The Real Trump Deal. Martin E. Latz
Donald Trump himself indicated he lost sight of a financial goal here, to say nothing of an aggressive goal. “This isn’t just a building; it’s the ultimate work of art. I was in love with it…I tore myself up to get the Plaza…. The spirit of the city is in this hotel. How can you possibly put a price on that?… [It is] the ultimate trophy,” Trump said.84
And he wrote in Surviving at the Top, “The buying and selling of world-class hotels is an emotional business. When a place like the Plaza is on the block, the toughest negotiators become soft, and logic often gets tossed out the window.”85
He even took out a full-page ad in New York magazine and wrote, “I can never justify the price I paid, no matter how successful the Plaza becomes.”86
Third, Trump paid more for the Plaza Hotel than anyone had ever paid for a hotel, amounting to $500,000 per room. He also took on $425 million in debt, $125 million more than the previous owners had—and those previous owners had been “concerned that it didn’t generate enough cash to support [its] $300 million mortgage.”87
To even pay the interest on this debt, Trump would need to substantially increase the hotel’s cash flow—a difficult effort given the economy and hotel market. In 1989, its first full year of operation after its renovations, it would need to generate almost three times its 1988 cash flow just to cover the debt.88 This would have required Trump to fully book its 814 rooms for the year at a $500-per-night room rate, more than twice its previous rates.89
Trump’s purchase price was also tens of millions of dollars more than the next highest bidder, according to Trump Revealed.90 While it’s unclear if Trump knew this, his overpayment reflects a poor deal for Trump.
Fourth, those close to him described him at this time as unfocused—the opposite of someone pursuing specific, aggressive negotiation goals.
Barbara Res, a longtime Trump employee who oversaw Trump’s renovation of the Plaza, said “[Trump] was in acquisition fever and he wasn’t himself. It was very hard to work with him at this time because he didn’t focus and was always changing his mind.” 91
Finally, it’s hard to even evaluate the aggressiveness of a goal without due diligence. As part of the negotiations, Trump agreed to purchase the hotel “as is” to allegedly outbid another purchaser. Trump’s purchase thus was not even contingent on the physical condition of the hotel. Trump’s later renovations, unsurprisingly, were demanding.92
None of these elements reflect the strategy of an aggressive goal-setter, much less Trump’s ’70s and early ’80s aggressiveness.
The Eastern Air Shuttle Purchase
Trump signed a contract to purchase the Eastern Air Shuttle in October 1988 for $365 million. Eastern’s bankruptcy judge approved the deal in May 1989.93
How aggressively did he set his goals here? Not very.
First, Eastern had internally analyzed its value a year prior to Trump’s purchase and assessed it at $300 million. An independent appraisal subsequent to his purchase assessed its value as between $150 million and $300 million, depending on market conditions.94
Second, Trump noted—like in the Plaza deal—that he really wasn’t financially goal-driven here, despite it being a business deal. He said, “I like buying Mona Lisas; the Shuttle is the finest asset in the airline industry, the best…. I like collecting works of art. This is a work of art.” 95
Third, he stuck with his purchase price of $365 million negotiated in October 1988 despite Eastern’s plummeting profits between his signing and closing on the transaction. During this time, Eastern’s share of the shuttle market declined from 56 percent to 17 percent after a March labor strike. Its rival Pan Am was killing it in the market. Pan Am had bought its shuttle business three years earlier for $76 million.96
And while Trump did use the strike to renegotiate the deal, he only got four old planes out of his renegotiation, hardly the mark of an aggressive goal-setter given the precipitous drop in Eastern’s market share.97
Finally, Eastern was bleeding cash partially due to its old fleet of 21 Boeing 727s. In his first year of operation, Trump spent $85 million in capital and operating costs. And Trump knew this would largely be the case, as he had predicted in bankruptcy court that he would need to spend $50 million to upgrade the aging fleet.98
This brought his effective purchase price to well over $400 million, which is not an aggressive goal.
Trump’s Goal-Setting in his Financial Restructuring in the 1990s
Donald Trump’s aggressive goal setting, however, returned in the early 1990s and appeared to continue later. Examples abound, including his off-the-cuff negotiation for 50 percent of The Apprentice.
His biggest negotiation in this time period occurred in early 1990, when Trump and his empire faced ruin. Independent evaluator Kenneth Leventhal & Co., hired by banks to which Trump collectively owed $3.2 billion (of which Trump had personally guaranteed $833.5 million), found Trump was then worth a negative $295 million.99
Trump himself commented that, “When I was in trouble in the early ’90s, I went around and—you know, a lot of people couldn’t believe this because they think I have an ego—I went around and openly told people I was worth minus $900 million.” 100
Despite being financially underwater, and perhaps because of it, Trump’s aggressiveness returned. In fact, he negotiated a deal that gave him $450,000 a month on which to live after protracted negotiations with the banks.101
This was so large The New York Times at the time quoted a billionaire saying about this allowance, “I would have no idea how to spend $450,000 a month. It’s just phenomenal.” 102
Trump said this negotiation “…was the greatest deal I ever made.” 103
What does the research say about setting aggressive goals?
Do it. As I write in Gain the Edge!:
Set Aggressive and Specific Goals—Don’t Just “Do the Best You Can”
“I believe in always having goals and always setting them high,” said Wal-Mart founder Sam Walton. Be ambitious. Adopt aggressive goals. Remember that old saying: “You can’t get what you don’t ask for.” Your goals will set the upper limit to what you can achieve. Set aggressive-enough goals to ensure you don’t mentally concede anything before you have even begun. Answer the question: How much is enough? And answer it at the beginning, before you jump into the rest of the negotiation. A direct relationship exists between individuals’ goals and what they achieve. The more you expect, the more you will get. The less you expect, the less you will get…
Tie Your Goals to Realistic Standards
However, a cautionary note. It’s crucial to tie your goals to realistic standards. Don’t be too aggressive. Instead, be realistic. If you constantly set your goals so high you never achieve them, you will become discouraged over the long term. This attitude will negatively affect your performance and you will start to set your goals too low. No one wants to continually “fail.” Likewise, if you consistently set your goals too low, you won’t have sufficient motivation to achieve all you can.104
Does Donald Trump tie his goals to realistic standards? No. He consistently and aggressively set unrealistic goals. Unprecedented, in fact. But—and here’s the rub—he has been pretty successful in achieving them, at least if we ignore his goal-setting hiatus in the mid- to late 1980s. He has not “become discouraged over the long term” due to unrealistic goals. And maybe they weren’t so unrealistic