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Could Trump's properties really be seized?

by SuperiorInvest

Shunned by more than two dozen bond companies, Donald J. Trump has so far been unable to pay the nearly $500 million fine owed as of Monday in his civil fraud trial.

Just days before the deadline, the former president's social media company completed a merger, a move that is poised to pump roughly $3 billion into Trump's coffers. That's more than enough to cover the $454 million fine he owes New York state, but the merger prevents him from selling his shares for six months or using them as collateral against a loan.

Unless those rules are lifted to allow him to take advantage of the cash infusion, Trump faces the possibility that the state attorney general will move to freeze some of his bank accounts and try to seize his properties in the city where he made his name as a real estate developer. .

The buildings at the center of the lawsuit (several that dot the Manhattan skyline, as well as a 212-acre property north of the city in Westchester County, sit like the smallest figure inside a Russian doll, protected by layer upon layer of legal entities. Lawyers specializing in bankruptcy, foreclosures and corporate insolvency warn that gaining control and attempting to liquidate any of the former president's iconic properties is an uphill battle.

And even if the attorney general manages to acquire Trump's real estate, unloading a 60-story skyscraper involves a web of transactions.

“People are very, very good at litigating and getting to the point of a ruling,” said Brad Eric Scheler, senior counsel at the law firm Fried, Frank, Harris, Shriver & Jacobson, where he oversees corporate restructuring and insolvency. “But they never focus on the fact that collecting a judgment is very difficult.”

Accused of vastly inflating the value of his real estate empire to obtain better loan and insurance terms, Trump lost his civil fraud trial in February. A judge fined him nearly $355 million, a fine that has now exceeded $450 million with interest. He has until March 25 to pay the fine, but it is unclear what will happen if he does not do so.

In a letter to the clerk of court last Thursday, one of Trump's lawyers reiterated that they had approached 30 bond companies through four different brokers and had been unable to find any that could guarantee a note of that magnitude. The bond companies, the letter said, refused to accept real estate as collateral and instead demanded collateral in the form of cash or other liquid assets worth about 120 percent of the value of the judgment, or more than 557 million dollars.

The former president had about $350 million in cash as of last year, according to a Times analysis, not even two-thirds of what bond companies are asking for.

Appraisers and business brokers warn that it is difficult to know how much your assets are worth since there are numerous variables at play, including your debts. The value of his real estate would also be affected if he is forced to sell it hastily, something Trump's lawyer also highlighted: “A 'fire sale' of real estate would inevitably result in massive and unrecoverable losses,” the lawyer wrote, Clifford Robert.

Here's a look at the challenges the state faces as it tries to seize, or even set a value for, some of Trump's best-known properties in Manhattan.

Trump does not own almost any of his properties outright. They are protected by a labyrinth of interlocking trusts and limited liability companies. According to the lawsuit, there are up to 500 separate entities operating for Trump's benefit and under his control.

This creates a challenge for the court, bankruptcy experts said.

“Let me give you an analogy,” said Scheler, who has no direct knowledge of Trump's assets, describing how Yellow Cab operators have been similarly protected. “Taxi fleets had each of their taxis in a separate corporation, so if the taxi was in a car accident and the insurance didn't cover it, it would be limited to the entity that had the taxi.”

Even if New York Attorney General Letitia James succeeds in seizing a property, if there are mortgages or loans against it, those debts will have to be paid first, say lawyers who have represented distressed corporate clients.

“It's 1,000 percent complicated and the reason it's 1,000 percent complicated is because there are creditors and shareholders who are ahead of Letitia James,” said Leo Jacobs, a commercial bankruptcy attorney. “Imagine 40 Wall Street is worth $250 million and has $200 million guaranteed. After taxes and transfer fees, you'll be left with $1 million. Is it worth carrying out the sentence? The answer is no, it is not.”

The attorney general could issue a lien on Trump's property, but lawyers representing corporate clients warn that a lien is not the same as acquiring property.

“Putting a lien is like a stop sign,” says Leni Morrison Cummins, a partner in the Manhattan office of the law firm Cozen O'Connor, who has mediated fraud claims before the New York State Attorney General's Office. .

Trump could not sell the property himself or take out loans without paying the lien.

“It will prevent you from doing almost anything else with the property,” said Lisa A. Smith, a real estate attorney and partner in the New York office of the law firm Smith, Gambrell & Russell.

For some of the buildings, the ownership structure is so complex that it is unclear what, if anything, the court could seize.

Take for example the elegant skyscraper at 1290 Avenue of the Americas. Nearly two decades ago, Trump acquired a 30 percent stake in an entity that owns the 43-story building in Midtown Manhattan, adjacent to Radio City Music Hall. The other 70 percent is owned by the Vornado Partnership Trust.

The fine print of the partnership makes it difficult, perhaps even impossible, for Trump to sell his 30 percent stake. Initially scheduled to expire in 2044, the partnership states that “a partner may not, directly or indirectly, sell, assign, transfer or otherwise dispose” of any part of his or her interest in the partnership, without the owner's prior written consent. majority, according to an Excerpt of the agreement shared during the trial.

In the lawsuit, James argued that Trump and his representatives had inflated the value of this property by treating it as if it were an asset that could be bought and sold.

Now, if the same asset is seized, the state will face the same limitations they discovered during the trial, namely that he will be more or less trapped in this partnership for another two decades, real estate attorneys said.

Diagonally across from the New York Stock Exchange, 40 Wall Street has long been one of the most important properties in Trump's portfolio. Completed in 1930, it was briefly the tallest building in the world. In 1995, for $1.3 million, Trump bought the right to lease it, according to court records. A bid memorandum for the building shows that the agreement will last almost another two hundred years, until the year 2194.

That's right, the right to lease it. He does not own the building or the land under which it sits. The agreement, known as a “ground lease,” makes selling it more difficult, real estate attorneys and business brokers say.

“Any time a building has a ground lease, there is automatically a stigma associated with it,” said Roshan Shah, a commercial real estate broker who was previously a principal at Avison Young. “At the end of the day, the building is located on land that you don't control.”

In 2010, 2011 and 2012, three different appraisals by Cushman & Wakefield valued his leased property at between $200 million and $220 million, if sold as-is, according to documents made public during the lawsuit. In 2015, an appraisal ordered by a lender valued it at $540 million. As of 2021, the former president claimed his leased property was worth $663.6 million, a figure the court found inflated.

The value of the lease depends on two things: how much Trump pays the building's owner in rent and other expenses, and how much he earns in return from the dozens of tenants who occupy the skyscraper.

While they emphasized that they do not know the value of Trump's lease, several business brokers and analysts contacted by The Times said the asset is likely worth significantly less today than it was in 2015, and may even have fallen below $200 million. .

The drop is attributed to the seismic shift in the commercial real estate sector, as remote work necessitated by the pandemic has continued. Looking at 380 buildings in Manhattan, one in four were appraised at values ​​lower than their previous sales price as of last summer, found Andrew Lim, director of research at JLL, a real estate services firm.

Trump's “triplex” occupies the top three floors of Trump Tower on Fifth Avenue. He filmed his first television interview as president-elect under the frescoed attic ceiling.

Of all his properties in Manhattan, this may be the easiest to sell, or at least to put a value on; It is an individual apartment, rather than a partnership or a complicated lease.

Brokers and an appraiser say its market value may not be tied to reality. The unit is near so-called “Billionaire's Row,” where condos regularly sell for more than $10,000 per square foot. In 2015, Trump and his associates attempted to claim that he was worth around $327 million, according to his financial statements.

But Trump Tower, where the triplex is located and which opened in 1983, has long been overshadowed by more modern skyscrapers, according to brokers and analysts. A fairer comparison, they say, would be units at the Olympic Tower, located five blocks south of Fifth Avenue and built in the 1970s, where condos sell for an average of $1,958 per square foot.

Ondel Hylton, senior director of content and research at CityRealty, a real estate listings firm, said the triplex could bring in as little as $2,000 per square foot, or $22 million. If it were renovated, its value could rise to as much as $2,800 to $3,500 per square foot, or between $30.8 million and $38.5 million, she estimated.

Susan C. Playaro and Kirsten Noyes contributed research. Kate Christobek contributed reporting from New York.

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