A Project Developer Looks at Trump
Peter Sage Introduction of a Guest Post
Today's Guest Post by John Coster shares insights into Donald Trump. They come from a man who has done high level project and real estate development for Microsoft, CenturyLink, and now Skanska USA. He observes people who do the kind of deals Donald Trump does because he himself puts together deals. Coster is a delegate in the State of Washington for Bernie Sanders but his report on Trump is not a polemic. Nor does Coster describe Trump in the derisive terms of mental illness (sociopath, narcissist, misogynist.)
Trump isn’t crazy, but he is a “deal junkie", Coster says.
Coster Sees Trump as a sufferer of a common condition among deal makers and developers: they love the rush of another deal, embracing risk and leverage and excitement of bigger and bigger deals. Now he is running for president, the biggest deal of all.
Coster gives a warning about people with the project developer addiction: They love leverage and risk and sometimes they crash and burn. I have watched this at close hand. Local land developers of my acquaintance have crashed so hard they bring banks down with them. Great Wall Street firms go from wealthy to insolvent so quickly in 2007 and 2008 that they destroyed the economy.
This is not Coster's prediction for Trump. It is his observation about people like Trump. They are about the deal, not about managing things after the deal.
Guest Post by John Coster:
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| Guest Post Author |
Like many people, I've been speculating on why Donald Trump, or anyone for that matter, would want to be President of The United States. I'm sure for some, there are noble, selfless goals of public service; or the desire to see the country move in a certain direction.
Successful commercial real estate development is based on understanding a simple but delicate balance of anticipating market demand, securing land (sometimes air) rights and zoning, and convincing credit-worthy anchor tenants to commit to long-term leases; all of which makes financing possible. If all goes well, a developer can expend very little cash, and what he does spend, he can fully recoup on "financial close" and then gain a 20-30% equity stake in the property; which he can then sell, or leverage to develop another project. Trump is an expert at using leverage it seems in more ways that real estate.
One of my biggest concerns with Trump is that he operates on one fundamental principal: it's all about "the deal". And he's the center of every deal. In the commercial real estate business the goal for the developer culminates in what's called "financial close", and serial developers are often called "deal junkies" because no matter how big or many deals they do, there's always bigger one out there, and it's addictive and sometimes they can't resist chasing a deal even when the market won't support it. It's why even very successful developers sometimes fail in spectacular ways.
I read the "Art of The Deal" early in my career, and was actually impressed with Trumps vision, instincts and persuasive abilities. According to his narrative, he was able to read people and situations at a gut level and very quickly figure out how to leverage things to his advantage. He's really a master salesman. He didn't rely on outside expertise or data and he wasn't hampered by indecisive management. In fact, agility to change according to new information was a key to his success. He could reimagine the story to whatever was required to seal the deal.
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| A big deal in New York |
Like any other business, most developers wisely create an LLC for each property so that he can sell it easily when it's advantageous or necessary, but also to insulate his good properties from others that may become insolvent or are subject to lawsuits and financial claims.
Trump has gone even further by creating a powerful brand that pays him royalties without him having to create any real value or take any real risk. From a business standpoint, it's brilliant. What real estate developers do not do very well is the tedious but necessary job of managing their properties. In fact most developers do not like to actually own what they've built. There's simply no thrill in that, so they either outsource operations to companies that specialize in management, or sell their buildings to real estate investors who hold large portfolios but who themselves avoid the messy and risky business of developing those assets.
Trump has found that owning a beauty pageant and starring in his own reality show also feeds his increasing appetite for fame and success. His has a strong and practiced role is being the center of attention and he controls all the elements of the deal through leverage. This is his oyster.
I suspect for him, he sees nailing the presidency as a deal of deals. His instincts and skills honed over a lifetime of navigating the legal, financial commercial and political complexity of large real estate deals has equipped him to seize this political moment of discontent. He's probably as surprised as anyone that he has struck a chord with so many Americans.
Given how much he's changed his messages, I'm not sure what he actually personally believes. He's necessarily becoming a politician because he lives by the polls. It's what he cites to convince people he has a mandate- for something.
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| Trump Management Team: Trump's Children |
My concern about a Trump presidency is that he doesn't seem to have a clue about governance. Ive had the good fortune to hold mid and senior management positions in successful corporations. One key characteristic I've seen in successful C-level executives for whom I have worked, is their ability to recruit the best talent and develop high-performing teams. Successful executives not only cast a clear and focused vision and inspire followers, they know how to execute through organizations. I see Trump as a one-man show who needs to be the center of every deal. It's telling in his staffing.
Governance and deal- making are very different things. If he prevails, he'll need to develop those chops pretty quickly or he will be consumed with a million challenges that will be much bigger than his deal-making instincts ever had to confront.
1 comment:
John Coster's guest post offers a unique and compelling perspective. I like it especially because it is non-partisan, it is agnostic. Here is an excerpt from Trump's recent CNN interview. His answer concerns how he would approach the national debt and it's exactly what John Coster says:
"I’m the king of debt. I understand debt better than probably anybody. I know how to deal with debt very well. I love debt. But debt is tricky and it’s dangerous and you have to be careful and you have to know what you’re doing, but let me just tell you, if there’s a chance to buy back debt at a discount, U.S. debt, in other words, interest rates go up and the bonds go down, you can buy debt, that’s what I’m talking about. People had it, “The Times” and others wrote, oh, Trump wants to go and see creditors and buy debt at a discount. Now there could even be a time when somebody comes in but with the government, they’re never going to walk in and say, do me a favor. Would you buy my debt at a discount? In business, that happens all the time. I bought mortgages back when the market went bad. I bought mortgages back at tremendous discounts, and I love doing that. There’s nothing like it, actually. It gives me a great thrill."
See,CNN, "Trump: U.S. will never default 'because you print the money'", http://goo.gl/CwMUl1.
It's not just the campaign that gives Trump a great thrill, it is more specifically the economy. How important is the "it's the economy stupid" factor"? Another CNN article titled "Clinton Leads Trump by Double-Digits", tell the deeper story:
"By a 50% to 45% margin, voters say Trump would do a better job handling the economy than Clinton would. Almost 9 out of 10 voters in the poll called the economy extremely or very important to their vote for president, outranking any other issue tested in the poll."
(See, CNN, May 4, 2016, http://goo.gl/g2cgyF).
Will America think Trump knows the art of the deal better than Clinton?
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