Trouble with Investing in the Trump Trademark

Comb-over and corny catchphrases aside, Donald Trump has become a figure of public envy. The real estate tycoon has reaped fame and fortune as the poster child of …

Comb-over and corny catchphrases aside, Donald Trump has become a figure of public envy. The real estate tycoon has reaped fame and fortune as the poster child of American capitalism: his name appears in large lettering on the façade of massive skyscrapers and his face graces network television screens and tabloids around the clock.

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Because of the public’s obsession with “the Donald,” investors have been lured in droves to projects bearing his name. Unfortunately, the glitter of the Trump name doesn’t always result in golden business, and many investors are learning this reality the hard way.
It may come as a surprise to some that Trump does not personally invest in most of the large condo-hotel developments bearing his name; rather, Trump licenses his name to development companies and receives eight to 15 percent of gross condo sales, along with millions of dollars in upfront payments, according to an article published by Forbes in September 2006.

The condo-hotel development once known as Trump Tower Tampa serves as a cautionary tale of a Trump-branded investment gone horribly wrong. The inability to secure financial backing and problems with overall project execution has hindered developers’ progress ever since plans for the skyscraper were announced three years ago. The opening date, originally set for December 2008, has been pushed back to December 2010.

Frustration with the project escalated in May 2007, when Trump sued the Tower’s development company, SimDag, in order to pull his name from the project.
Trump also finds himself at the receiving end of litigations. A married couple in Florida filed a suit against Trump last October, claiming they were misled to think that he was a partner in Trump Tower Tampa, where they had purchased a $2.64 million condo unit. SimDag and the original individual development partners were also named as defendants in the suit, according to The Tampa Tribune.
The Tribune also reported that two other suits against the project to get deposit money back were pending.
The latest controversy surrounding the Trump name, however, involves a suit against the developers of Trump International Hotel and Tower in Chicago filed by four hotel-condo buyers, according to an article by the Chicago Tribune published this month. In this case, Trump is a lead investor in the project and the Trump Organization has directly been involved in overseeing development.
The suit claims that the company, 401 North Wabash Venture, LLC, took away buyers’ ownership stake in common elements, such as meeting rooms and laundry facilities, which had originally been promised in property reports. Furthermore, the suit claims that the company reneged contract terms that originally allowed buyers to stay in their hotel-condos for as long as they wanted without adversely affecting their priority status for renting out the units.
Each of the four condos were priced at around $2 million, and buyers had been required to put down 20 percent in earnest money, Shelley Kulwin, an attorney with Kulwin & Associates who is representing the four buyers, said.
“My clients went into this with the best of intentions, and thought that they were [going to get] into a good investment,” Kulwin said. “Had these things not happened, they would have in all likelihood closed on these deals.”
A court order has stayed their closings until a resolution is reached.
Perhaps the lesson to be learned from these unhappy buyers is that the Trump name does not come with a 100 percent satisfaction guarantee; in other words, a high-profile brand name will in no way trump poor execution in development and non-delivery on contract agreements.
Trump has always put a positive spin at the onset of projects bearing his name, regardless of past developments that have fallen short of expectations. The tycoon has even touted his own fortune as more than twice the amount that experts estimate him to be actually worth, according to an article by Forbes published in September 2006.
However, investors are in a position to be skeptical. After all, Trump has nothing material to lose when his licensed projects go under. Those who buy into his projects, on the other hand, stand to lose hundreds of thousands, even millions of dollars.
Overall, investors should not be fooled by the glitz of Trump-branded projects and should do some research to determine whether the units are truly worth the money. Projects in which Trump has actually invested some of his own money are probably more reliable than mere brand-name products.
“When I license my name to somebody, I don’t have the same power over a job,” Trump said in an interview with The Wall Street Journal last November. “I could have pulled the Tampa job off easily. Other people can’t pull it off easily.”
It’s always a good idea to talk to a real estate lawyer and other experts upon considering significant and unique investment opportunities.
“I think [an investor] should look to professional people [for] advice…the more unique the investment is—that’s my own personal view,” Kulwin said. “And then it’s up to…the investor [to make a decision].”

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