Trump Organization Will Exit From Its Struggling SoHo Hotel in New York
Trump Organization Will Exit From Its Struggling SoHo Hotel in New York
By BEN PROTESS, STEVE EDER and ERIC LIPTON NOV. 22, 2017
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The Trump SoHo, a luxury condominium-hotel in Lower Manhattan that has turned into an albatross for the Trump Organization. CreditTodd Heisler/The New York Times
The announcement came on his television show, “The Apprentice.” Donald J. Trump would open his second luxury hotel in New York, a “work of art” in the SoHo neighborhood of Manhattan that would become “an awe-inspiring masterpiece.”
That was 11 years ago. The 46-story skyscraper, it turned out, was actually an albatross for Mr. Trump — drawing local opposition soon after its unveiling, partisan protests when he became a candidate for president and political scrutiny because of its early ties to a dubious Russian deal maker.
Now, in the latest sign of strain in the president’s family business, the Trumps want no more.
The Trump Organization has reached a deal that will allow the company to exit the property by the end of next month, the company said Wednesday. It is the second time this year the Trump name was erased from a hotel development, after a June announcement in Toronto.
Located in an upscale neighborhood in a deeply Democratic city, the SoHo hotel has struggled to attract guests at five-star prices and has dropped its rates to keep rooms occupied. The property also includes condominiums that have been slow to sell. And when the building’s main restaurant decided to close in April, a lawyer for the restaurant attributed it to a decline in business “since the election.”
Under the exit deal, the Trump Organization will sever its contract with the building’s owner, an investment firm in California that focuses primarily on real estate. As with many of their properties, the Trumps do not own the SoHo hotel, but instead manage the day-to-day operations. The Trump Organization is entitled to a cut of the hotel’s revenue, although the contract also requires the Trumps to pay the owner, CIM Group, if the property fails to meet certain financial performance standards.
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With years remaining on the contract, CIM will pay the Trumps to end the arrangement early, according to people briefed on the matter, who described the negotiations as amicable. A buyout enables CIM to either rebrand the property, or to buy more condo units and expand the hotel before eventually selling it. The company did not disclose the proposed price of a buyout.
Despite the challenges, the SoHo hotel is a signature property in the backyard of the Trump family empire, making the Trump Organization’s cutting of ties unexpected. The property also carried emotional significance for the family: Not only did Mr. Trump announce the project on “The Apprentice,” but his elder children — Donald Jr., Ivanka and Eric — were on hand, in 2007, for a glittering launch party.
More recently, the Trump Organization and CIM, which took over the property in 2014 after the Trumps’ prior partners defaulted on a loan, discussed ways to upgrade the hotel and replace the closed restaurant. Along with an election-related slump, the general lack of investment may have partly contributed to the hotel’s struggles.
“Under the seasoned management of the Trump Organization, the hotel has been established as one of the finest in New York City with recognition among top critics, including CondeNast Traveler Magazine and Forbes Travel Guide,” Bill Doak, a CIM executive, said in a statement. “We recognize and sincerely appreciate their contributions to this exceptional asset and the strong working relationship we have with the Trump Organization.”
Overall, the Trump Organization’s portfolio of golf, hotel and commercial properties brought in at least $597 million in revenue during his 2016 campaign and the first few months of his presidency, down about 3 percent from the prior period, according to the president’s most recent financial disclosure released in June. New ventures overseen by Eric and Donald Jr., including two chains of hotels, have also had slow starts as the Trumps must comply with a lengthy review process as part of their father’s presidential ethics pledge.
The Trump Organization still has plenty of bright spots, in both golf and hotels. The Trump International Hotel in Washington, a favorite meet-up spot for Republican officials and lobbyists, is raking in money, turning a nearly $2 million profit in the first quarter this year, records show. His other hotel in Manhattan has fared better than the SoHo.
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The Trump International Hotel in Washington. A bright spot for the Trump Organization, it had a profit of nearly $2 million in the first quarter of the year. CreditGabriella Demczuk for The New York Times
Mr. Trump has tried to do his part to promote the family brand, visiting his properties on about 100 days of his presidency. Most recently, the president stopped at his hotel in Hawaii on his way to Asia.
The decision about the SoHo property was made by Donald Jr. and Eric, who run the business, along with a small group of senior executives. President Trump still owns the company but is removed from day-to-day operations.
The SoHo property ran into troubles from the get-go.
Before it broke ground, protesters took to the streets, chanting “Dump the Trump” and complaining that the skyscraper would break zoning rules. Then, in 2008, a worker fell 42 stories to his death during a construction accident.
The project went ahead and opened in 2010, but was continually troubled by litigation involving business partners, and even a criminal investigation.
In November 2011, the Trumps and other defendants paid 90 percent of $3.16 million in deposits to settle claims from buyers of condominium units that Mr. Trump, his children and others had inflated sales figures in what turned out to be a struggling project.
The Manhattan district attorney, Cyrus Vance Jr., was pursuing a criminal investigation into the same issue, The New York Times reported last year. Some prosecutors felt they had enough evidence to build a case, but Mr. Vance declined to pursue charges, several news organizations reported last month.
At the same time, a separate lawsuit alleged that the project was backed by felons and financing from Russia. Felix Sater, a Russian deal maker, felon and F.B.I. informant, had helped facilitate the deal, the lawsuit said.
As time went on, the connection with Mr. Sater caused headaches for Mr. Trump through the campaign and the first year of his presidency. The Times reported this year how Mr. Sater continued to push for a Trump Tower in Moscow, even during the presidential campaign.
The more recent struggles at the SoHo tower partly reflect a broader red-blue political divide that is shaping the Trump Organization’s bottom line: Most Trump golf clubs fared better in areas that supported President Trump in last year’s election than in those that did not, according to the president’s financial disclosure and other business records.
More broadly, the Trump Organization is navigating the restrictions that come with the presidential era. As long as Mr. Trump is in office, the company has vowed not to pursue new deals in foreign countries, cutting off a central stream of business, and is subjecting all new domestic projects to vetting from an outside ethics adviser. Six of the company’s 25 golf and hotel properties are overseas.
That scrutiny has already helped derail one potential hotel deal in Dallas, when it came to light that a prospective business partner for the project had ties to Russia and Kazakhstan. And other deals that might otherwise have been announced have stalled.
The lack of new deals has the Trumps exploring other ways to pull in revenue. This month the Trumps opened an online store, TrumpStore.com, selling hats, polos and other golf gear bearing the Trump name.
And groups affiliated with the Republican Party continue to hold events at Trump-family properties. A weekend gathering in early November at the Mar-a-Lago club was sponsored by the Republican Attorneys General Association, along with its most important corporate donors, who had contributed at least $125,000 each.
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