FROM THE ARCHIVE: Entrepreneur Donald Trump has turned his name into a global real estate brand. A European Trump Tower is now on the way, Paul Wessels, co-founding editor of PropertyEU, wrote in a June 2007 interview with the businessman now turned president.
Global real estate brands are on the rise. Properties in top locations are attracting unprecedented attention from investors, and those who can also associate theirs with a strong brand name have an irresistible product to offer. One of the best-known names making the most of this worldwide trend is Donald Trump. Together with his three children, Donald Jr (29), Ivanka (26) and since last year also Eric (23), the famous American property tycoon is exploiting the Trump brand name around the world.
Through his business deals and his buildings, often with large, strategically-placed ‘T’ symbols, Trump has created a celebrity status for himself since the 1980s that has been impossible to avoid in gossip columns, television programmes and magazines. He took the ultimate step in 2004 with The Apprentice, his own reality TV programme, in which the eventual winner is offered a job in the Trump business. The rest of the candidates are dismissed with the now well-known catchphrase: ‘you’re fired.’ It produced exceptional name recognition for Trump, also outside the US. And there is a very serious pay-off from all this publicity.
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Trump’s three grown-up children have also been tasked with developing the Trump name outside the US. The family is working on major projects in New York, Chicago, Los Angeles, Panama, Korea, Dubai, China and elsewhere, often in constructions in which the real development work is left to another party, with Trump contributing the brand name and the product promotion. The American tycoon is also spreading his wings in Europe. Near Aberdeen, in the northeast of Scotland, Trump plans to realise one of Europe’s most spectacular golf courses.
This time it seems to be a project in which Trump is taking an ‘old-fashioned’ role as developer: ‘It’s all Trump,’ he says. ‘There are no risk-bearing partners involved.’ And Trump’s ambitions do not stop there. The American property billionaire is eyeing possibilities for the realisation of Trump Towers in a number of European capitals, including Amsterdam. ‘Come up with a good plan, then I’ll come to Europe,’ he declared on being asked in an interview with PropertyEU, while adding in the same breath that his ancestors came from Germany.
Trump does not take the risks himself in projects of this kind, but provides the brand name under licence, whereby he stresses that he does get personally involved in the quality side of things. Trump is now 61 and preparing himself for the day when he will be passing on the family business to his children. Although some people fail to see the appeal of his products, there are thousands of others who disagree. The business model of the Trump organisation looks significantly less risky than it did in the 1980s and 1990s. Trump sets his name and creative stamp on buildings in which he takes no developer’s risk at all.
Other parties, from Dubai to Seoul to Atlanta, take the financial risk and engage the construction firms and suppliers. Donald and his children promote the project, advise on the planning, architecture and marketing in exchange for fees and a share in the proceeds of the sale. You can always leave it to the Trumps to generate publicity. Wherever the family finds themselves they make front page news. In the cities where properties with the Trump name are being developed, Donald Sr, Donald Jr and Ivanka devote hours to talking with the media. The essence of the model is that, in the glow of all this attention and publicity, buyers pay a premium for Trump products. A condominium in one of Trump’s skyscrapers typically fetches 20% to 40% more than comparable properties. This is the inheritance that the Trump family are busily building.
Win-win deals
In the US, and increasingly elsewhere, Trump is building up a unique position as a franchise organisation for luxury housing and other types of real estate. The construction that Trump uses in this respect is comparable with that commonly seen in the hotel market, where big chains such as Hilton, Accor or Marriott give their names under licence to real estate parties. Partners pay Trump a fee of several million dollars at the outset, and agree that 8% to 15% of the gross sale price of the properties will go to Trump. If the Trump name subsequently secures 20% higher sale prices or more, then both parties have profited from the arrangement. And ultimately the Trumps receive up to 50% of the proceeds above a previously agreed benchmark, generally around 20% above the market value of the development. For all this, the Trumps have not had to invest a single dollar.
Donald is still the one running the show, but now that his children are flying around the world and keeping an eye on the various projects, Trump himself is spending even more time on public appearances. There is speculation in the US that he may be planning a new reality show, now that The Apprentice is performing less well in the ratings.
Ivanka and Donald represent two sides of their father: Ivanka, the former model, likes the spotlight and is Ms Outside, while her brother has an obsession for detail and is Mr Inside. While Donald Sr and Ivanka take care of entertainment, Donald Jr is the one concentrating on the real estate and maintaining continuous contact with the project managers, builders and lawyers. Trump Sr has taught his children well, be it how to put a good deal together, how to manage a project or how to generate extra publicity to develop a wellknown brand name further.
Donald still has the last word on every deal, but Donald Jr and Ivanka are arranging more and more of the details. ‘I’m very proud of my children,’ Trump said at the launch of the Trump Towers in Atlanta. ‘They’re doing a terrific job.’ Atlanta is not alone; more than 33 similar franchise projects are currently being realised. And they do not only concern apartments: seven projects involve so-called ‘condohotels’, a formula whereby investors buy hotel rooms from the Trump organisation and their associated parties.
Most cases, however, revolve around upscale, highrise residential units like those in Atlanta, with luxury finishes, ultra-modern kitchens and elegant bathrooms with no expense spared on the marble.
Until now the projects have been doing well, but the property sector is not without risks. The question is how well the premium assets bearing the Trump name will be able to withstand the deepening crisis in the American housing market. In boomtown Atlanta, with its significant shortage of top-segment residential property, there should be no
concerns for the time being. But in South Florida there are no less than 3,000 Trump condos under construction, and over-supply threatens. The investors in, and developers of, these projects remain optimistic for now that the Trump name will help them through an eventual crisis.
The magnetism of the brand is unmistakable – the Trumps are approached by more than 300 real estate organisations every year with proposals to start up partnerships. A number that is likely to increase now that Trump is inviting parties worldwide to suggest new projects. Donald Trump Jr recently got his teeth into another real estate initiative: Trump Mortgage, a company that acts as an intermediary between property buyers and financiers such as banks. Trump Mortgage targets both investors in commercial real estate and house buyers. The brand name plays a role here too, keeping the deals and their financing going even in times of a market slowdown. As yet there are few
examples of successful worldwide branding of real estate. But the Trump family is determined to come through the next crisis in the property market unscathed, with their global Trump card.
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Dutch connection in Atlanta
One of the partners in the Trump tower project in Atlanta is Dutch fund provider Global State. It will be contributing more than $23 mln in equity via the Dutch CV structure, a limited partnership entered into for the purpose of sharing the proceeds of the capital investment between the respective partners. With an estimated total investment of some $ 460 mln, Trump Towers Atlanta will be Global State’s largest project in its 12-year history, even though the company has had considerable experience with sizeable real estate projects in the US and Europe. The project will be developed in two phases and will eventually consist of two skyscrapers.
In the first phase, a 47-storey residential tower will provide space for 363 ultra-luxury apartments. The condominiums are being offered for prices between $500,000 and $1.7 mln, while the penthouses vary from $1.3 mln to $11.4 mln. Global State is undertaking the project with two American partners: Dezer Properties, the largest manager of commercial real estate in New York, and Wood Partners, one of the largest residential property developers in America, with extensive experience in high-rise buildings.
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The Trump Family
Donald Trump's father, Fred C. Trump, was one of the great post-war builders in New York. Although overshadowed by his flamboyant son for the past 30 years, self-made man Fred Trump built more than 27,000 apartments and terraced houses around New York. Frederick Christ Trump was born in 1905 in New York City. His father was a barber in Kallstadt, Germany, before leaving for America in 1885 and seeking his fortune in the Alaska gold rush. He returned to Germany and married Elizabeth Christ, the girl next door, in 1902. They then settled permanently in New York and had three children. When Fred was 13 years old, his father died of pneumonia.
Two years later Fred, still at school, started his own construction business. As he was too young to sign the contracts himself he went into partnership with his mother Elizabeth: the company was called E. Trump & Son. In the 1920s Fred Trump began building single-family houses in the borough of Queens for a sales price of $3,990 each. After the war, Trump built tens of thousands of houses in New York, including the 3,800-apartment Trump Village in Coney Island. In 1936 Fred married Mary McLeod, who had emigrated to the US from Stornoway in Scotland.
Together they raised five children, including Donald. In the mid-1970s, Trump supported the ambition of his son Donald to become a developer, although not with a great deal of financing. It was principally knowhow that Fred passed on to his son; Donald took care of the rest almost entirely on his own. The rest is history: in New York City the Trump signature is synonymous with the most prestigious of addresses, among them the world-renowned Fifth Avenue skyscraper, Trump Tower, the Trump International Hotel & Tower – voted the best US hotel by Conde Nast Traveler – Trump World Tower at the United Nations Plaza, 40 Wall Street, and Trump Park Avenue.
Besides New York, Trump is involved in developing properties across the nation. His portfolio also includes four award-winning golf courses in New York, New Jersey, Florida and California, and the historic Mar-a-Lago Club in Palm Beach, Florida. Trump has staged a remarkable recovery from the period around the beginning of the 1990s, when he teetered on the brink of bankruptcy after starting up too many projects and borrowing too much money to fund them.
A few years ago this dark period was finally brought to a close with the bankruptcy of his listed casino business that was separate from the Trump family business. Despite everything, Trump has built up a valuable brand name that has managed to withstand his many critics. At the beginning of the 1990s he dropped out of the Forbes 400 list of richest people, only to re-enter it again in 1996. American business magazines estimate his fortune at around $ 3 bn, but Trump himself says he is worth more than $ 6 bn. Donald Trump has five children: three together with Ivana, before their much-publicised divorce in 1992: Donald Jr, Ivanka and Eric. He also has a teenage daughter, Tiffany, from his second marriage to Marla Maples, and a toddler, Barron, from his third marriage to Melania Knauss.
