No quick end to Trump’s real estate business after ruling in New York fraud case

A Manhattan judge dealt Donald Trump a major blow Friday, imposing a civil penalty totaling more than $450 million and handing him a three-year ban from the notoriously bare-knuckled world of New York real estate.

Under the judge’s order, Trump and his Trump Organization are also banned for three years from taking out loans from banks and finance companies registered in New York.

However, the decision in the civil fraud case brought by New York state Attorney General Letitia James is not expected to deal a death blow to the former US president or the Trump Organization, at least not immediately.

“The Trump Organization will exist,” said Evan Gotlob, a partner at the law firm Saul Ewing and a former New York City prosecutor who focuses on public corruption and white-collar investigations. “It will be hampered, but I think it still exists.”

Gotlob said that while the Trump Organization can probably stand to lose hundreds of millions of dollars due to the fine, the three-year financing ban “could be the worst part,” since the real estate industry runs on borrowed money . Friday’s decision could also overwhelm foreign lenders with affiliates registered in New York.

“For real estate development you need access to money,” he said.

Weeks before New York Supreme Court Justice Arthur Engoron’s decision came down, Trump said he would appeal the ruling. Legal experts say the appeals process can take weeks, if not months. A stay order would suspend the decision from coming into force while the appeal is pending.

“Today’s ruling is a serious miscarriage of justice,” a spokesperson for the Trump Organization said in an emailed statement. “If the Attorney General were permitted to retroactively intervene in private business transactions between sophisticated individuals, no business transaction undertaken in New York State would be beyond the Attorney General’s purview.”

A historic ruling

Trump inherited his real estate company from his father in the late 1970s, and his personal life and business dealings frequently became tabloid fodder over the next four decades.

Trump’s real estate business also gave rise to his branding business, a stint as a television personality and his rise to America’s highest elected office.

The judge’s decision, if upheld, seeks to temporarily ban Trump and his two adult children from New York real estate. But it also raises practical questions about how to extricate the Trumps from their web of business partnerships, existing lenders, tenants and bond-holding investors who financed their properties.

The ruling extends the oversight of the Trump Organization by a court-appointed monitor to at least three years. But it won’t be an easy task.

To understand Trump’s extensive business dealings, the monitor has already identified 415 distinct business entities linked to the company – many relating to borrowing entities and licensing and management agreements – after reducing the number of entities from around 500 in the process.

“Commercial real estate is complicated and messy,” said Will Thomas, an assistant professor of business law at the University of Michigan’s Ross School of Business, who has closely followed the fraud case against Trump.

“It’s the beginning of headaches, not the end.”

Other people’s money

The New York court’s decision brings a multiyear investigation into Trump’s business practices to a crescendo just as Trump seeks to reclaim the White House for a second term.

The sanctions are designed to punish the former president for confusing his personal wealth with the value of his properties, a practice that Attorney General James said led to more favorable loan terms than would otherwise have been available.

Trump has denied any wrongdoing and called the trial “a witch hunt” as the Republican candidate campaigns to win his party’s nomination for November’s presidential election.

Beyond the ruling, the case also highlights how high-end commercial real estate is financed, often without owners putting their personal wealth at risk.

“For decades, Trump has used other people’s money for most of his business deals,” said Norman Miller, retired chair of real estate finance at the University of San Diego’s Knauss School of Business.

“Certainly, we should find that most of them are not guilty of the ratings violations that Trump has been accused of,” Miller said, adding that the court should be aware that penalizing Trump penalizes others as well.

Spotlight on real estate

In the wake of Trump’s first presidency, he was able to refinance some of his outstanding real estate debt, “which improved his credit rating and liquidity for a while,” Miller said.

However, Trump has about $122 million in senior debt at 40 Wall Street, an office tower in Manhattan’s financial district that has long been a crown jewel of the Trump Organization.

That debt, which is currently on the watchlist as a potential default risk, was packaged with other loans into several commercial mortgage bond deals, which were sold to investors more than a decade ago. According to CredIQ and Trepp, the Trump loan is scheduled to mature in July 2025.

See: Donald Trump tightens his grip on the historic Manhattan skyscraper at the center of the New York court case

Even before Friday’s ruling, Trump was facing a challenging environment for office buildings in need of refinancing. Big cities, from New York to Chicago to San Francisco, have seen office properties, or debt on buildings, trade at discounts of 60% or more.

The discomfort also hides in the riskier bonds used to finance the Vornado Realty Trust VNO,
in his partnership with Trump at 1290 Avenue of Americas, a 43-story office building in Midtown Manhattan.

According to Empirasign, the senior bonds that financed the building were offered by at least one Wall Street bank at a discount of about 5% to their original face value in January, after a roughly two-month rally spurred by hopes of cuts of Federal Reserve rates. , which tracks commercial activity in the sector.

But junior bonds, which trade less frequently and are more vulnerable to losses if the borrower defaults, were last priced in October by debt holders at prices between $65 and $75. The bonds are issued with the expectation of being fully redeemed at maturity at $100.

Vornado did not return a request for comment.

Restless tenants

Trump’s future in New York real estate and his access to credit have become a major concern for office tenants, said a broker who has directly placed several tenants at Trump properties over the past five years.

“This case could be tried and ultimately decided in so many ways,” said the broker, who was not authorized to speak publicly about the matter.

Outside of debt defaults, New York buildings have rarely been separated from their owners, even temporarily. One potential precedent dates back to about a decade ago, when the U.S. government seized the 36-story office tower at 650 Fifth Avenue in Manhattan in a terrorism-related case, saying it was effectively controlled by Iran.

But after a decade of operating the building, the government’s hopes of selling the building for nearly $1 billion, to distribute the proceeds to victims of terrorism, were dashed after a Manhattan appeals court rejected the judgment.

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