Trump’s Inheritance To His Children Is a Lousy Deal, So He Seeks To Solve It

For a 75-year-old billionaire, Donald Trump doesn’t seem to have passed down much of his fortune to his children. Many tycoons give away their empires early, not only because it’s a nice thing to do, but also because it helps them save their children from having to pay a huge estate tax when they die.

However, a review of the documents suggests that in the Trump family, the heirs have no stakes in any of their father’s major assets, except for one: the Trump International Hotel in Washington, DC

The heirs bear part of the responsibility as Ivanka first identified this property as a possible investment opportunity. With the support of their father, the family decided to get involved, securing a deal in 2013 to lease the building to the federal government promising they would spend $ 200 million on the site.

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Deutsche Bank provided $ 170 million in financing, and as of August 31, 2017, the Trump Organization’s financial statements listed $ 193 million for building improvements, $ 18 million more for furniture and equipment, $ 5 million for $ 100,000 for operational supplies and $ 100,000 for tenant improvements. The total tally was $ 216 million, according to White House documents.

Donald Trump Jr. worked on the leasing of commercial spaces and Eric helped take care of the operation, however things did not go well. Lobbying made financial performance a mess.

As of August 31, 2018, operating profit (measured as earnings before interest, taxes, depreciation and amortization) was just $ 900,000 with a net loss of $ 13 million, according to an analysis of the documents.

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One of Donald Trump’s holding companies had to invest $ 4 million in the hotel to support the business. Twelve months later, the small operating profit turned into a loss of $ 2 million and the business bled $ 18 million on a net basis. Donald Trump’s holding company therefore had to inject another $ 9 million into the hotel.

The following year, when Covid-19 struck the world, things took a turn for the worse. Operating losses were reduced to $ 9 million and net losses reached $ 22 million.

Donald Trump’s holding company had to contribute an additional $ 11 million to stabilize the business, according to a review of the documents. At this point, the Trump family had invested roughly $ 240 million, of which $ 170 million came from Deutsche Bank and $ 70 million appears to have come directly from the family’s pockets.

Bad news, since many people don’t think the place is worth $ 240 million. After speaking with seven real estate experts, Forbes last month estimated the property to be worth $ 173 million.

Assuming the Trumps haven’t paid off any of their loan principal, that means their principal amounts to just $ 3 million, $ 67 million less than the amount of cash the family apparently invested in the place before August 2020. In other words, the one major asset where the Trump boys seem to have a lot at stake seems like a bad deal.

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On Tuesday, the Wall Street Journal reported that the former president’s family is in advanced discussions to sell their right to the hotel for a whopping $ 370 million or more.

Some industry experts questioned the credibility of that report, given the high price. But if such a sale goes through, all the financial problems the hotel has caused the Trumps would suddenly disappear.

The apparent interest of 7.5% of the heirs would be worth just $ 225,000 after the debt at a valuation of $ 173 million, growing to an estimated $ 15 million each.

That’s a lot of money for Eric and Donald Trump Jr., who have a fortune of $ 25 million, according to Forbes estimates made in 2019. It’s also a good chunk of change for Ivanka, who shares a fortune estimated at 375. million dollars with her husband, Jared Kushner, heir to a real estate dynasty.

Donald Trump, the richest of his entire family, with an estimated fortune of $ 2.5 billion, would receive the largest payday. Its estimated interest of 77.5% would amount to just $ 2 million after debt at a valuation of $ 173 million, but would skyrocket to $ 155 million if the place were valued at $ 370 million.

That would surely be enough to convince the former president that the past four years of financial trouble, not to mention the ethical headaches, were worth it in the end.

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