.

Somewhere in the midst of negotiation, I also recommend you

prepare a scorecard in which you name all of the players, identify their

roles in the transaction, and evaluate their plusses and minuses, to

help

you understand what each person wants, what you can offer them, and

how they could help or hurt your position in the negotiation.

These tips are not meant to be all-inclusive but they constitute a

strong foundation on which your own unique style of organizing in-

formation can be built.

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Improve Your Knowledge of Human Nature

Many of the following basic truths may seem obvious and simplistic

to you but I doubt you have spent a substantial amount of time an-

alyzing the impact they have on the outcome of negotiations.

Researchers in the field of negotiation have done extensive, com-

prehensive experiments to prove the validity of these concepts. I

cannot stress too strongly that the time you spend making them

part of your base of knowledge is time well spent. It will be ex-

tremely helpful in your future negotiations.

• Create exclusivity. I mentioned this in Chapter 3 but it’s so im-

portant it warrants repeating: People want what they can’t have

or somebody else wants. If someone announces: “That’s not for

sale at any price” everyone thinks that there must be some price

at which it can be bought. This concept is found at the heart of

all auctions. The more bidders for an item, the higher the bids

and the more spirited the bidders.

• People become overwhelmed when they are faced with too many deci-

sions. Once you accept this fact you can easily understand why it

is best to use a “little at a time” approach. Just imagine that you

want someone to swallow a pill the size of a golf ball. If you

tried to give it to him at one time, he would choke on it. If,

however, you cut the pill up into little pieces and gave it to him

at various intervals, he would swallow the entire pill and never

realize what you made him do.

• The “aura of legitimacy” phenomena. I discussed this extremely im-

portant topic in Chapter 3. If you’re still unclear about its power

to work for you or against you, I suggest you reread that chapter.

• Satisfaction. Everyone in a negotiating situation has a “need for

satisfaction.” People want to believe that they have conducted a

successful negotiation and have won hard fought concessions

TRUMP STRATEGIES FOR REAL ESTATE

from you. To satisfy that need you must learn to hold back. Be

stingy with your concessions even though they may be of little

importance to you, the fact that the other side got you to give

in on an item is considered a win for them. Because winning a

hard fought issue, which was the subject of protracted negotia-

tion, creates the feeling of deep self satisfaction in the winner it

is important for you to leave time in the negotiation for this to

happen. Learn to cater to the needs of individuals. Tell them

how they out-negotiated you and drove such a hard bargain.

Te ll them they got an unbelievable price and you don’t know

how they did it. Everyone likes to be flattered. Do it, even if

you feel that you might choke on the words.

• People have an innate fear of superiority in others. While it’s im-

portant to display your knowledge of the subject matter in a ne-

gotiation, you don’t want to appear so smart that people are

afraid to deal with you.

In recognition of this you must sometimes adopt the prin-

ciple that “dumb” is “smart.” Sol Goldman who will be dis-

cussed later was a multimillionaire with a humble background

as a grocery vendor. Notwithstanding his lack of formal educa-

tion, he had one of the sharpest minds I ever encountered. He

was a brilliant negotiator who played a major role in my suc-

cessful growth as a negotiator. He could remember anything

and everything about any piece of real estate or anyone in the

real estate arena. In any negotiation the other parties never had

a clue as to the extent of his proficiency. If someone said some-

thing he needed time to consider, he’d say, “You people are

much smarter than I am. Could you please give me a simpler ex-

planation that my small mind can understand?” He knew full

well what was being proposed as well as what his answer might

be. But, often the simplified explanation was more attackable

than the initial one, and if that was true he would respond to

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that one. His delay in responding also gave him the time to

sharpen his response and then deliver it as if he were a local

yokel shooting from the hip without considering the depth of

the subject matter. When Sol Goldman died in 1987, his real

estate holdings were appraised at over $700 million and reputed

to be second in size only to the holdings of New York City. Not

bad for someone who gave the appearance of being dumb.

•

Ziff ’s Principle of Least Effort. As I mentioned in Chapter 1, Ziff

was a researcher who concluded that in any negotiation people

will expend the least amount of effort to arrive at a result. You

can use this principle to your advantage by agreeing to do all the

work that the other side really doesn’t want to do. Tell the other

side that you know how busy they are and you will take a load off

of them by doing much of the menial work. Besides appearing to

be helpful, if you are the party who originates and controls the

documentation and preparation of financial information relating

to any transaction you have a huge edge. You know what you put

in the documentation and what you left out. The reader has a

tendency to be trapped by the written word and concentrates on

what he sees, not what he doesn’t see. Let Ziff’s findings work

for you.

•

Everyone loves a “freebie.” This principle is the cornerstone of

many successful marketing and sales strategies. “Buy one get

one free.” “If you take advantage of this special offer, we’ll

send you another gizmo absolutely free.” “Buy today and we’ll

pay the shipping charges.” The list is endless but it works. Try

to come up with something you are willing to throw into

the deal without charge and that minor inducement might win

the day.

• People believe in the “one good turn theory.” “One hand washes the

other” and “One good turn deserves another” are considered

by most people to be the fair way of doing business. I tend to

TRUMP STRATEGIES FOR REAL ESTATE

agree with that bit of philosophy. However, it doesn’t mean

that an equal exchange is required, just that there be a quid

pro quo. There’s nothing that says your “quid” must have the

same value astheir“quo.” Embrace the concept but slant the

exchange in your favor. Others will be so enthralled by your

fairness that they forget to weigh the respective benefits of the

items exchanged.

• Everyone is influenced by the power of a simple solution. Somehow

“Let’s split the difference” seems only fair to most people.

Throw it out as a solution if it’s in your interest to do so, but if

it’s offered to you, don’t accept it if you think it’s not fair to

you. “Let’s discuss this later” is an easy way to avoid locking

horns over an issue where feelings run high.

• People appreciate a person who can say, “I made a mistake.” Suppose

you made an offer to purchase a building for $200,000 and the

offer was accepted. After further consideration, you told the

seller that the cost of needed repairs was much higher than you

thought and you wanted to reduce the purchase price by

$40,000 If the seller accuses you of bad faith and reneging on

your agreement just say, “I’m terribly sorry but I made an hon-

est mistake and you wouldn’t take advantage of that, would

you?” That admission may get you part or all of the $40,000

discount you asked for.

• Most people are stricken by the “deadline syndrome.” Just before

time runs out is the most effective time to win your objective.

When your opponent is facing a deadline such as, “I have to re-

port to my boss by 3

.today” closing open issues happens

quickly after 2:45

.Find out what the other party’s deadline

is, wait until the last minute to resolve key issues, then see the

favorable result you get.

• People want their “invested time” to pay off for them. I discussed

how the “invested time” principle works in Chapter 3. Donald

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Tr u mp a nd I have used it to achieve results that we originally

thought were not attainable.

Finding and Exploiting Weaknesses

Information is power in a negotiation. I have to derive information

from you, and to do that, I have to ask you a lot of questions. If I said

to you, “Are you really in such a bind that you have to move out of

your property in the next few weeks?” You’re never going to tell me

yes, because that’s going to hurt your negotiation posture. So in-

stead, you say “I want to move in by the end of the year.” And I re-

spond by saying, “I don’t know if that’s possible, suppose I gave it to

you three months later?” You reply, “I can’t use it three months later,

I have to use it now.” Without you realizing it, you just told me

you’re in a bind. All I did was throw out an alternative, and you said

that “I couldn’t live with the alternative.” Which effectively got me

the answer to my question.

Another indirect question might be, “What if instead of us paying

all cash, you take back a mortgage for $25,000?” If the reply is, “I re-

ally need the cash to pay off the debt to my bank.” Guess what—

you’ve discovered a weakness that you may be able to capitalize on.

Sometimes a timing question elicits a helpful response. You pose the

following question, “Would you be upset if I extended the lease com-

mencement date by three months?” The answer, “I can’t do that, my

present lease expires in 60 days.” You have just gained valuable infor-

mation without asking a direct question which might not be answered

truthfully.

In another situation I might say, “Why do you want to sell it

now?” “Well, the truth is I’m not feeling well.” Now I found out why

he’s selling. Also, I could ask a seller, “Have you heard about this or

that” and he says no. Now I’ve got a feeling if they’re in tune with

the market. Again, information is power in a negotiation.

TRUMP STRATEGIES FOR REAL ESTATE

EORGE

...T

OLDMAN

EGOTIATING

TYLE

Learn which techniques are most effective with the other side. If

they hate paperwork, barrage them with paper. If they can’t tolerate

long discussions, drag them out. If they are intimidated by an angry

outburst, display your anger when it is appropriate to do so. Sol

Goldman once used this tactic very effectively in a negotiation I par-

ticipated in before I joined the Trump Organization. Goldman

wanted to buy a building, and he was willing to pay $15 million, all

cash. (Goldman was a multimillionaire who became one of the rich-

est men in America, and he had a lot of available cash on hand.)

One of the things that can significantly weaken the other side’s

position is when they have rejected your offer to take a better offer,

but that falls through and they come back to you. In a case like that,

you can press your advantage, as I once did when negotiating the pur-

chase of a radio station, WGLI on Long Island in the late 1960s. The

seller initially wanted $500,000 all cash. My brother-in-law and I

were partners and we offered $450,000—$50,000 in cash and a

$400,000 mortgage. Their lawyer rejected the offer and said “we have

an all-cash offer of $500,000, which we’re taking.” A month later, the

same lawyer called me and said, “the other deal fell through, we will

accept your offer.” Well now he’s in my ballpark! I said, “What

offer?” He said, “Well, you said you’d pay $450,000 with terms.” I

replied, “Yes, but unfortunately that was a month ago. We have since

invested the bulk of our money in several other projects. But if you’re

willing to recast the deal, we will think it over.” I went to my brother-

in-law and said I think they’d accept $400,000 with $100,000 down

and the balance in a 4 percent mortgage. “Go ahead,” he said. So I

made the offer, and they accepted it! That’s how I got into the radio

business, on extremely good terms—I exploited the seller’s weakness.

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Goldman initiated the negotiations by asking the seller, “How much

do you want for the building?” The seller said, “$15 million, all cash.”

Goldman replied in a high-pitched screech, “W H A T!?”

Well, this was the price Goldman was willing to pay, and the seller

was willing to take. But Goldman was so indignant in the way he said

“WHAT?” The seller responded by saying, “Well maybe we can take

a little less; how about $14 million, all cash.” Goldman says again

with the same high-pitched screech, “WHAT?! ALL CASH. YOU

WANT ALL CASH?!”

The seller then said, “Well, maybe we can talk terms.”

Now Sol Goldman never tipped his hand—he never said anything

substantial—while all this was going on. All he said was “WHAT?!”

at four different times. The seller thought he was so indignant, so in-

sulted, that Goldman ended up buying the building for $12 million

with terms! And all he said was “WHAT!”

You hav e t o understand that as a young lawyer, working for Sol

Goldman, I was ready to grab the seller’s first offer, since I knew my

client was ready to pay it. Instead, Goldman would negotiate with-

out making a single counteroffer. He never said, “All I want to pay is

$12 million.” All he ever said was “WHAT?” “WHAT?” “WHAT?”

“WHAT?”

Later on, Goldman inquired, “What’s the interest rate on the

mortgage?” And the seller replied, “8 percent.”

Goldman again replied with another indignant and ear-piercing

“WHAT, 8 PERCENT?!”

The whole tone of the entire negotiation made the seller feel that

he was insulting my client. It ended up having an unbelievable result.

Later, in another negotiation with Goldman, he was ready to sell

a building for $20 million. An interested buyer came along and of-

fered him $20 million. But Goldman said, “You’ve got to do better

than that.”

So the other side replied, “Well, how about $22 million.”

(Continued)

TRUMP STRATEGIES FOR REAL ESTATE

RITICAL

OS AND

’

TS OF

UCCESSFUL

EGOTIATION

The negotiation principlesandtechniques I’m describing are pow-

erful, but they won’t all work for you. It’s important to adopt your

own style of negotiating. Each person has a unique personality and

method of negotiating. If you try to simply copy someone else, peo-

ple sense that your trying tohidethetruthofwhoorwhatyouare.

This will result inaquick turnoff because they feel you cannot be

trusted.

• Don’t talk about your weaknesses at any time or in front of any-

one. Be sure to muzzle everyone on your side. Many deals are

blown by nonnegotiators who couldn’t keep their mouths shut.

• Don’t believe in the “bogey” theory. Very often in real estate

deals you will be told, “Look if you don’t want the deal I have

two others who do.” Another variation is, “I’ve got a better

price from someone else.” Don’t give those statements any

credence. If there were any truth to the claim, they wouldn’t

be dealing with you, but instead they would be pursuing the

other, better deal.

Again, Goldman replied, “You’ve got to do better than that.”

Now Goldman had already made $2 million and he was willing to

accept $20 million, but just by saying “You’ve got to do better than

that,” made the other side feel that they had to. Otherwise, they

thought Goldman wouldn’t make the deal. It was just a ploy—which

worked! In this example, Goldman succeeded in a negotiation by

giving away no information.

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• Don’t trust your assumptions. If you start with the belief that

all your assumptions and estimates are wrong, you’re never dis-

appointed but you feel good when you find out some of them

were right.

• Don’t assume the other side knows what you know. Find out

what they know during the course of negotiations.

• Don’t accept any offer right away. Hold back. Remember that

the other side wants a sense of “satisfaction” out of the negotia-

tion. Don’t make things too easy for them or they will wonder

how much money they left on the table.

• Do be indecisive to drag out the negotiation. (Remember creat-

ing a “time investment” by the other side is helpful in obtain-

ing a satisfactory conclusion.)

• Don’t do quick negotiations. In quick negotiations, one side gets

an inferior deal. The exception is when you are clearly more

skilled and more prepared than the other side. Skilled and well

prepared wins in quick negotiations.

• Don’t use all the power you possess. Always leave the door open

for future dealings. This is a critical necessity in any long-term

relationship.

• Don’t forget that there’s no right price for the wrong

property.

P.O.S.T.-T

IME FOR

EGOTIATORS

Negotiation is like a horse race, but the secret to winning is running

a smart race. Before you go into any negotiation think of each key

meeting with the other party as your “post time.” For example, at

your first meeting, you know little or nothing about the opposition

and what the outcome will be. Use the P.O.S.T. acronym to prepare

for your post time:

TRUMP STRATEGIES FOR REAL ESTATE

P—Stands for the persons attending the negotiation. Learn who

they areand theirfunctions. Never negotiate if there are uniden-

tified people present. Find out who they are and what role they

will play in the deal. Learn who isdecisionmakerforeachele-

ment under discussion.

O—Stands for the objective you wish to accomplish at the meet-

ing you are attending. Figure this out before you start any meet-

ing. Your objective must be measurable by the end of the

negotiation meeting to be useful. If you believe your objective in

an initial meeting is to finalize a deal, you’re aiming at the wrong

target. A better objective is, “Let’s see if the seller is someone I

want to do business with.” That’s a clear target, easy to measure.

S—Stands for the strategy you intend to use in the negotiation.

This is your game plan or overall approach that you intend

to take. The strategy will dictate who talks on what topics,

who answers specific questions raised at any time, and who

makes notes of what was discussed and what the result was of

such discussion.

T—Stands for tactics to be used. This is a subcategory of strat-

egy. It is the “nuts and bolts” to be used for the implementation

of the game plan. For example you might say, “We’re going to use

the good guy-bad guy approach. Sam, I want you to play the

tough guy and appear to be hard-nosed and inflexible. I’ll play

the good guy and act as a mediator.” How you script the negotia-

tion is up to you but don’t go into one without knowing what you

plan to say or do. However, your tactics should differ if there is a

long-term versus a short-term relationship being created. Long-

term relationships must be nurtured with an abundance of ten-

der, loving care. You can be more aggressive in negotiations that

involve short-term relationships.

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Post-Negotiation Review

It is extremely important that a review be done as soon as possible

after each negotiation. This is an absolute must! At the review, the

following questions should be asked and answered:

Were the objectives achieved? If not, why not?

What was good and what was bad in the negotiation?

What changes should we make to our prior assumptions?

What about next time? Was a schedule set? Were there assigned

tasks to be done? If so, who has to do them and when?

After all these questions have been answered make appropriate

notes and put them in your infallible file system for immediate re-

trieval when necessary.

ELEPHONE

EGOTIATIONS

Te lephones are part of every negotiation, but telephone negotiations

have advantages and disadvantages. The main advantage is time

savings. Telephone negotiations can be easily conducted at a spe-

cific time acceptable to all parties. Telephone negotiations are con-

venient and with the advent of cell phones, calls can be made to or

from almost anywhere. Conference calls are also valuable for bring-

ing together many interested parties regardless of where they are

located. Despite these obvious advantages the telephone has some

distinct drawbacks.

TRUMP STRATEGIES FOR REAL ESTATE

Telephone Traps You Should Know

•

One party will often forget something in a telephone negotiation,

because both sides tend to prepare less for a telephone negotia-

tion. The only question is how important the forgotten item is

•

You lose the chance to read facial expressions and body language.

This can be significant, especially early on in a negotiation.

•

One party to the call is always unprepared unless the call

was scheduled in advance, and there was a specific understand-

ing of what would be discussed. You should never be the one

unprepared.

•Interruptions are deadly. Anything that interferes with one’s

chain of thought can lead to disaster.

•During a telephone negotiation you never know who may be

listening and why they’re listening. Even if you ask, “Is anyone

else on this line?” you may not get a truthful answer.

•During a telephone call you cannot examine any documenta-

tion which is referred to by the other party. They may say, “I

have statistics which show your building is overpriced.” You

can’t refute what you cannot see.

•In telephone negotiations there is always a tendency toward res-

olution. Before the parties hang up they like to feel they have

accomplished something, usually some type of agreement on

one or more points.

The key to mastering telephone negotiations is learning to listen!

When you answer the call, just ask the caller, “What’s the purpose

of this call?” Then relax and just listen carefully. If you don’t talk the

other side must talk or there is an awkward silence that people find

intolerable. After you have listened and gotten all the information

you wanted, tell the caller that you will call him or her back. This

gives you the time necessary to craft a proper reply.

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When you call back, do it from a quiet place at a good time, to

minimize the chance of interruptions. Have all pertinent material

you need readily available before you participate in a telephone nego-

tiation. Helpful tools include a checklist which serves as an agenda,

and a calculator incaseit’sneeded. Take good notes during the con-

versation and put them in your spiral notebook. When the call is over,

seethatthe notes go into the appropriate file. It’s a good policy to

confirm the conversation andthe agreements reached by a follow-up

letter,fax, or e-mail.

SING

EADLOCKS

, D

EADLINES

AND

ELAYS TO

OUR

DVANTAGE

Deadlocks

When both parties have reached an impasse (i.e., a deadlock), ask

yourself if a deadlock is appropriate at this time and on this issue. A

deadlock usually results from constraints placed on negotiators by

someone on their own side. If you think you have reached a genuine

deadlock, and you opt to leave the negotiation, be pleasant. Smile

when you walk out and say something like, “I’d really like to buy

your property but your price is not realistic.” Always leave the door

open for “face saving” (e.g., “I’ll give it some thought.”).

If one party welcomes a deadlock, that party has a distinct advan-

tage. A deadlock does not necessarily represent the end of a negotia-

tion, or even a failure, but most people view it as such. In many cases

you will learn of the availability of other concessions from the other

side, if you let a negotiation reach a deadlock on an issue.

Big organizations dread a deadlock because they view a deadlock

as failure. But savvy real estate investors know that deadlocks are not

failures and can always be broken. This gives you an advantage when

dealing with a big organization.

TRUMP STRATEGIES FOR REAL ESTATE

In many cases, you should welcome a deadlock because it clearly

shows your determination to the other side. A deadlock also tests the

other parties’ determination. If they say, “That’s something I

refuse to accept and I’m leaving,” see iftheyactuallygooutand

stay out. Often if you call their bluff, they will retreat and accept

your position or suggest an alternative. Try to orchestrate a way for

them to gracefully come backtothe table and accept your position

or suggest an alternative, without losing face. If the other side ac-

cepts a deadlock it proves to you andyoursidethat“it’s the end of

the road” on that issue, though not necessarily the whole deal.

Breaking Deadlocks

One way to break a deadlock is simply to change the subject that

caused the deadlock and shift to other areas. The issue may still be

unresolved but if agreement is reached on other items the mood may

be changed and the deadlock issue can be revisited in a more amica-

ble environment.

Another way to break a deadlock is to go “off the record” and try

to open an avenue of resolution through a different person, perhaps

at a different level in the opposing party’s organization. Or you can

offer to get the opinion of a mutually respected third party.

If you do intend to break a deadlock by caving in, you should at

least insist on getting a minor concession in an ancillary area to

maintain a degree of credibility.

Using Deadlines to Your Advantage

Most people wait until the last minute to resolve open issues in

a negotiation. An interesting experiment was undertaken by a noted

researcher in the field of negotiation. He assembled a group of

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100 negotiators with varied degrees of skill to participate in a mock

negotiation. The participants were divided into two groups on

opposite sides of the following imaginary situation. A large phar-

maceutical company had developed a drug, which they publicized as

having some minor side effects such as occasional dizziness or

headaches, but they also knew that it could lead to possible blind-

ness or serious loss of sight.

People were suing for serious injuries suffered. The negotiators

were split into teams of two, one person representing the drug com-

pany and the other person representing the claimant. They had to

reach a settlement within 60 minutes or a deadlock would be declared

and negotiation cease. A bell would sound every 10 minutes and an

announcement made specifying the time remaining. During the last

10 minutes the bells and announcements sounded every minute. The

experiment disclosed that over 90 percent of the claims were settled

in the last 5 minutes. The lesson for real estate investors is, “plan on

doing the real intensive negotiation just before a deadline expires.”

The worst deadlines that have to be faced are those that affect

your side. As the deadline approaches, the other side has the time to

remain flexible but your hand is quickly being forced to make a deal,

under potentially unfavorable terms.

It is important to know which deadlines are real and which are

fictitious. If someone says, “I must have your answer by Friday.” Tell

them you have to check things out and won’t have the answer until

the following Wednesday. If they say, “Okay,” you know the deadline

was not really a deadline. If they have a plausible explanation for the

Friday deadline—it’s real.

Delays

It is a fact that every transaction will meander unless there is a com-

pelling reason to consummate it or kill it. If you want to speed things

TRUMP STRATEGIES FOR REAL ESTATE

up, take control by setting acceptable time frames and insisting that

they are met. If you take the time to coordinate the schedules of all

necessary participants you can avoid unforeseen delays.

Tr y to establish as many “parallel tracks” as possible (i.e., lots of

people working on different parts of the transaction in the same time

period). To the extent that the other side has multiple people work-

ing on the transaction (the broker, lawyer, inspector, etc.) it adds to

their “invested time” account.

Murphy was right when one of his laws stated that everything

takes longer than you think. Unless a delay works in your favor, take

the necessary steps to keep the transaction moving at a reasonable

pace consistent with the size and complexity of the deal.

ORE

ACTICS AND

OUNTERMEASURES

Take it or leave it. That statement is considered to be fighting words,

and the recipient of that ultimatum is usually seriously offended by

it. To minimize the adverse effect try to tone it down by saying, “I

have other offers” or “Here’s a comparable building at a much lower

price.” Try to leave yourself a way out for face saving should you de-

cide to come back at a later date. The good things to be said about

using “take it or leave it” are that it shortens negotiations and shows

the resolve of the party taking that stand. The countermeasure to

“take it or leave it” is to change the parameters of the discussion. Try

to look for other areas that need further dialogue which may help re-

duce the tension that the ultimatum created and ultimately elimi-

nate it as a factor.

Yo u’ ve G o t to Do Better Than That (aka “The Crunch”). If you say

“You’ve got to do better than that” to someone their normal reaction

is to modify their position in your favor. If you say it again, they’ll

probably go further. Note that you never indicate that you will ac-

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cept their modified position. You’re just fishing to see if there’s a

better deal available. The countermeasure is simple, just say “I al-

ready have offered a fair deal, there’s no reason for me to make it bet-

ter for you.”

The Change of Pace.This tactic involves changing a cooperative at-

mosphere into a negative or somewhat hostile environment or vice

versa. This can be an effective tactic if you’re intent on making the

deal and are afraid that the other side is backing off. If you stirred

things up, you can always retreat and appear friendly by doing so. If

the other side changes the negotiating environment for the worse,

the effective countermeasure for you is to reaffirm your previous as-

sumptions and create a “bogey.” As an illustration, you could say,

“A fter all we’ve been through I thought you really wanted to make

this deal. Do you? If not, I have another piece of real estate I’m ready

to buy.”

RUMP

OUCH

Create “Sizzle,” Glamour, and Prestige to Get

Higher-Than-Market Prices for Your Properties

OINTS

•Be distinctive; add “sizzle” to your property.

•Give your customers the ultimate in perceived quality.

•Understand your buyers’ and tenants’ lifestyles.

•

Know what your customers will pay extra for and what

they won’t.

101

KEY PART OF

Tr u mp ’s r e a l e state investing philosophy is his pas-

sion to ensure that whatever he is building or renovating is the

epitome of its type in terms of quality, prestige, beauty, workman-

ship, and meticulous detail. The creation of perfection is why, in

2003, nine out of the top ten highest selling condominium residences

in New York City were in buildings built by Trump. Trump proper-

ties consistently command a high premium over comparably located

and comparable sized properties because of the special exciting fea-

tures that embody what the industry recognizes as “the Trump

To uc h .” I f you want willing buyers to pay higher prices for your real

estate, you must include unusual, dazzling features that will appeal to

buyers or tenants on several emotional levels. Trump Tower on 5th

Avenue is a prime example of how this kind of “sizzle” can increase

thevalue of a property far beyond the cost of creating the sizzle. In

the following case study, you’ll learn techniques that Trump uses to

get the highest prices in the market for anything he sells or rents. I’ll

also show you how you can apply the same techniques, on a smaller

scale, to your own real estate investments.

INVESTING CASE STUDY

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VENUE

Imagine yourself in midtown Manhattan walking down the most fash-

ionable part of 5th Avenue. When you get to 56th Street your breath

is taken away by a towering, modern, distinctive building with a

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unique jagged facade of black glass. As you look up, your eye catches a

grove of 16 full-size trees planted on six floors of terraces the lowest of

which is 50 feet above the level of the sidewalk. Upon entering the 68-

story tower, you are flanked by attractive show windows of renowned

retail stores. You marvel at the highly polished floor of exquisitely

matched marble slabs which lead into the spacious high-ceiling tree-

lined lobby that ends at the huge seven-story atrium. Tumbling down

the far wall of the atrium is a 100-foot waterfall against a marble wall

that is topped by a large angled skylight that illuminates everything

below. The lower level of the atrium houses two fine eating places, one

of which is a tempting elaborate buffet and the other has starched

white tablecloths and elegant décor. Both facilities have excellent food

prepared by a master chef. Surrounding all of the furnishings, you no-

tice the perfectly matched marble-lined walls and the attention to de-

tail this interior space was given. Highly polished brass is everywhere.

Off to the left of the main entrance is a bank of elevators housed in

mir

ror-finish brass doors. As you approach the elevators, a well-

dressed security man asks you whom you are visiting. After receiving

the approval of the party you intend to visit, you are permitted to enter

the high-speed mirrored elevators to take you to your desired floor.

This is how people experience the lobby and office portion of

Tr ump Tower f or t he f irs ttime.Itisdazzling,andproves Trumpisa

master at creating awe-inspiring buildings. The residential portion of

the building is a world unto itself. It has its own private entrance on

56th Street with 24-hour doorman and concierge service. The recep-

tion desk is staffed by uniformed personnel who are trained to recog-

nize all residents and screenallvisitors. Once visitors are cleared,

they are permitted to enter one of the immaculately clean elevators

where a uniformed operator inquires as to their destination and

whisks them to it.

Because magnificent views command higher prices, Trump de-

signed the building so that the residential portion of Trump Tower,

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Tr ump Tower on 5th Avenue

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104

which contains luxury condominium units, would top the structure

starting at the 28th floor and rising to the penthouse on the 68th

floor. The views were enhanced by increasing ceiling heights, in-

stalling oversize windows, and using the jagged facade to create

multiple corners with windows facing different directions. By

adding a luxurious health club, fitness room, and other amenities,

Tr ump Tower achieved the highest prices per square foot ever re-

ceived for condominium units in New York City at the time it was

completed. Now that you have a sense of the finished product, let’s

look at how Trump conceived and executed this fabulous real estate

development, and how it paid off for him.

Before Trump Tower was built, the site was owned by the parent

company of Bonwit Teller, a fast-fading department store chain. The

building was an Art Deco box-like building that had long outlived its

usefulness but the location, on 5th Avenue in midtown Manhattan,

was one of the most prestigious in the entire city of New York. Al-

though the purchase price for the property was high, Trump be-

lieved that the location warranted it and a huge profit would be his

if he could maximize the site’s potential. Trump believed the ground

floor of a new building and the three floors above it could bring

very high rents (in excess of $500 per square foot) from major re-

tailers who coveted a 5th Avenue location for a flagship store. He

also believed that the high floors with their great views were ideal

for the creation of luxury condominium units that would sell for high

prices. The middle floors were the problem area that required inno-

vative thinking to obtain maximum benefit from their use and make

the investment work. Trump decided to use them as office space

knowing full well that it would take creative marketing to get the

rents he desired. Thus, Trump’s vision of a three-tiered, multi-use

condominium building was born. In the late 1970s, a development

of this type was very unusual.

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