New York fraud case ruling does not lead to a swift conclusion for Trump’s real-estate business
A recent ruling in a civil fraud case brought by New York state Attorney General Letitia James has dealt a powerful blow to Donald Trump and his real-estate business. The Manhattan judge ordered a civil penalty of over $450 million and a three-year ban from the New York real estate industry for Trump and his Trump Organization. Additionally, they are barred from borrowing from banks and financial firms registered in New York for the same duration.
However, experts believe that this ruling may not immediately have a knockout effect on Trump or his organization. Evan Gotlob, a former New York City prosecutor and partner at law firm Saul Ewing, suggests that while the Trump Organization can withstand the financial penalty, the three-year financing ban could be the most detrimental aspect, as the real-estate industry heavily relies on borrowed money.
The decision could also impact foreign lenders with registered affiliates in New York, further complicating the situation for Trump’s business. Trump has already stated his intention to appeal the ruling, which could delay its implementation by weeks or even months. A stay order could suspend the decision during the appeals process.
Inheriting his real-estate company from his father in the late 1970s, Trump’s business empire has been the subject of tabloid fodder for decades. His real-estate ventures have also led to opportunities in branding and television, eventually culminating in his presidency. The judge’s decision aims to temporarily ban Trump and his two sons from the New York real-estate industry and presents challenges in disentangling their business partnerships, lenders, tenants, and investors.
The court-appointed monitor overseeing the Trump Organization has already identified 415 distinct business entities tied to the company. Will Thomas, an assistant professor of business law at the University of Michigan, explains that commercial real estate is messy and complicated, emphasizing that this ruling is just the beginning of the challenges ahead.
Beyond the immediate impact on Trump, the case sheds light on how high-end commercial real estate is often financed without owners risking their personal wealth. Norman Miller, retired chair of real-estate finance at the University of San Diego, points out that Trump has frequently used other people’s money for his deals. Penalizing Trump, therefore, could inadvertently penalize others involved in similar financing arrangements.
The ruling also has implications for Trump’s outstanding property debt. While he was able to refinance a significant portion of it after his first presidency, he still owes around $122 million on 40 Wall Street, a prominent office tower in Manhattan. This debt is bundled with other loans in commercial-mortgage bond deals sold to investors. Trump’s loan is due in July 2025, and the current financial climate for office buildings in need of refinancing is challenging.
Office properties in major cities like New York, Chicago, and San Francisco are trading at significant discounts, creating distress in the market. Trump’s future in the real-estate industry and his access to credit have become concerns for office tenants. The uncertainty surrounding this case and its potential outcomes leave many brokers and tenants unsure about the future of Trump’s properties.
In conclusion, while the recent ruling in the New York fraud case poses significant challenges for Donald Trump and his real-estate business, its immediate impact may not be as severe as expected. The three-year ban on borrowing from New York banks and financial firms could be the most detrimental aspect, considering the industry’s reliance on borrowed money. However, Trump’s appeal and the complexity of disentangling his business partnerships present further hurdles. The case also brings attention to the financing practices in high-end commercial real estate and raises concerns for tenants and brokers regarding Trump’s future in the industry.
