Trump, page 22
In the weeks after the wedding, Donald and his lawyers finally concluded lease negotiations for the Commodore with the city and state, building into the fine print bonuses for Donald never discussed when the Board of Estimate and UDC passed their resolutions approving the project months earlier. The principal public negotiator opposite the skillful Jerry Schrager was Charles Goldstein, who had become a major force at UDC. Mark Levine, an assistant corporation counsel, was the city’s main participant, with Friedman in the background.
The major issue to be resolved was the definition of profits, which would determine Donald’s fluctuating payments to the city over time. The way that profit was calculated in the lease was so explicitly written to fatten Trump’s pockets that even Bailkin would subsequently admit it was a giveaway. Trump’s profit, a percentage of which he was to share with the city, was defined as the difference between his gross income and his expenses. But income, in this document, was described as only the “aggregate amount of monies actually received [author’s italics],” while his expenses were all the costs he “incurred,” whether he paid them during that year or not.
If, for example, a corporation leased the hotel’s ballroom and several suites for a weeklong conference and made a down payment, but still owed thousands at the end of the year, the receivable wasn’t counted as income. But all the hotel’s expenses associated with the conference, paid or unpaid, were deductible from the income, a formula that lowered the profit unrealistically, and, hence, the percentage rent payment to the city. While this would at least theoretically even out over several consecutive years, the flexibility of this peculiar bookkeeping gimmick allowed Trump accountants wide latitude in computing payments due in lieu of taxes—latitude that would according to a city audit and lawsuit lead to shortchanging it by millions. Anyone negotiating a lease for the city would have wanted to maximize the income Trump had to report and minimize the expenses; this formula did the opposite.
In addition, the lease permitted Donald to partially deduct as an expense the costs of physical improvements and much of the tax depreciation he claimed on aging fixtures, furnishings, and other capital items. During Bailkin’s early negotiations with Trump over the profit-sharing plan, Donald had raised these capital expense issues and Trump’s insistence on winning these concessions had persuaded Bailkin that he shouldn’t give in on them. The initial package presented to Beame in the form of Bailkin and Eisenpreiss memos specifically stated that these items were “excluded” as expenses. The UDC board submission contained a similar prohibition. Somehow, though, the language that Bailkin had drafted barring this write-off was mysteriously deleted from the actual resolution Friedman steered through the Board of Estimate. The absence of Bailkin’s exclusion left the issue to the lease writers to determine, enabling Donald to cash in on this loophole once Bailkin was gone.*
The unusual concessions Trump won were in part made possible by a leadership vacuum at UDC. Ravitch had left at the end of March 1977, and UDC’s president resigned a few months afterward, leaving the corporation without a chief executive officer. Governor Carey didn’t name a new president for eight months, installing in the meantime an acting president, Robert Dormer, who was one of a few insiders angling for the full appointment. A conflict-inviting vacuum was clearly forming at·the top of what was becoming a powerful development entity, and the UDC bureaucrats competing for its presidency sensed, unsurprisingly, that the key to achieving it was through the political emissaries who had the ear of the governor—Trump, Sunshine, and, increasingly, Charles Goldstein.
Sunshine, who was now in full gear putting the financing together for the governor’s 1978 reelection campaign, had also come back to UDC as an advocate of the Commodore deal. Two months before Ravitch departed, Sunshine and he discussed her possible return to active lobbying at the agency, and Ravitch, who was preparing to announce his own candidacy for mayor, consented. A few weeks before he finally left, Sunshine received a written dispensation from the corporation’s president. She had reassured everyone that since the UDC board had already approved the project, her work on it there would be harmless technical housekeeping. It was, in fact, an absurd premise, because a pioneering project of this complexity required virtually daily discretionary decisions at the agency, and she was now free to influence each and every one of them.
Sunshine immediately attached herself to David Stadtmauer’s successor as city development chief, the young and dashing Richard Kahan, as did her newfound friend and ally, Charles Goldstein. Goldstein was the sort of man who’d never laughed at a joke about himself. When he was fresh out of law school and clerking for federal judge Irving Kaufman, the judge came into his office one day, greeted him as “Charlie,” and asked him to join him for a meeting. A stern Goldstein rose, inhaled deeply, and in front of the assembled staff announced: “Please, Your Honor, it’s Charles.” Remote, brilliant, and ruthless, he was also beginning to branch out politically, and would eventually become the personal attorney to both the governor and Carey’s top aide. Goldstein clearly liked what he saw in Kahan’s darting eyes; they understood each other’s hunger.
Goldstein and Sunshine chose the thirty-one-year-old Kahan—who was dutifully processing the Commodore deal—as their candidate for the UDC presidency. It was Kahan, for example, who approved the Trump lease, writing a letter to Trump in September 1977 officially agreeing to the terms. The letter, which Donald used with financial institutions to verify the state’s commitment to the deal, was written within days of Beame’s loss in the Democratic primary. Kahan’s rushed commitment was the opening salvo in a campaign to finally get the project nailed down before the new mayor, a maverick congressman named Ed Koch, could take office in January 1978. While Kahan strongly believed that the Commodore deal had intrinsic merit, he also knew his facilitation of it would earn him Sunshine’s and Goldstein’s decisive support for the UDC presidency.
Of course Kahan’s partner on the city side in this push for a December 1977 closing was Stanley Friedman, and their next three months of panicked collaboration would constitute a tribute to the ability of government officials to perform at their self-serving best, delivering in record time on the one contract that would, in the end, make both of their careers. A suddenly anxious Trump—convinced he had to erect a wall of binding legal commitments around the Commodore abatement that Koch could not dismantle—was determined to get the city and state to close the deal even though his construction and permanent loans were still not in place.
Ever since his first meetings with Ned Eichler about the project in mid-1974, Trump had been touting the supposed $70 million permanent loan commitment of Equitable. But in truth all Equitable was willing to invest was what it had secretly committed two years earlier: $25 million. Even after Bowery signed on for a $10 million portion of the permanent loan, Donald still only had half a bank deal. The Bowery was ready to serve as the lead participant, promising to try to raise the other $35 million, but it was “under no obligation,” according to the letter agreement, to bring in the rest of the financing. Until the rest of the permanent loan was in place, Donald could not obtain any of his $70 million construction loan. (Upon completion, the construction lender is repaid by the permanent mortgage.)
In addition to being forced to seek a city and state closing without fixed financing, Trump was also trying to rush approval of a last-minute addition to the planned new hotel, a glass-enclosed Garden Room restaurant that would hang over the sidewalk in front of it. It was an unprecedented attraction, never before permitted under the intricate system of laws designed to protect city pavements from commercial intrusions.
Trump would have to clear the overall project, and the Garden Room extension, through nine bureaucracies in the space of weeks, including a community board; the City Planning Commission; the fire, transportation, and buildings departments; the Bureau of Gas & Electric; UDC; the Board of Estimate; and, most difficult, an intransigent fiefdom peculiar even in New York politics known as the Bureau of Franchises.
With these herculean tasks before him, Trump’s agent, Friedman, became a driven man. The inducement was the job Roy Cohn had already promised him. Friedman was even to get Roy’s fifth-floor office in Cohn’s town house, complete with a cathedral ceiling, bar, outdoor patio, a greenhouse where Friedman’s secretary would work, and an adjoining apartment with kitchen, living room, fireplace, and loft bedroom. Friedman was guaranteed a six-figure salary for the first time in his life and, unless he stumbled, the rest of it.
And one further goal—the ultimate goal—was also coming into sight. Pat Cunningham was now in the most serious trouble of his life, with federal authorities about to close in. The word on the street was that he would be forced to step down and that he was headed for a cell. Friedman didn’t know how soon all of this would happen, but he knew he had positioned himself to claim the leadership. With Roy’s connections, cash, and clout, he’d have the perfect ally.
Friedman understood all too clearly that the Commodore was an assignment straight from his benefactor. Cohn was, in fact, already handling an assortment of Commodore legal matters, especially the unpleasant little business of forcing out the dozen or so commercial tenants on the first few floors. For Friedman, the Commodore rush was a Cohn test of his ability to push the buttons of a government where he had spent twelve years as an attorney in the city council and a top mayoral aide.
Given the time constraints, the only option left to Trump was an escrow closing. Hadley Gold, the chief assistant in the city’s corporation counsel, had spent a lifetime processing major city real estate deals and he had never heard of the city doing an escrow closing. Almost by definition, it made no sense for a municipality or a state agency to allow one. Why would two governments sign binding contracts for a deal that wasn’t ready to close and put those documents in escrow? Why would these governments sign a lease, a project agreement, a three-party agreement, and a purchase agreement that committed them irrevocably, while the private parties to the deal were not required to commit any money and could step aside at will?
Despite the apparent boondoggle air of the escrow plan, Friedman stormed ahead with it, confident of his ability to cajole city bureaucracies. He was assisted in his drive by a sullen Abe Beame, who during the final three months of his public life, let his administration become a free-for-all for insiders, unchecked by concerns about bad press or history. It was in this atmosphere that Friedman rewarded himself with a lifetime appointment as the $25,000-a-year chairman of the city’s Water Board, a part-time post with a full-time limousine and driver. With Friedman’s old nemesis, John Zuccotti, long gone, he was in effect the government of the City of New York for a few months—as frightening a thought as that was.
So Friedman put together all of the Commodore parties—Trump, the various city bureaucrats, UDC, and the Palmieri group—for what one participant called “a marathon session that went on for days.” He barked at recalcitrant, or just time-consumingly careful, city lawyers, telling them to “move it.” He personally signed each and every document as the designee of the by then semiretired Beame, including the mayor’s formal letter giving notice of his approval of the lease to UDC.
All Donald produced was a queasy commitment from Equitable and Bowery that said on the cover page that they were “willing to participate in a loan,” not that they were actually making one. Even this qualified commitment was legally defective, since the financial institutions conditioned it upon receipt of a letter from the corporation counsel that sweepingly overstated the generous abatement granted Trump. The final escrow agreement signed by Friedman, Kahan, Trump, Hadley Gold, and the agent in whose custody all the escrow documents were placed, Charles Goldstein, explicitly rejected the legal condition in the bank letter.
The Palmieri participants deeded over the property to UDC, which in turn leased it to Trump’s entity, even though Donald didn’t have the $10 million to pay for it. Of course, without UDC’s control of the hotel, none of the other agreements could be executed. Like every other piece of this implausible puzzle, the transfer of title would be negated if the $10 million wasn’t paid by September 1, 1978. That was the date written into all the agreements, the deadline for a final closing.
The Palmieri firm effectively declared itself willing to tie up the title to its hotel for eight further months, at the same sales price agreed to three and a half years earlier. Palmieri allowed this, even though the value of Penn Central’s other Manhattan hotels was shooting through the ceiling in a suddenly upswing market (a package of three went for $10 million more than the agreed-upon price because Palmieri agreed to entertain belated bids). The company certainly had the right to take new bids on Commodore as well, since Trump’s option had already expired and been extended several times.
On December 20 and into the morning hours of December 21, with just a week to go in the Beame administration, the city, state, and Trump lawyers and aides met all day and all night at the offices of Dreyer & Traub. The smooth, always dapper Kahan moved from starched shirt to starched shirt and dark suit to dark suit. Sunshine, who had begun championing him for UDC president a month earlier, never left the discussions, sitting on the floor, giggling over the banter. She and Kahan had become so friendly that they had spent weekends together—accompanied by other friends—at a friend’s country home. Friedman didn’t stay at the closing but Sunshine and the city lawyers had his phone numbers, and he was on call all night. Trump himself had been dragged by Ivana to a concert at Lincoln Center, and when a snag developed in the early evening, Sunshine called his driver and asked that Donald be pulled out to the phone to resolve the problem. Goldstein checked in periodically, too, but at this point the detail work involved didn’t require his personal attention. At last the contract that would launch several careers was firmly in place.
With the escrow deal approved, Friedman and Kahan still had a few days to tie together the loose ends of the complicated consent needed for the Garden Room restaurant. This cantilevered bar and lounge would be described a month later by New York Times architectural critic Paul Goldberger as “the most controversial element” and “most exciting aspect” of the Hyatt plan. “The room looks as though it will be one of the city’s most appealing public gathering places,” Goldberger wrote, “a sidewalk cafe in the air, offering views up and down 42nd Street.”
Friedman delivered the final authorization and signed a twenty-five-year consent for the restaurant on December 29, literally the last business day of the Beame years. He not only produced a consent in three months that, for the ordinary sidewalk café, would require half a year or more, but structured the deal so that Trump paid only a fraction of the regular franchise fees due the city for commercial use of public space. What Kahan’s help, the consent was rewritten to make UDC its recipient, and any governmental user of a street or sidewalk routinely paid discounted fees to the city. Trump was probably charged less per year for the first ten years of operation—$24,000—than the restaurant was grossing a day. More important, Friedman switched the approval from a franchise agreement, which could not run any longer than ten years and would cost Trump much more, to a consent, which could last a quarter of a century.
Armed with the escrow documents and the Garden Room permit, Trump did finally put his financing together and close the deal on May 20, 1978, shortly after Ed Koch took office. For one last time Kahan, Sunshine, Donald, and the gang of thirty or so lawyers and title company representatives assembled. This second closing dragged on for two or three days, with Donald periodically making his rounds like a glad-handing politician at a fund-raiser. He learned everyone’s name and said how “pleased” he was that each of them was there. He told a key city lawyer that he was doing such a good job that he wanted him “on the city team when I close on the 60th Street yards,” perhaps hearkening back to the Beame days, when he had the power to name the city negotiator who would deal with him, as he had Bailkin.
This time, appropriately enough, Fred made an appearance as well. He had to come—his signature was needed on a crucial document. Fred must have wondered what would have happened if he, rather than Donald, had been the up-front Trump on this project from the beginning. The newspapers would have been filled with stories about the old-time ties with Bunny and Beame, and even the sixties’ SIC scandal. The deal might never have survived the uproar. Only Donald could have taken on the Commodore without that stigma; his charisma was the distraction that displaced the otherwise inevitable old-boy network controversy.
But in the end Fred was once again quietly at center stage. In 1954, when he had been called before the Senate Banking Committee and questioned about abuses in his FHA projects, Fred had made much of the fact that he had personally guaranteed the Beach Haven mortgage, citing it as a measure of his own commitment to the project. He testified that he had never before guaranteed anything else he had borrowed. As it happened, however, without the guarantee Fred wound up giving his son, Donald would have had no Commodore mortgage. Fred came to the closing to sign the guaranty.
It was Fred and the Hyatt chain who jointly guaranteed the $70 million construction loan from Manufacturers Hanover, each assuming a 50 percent share of the obligation and each committing itself to complete the project should Donald be unable to finish it. Hyatt and Donald agreed that the chain would become a 50 percent partner in the venture with Donald’s company. The price of Hyatt’s guarantee was its promotion from operator to partner.
No document in the long paper trail attached to the Commodore deal better demonstrated the lack of bank confidence in Donald or the project, and none made clearer the limits of his promoter role. As indispensable as Donald was to the initial concept and political marketing of the hotel, he could not have made it happen without Fred’s—and Hyatt’s—signatures. Hyatt chairman Jay Pritzker said later that Donald simply “couldn’t get the financing” and “we were able to help,” with both Equitable and Manufacturers Hanover. When it came to the financial bottom line of the deal, Donald was barely a factor.
