Donald Trump’s Worthless Real Estate Math
His no-expense-spared, world-class properties keep turning into huge losers when it’s time to report their value to the IRS.
Donald Trump’s presidential campaign disclosure reports declare that his buildings are worth a lot of money, in his view demonstrating phenomenal business acumen and how the Trump name adds luster. But in property tax filings Trump describes the same properties as almost worthless, asserting one of his biggest properties is in such an awful location that its retail space is unrentable—what he’d probably define as a loser.
There are multiple lessons in the different faces Trump presents to voters and tax officials that shine a light on Trump’s character and conduct. There are also lessons for you if you own a home or other real property—or plan to someday—because when big property owners pay less, more of the burden falls on you.
Consider first the Trump National Golf Club Westchester, located roughly 33 miles north of Trump Tower in Manhattan. It features a 50,000 square foot, $20 million clubhouse that Trump built after he acquired the 140 acres in the late 1990s. There are 18 holes and a majestic waterfall that Trump says is 101 feet high. Trump boasts that “no expense was spared” in creating a “world class” golf course.
It is located in Briarcliff Manor village, a tony Manhattan suburb where half the homes are valued at more than $700,000, according to town assessor Fernando Gonzalez. Houses listed for sale at that price typically are between 2,200 and 3,700 square feet and sit on a fraction of an acre.
In his presidential disclosure Trump valued the golf course and its massive clubhouse at more than $50 million. In tax documents Trump valued the same property at just $1.35 million.
That is a 97% variance, an irreconcilable difference that raises yet again questions about Trump’s integrity, not to mention the size of his fortune, which he has testified he values differently as his emotional state shifts, regardless of objective facts.
Trump’s presidential disclosure indicates he made $10.3 million off the golf course last year and early this year. That alone should sound alarms since businesses normally sell for multiples of their profits, not a tiny fraction of profits.
A Tale of Two Numbers
This was no one-time error. Throughout his career Trump has filed official government documents that place wildly different values on properties, presenting high values to bankers, investors and the public and small numbers to tax authorities and others, such as contractors and vendors seeking payment for work they performed. He has been accused of dishonest conduct and using mismatching financial data again and again by government auditors, bankers and investors, though he negotiated civil settlements in every case, many on terms kept secret because judges sealed the files.
In mid-May, when Brian Ross, chief investigative correspondent for ABC News, was about to air two reports about the vast difference in valuations—reports in which I was featured as a tax expert—Trump upped the golf course value for tax purposes to $9 million.
While that‘s more than six times Trump’s original figure, it is also at least 82% less than what he declared was “true, complete and correct” in his campaign disclosure filing, which declared the golf course is worth north of $50 million.
Understanding Property Valuation
Modest differences in property values are routine. It’s best to think of real estate as falling within a range of values, but not a range with a top that is more than 37 times the bottom.
As someone who writes about taxes, I decided a few years ago to challenge the re-assessment on my home a few blocks outside Rochester, N.Y. I thought the assessment was higher than the market value of my home. I also wanted to experience the appeals process to understand it. The town and I differed by $30,000, or 9%. The town lowered my assessment by $20,000 or 6% after looking at comparable sales in my neighborhood. That’s the kind of range assessors from New York to California tell me is common in appeals: single digits, not 97.3% or even 82%.
Keep in mind as you read this that the original federal levy, more than two centuries ago, was a property tax. Every farm and workshop in the original 13 states was assessed based on its size and the crops or products it could produce. The property tax is levied at the local and state level.
You might think that after 220 years of experience, taxing real estate would be based on objective measures using hard data. You might think that, but as Trump knows well, the system is easily manipulated to shift the tax burden off grand properties and onto those whose estates are not so well endowed.
You Gotta Have Friends
For those who want deep discounts, there is nothing like having friends in high places.
When Trump wanted to reduce the property taxes on the Trump International Hotel & Tower in Chicago, the presumptive Republican nominee turned to a well-connected local Democrat named Edward M. Burke.
Since 1969 Burke has served on the Chicago City Council, whose members are called aldermen. Burke also runs a business helping property owners get discounts on their property taxes. That strikes me as a conflict of interest of the first order, but Illinois law allows it.
The tower, the second tallest building in the Windy City, gets more than 1,500 separate property tax bills because many floors consist of individually owned apartments, according to the Chicago Sun-Times. The Trump Organization has said the tower, which soars more than 1,300 feet above the Chicago River, cost $847 million.
Two intrepid Chicago Sun-Times reporters added up all those property tax bills, separated out those that went to Trump and his partners and found that, thanks to Alderman Burke, team Trump got Trumpian size discounts.
Burke also sued the public schools, the city, the county and other taxing authorities for refunds of “erroneous, excessive, illegal” taxes that were so egregiously high the tax bills should be voided. This suggests that if elected, Trump will not become known as a president who fought for better education for America’s children, but to pay no property taxes.
So far Burke’s tactics have saved Trump and his partners $11.7 million, a 39% reduction in their total property tax bills over seven years, the Sun-Times reporters calculated. The savings may grow if Burke can squeeze refunds from the schools and other agencies.
Most intriguing is the value applied to retail space at the Trump International. It was valued at $75 million after the tower opened in 2009.
Kelly Keeling Hahn, a Burke firm lawyer, wrote that “the hotel is NOT located in the prime Michigan Avenue hotel area,” adding that “the entire retail space of the building is unleasable.”
Assuming that Hahn’s letter is an accurate statement of the facts, how could Trump have become involved with such a total loser of an investment, especially given his endlessly repeated claims of exceptional prowess as a businessman and real estate investor? How could he have failed to notice that the tower bearing his name in huge letters was not on the Magnificent Mile where high-end retailers flourish?
The assessor slashed the retail space property tax valuation by almost $49 million, a 65% reduction.
Whether it was Hahn’s letter that proved persuasive—or the nearly $100,000 in campaign contributions Trump spread around to Mayor Rahm Emanuel, Cook County Democrats and other local pols—is unclear. What is clear is that everyone else in Chicago will pay the price for Trump’s tax savings in terms of higher taxes, less government or the city taking on more debt. That’s a hot issue in Chicago right now because the Emanuel administration sharply raised property tax rates to stanch red ink flowing freely across city ledgers.
When your property tax bill comes, ask yourself how much you are shouldering the burden of those who tell one government agency they are fabulously rich, but tell the tax man their properties are nothing but losers.
For more, see Trumponomics: Leave Your Logic at Home.
Pulitzer Prize winner and recipient of an IRE medal and the George Polk Award, David Cay Johnston is author of five books and the upcoming The Prosperity Tax: A New Federal Tax Code for the 21st Century Economy. He is a Distinguished Visiting Lecturer at Syracuse University College of Law and Whitman School of Management, and also writes for The Daily Beast and Tax Notes.