Four of former President Donald Trump's New York properties, which have come under scrutiny in a Manhattan criminal investigation, have been placed on debt "watch lists" by banks over their struggling finances, according to CBS News.
The coronavirus pandemic has devastated New York's real estate industry, but the Trump properties' slump has been much worse than that felt by competitors, according to the report.
Last year marked the fifth consecutive year that the former "Apprentice" host's four most prominent buildings — including Trump Tower — have missed lenders' earning projections, according to documents obtained by CBS. As of January, loans tied to those buildings have been flagged by mortgage payment processors because of their "worsening financial shape," the network reported, noting that only about one in four commercial real estate loans nationwide have been put on such watch lists amid the pandemic.
The report comes as all four properties have come under investigation by Manhattan District Attorney Cy Vance, The Wall Street Journal and Reuters reported last month. Though the focus of the examination of those properties is not clear, investigators could be looking at potential discrepancies between the loan documents and financial information that Trump provided to other institutions, legal experts told the Journal. Former longtime Trump personal attorney and "fixer" Michael Cohen, who has been interviewed seven times by Manhattan investigators, previously testified to Congress that Trump routinely inflated the value of his assets to acquire loans while deflating the value of those properties when it benefited him. Vance's probe is examining potential fraud by the Trump Organization, which has denied any wrongdoing and called the investigation a partisan "witch hunt."
Banks package mortgages on properties like Trump's into commercial mortgage-backed securities (CMBS) that pay out interest to investors based on income generated by the properties. But Trump's properties have never met their income targets, and banks like Wells Fargo are now warning investors that the properties "might not generate enough cash to cover their mortgage payments" amid the COVID-related slump, according to documents obtained by CBS.
"The loan is being monitored," a recent PNC Bank note obtained by the outlet warned investors.
In fact, Trump's properties were struggling well before the pandemic hit. In 2012, Trump Tower was expected to generate over $20 million per year when its $100 million loan was sold to investors, but never hit that target in the subsequent nine years.
Steve Jellinek, who heads up CMBS research at the credit rating firm DRBS Morningstar, told CBS that such properties are expected to meet their projections in the first year and grow in subsequent years.
Wells Fargo also placed a loan tied to Trump's property at 40 Wall Street on its watchlists three days after the November election, according to CBS. Trump, who falsely bragged on the day of the 9/11 attacks that 40 Wall Street was now the tallest building in Manhattan, still owes $135 million on the property.
The Trump International Hotel & Tower near New York's Central Park was also placed on a list of "Loans of Concern" by the Kroll Bond Rating Agency in January due to "deterioration in financial performance." Trump owes nearly $6.5 million on the property, including $270,000 in annual interest, according to the report, but the pandemic has "nearly erased" the building's profits after mortgage interest payments dropped more than 80% last year.
PNC Bank also placed a loan tied to the Trump Plaza on New York's Upper East Side on a watchlist due to its "weak performance." The Trump Organization asked PNC for loan relief on the property last May due to "coronavirus-related hardship" but was denied. The bank ultimately removed the property from its watchlist last month.
"The Trump buildings have missed their targets during a time when real estate did very well, so one would expect most properties to outperform their past underwritten income," John Griffin, a commercial real estate expert at the University of Texas at Austin, told CBS News. "The fact that actual income fell short of underwritten income — not on one loan but several, and by a large percentage and dollar amount — does raise concerns about how the financial health of the buildings was presented at the time of the deals, and how they have performed since."
The CBS report noted that the Trump Organization has not missed any interest payments on the properties and is not currently in danger of defaulting on the loans. But the company saw a massive 40% revenue drop from its collection of properties last year, according to the Wall Street Journal.
The financial slump comes as Trump faces large debt bills in the coming years. The New York Times reported last year that Trump is personally on the hook for $421 million in debt over the next four years, though other analyses have put that number closer to $1 billion.
Vance is investigating more than $280 million in loans to the Trump Organization provided by the New York real estate investment trust Ladder Capital, one of the few financial firms willing to do business with Trump after a series of bankruptcies and defaults in the 1990s and early 2000s. Ladder Capital also employs Jack Weisselberg, the son of longtime Trump Organization CFO Allen Weisselberg. The elder Weisselberg has increasingly drawn the focus of Manhattan investigators, The New York Times reported earlier this month, though he hasn't been accused of any wrongdoing.
Trump's financial troubles may only get worse after he stoked a mob of supporters who stormed the U.S. Capitol on Jan. 6 and hunted lawmakers through the halls of Congress. Trump's role in the Capitol riot prompted the PGA to pull next year's PGA Championship from his New Jersey golf course, and New York City canceled its contracts with the Trump Organization to operate a golf course and ice skating rinks. Trump's properties have also seen an exodus of tenants looking to vacate their leases, according to the Wall Street Journal, including large organizations like the Girl Scouts of Greater New York. Vornado Realty Trust, a longtime Trump Organization partner run by Trump friend Steven Roth, is also looking to cut ties with the former president's company, the Journal reported last month, amid growing concern that the Trump brand has become increasingly toxic. Deutsche Bank, Trump's biggest lender, is looking to distance itself as well.