Real Estate Investor Magazine South Africa November 2013 | Page 57

COMMERCIAL
made it difficult to obtain finance and to invest
in building renovations profitably.
Pre v ious ow ners, work ing t h rough a
representative of the German landowner,
could not get the ground lease modif ied.
Applying a basic principle of successful sales
- getting around the gatekeeper and talking
directly to the decision-maker - Trump flew to
Germany to meet the Hinneberg family and to
negotiate directly with the owner.
Trump and the landowner discussed the
failures of the previous building owners.
Trump offered to renovate the building to
make it feasible for office and/or residential
lease, in return for a review of the troublesome
land lease and a rent-free period of one year to
complete the renovations. This would make it
possible to finance the building.

Abe Wallach, one of Trump’s advisors at the
time who also played an instrumental role in the
acquisition of 40 Wall Street, believed the only
solution was a conversion from an office building
into residential co-operative apartments. In fact,
the city was offering developers incentives to
convert vacant office space in the downtown area
to residential units. However, there was a major
challenge in this regard: before any work in
respect of a conversion could commence, a deal
had to be made with the law firm that occupied
the entire seventh floor. Ross, given his extensive
legal experience and knowing the principals of
the law firm, knew that this was going to be a
time-consuming and expensive process.
So, it was back to the drawing board. With
much out-of-the-box thinking and in-depth
analysis, Ross came up with a fresh solution: three
office buildings, situated on top of each other.

The biggest deal in numbers

The building in rental returns

Having renegotiated the land lease, Trump
was ready to acquire the building. Given the
condition of the building and the state of
the property market at the time, the Kinson
Group readily agreed to give Trump an option
to buy the building for $1 million, and he
also assumed the $1 million liability for the
mechanic liens.

Ross calculated that the top portion of the
building offered 400 000 square feet of small
office space. This, he believed, could be rented
at $19 per square foot ($2 over the average rent
of $17 per square foot), given the prestige of
renting an entire f loor with a fantastic view
of the New York harbour. At this rental, the
acquisition and renovation projections would
reach breakeven.

At one million square feet, the price tag of
$1 million dollars meant that Trump bought
the building for a dollar a square foot - a
ridiculously low price.

Key lessons
Trump then exercised his option to buy 40
Wall Street. He now owned a building with
fantastic potential in a great location, with
wonderful views of the New York harbour.
But the real work had just begun.
At the time, there was a glut of office space
in the area and, as a result, no demand from
tenants for office space downtown. Even George
Ross, Trump’s right-hand man, believed that
the building had little chance of success, even
if the office market recovered. Furthermore,
numerous brokers had analysed the building
and confirmed that the higher floors were too
small for commercial office use and that the
lower floors, which contained huge columns that
interfered with efficient office space usage, were
equally unsuitable for commercial office use.
www.reimag.co.za

Trump then paid $60 000 of the $1 million
mechanic lien on the building and gave the
contractors involved the first option to do the
renovations, provided they gave up the liens.
In this way, Trump successfully refurbished
the building.
The first lease was concluded with a major
financial firm at a rental of $23 per square foot,
significantly higher than the $17 per square
foot projected.
When the off ice market rebounded, the
building became extremely popular and
eventually even the 400 000 square foot lower
floor was leased to American Express at $24 per
square foot. Given the tenancy rates, Trump
could replace the original mortgage with a larger
mortgage at a reasonable rate.
Today the building is worth between $350
million and 400 million and is, aptly, called the
Trump Building.

LESSONS ON BUYING
40 WALL STREET
1

Insist on negotiating directly with
the decision-maker, not with a
representative or broker.

2

On the next level down, the floors are larger
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