How Retaining Ownership Of His Hotels Cost The President A Fortune
An adaptation from White House, Inc.: How Donald Trump Turned the Presidency into a Business by Dan Alexander.
WASHINGTON, D.C., is full of monuments to presidents, but none quite like the Trump International Hotel, down the street from the White House. A bottle of chardonnay from the Trump winery in Virginia goes for $68. A seafood platter called the Trump Tower, which includes a puny lobster and a dozen oysters and clams, runs $120. And a hamburger goes for $26. The only free thing on the menu? The ever-present cocktail of money and power, which anyone can absorb simply by peering around the lobby.
Revenues at the brand-new hotel hit nearly $6 million in January 2017, the month of Trump’s inauguration—roughly double internal expectations. The business turned a one-month profit of $1.6 million. In addition to all the money coming directly from Trump’s billionaire buddies—Vegas tycoon Phil Ruffin spent $18,000 a night on a suite—$1.5 million reportedly flowed from the 58th Presidential Inaugural Committee, the group that had raised money from Trump supporters for the week’s festivities. Based on those numbers, at least 25% of the revenue that Trump’s hotel generated in January 2017—his first month in office—came from Trump’s own political donors. It pays to be the president.
Or perhaps, paid. On July 24, more than three years after the D.C. hotel opened, Forbes valued it at $168 million, less than the $170 million mortgage the Trumps used to fix up the place. The rest of the money they put into the renovation—at least $30 million—currently looks like a total loss.
It’s a similar story at the president’s other key hotel asset, Trump National Doral in Miami. According to our latest estimates, the golf resort is worth $153 million before accounting for debt. Given that the property has $125 million in mortgages against it, Trump’s interest now stands at an estimated $28 million. At the start of his presidency, it was probably worth about $70 million more.
To put it simply: As President Trump has bragged about leveraging his business acumen to financially steward the country, he has managed to lose an estimated $100 million on just two hotels that look like cash cows, but in reality, seem to be money pits.
ABOUT A YEAR after Donald Trump won his first election, in December 2017, his local tax specialist, Jessica Vachiratevanurak, walked into a drab government building in Miami and took a place at an L-shaped table. Alongside her sat two representatives from the Miami-Dade County Appraiser’s Office, which had assessed the president’s golf resort at a value that the Trump Organization claimed was too high.
“Before I dive into the package, I do want to just note I met with representatives at the property,” she said.
“At the property?” asked the magistrate, seeming intrigued.
“Yes,” Trump’s representative responded. “I met with the director of finance, as well as the director of development for all of the Trump Organization. And they mentioned that throughout 2016, because of the political climate, there have been severe ramifications of the things that were said during campaigning, the comments that were made.”
Among the ramifications referenced: The Professional Golfers’ Association had announced in 2016 that it was moving the World Golf Championships tournament from Doral to Mexico, of all places, after struggling to secure sponsors. “Donald Trump is a brand, a big brand, and when you’re asking a company to invest millions of dollars in branding a tournament and they’re going to share that brand with the host, it’s a difficult conversation,” PGA Tour commissioner Tim Finchem explained, according to ESPN. In the golf world, the move became something of a joke. “Quite ironic that we’re going to Mexico after being at Doral,” Rory McIlory, one of the biggest stars in the game, reportedly said. “We just jump over the wall.” But Trump wasn’t laughing. The property was traditionally packed during the tournament, producing a rush of revenue for the real estate mogul. “Losing that event killed Doral,” says Joel Paige, a resort operator who had managed Doral under previous owners.
Fallout from Trump’s campaign extended beyond the PGA move. “There have been a multitude of charities who throw annual events at the property, and they have canceled, because, they say, ‘We can’t, in good conscience, be associated with this name,” explained the Trump Organization representative in the tax hearing. The Trump brand, once an asset, had become a liability—and not just at Doral. “His name is actually being removed from the Trump SoHo hotel,” added the representative. “It was a property that was being regularly frequented by, you know, NBA stars and NFL stars, and now they’re quoted in this article as saying, ‘I’m not going there. I’m not going to support this brand.’ So there have been severe ramifications of the comments that were made throughout the campaigning process and since. The property was definitely impacted by that, and you’ll see in the financials that there is a significant drop in revenue from last year to this year, and it reflects that.”
Indeed. From 2015 to 2016, as Trump morphed from a fame-seeking businessman from New York to the president-elect of the United States, revenues at Doral dropped 5%, to $87.5 million, according to documents the Trump Organization filed with Miami-Dade County officials. Profits (as measured by earnings before interest, taxes, depreciation and amortization) fell 10%, to $12.4 million. In May 2016, a top executive at Doral explained to a room of golf course appraisers, who happened to be at the property for an industry gathering, that the campaign was damaging the resort’s business, according to three people who were there. “At the time there was a lot of talk about comments that Trump had made,” says Jeff Dugas, one of the people in the room. “Nobody was extremely surprised.”
Things got worse after Trump won. Doral lost 100,000 booked room nights following the election, according to someone familiar with the resort. For a 643-room resort, 100,000 reservations amounts to five months of fully booked business. Revenues plunged to $75.4 million in 2017, Trump’s first year in the White House. Since the resort prides itself on exceptional service, cutting costs isn’t easy. So profits took an even steeper dive than sales, dropping 66% to just $4.3 million. Customers, many of who hailed from historically liberal-leaning areas like New York City, just weren’t coming like they used to.
Revenues barely budged in 2018, when they hit $76 million, or 2019, when they reached $77 million. The busy season, which traditionally started in about September, now did not begin until November, according to Matias Magarinos, who worked as a server at a restaurant on the property from October 2018 to August 2019. In the quieter times, according to Magarinos, there were roughly 100 people in the 643-room resort, on average. “It’s bad,” he says. Not the experience, but the business. “It was very well run,” says Magarinos. “I think they just had the bad luck of their owner becoming president.”
BUILT IN THE late 1800s, the Trump International Hotel in Washington, D.C., formerly the Old Post Office Building, is a magnificent structure, the second-tallest in the capital, behind only the Washington Monument. In 2011, the federal government, which had been running the building and losing millions of dollars annually on it, solicited offers from private operators interested in redeveloping the space. Ten companies threw their names into the ring, including Hilton, but the Trumps won the bid. They committed to invest $200 million to convert the building into a hotel as part of a lease agreement with the federal government.
By law, officials serving in the executive branch must list the “income” that their assets produce in an annual financial disclosure report. For officeholders with stocks and bonds, it’s a simple task that amounts to listing dividends, interest and capital gains. The rules for real estate assets are more complicated. Filers can list “rent”—in other words, revenue—under the column labeled as “income amount.” But revenue and income suggest very different things. Presented with a form asking for both rent (a big number) and income (generally a much smaller number), Trump listed the big one. In 2017, the president disclosed $40.4 million of revenue at the property. That figure ticked up slightly the next year, to $40.8 million, then dipped down a bit to $40.5 million in 2019.
Reporting on the disclosures, several journalists referred to those numbers as “income” instead of revenue, creating the false impression that Trump was personally pocketing $40 million a year at his other palace on Pennsylvania Avenue. “Trump made $40.8 million last year from a hotel,” shouted one headline. “The president’s income from his company’s hotel in Washington, D.C., topped $40 million last year,” began another story.
Some outlets, like the Wall Street Journal, the Washington Post and the New York Times, were more careful to distinguish between revenues and profits. But even those newspapers appear to have made a different mistake, which Forbes also previously made. A closer examination of the federal guidelines shows that officials holding real estate can list the amount of rent attributable to them personally, rather than the total amount produced by the property. In other words, even though Trump lists hotel revenue of $40.5 million on his disclosure, that’s not necessarily the total revenue of the hotel. It could just as easily be 77.5% of the total revenue, proportionate to Trump’s personal interest in the property.
Ivanka Trump listed $3.9 million of hotel revenue on her filing, from her 7.5% share of the revenue. Ivanka’s disclosure lines up with her father’s figure—if he disclosed only his 77.5% share of the revenue. That suggests the true revenue of the hotel is a number never previously reported: $52.3 million.
If figuring out the revenue at Trump’s hotel is challenging, pinning down its profits is nearly impossible. But there are clues. Under the Trump Organization’s lease with the federal government, it submits detailed financial information—including profits—to the General Services Administration, which is supposed to keep those filings confidential. In August 2017, however, the GSA accidentally published four months of financial data on its website, which the Washington Post then downloaded. After the GSA realized its mistake and removed the documents, the Post released them publicly.
Most of the coverage at the time focused on the fact that the Trump Organization had blown past its projections for the hotel, hauling in $18.1 million of revenue during the first four months of 2017, 49% above expectations. In addition, the hotel had produced a profit—measured as earnings before interest, taxes, depreciation and amortization—of $2 million, when it was projected to instead lose $2.1 million. It seemed like another indication that Trump was profiting from the presidency.
“He spent a ridiculous amount of money—a hell of a lot more than I thought he was going to spend.”
What virtually everyone, including me, failed to absorb at the time was that $2 million of profit on $18.1 million in revenue is not all that much money. It suggests a profit margin of just 11%—well below the industry average. “That seems low for a hotel, for sure,” says Dan Wasiolek, a hospitality analyst at investment research firm Morningstar. “You know, I would have expected that it would be closer to 20%. Even more troubling for the hotel: that underperformance overlapped with Trump’s inauguration, when he was hauling in huge money from his supporters.
There are more bad signs. In 2019, the Trump Organization put together another document, this time for potential investors interested in purchasing the hotel. The pitch, reviewed by CNN, included the sort of rosy projections one might expect from a company known for its salesmanship. The Trump Organization projected that revenues would jump to $67.7 million in 2020, which, assuming 2018 revenues were $52.7 million, would represent a 28% increase in two years. It also predicted that, when that happened, the hotel would throw off $6 million of annual profits—measured as earnings before interest, taxes, depreciation and amortization, minus the cost of updates. The numbers suggest that, even in an optimistic scenario, the hotel would be running a profit margin of only 9%—even lower than the already unimpressive 11% the hotel produced in early 2017.
Those glimpses give us enough information to reasonably estimate—for the first time—how much money the president has actually made from his D.C. hotel while serving in the White House. Odds are, the profit margins in early 2017 (11%) and those reported on the investor pitch (9%) are higher than the average margins over the past few years. In a good scenario, the Trump Organization might have maintained that performance and turned a bit less than 10% of its revenue into profits each year. That would mean the hotel produced annual earnings of $5.1 million in 2017, $5.2 million in 2018 and $5.2 million in 2019, for a total of $15.5 million. If the hotel instead ended up with, say, an 8% margin, that would suggest $4.2 million of annual pretax, pre-interest profit each year, or $12.6 million total.
One of the few people who has seen the real numbers for the hotel is Brian Friedman, a Washington investor who once offered to buy the place for $175 million from the Trumps. In order to view the books, Friedman signed confidentiality documents saying he would not share the data. But I ran my estimate of roughly $5 million in earnings before interest, taxes, depreciation and amortization by him anyway, to gauge his reaction. “Does that sound in the range?” I asked.
“That sounds in the range,” he replied.
Five million seems like a lot of money. Until you consider that those profits are before accounting for interest, taxes, depreciation or amortization. Take just the interest. The Trump Organization borrowed $170 million from Deutsche Bank to renovate the property. There is no evidence that Trump has paid down any of the principal on that loan, though it’s possible he has. That makes it difficult to pinpoint exactly how much he is paying in interest, especially since Trump has a variable interest rate on the property. But let’s say the Trump Organization still owes $170 million and paid something like 3.35% in 2017, which would have made it one of the president’s cheaper loans. On $170 million of debt, 3.35% interest adds up to $5.7 million in annual payments. Poof—there goes the possible $5.1 million in profits for that year. In 2018 and 2019, much to the chagrin of the president, interest rates increased, likely boosting his company’s expenses. An analysis of the president’s financial disclosure report and interest-rate benchmarks suggests the Trump Organization could have paid over 4% interest on the hotel during his second and third years in office, or more than $7 million. Enough to bury the estimated $5.2 million in earnings each year.
It’s impossible to be certain without seeing the official numbers, but it sure seems likely that the president has actually been losing money on the D.C. hotel since the start, despite all of the high-priced political events. The Trump Organization, for its part, did not respond to inquiries about the financials. “He spent a ridiculous amount of money—a hell of a lot more than I thought he was going to spend,” Friedman said. “It’s real money, and he did it. Now, did he do it effectively? Obviously not, because the numbers are what the numbers are.”
THE TRUMP ORGANIZATION first said that it was open to selling the D.C. hotel in October 2019. There was lot for potential investors to like, if they could get over the poor financials. “The bones are great,” said Friedman, standing atop the perfectly polished floors just outside of the perfectly appointed lobby on a perfectly crisp afternoon in January 2020. “Even, like, people talk shit about the chandeliers. They know nothing. They know nothing. Those chandeliers are millions of dollars.”
It’s a shame more people weren’t around to enjoy them. The doors next to Friedman, with beautiful marble columns on either side, which opened out onto Pennsylvania Avenue—one of the most famous streets in America—were completely closed off. A sign warned that an alarm would sound if anyone opened them. Outside stood a string of metal barricades keeping out tourists who might otherwise wander up to the door. None of the blockades had been there at one point, but, according to a waiter at the hotel, the Trump Organization shut down most of the entrances after protesters stormed the place.
To a non-Trump owner, that spelled opportunity. “I mean, this is it,” Friedman said. “This was all supposed to be, like, retail.” Indeed. This was steps from where one celebrity chef was supposed to rent space and within eyeshot of where another was supposed to have a second restaurant. “I would bring all of that back,” said Friedman. Peering out over the mostly vacant lobby, he envisioned a space with professionals typing away on laptops near fast-casual restaurants like Sweetgreen. Friedman said he wouldn’t need to change much on the upper floors—“the rooms are awesome”—but he would add art. “You go to the Four Seasons, and there’s Warhols on the wall,” he said. “You go to my hotels and there’s art everywhere. There’s no art. Trump has no style.”
What the Trumps lack in style, they make up for in ambition. Hence the reported $500 million they were hoping to fetch for the hotel. If that had actually happened, they could have paid off the $170 million Deutsche Bank loan, and the president would have walked away with $256 million in cash. His children Ivanka, Don Jr., and Eric, who all hold 7.5% stakes in the property, would have pocketed $25 million apiece before taxes. But that scenario never seemed realistic. The truth is, the hotel—as nice as it is—has never been worth a half billion dollars. “Five hundred [million] is not going to happen,” Michael Bellisario, a hotel analyst who works for the investment bank Baird, said in January. Bill Moyer, a Washington, D.C., hotel broker who likes to frequent the property every two weeks or so, agreed that no one was likely to pay that much. “I don’t think they’re going to get the kind of pricing that they were just throwing out.” Wasiolek, the hospitality analyst for Morningstar, thought a buyer might plunk down $240 million for the place if they were extremely aggressive. “Boy, I mean, that seems to be an upper limit, though.”
There are two primary ways to figure out what a hotel is worth. The first is by applying a multiple to its profits—the earnings before interest, taxes, depreciation and amortization. Doing so allows potential investors to see how long it might take them to earn back their money. The nicer the hotel is, the more likely they are to wait a longer amount of time. For a super-luxury property like Trump’s, someone might be expected to pay, say, 20 times the cash stream. If it’s throwing off $10 million a year, for example, there’s a good chance someone would pay $200 million for the place. But Trump’s pretax, pre-interest profits appear to be more like $5 million. At that level, Trump was asking an estimated 100 times the annual profits. A more realistic seller might have asked, say, $100 million for a property that was producing $5 million a year.
Given its grandeur, however, it’s unlikely the Trump hotel was worth only $100 million, which brings us to the second way of valuing a hotel. Investors often apply a price to each room and multiply that figure by the number of rooms. If you throw out the income approach and look just at the second method, it’s possible to justify more than $1 million per room for Trump’s hotel. Valuing something is an art rather than a science. Seven hospitality experts, speaking between January and early March, offered estimates of anywhere from $500,000 to $1.2 million a room for Trump’s property, after being told about its low profit margins. The average was $761,000. Since the place has 263 hotel rooms, that would suggest it was worth $200 million. That seemed to be a fair valuation that took into account both the income and the price per room. It also came to $300 million less than what the Trump Organization was asking.
“Five hundred [million] is not going to happen.”
Standing outside a boxy Mercedes SUV parked across from the hotel in January, Friedman admitted that he didn’t think his bid for the property would be successful. The problem: He figured Trump’s hotel should be valued similarly to the Mayflower Hotel, which has 581 rooms and which, he said, went for $175 million. He was skeptical that the Trump family would sell for something like that. “It could go for some crazy, f—- you number, because that does happen with real estate,” he said at another point. “This is a diamond.”
The most likely purchaser was a well-established hotel company or a deep-pocketed tycoon in the mood for a vanity project. It would have been one heck of a way to curry favor with Trump. A $26 hamburger or $400 hotel reservation might not have gotten the president’s attention, but adding a couple hundred million to his bottom line undoubtedly would have. “It could be some Saudi sheikh or someone from Iran or something,” said Moyer, the D.C. hotel broker. Added Bellisario, one of the hotel analysts: “You don’t know what two billionaire brothers in London, or some sultan of Brunei, wants to buy a property.” Especially when the seller is the president of the United States.
EVERYTHING CHANGED WITH the coronavirus. The Trump Administration didn’t think much of it at first. “I think it will help to accelerate the return of jobs to North America,” Commerce Secretary Wilbur Ross predicted on January 30. The next month, the number of cases in the United States creeped up to two dozen. Trump stayed optimistic—at least in public. “It’s going to disappear,” the president said. “One day—it’s like a miracle—it will disappear.” Wishful thinking, both for the country and for Trump’s businesses, especially the Washington, D.C., hotel and Trump National Doral golf resort in Miami, which had taken on three mortgages totaling $295 million from Deutsche Bank in the previous eight years.
By mid-March, it was clear that the virus was not, in fact, going to disappear. Markets dove 34% as the effects rippled through the economy. Trump’s own fortune plunged by an estimated $1 billion from March 1 to March 18. News broke that the Trump Organization was taking the D.C. hotel off of the market.
Hoping to stem the carnage, Congress passed a $2 trillion relief package on March 27, 2020, the largest in U.S. history. A key part of that plan was a $349 billion loan proposal called the Paycheck Protection Program. The idea was simple: The federal government would offer business loans, and if those businesses kept their employees around for eight weeks, the loans would be forgiven. Hotel companies were among the biggest beneficiaries, which should have been good news for Trump.
But fearing that taxpayer money would end up in the president’s pocket, legislators inserted a provision into the bill preventing the Trump Organization—and other businesses owned by officials in high office—from taking the bailout loans. “It’s a shame,” said Merrick Dresnin, who used to serve as director of human resources for the Trump hotel in Washington, D.C. “To a certain extent, I’m glad I’m not there because it would be rough not to have that opportunity because it is going to save some companies. But yeah, I’m not sure what’s going to happen with them.”
What happened was mass layoffs, which had already started before Congress passed the bill and only increased afterward. The damage was far-reaching. The Trump Organization fired or furloughed more than 2,400 workers at properties in California, Illinois, New York, Florida, Hawaii, Nevada, Virginia and Washington, D.C.
Frankie Ortiz, a chef at Trump National Doral, was one of them. “We were busy all the way through the first week of March, when everything hit hard here in south Florida,” he says. “Everybody started canceling events and canceling weddings and everything else. I mean, by March 18, which was the day I was laid off, we had no more events. I mean, events way up until August were canceled.” Eventually the resort, like most of the country, shut down.
ON JUNE 10, however, first son Eric Trump shared some good news with his 3.7 million Twitter followers: “We are incredibly excited to be reopening all hospitality at Trump Doral, Miami on June 18th!” He noted that “the courses are impeccable” and included a couple of links where Trump fans could make reservations. President Trump amplified the advertisement, retweeting it to more than 80 million followers while pointing out, “The Trump family didn’t ask the federal government for money to carry this and many other very expensive to carry properties!”
The presidential promotion didn’t seem to help much. Trump National Doral only booked 38 of its 643 rooms on the day of the reopening, according to two front desk agents. I made one of those 38 reservations.
“Welcome to Trump National,” a masked employee said at the front desk. The resort had installed new safety features, like circular signs on the floor telling guests to stand several feet apart while waiting to check in. There wasn’t much of a wait, though, given the lack of customers. Most of the people on site seemed to be staff.
At the pool, music blared over the speakers—“I Don’t Care” by Ed Sheeran and Justin Bieber—but there were no guests to enjoy the party. The golf pro shop was similarly quiet. “There’s nobody here,” said an employee walking nearby. Afternoon rains had cleared players off the course, so the resort had apparently decided to call it an early day. I walked all 18 holes of the famous Blue Monster course, which, as Eric Trump had promised, was in impeccable condition. But the only people enjoying it were non-golfers—a couple of joggers ran on the sixth hole, some little kids played in the sand traps on the 11th, and a pair of fishermen cast their lines near the 15th.
In the restaurant near the lobby, I found a handful of people. A group of older guys sat together without masks, drinking martinis and opining on sports and politics. One of them told the bartender that the concerns over the coronavirus were the media’s fault. “They’re trying to beat your boy,” he said. “They’re trying to take Donald down. That’s what it’s all about.” Seconds later, he seemed to allow the possibility that Covid-19 was a real threat, just not one he was too worried about: “If I get it, I get it.”
That day, more than 3,000 Floridians tested positive for coronavirus. It was a state record—though not for long. Two weeks later, Florida was registering 10,000 new cases per day, making it the most infectious state in the nation.
Despite the troubles, President Trump projected confidence. “You know, I’m very underlevered and everything, so that’s good,” he told a reporter who asked about the impact the virus was having on his businesses. Trump does indeed seem to be relatively underleveraged across his overall portfolio. But he has big mortgages against Trump National Doral and the Washington, D.C., hotel.
The Trump Organization took on $125 million in debt at Doral, an amount that it could seemingly service in good times—but only barely. In 2017, the Trump Organization generated earnings of just $4.3 million at the resort. A Trump Organization representative suggested margins improved the next year, yielding $9.7 million of profits (measured as earnings before interest, taxes, depreciation and amortization). Annual debt service on the property could hit $3 million to $3.5 million in 2020. Given the state of affairs at the time of the reopening, it seems uncertain whether the resort will earn that much by year-end.
The situation appears to be worse at the D.C. hotel. The Trump Organization had a $170 million mortgage against that property. Even with interest rates down, a loan of that size could require $4 million to $5 million in annual interest payments. The property seemed to be struggling to produce enough profit to cover its interest in boom times. Amidst the coronavirus crisis, it’s probably a safe bet that the place is losing money.
When borrowers can’t pay what they owe, they are left with a handful of options. They can (a) negotiate with lenders; (b) refinance their loans; (c) inject cash from other holdings; or (d) declare bankruptcy. The most appealing solution, from a borrower’s perspective, is to negotiate with lenders. No surprise, then, that the Trump Organization reportedly took steps in that direction in late March, reaching out to Deutsche Bank, which holds the loans on both the D.C. hotel and the Miami golf resort.
That put Deutsche Bank in an awkward position. If it gave Trump a break on his loans, it would be doing a financial favor for the president of the United States, one whose administration happened to be simultaneously pursuing an investigation of the bank. If Deutsche Bank refused to work with Trump and instead left him in a vulnerable position, then it could risk retaliation by the president. It was a nightmarish conflict of interest, involving hundreds of millions of dollars and a president in crisis.
And it wasn’t just Trump’s hotels that were in trouble. The virus had also pushed more people to shop online rather than in brick-and-mortar spaces, like the 125,000 square feet that Trump owns near Fifth Avenue. The value of office space took a hit, too, with investors wondering how America’s great work-from-home experiment would affect long-term leases with corporate tenants.
Trump, of course, did not have to be invested in this portfolio of assets. Ethics experts had suggested that he divest his business empire—the hotels and the other properties—after the 2016 election. If he had followed that advice and liquidated his entire $3.5 billion fortune when he took office, then reinvested it in a broad-based, conflict-free mutual fund modeling the S&P 500, he would have avoided four years of financial controversies. He might have had to pay a big capital gains tax up front. But even if he paid the maximum possible federal and state capital gains tax, there would have been no complaints about foreign dignitaries staying at his hotels. No brand-driven decline in his golf business. No worries about his relationships with lenders.
And, with all that money appreciating in the broader market rather than diminishing in his assortment of Covid-affected properties, President Trump would be an estimated $800 million richer today.