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Donald Trump built a real estate empire, with commercial and residential properties, hotels, resorts and golf courses totaling more than $1 billion, according to Forbes. Just as many real estate investors do, he purchased many of the properties using borrowed money. But then many of the largest loans were forgiven by the banks, in a move that is more common than you might think.
Many lenders would rather forgive debt, or at least negotiate a settlement, than go to bankruptcy court and fight for the money owed. That’s especially true with high-profile borrowers like Trump.
“Rather than warring with a notoriously litigious and headline-seeking client, lenders cut Mr. Trump slack — exactly what he seemed to have been counting on,” wrote The New York Times.
In a 2016 interview, Trump admitted, “I’m the king of debt. I’m great with debt. Nobody knows debt better than me. I’ve made a fortune by using debt, and if things don’t work out I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.”
Let’s look at some of the loans that have vanished over the years to keep Trump on the billionaire’s list rather than pay off his debt.
1. Deutsche Bank
In 2005, Trump financed more than $2.5 billion for real estate projects from Deutsche Bank, most notably to fund the construction of Trump Tower in Chicago. After the 2008 financial crisis, Trump failed to sell or lease the majority of the condos or retail space in the building.
When the loan came due, initially for $334 million to Deutsche Bank, instead of paying the money he sued the bank. The construction companies that worked on the project wrote off $101 million and $105 million in bad debt, while Trump saw his debt forgiven.
2. Fortress Investment Group
Trump also borrowed $130 million from Fortress Investment Group for the same project, according to TheDailyBeast.com. These loans were also forgiven in a lawsuit.
3. Trump Castle Bonds
Trump floated bonds worth $300 million to fund Trump Castle, a New Jersey casino. He missed a $42 million interest payment, according to the Los Angeles Times. But the bond holders agree to forgive more than $200 million in payments over five years, the New York Times reported. The casino ultimately went bankrupt.
Final Note
Leveraging other people’s money to buy real estate can be a sound business plan, especially if you can secure a low interest rate and leave your money in savings or other investments earning a high rate of interest.
Ultimately, though, you must pay off those debts or it will come back to you. Trump has funded recent deals using cash, perhaps indicating that his empire is living on borrowed time.
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