Trump’s Wall Street Tower Appears To Be Underwater
One of Donald Trump's prized properties, the landmark building 40 Wall Street, is 63 stories high but now appears to be underwater. The remaining 35 years on Trump's leasehold in the Financial District tower is worth about $116 million. That's $2 million less than the estimated $118 million Trump owes on his mortgage, according to an analysis of loan documents, real-estate records, financial disclosures and appraisals.
The building is simply not earning enough money to cover the loan: 40 Wall Street's annual net operating income has dropped from about $20.7 million in 2018 to $12.8 million last year, as the building's occupancy rate plummeted from 94.3% in early 2018 to 73.9% in June, thanks in part to the distressed post-pandemic commercial real estate market.
Adding to the headaches: Trump, who doesn't own the land on which the building sits, has just nine years left until his ground rent escalates dramatically, due to an agreement with the building's German owner. There is a good chance that if net operating income doesn't rebound that the new terms could potentially wipe out all of his profit.
Things could come to a head soon. Trump's debt is due in July but—with an estimated $566 million of legal liabilities hanging over him and just $413 million of cash —he does not have the funds to comfortably pay it all back. Refinancing will be hard, too, because any new lender would likely balk at the math behind the deal. That leaves the Republican presidential candidate in a tough spot as the November election approaches, short on funds to save one of his prized possessions.
Originally named after its primary tenant, the Manhattan Company, a bank whose founders included Alexander Hamilton and Aaron Burr, 40 Wall Street was expected to be the tallest building in the world when construction began in 1929. But shortly after the 927-foot-tall Manhattan Company Building was finished 11 months later, it was bested by midtown's Chrysler Building, boosted by its massive spire that had been built in secret, according to New York City's Landmarks Preservation Commission .
The business model for 40 Wall Street didn't work out according to the original plan either. Opening just months after the 1929 stock market crash that kicked off the Great Depression, would-be tenants backed out of their commitments, the commission wrote when designating the property a landmark decades later. Nine years after opening, the owners defaulted on interest, taxes and payments, lenders foreclosed on the building, and it was on the auction block, bought by bond holders for the outstanding principal on their loans, the New York Times reported in 1939 .
As the American war-time economy ramped up, though, so too did 40 Wall Street, with some of the country's most-reputable tenants including Westinghouse and the Navy taking up quarters there in the 1940s. By 1944, the building was completely occupied for the first time, according to the Times.
The Manhattan Company merged with Chase Bank in 1955. While the new entity was headquartered at Chase's offices, it still maintained a bank and offices at 40 Wall Street, according to the landmark commission. But Chase sold its stake in the building in 1959, when a real estate firm consolidated ownership of 40 Wall Street, paying $32 million for the leasehold and the three separate parcels of land on which the building sits. The following year though, the development was split up again, with Metropolitan Life Insurance Co. buying the land and a London-based real estate company picking up the leasehold. In 1966, it sold the leasehold to the partners of a brokerage firm that was the building's largest tenant.
In 1982, Philippines dictator Ferdinand Marcos and his wife Imelda secretly invested in the building. That same year, a group of investors led by members of the reclusive Hinneberg family, a Hamburg, Germany-based shipping dynasty, bought the land from MetLife for $70 million, according to the Landmarks Preservation Commission. After Marcos was deposed, his assets were frozen and 40 Wall Street was auctioned off, again, seven years later. With downtown real estate in the dumps and the building reportedly in disrepair, in 1995, Trump picked up the building and its 1.1 million square feet of office from Citicorp, who had been stuck with it, for a mere $1.3 million. He also inked a 64-year ground lease with the Hinnebergs. Through five companies and a revocable trust of which he is the only beneficiary, Trump is the sole owner of the lease.
With a $5 million loan payment to Capital One coming due, in 2015, Trump refinanced the building, borrowing $160 million from Ladder Capital. Almost immediately the lender sliced up the debt into four separate notes and bundled it up with dozens of other properties that were then sold to investors. According to filings with the Securities and Exchange Commission for those four notes, Trump still owes a total of about $118 million of his original $160 million mortgage. That loan comes due in 10 months. Meanwhile, after speaking with experts in NYC commercial real estate, Forbes estimates Trump's leasehold is worth an estimated $116 million. That means Trump's equity could be worth less than zero, quite a drop from an estimated value of $80 million a year ago.
Wells Fargo, the bank servicing the commercial mortgage pass-through certificates that include Trump's loan, had enough concerns about his debt that it has been on a watchlist since December. The bank's accompanying note cites New York state's civil fraud verdict against Trump, 40 Wall Street's occupancy rate and the building's declining operating income to debt service ratio as reasons why.
When Trump took out that loan in 2015, 40 Wall Street's occupancy rate was 94.5%, about one percentage point higher than comparable rental properties, according to Ladder Capital. Up until 2019, the building's rate was pretty stable, ranging from 91% to 98%, per loan servicer reports. But then the Covid-19 pandemic hit, tanking the commercial real estate market, and 40 Wall Street's occupancy rate began dropping: 89.1% in 2019, 86.1% in 2021, 82.9% in 2022, 74.2% last year and 73.9% in June. One notable departure: retail pharmacy Duane Reade, which occupied 6.8% of the building, cleared out of 40 Wall Street in 2023, 4.5 years before its lease was set to expire, according to Morningstar .
Right now, the building's website advertises 73,000 square feet of "select" rental space available . The actual figure seems to be much higher according to the loan servicer's report: a 73.9% occupancy rate in a building with 1.2 million square feet of rentable space means that unoccupied area should be closer to 300,000 square feet. It's not clear if the information on the 40 Wall Street website was inaccurate or if new tenants have committed to moving in. Spokespeople for the Trump Organization did not respond to inquiries.
Not surprisingly, the decline in occupancy rate has coincided with a drop in the building's income, which fell from $41.7 million in 2019 to $30.9 million in 2022. An increase in the rent Trump collected last year, however, caused it to bounce back to $33 million (it's not immediately clear why the rent increased while occupancy decreased in 2023). Even still, when Trump signed the loan, Ladder Capital projected 40 Wall Street's annual gross income to be about $43.1 million. Not once has it reached that figure.
The building's annual operating expenses, meanwhile, have exceeded estimates. While Ladder Capital projected them to be $20.6 million a year, they've surpassed that figure every year since 2016, ranging from $20.9 million in 2017 to $23.6 million in 2019. Driven by repairs and maintenance costs that doubled Ladder Capital's estimates, operating expenses last year totaled $23.2 million.
Putting it all together, 40 Wall Street's net operating income in 2023 was $12.8 million. But leasing commissions, tenant improvements and other capital expenditures along with the annual $9.8 million payment to service his debt, resulted in 40 Wall Street putting just $1.2 million in Trump's pocket last year–a far cry from the $11 million Ladder Capital expected him to be raking in.
The future doesn't look any better. The lease Trump signed in 1995 requires him to pay the landowner about $2.5 million of annual rent right now. That is set to change dramatically, assuming he doesn't dump the leasehold or renegotiate. His payments on the ground lease are set to skyrocket in 2033, escalating to at least 6% of the value of the land, according to a lending prospectus. That shift would cause Trump's ground rent to soar from $2.8 million in 2032 to $16.3 million the following year, predicted Cushman & Wakefield, a real estate firm, in 2015 (the latest available). If the rest of 40 Wall Street's financial picture remained the same as it is today, that would leave Trump with a negative $5 million in net operating income in 2033.
Trump will likely struggle to find someone to loan him enough to pay off the entire principal when the mortgage comes due, given the shaky outlook of the real-estate market, the onerous terms of his lease, and the fact that he's likely underwater on his investment. Using his own money to pay off part of the principal and borrowing to cover the rest is still an option. Trump could also declare bankruptcy on 40 Wall Street (it would be his seventh bankruptcy, although it'd break new ground for him by being his first not involving a hotel). Unless Ladder Capital retained a stake in the loan, it will be in the clear, said Amiyatosh Purnanandam, a professor of finance at the University of Michigan. "The losses will be borne by investors who own these certificates," Purnanandam said. "They can range from banks to insurance companies to hedge funds."
If Trump does stick around, he could renegotiate his leasehold with the German shipbuilding magnates, right around the time he is either beginning a potential second term as president or figuring out his next move.
Dan Alexander and Giacomo Tognini contributed reporting.
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