Trump's $570m property buying binge in cash

Trump borrowed to build his empire. Then he spent millions

In the nine years before he ran for president, Donald Trump’s company spent more than US$400 million ($570m) in cash on new properties — including 14 transactions paid for in full, without borrowing from banks.

It was a buying binge that defied real estate industry practices and Trump’s own history as the self-described “King of Debt.”

Trump’s vast outlay of cash, tracked through public records and totalled publicly here for the first time, provides a new window into the President’s private company, which discloses few details about its finances. It shows that Trump had access to far more cash than previously known, despite his string of commercial bankruptcies and the recession’s hammering of the real estate industry.

Why did the “King of Debt,” as he has called himself in interviews, turn away from that strategy, defying the real estate wisdom that it’s unwise to risk so much of one’s own money in a few projects? And how did Trump — who had money tied up in real estate and buildings — raise enough liquid assets to go on this cash buying spree?

Eric Trump, a son of the President who helps manage the company, told the Washington Post that none of the cash used to purchase the 14 properties came from outside investors or from selling off major Trump Organisation assets.

Instead, Eric Trump said, the firm’s existing businesses — commercial buildings in New York, licensing deals for Trump-branded hotels and clothes — produced so much cash that the Trumps could tap that flow for spending money.

“He had incredible cash flow and built incredible wealth,” Eric Trump said. “He didn’t need to think about borrowing for every transaction. We invested in ourselves.”

The cash purchases began with a US$12.6m estate in Scotland in 2006. In the next two years, he snapped up two homes in Beverly Hills. Then five golf clubs along the US East Coast. And a winery in Virginia. In 2014, he paid a combined US$79.7m for large golf courses in Scotland and Ireland. Since then, those clubs have lost money while Trump renovated them, requiring him to pump in US$164m in cash.

Trump’s spending came when his business was leaning largely on just one major financial institution for its new loans — Deutsche Bank, which provided US$295m in financing for big projects in Miami and Washington.

Eric Trump said his father wasn’t forced to turn to an all-cash strategy. Trump could have borrowed more if he wanted, he said. But he had soured on borrowing in general after contending with unpaid debts in the early 1990s.

Real estate investors typically don’t buy big properties with their money alone. They find partners to invest and banks to lend alongside them. That allows the investors to amplify their buying power, and it increases the odds of earning higher returns.

“For privately held real estate firms, basically they like to use as much debt as they can. The only brakes are put on by the lending institutions, who don’t want to lend too much,” said Professor David Geltnerof the Massachusetts Institute of Technology.

Industry experts said avoiding loans can alleviate risk for real estate companies and allow them to manoeuver more quickly. But they said that approach is typically undertaken by cashrich investors that aren’t focused on maximising the money they make off a property or by companies that aren’t trying to minimise their tax bills. Companies that have trouble obtaining loans would also turn to cash.

Particularly when pursuing major projects, private real estate firms usually borrow. “I still think at the end of the day, you want some debt,” said Professor Ed Walter of Georgetown University, a former CEO of Host Hotels.

Trump himself embraced that philosophy. Until, suddenly, he didn’t.