Abraham Wallach thought he had scored a major career break when Donald J. Trump
hired him in 1990 for a senior executive role. Based on Mr. Trump’s
boasting and gaudy
lifestyle, Mr. Wallach imagined he would soon be
leading impressive construction projects around the globe.
Instead,
he found an array of failing enterprises, he recalled on Monday. Many
top executives had departed the Trump Organization, and those who
remained were often huddled in closed-door meetings with bankers and
whispering worriedly among themselves.
“Everyone
was very glum,” Mr. Wallach said. “It was like getting on the Titanic
just before the women and children were moved to the lifeboats.”
That
year, he would later learn, was the beginning of Mr. Trump’s reckoning
with a decade of rapid, debt-fueled expansion. The eclectic empire Mr.
Trump had built with leverage from his father’s brick-and-mortar fortune
began to fail, generating enormous losses and bringing him to the brink
of personal bankruptcy.
The
full magnitude of the financial hemorrhaging was a closely held secret
until this weekend, when The New York Times published portions of Mr. Trump’s 1995 tax records
that showed business losses of $916 million, creating a tax deduction
that could have allowed him to legally avoid paying any federal income
taxes for up to 18 years.
For
a single businessman to declare losses approaching $1 billion is so
extraordinary that it caused several accountants and lawyers consulted
by The Times to blanch. The precise breakdown of that figure —
specifically which Trump enterprises were responsible for how much —
remains murky, hidden in a schedule attached to Mr. Trump’s returns that
has not become public. But a review of public records and interviews
with those who were present makes clear that it was decisions Mr. Trump
made at the helm of his business empire during the 1980s that led to its
nearly imploding.
Mr.
Trump, the Republican nominee for president, portrays himself now as a
self-made man who began life with what he has characterized as a meager
$1 million advance from his father. That figure itself represents a
significant understatement about the support his father provided him
over the years. But in his darkest moment, Mr. Trump again leaned on his
family’s wealth, this time to ride out a financial tsunami.
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At one point, the balance of his personal bank accounts was expected to drop below $1 million.
By
1990, Mr. Trump had amassed $3.4 billion in debt, much of it in the
form of high-interest junk bonds. He was personally liable for $832.5
million of that. He had bought a yacht for $29 million, the Plaza Hotel
in Manhattan for $407 million and a failing airline for $365 million.
All were losing money.
Details
of the losses are not available, because the entities were privately
held. But reviews by New Jersey casino regulators and securities filings
related to debt offerings show a grim picture.
The
Castle casino in Atlantic City recorded total losses of $93.2 million
in 1990 and 1991. The Trump Regency hotel there lost $8.3 million in
1991. The Trump Plaza casino lost $29.2 million in 1991.
Casino
regulators in New Jersey warned that “the possibility of a complete
financial collapse of the Trump Organization is not out of the
question.” Most, if not all, of those losses would pass through to Mr.
Trump’s tax returns because of the ownership structure of the casinos.
The
Casino Control Commission concluded in 1991 that “Mr. Trump cannot be
considered financially stable, a condition for renewing his casino
licenses at Taj Mahal, Castle and Plaza.” Still, it did not pull the
plug on him.
“The
consequences of doing that would have been horrific,” said Steven P.
Perskie, who was chairman of the commission from 1991 to 1994. “We
weren’t prepared to do that unless we had no choice.”
His airline, Trump Shuttle, lost $34.5 million during just six months in 1990.
In
addition to actual losses from his other businesses, the nearly $1
billion total in losses probably also includes paper losses on Mr.
Trump’s real estate holdings through the use of depreciation rules that
allow real estate developers to deduct the cost of a building over a
number of years.
By
the end of 1991, the amount of cash that Mr. Trump had personally
available to him had fallen below $1.7 million and was expected to fall
below $800,000 within months — a small cushion given his monthly
expenditures.
Further
squeezed by a recession, Mr. Trump fell $4.1 million behind on the
property tax bill for a large swath of land he owned on the West Side of
Manhattan.
The
measures he promised to take repeatedly did not work, casino regulators
noted. At several points, he turned to his family fortune.
He
promised to make up for a cash shortfall with the sale of condominium
units in Trump Tower in Manhattan. When that did not generate enough
money, he filled the hole in his balance sheet with the “unforecasted
receipt of funds from certain family-owned properties in New York City” —
apparently referring to fees from properties his father, Fred C. Trump,
had built outside Manhattan.
At
the end of 1990, when Mr. Trump was facing an $18.4 million interest
payment, his father sent a lawyer to the Castle casino to buy $3.3
million in chips and leave without cashing them, providing his son with
an infusion of cash.
By
1993, Mr. Trump was still in dire straits. He dispatched a company
executive to ask his siblings if he could borrow $10 million from their
respective shares of the family trust. Mr. Trump received the loan,
according to people who were involved and spoke on the condition of
anonymity to avoid angering him, and went back for another $20 million
the following year. Mr. Trump has denied borrowing from his siblings.
Mr.
Trump had negotiated reduced interest rates on some of his loans,
partially by agreeing to give up money-losing enterprises, including his
airline, his yacht and a stake in the Plaza Hotel in Manhattan. His
lenders forced him to live for a time on $450,000 a month.
In
1995, Mr. Trump began the transaction that would eventually free him
from his financial travails. He took his struggling casinos public,
selling stock to raise money and shifting his personal debt into the new
company. The company continued to lose money and underperform its
competitors, but Mr. Trump was paid roughly $45 million though 2009.
Mr. Wallach, who left the Trump Organization in 2001 to deal with a chronic shoplifting
and theft problem, said the change in the organization was palpable.
Mr. Trump began to regain his footing and focused again on real estate,
taking steps to ensure that he was less dependent on his own cash and
personally guaranteeing loans.
In
1996, the year that the tax records obtained by The Times were filed,
Mr. Trump basked in the glow of news reports marking his apparent return
from financial abyss. One such comeback article appeared in The Times
in April of that year.
“This
just represents the best point in my life,” Mr. Trump told a Times
reporter as he settled into a stretch limousine. “I think it says that
what I’ve been doing over the years has been right.”
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