WSJ: Trump Tower Chicago Caught in a Tough Spot

Oct 29 • Market Conditions, River North • 360 Views • 28 Comments

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Today, the Wall Street Journal looks at the state of Trump Tower Chicago, at 401 N. Wabash in River North, and the financial implications for Donald Trump. The timing, as we’ve chattered about, is far from ideal for the building.

So far, Mr. Trump has lined up buyers for a bit less than $600 million of condo units and condo-hotel units in a residential market that has virtually seized up. Yet he owes lenders as much as $1 billion when the loans are due, according to public records and several people familiar with the project. He has closed around $200 million in sales so far, with roughly $380 million still in contract. The retail portion of the giant building is for sale, at a time of rising vacancies for retail space in Chicago and one of the worst eras for retailers in years.

People close to Mr. Trump concede that the project, which contains 486 condo units and more than 300 hotel rooms, is caught in a tough spot. Still, Mr. Trump says the building can be successful if he sells the rest of the unsold units, which he estimates have a potential value of $475 million.

“It could turn out to be a successful development depending on what happens in the market over the next two years,” he said in an interview. “The job is on time and on budget, and it’s a beautiful job and will become an icon of the Chicago skyline.”

As the article points out, it is an uphill battle for Trump to sell the remaining units at these price points and with product flooding the market.

As we’ve chattered about before, there are thousands of new condo units expected to come on the market downtown this year and in 2009. More supply is coming on the market just as demand has fallen off a cliff.

In the article, Gail Lissner, vice president at Appraisal Research Counselors, said downtown contract signings were down 72% the first half of the year from a year earlier. She also estimates about 10,000 new condos will be coming on the market.

Flippers are also competing with Trump on price.

Adding to the project’s stress, Mr. Trump is now in competition with his own customers. At least 30 buyers of the hotel units have put those rooms back on the sales market at substantial discounts to what Mr. Trump is charging for similar units, according to local sales brokers.

Local real-estate broker Andrew Glatz, of Crown Heights Realty, is representing two dozen hotel units and six condo units for resale in the Trump project. He’s sold three so far.

“All our units are 30% below Trump. We can’t compete with his marketing, so we compete with his prices,” he says. “It’s the most fabulous property in Chicago. They didn’t spare any expense,” he boasts.

His clients can afford to sell below Trump’s prices because they bought their units in 2003, before Mr. Trump raised prices substantially.

In Chicago, Trump hits headwinds [Wall Street Journal, Oct 29, 2008]

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28 Responses to WSJ: Trump Tower Chicago Caught in a Tough Spot

  1. IB says:

    But it is a pretty building.

  2. Shamalamadingdong says:

    Sing it with me:

    “The Roof – The Roof – The Roof is on Fire – We don’t need no water let the…”

    It will be fun watching you squirm trying to pay back that billion.

  3. Jason R says:

    I don’t think it will be such an uphill battle as the article says. With the demise of Waterview Tower, there will be a number of potential buyers looking for a property like this one. In case anyone wants to debate the status of Waterview Tower, I can tell you that inside sources will confirm that at a very minimum the residential component of the building is dead, and that they had 68% of the units sold…

  4. John says:

    What about the Spire….any new info?

  5. Jason R says:

    The Spire is slowing down. Most websites I have checked have it listed as “On-hold”, but I’m not so sure. I think that the Spire has a much better chance of securing the financing than WT ever did. At best, I think the Spire’s delivery date will be pushed back at least another 1.5 years…

  6. HD2 says:

    That’s correct, Waterview’s condo portion is dead. The shell of the hotel portion is almost complete and ownership is trying to sell it while keeping the air rights for future condos.

    Spire never happens – mark my words

  7. hello says:

    Trump is one of the most overrated businesspersons ever….seriously go research his track record.

  8. Bob says:

    The Trumpster is not naieve to RE downturns, given his experience with the last one. The article mentions the only personal recourse loan he has is related to the building completing construction, the building being finished is not in question anymore.

    Also the LLC for this project should it collapse will not adversely affect any of his other RE projects or business interests, its the beauty of the LLC.

    I think he knows his creditors have to play nice with him on this one, given he is their star marketeer. Another interesting tidbit, the bank most on the hook for this? Deutsche Bank. Common occurence these days. :D

  9. John says:

    Bob – Yet, Trump has minimized his personal exposure through his “star power” since stupid banks were lining up to fund his projects (or did he use lending tree where banks compete, you win? LOL). Now those same banks can’t go after him without sinking their project and losing more of their money.

  10. tony says:

    Does anyone know how his Vegas condo project is doing? I was out there a while ago while it was being built – it’s ugly as sin. I mean, UGLY!

  11. anon (tfo) says:

    “the bank most on the hook for this? Deutsche Bank. Common occurence these days”

    Yeah, this one is actually DB. Most of the others you see (for retail buyers) are DB as the agent, rather than the lender. Just b/c a bank has it’s name on the mortgage, there is little reason to think they hold the note (unless it’s a 07 jumbo, then it’s almost certainly on the bank’s books).

  12. -D- says:

    DB essentially is the agent though as they only hold a little under 8% of the $640MM senior construction loan. They syndicated the rest of the loan.

  13. CaptainVideo says:

    If he cuts the prices, they will buy.

  14. pete9441 says:

    This article really revealed nothing new, other than there are now 12 hotels in the area that compete with Trump. The reality is that there are only 4 – Peninsula, Four Seasaons, Ritz and Park Hyatt.

    Also, Jason – The residential portion of Waterview is not dead. Ask your source for an update, and ask him who his source is. Then tell him to get a new source. I’m not saying that the residential portion is not going to die at some point or that it isn’t on life support now, but it is not dead. When those purchasers get their money back, then you can dig the grave.

  15. JKD says:

    “Jason R on October 29th, 2008 at 8:20 am
    I don’t think it will be such an uphill battle as the article says. With the demise of Waterview Tower, there will be a number of potential buyers looking for a property like this one. In case anyone wants to debate the status of Waterview Tower, I can tell you that inside sources will confirm that at a very minimum the residential component of the building is dead, and that they had 68% of the units sold…”

    A number of potential buyers at what price level Jason?? Those contracts are ancient. Trump is trying to sell at ’08 prices and he will sell ZERO, just like the last two years. Didn’t you read the post, there are 30 units on the resale market at 30% off!

    John

  16. anon (tfo) says:

    “there are 30 units on the resale market at 30% off”

    And those are mostly priced over closing prices, if not by much. But 24 of those 30 are hotel condo units, which aren’t going to sell either from Trump or any of the re-sellers–hotel-condos are a bad idea in almost all circumstances, unless you’re buying from a desparate seller.

  17. Dave says:

    I had to chuckle awhile ago when I heard Donsie, Sr. suggest that he didn’t mind sitting on the remainder of the units, and the hot daughter indicated that she wasn’t too concerned with resellers. I’d sure hate to be competing with anyone selling at a 30% discount.

    With credit tightening and all the other economic ugliness, it’s probably going to take a bit longer than initially expected to right the ship.

  18. Bob says:

    Donnie always has his other business ventures, and, failing those, can go back to hosting poor reality TV shows.

    Its not Donnie who is going to eat the market downturn here, kids, its his bankers (and consequently Joe and Jane taxpayer).

  19. On the sidelines says:

    I bet Trump wishes he hadn’t reneged on the “friends and family” sales.

    http://www.chicagotribune.com/business/chi-0701160194jan16,0,520551.story

  20. Pete says:

    “68% sold” doesn’t really mean anything. In a down market, many pre-sales never become closed sales.

  21. Investor says:

    There’s a lot of talk/rumors circulating about Trump Chicago. It’s always hard to sort out what’s real from what’s not, but some are saying Trump is pleading for loan extensions from his creditors.

    I’d be very concerned as a potential buyer or flipper.

  22. Jennifer says:

    I’m interested in buying the resales and want to hear more recent opinions on this building…

  23. Sonies says:

    I can see Trump right outside my window and there are never any lights on at all. I’d say on any given night including weekends, the non-hotel portion is probably less than 10% lit.

    I can see the NW side of the building, so perhaps everyone that bought only bought river views?

  24. CUBSWINWS09 says:

    I was recently looking to purchase a unit in Trump Tower and here are some interesting tidbits that will prove helpful to any buyer:

    I was pretty close to coming to terms with the seller but during the diligence process, I discovered (through a conversation with the sales center) that while the building is 70% sold, it is only 30% closed (which is in line with the numbers above)! This means that there are hundreds of units still available (tons of supply + little demand + outrageous prices = very bad news for owners) which is a red flag to any buyer. This Sunday evening, I was driving by the building and noticed that in the entire residential portion of the building, only 7 units had lights on. Additionally, the developer has only sold about 5 units in the 1st Qtr of 2009! WOW! These numbers astound me!

    Another problem was that I had a lot of trouble finding lenders that would even finance a property in the building. Originally, major financial institutions such as JP Morgan (among others) was the preferred lender at this building, but now, these lenders won’t even lend in the building! I eventually found financing, some of which required 20%+ down.

    On top of that, it is coming time where Trump is going to have to renegotiate terms with his lenders (Deutsche Bank, etc.) and who knows how that process is going to go as sales have basically come to a stand still.

    A lot of these people who don’t want to/can’t close on their units are advertising that they are selling their units at “2003 Pricing.” Think back to 2003, the market was on its way up, the economy was booming, major financial institutions would lend in the building. NOW, the economy is in the crapper, the building is move-in-ready yet only 30% of owners have in fact moved in, there is tons of supply in the building, the housing bubble has popped, it is difficult to get financing and even if you can find it they want 25% down, and there is the possibility that the bank may call the loan. All-in-all, there is a lot more uncertainty/risk/problems now than there was in 2003.

    Finally, I was in the sales center, and the head of the office tried to justify the fact that the developer’s prices have doubled since 2003 with a story about a cup of Starbucks cost maybe $2.00 in 2003 and now costs about $4.00. ARE YOU KIDDING ME?!!?!?!?!? WHAT A JOKE!!!!!!!!!!!

    I know this is quite the rant but wanted to disclose my findings to any potential buyers. Hopefully this is helpful/interesting to some people.

  25. moving to chicago says:

    thanks for the info, CUBSWINWS09. i would love to have been there for the starbucks conversation. beautiful building, but this is getting ridiculous. 30% closed and people still won’t come to terms with where the demand is? just when i think we’re nearing an end, i’m reminded we have these enormous bldgs who’ve yet to fall. interesting stuff.

  26. anon (tfo) says:

    “a story about a cup of Starbucks cost maybe $2.00 in 2003 and now costs about $4.00.”

    So she switched from drip to latte w/o noticing?

    or

    Is that really safe? I mean, building a skyscraper out of coffee beans.

    or

    Plasma TVs cost maybe $6000 in 2003, and now cost about $600, so why don’t you give me a 90% discount?

  27. Sonies says:

    lol what an idiotic example…

  28. ChicagoHP says:

    Anyone knows about the Waterview status?

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