Trust for Trump

photo by David R. Tribble

US News & World Report quoted me in Here’s What We Know About Donald Trump’s Trust Fund. It opens,

With all the talk about how Donald Trump will be handling his vast business empire as he assumes the presidency, some questions were finally answered this week, and this much is clear: Donald Trump is putting his business assets in a trust.

“Through the trust agreement, he has relinquished leadership and management of the Trump Organization to his sons Don and Eric, and a longtime Trump executive, Alan Weiselberg,” says Sheri Dillon, a lawyer for the president-elect.

But what does that mean?

What is a trust to begin with? A trust is a legal structure with three main parties: The trustor, trustee and beneficiary. The trustor gives another party, the trustee, the right to manage the specified assets for the benefit of its designated beneficiaries.

“According to Trump, his sons, Donald Jr. and Eric, as well as a business associate, would be the trustees. After transferring the assets to the trust, Trump could then be a beneficiary of the trust,” says David Reiss, professor of law at Brooklyn Law School. “The trustees administer the affairs of the trust on behalf of the beneficiaries. The beneficiary receives the income from the trust or the property within the trust.”

Trump has previously said his children will be the primary financial beneficiaries of the trust, but Trump made it clear that he planned on returning to the Trump Organization when his presidency is over. At that point, it’s possible Trump could have a fat check waiting for him, depending on the trust’s structure.

“The trust’s income or property could be doled out on an ongoing basis or deferred to some future point in time, depending on the terms of the trust,” Reiss says.

The Cost of Selling Trump’s Empire

photo by KylaBorgPolitico quoted me in Selling His Empire Would Cost Trump Money. A Lot of It. It opens,

Donald Trump’s critics say the only way for him to keep his business interests separate from the public’s interest is to simply get out of business entirely, selling his companies and putting the proceeds into anonymous assets that someone else can manage.

But there’s nothing simple about it: unloading a real estate empire as large as Trump’s is a lengthy, complicated process fraught with ethical pitfalls, one that could end up costing a fortune.

“He has to make a choice,” said David Reiss, director of Brooklyn Law’s Center for Urban Business Entrepreneurship. “How much pain is he willing to take?”

Trump, who’s expected to lay out a plan to address conflicts of interest at a press conference Wednesday, heads a particularly difficult estate to unwind. Forbes has pegged his net worth at $3.7 billion in September, attributing most of that to real property holdings tangled in debt, partnership agreements, management contracts, branding deals and tax deferrals.

Ethics watchdogs say Trump’s cleanest break would be to sell his company to the public, but an initial public offering — especially one that folds in most or all of Trump’s scattered businesses — would be complicated, costly and time-consuming.

“The nature of the business doesn’t lend itself to going public,” said Jan Baran, co-chair of Wiley Rein’s election law and government ethics practice. “Rolling in all the real estate and the royalty contracts and all the other orphans like wineries and steaks, it’s a little hard to imagine any public companies that resemble what his business is, because it’s such a hodgepodge of things. It would take a while, it would take at least a year.”

What’s more, Baran noted, an IPO would require underwriters to raise capital and pull together an offering — raising new concerns about investment firms potentially currying favor with the new administration.

“Are the ethics complainers willing to let Goldman Sachs do the underwriting on this public offering?” he said. “Somebody’s got to put it together.”

Even if Trump chose to skip the IPO and just liquidate his assets via direct sales, he’d face a complex task — and a costly one.

“This would be an extraordinarily difficult situation,” said Neil Shapiro, a law partner at Herrick Feinstein in New York. “It would certainly be unprecedented in terms of somebody liquidating a portfolio of this size. We’re in uncharted territories here.”

The problems start with finding a buyer. The pool of people shopping for, say, a Fifth Avenue skyscraper is small, and only the buyer and seller can say for sure whether the price paid is fair. As such, selling a property raises nearly as many ethical quandaries for Trump as owning it. A buyer looking to curry favor with the next president might pay too much. Another might do Trump a favor by making a quick deal while paying too little.

Craziest Real Estate Windfalls

"Le Voyage dans la lune" by Georges Méliès - Roger-Viollet

Realtor.com quoted me in A Brief History of Crazy Real Estate Windfalls. It opens,

Real estate is one of those things where it’s hard to differentiate between a once-in-a-lifetime deal or an epic bomb without the benefit of hindsight. Want proof? Let’s take an invigorating jog down memory lane and view a few of the land swaps that are considered the most lopsided in history—windfalls for one side, colossal blunders on the other. Let’s crack open the history books!

Proof that Portugal needs better maps

The historical highlights: In the 15th century for the Treaty of Tordesillas, global superpowers Portugal and Spain sat down with a map of the world (as they knew it in the 1400s) and drew a line down the middle. Portugal got everything on the left, Spain on the right. Even Steven, right? Not quite. Once they decided to actually look at their new “empire,” Portugal found it basically had nothing (well, besides Brazil), while Spain had pretty much the entire world (you know, Europe, Asia, Russia…).

It taught Portugal a harsh lesson: Approaching land deals the way the kids in “Family Circus” deal with sharing toys is not a viable global expansion strategy.

Real estate updateGranted, Portugal botched this deal at the table, but it’s not quite as bad as it sounds. According to David Reiss, a professor at Brooklyn Law School and research director for the Center for Urban Business Entrepreneurship, the treaty was “heavily modified afterward” to give Portugal more land to the west, including control over most of the Indian Ocean.

Still, in the end, no one won: Both empires eventually shrank back to the size you see today. If Spain won anything, it’s the language war: Most of Central America speaks Spanish, while only Brazil parlays in Portuguese.

America goes through a major growth spurt

The historical highlights: In 1803, America made its historic Louisiana purchase, buying 828,000 square miles of land from France for $15 million—roughly the catering budget of an “Avengers” flick today. That territory gave the fledgling nation a hell of a growth spurt, adding land that would become 15 Midwestern states from Arkansas to, of course, Louisiana.

Real estate update: It was a lot of land, and it cost a lot at the time. But it was totally worth it. “You got New Orleans, so right there it was a good deal,” says Reiss. “If you look at the home sales in New Orleans today, $15 million is the price of just the top four most expensive houses combined.”

The Alaskan ‘oil rush’

The historical highlights: In 1856, Russia negotiated with U.S. Secretary of State William Seward to sell Alaska for about 2 cents per acre, or $7.2 million. The purchase was derided, and the American people quickly dubbed Alaska “Seward’s Folly.”

Real estate update: Most people think that the measly $7 mill we spent on Alaska is pocket change compared to the gushing vats of cash funneling into the U.S. through the Alaska oil pipeline, right? Not exactly.

“We think of Alaska and its pipeline, and we think it’s a great deal,” says Reiss. “But economists have deduced that the pipeline earns the government less than it costs to govern Alaska, so it’s a net loss. Calling it ‘Seward’s Folly’ makes sense.”

$24 for … Manhattan?

The historical highlights: It’s one of the oldest stories in our history—Savvy Dutch settlers, preying on the naiveté of the Canarsie Indians, bought all of what would become Manhattan for $24, less than the price of a sweater from a Times Square Forever 21.

Real estate update: True, New York City is estimated to be worth $802.4 billion today, and Manhattan is its busiest hub. However, before you express outrage about those poor Indians, consider this: It was the Dutch who got conned. You see, the Canarsie Indians who brokered the deal didn’t live in Manhattan. Sure, they’d hop over there to party with the Manhattoes tribe, but it wasn’t their home and they certainly had no right to sell.

“The common story is that the Europeans swindled the natives,” says Reiss. “But it does look like the other way around.” (The Manhattoes, however, are another story.)

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Man sells the moon

The historical highlights: In 1967, the United Nation Outer Space Treaty stated in regard to our moon: “No nation by appropriation shall have sovereignty or control over any of the satellite bodies.” In 1980, a Nevada resident named Dennis Hope came to the conclusion that the treaty forbade nations from owning the moon but not individuals. So he wrote a letter to the U.N. saying he was taking ownership and that it should contact him if it had any issue with that. The U.N. did not respond, and he’s been selling moon acreage ever since. Hope claims to have sold over 600 million acres, with the largest going for over $13 million.

Real estate update: If he really has those checks in hand, then Hope is a genius and this is indeed a very lopsided deal—he’s selling uninhabited land that will be completely inaccessible in the lifetimes of the buyers. Not that we should necessarily applaud him for it.

At worst, “I’d classify him as a huckster,” says Reiss. “And it appears his interpretation of the law is incorrect. The fact that the government hasn’t responded to his letter doesn’t give him rights to the land.” So, even if he does have all that money, it could get him in a whole lot of trouble.