PLAYED LIKE A STRADIVARIUS
WHAT TRUMP'S BIGGEST DEALMAKING FAILURE REVEALS ABOUT HIS APPROACH TO THE CHINA TARIFF NEGOTIATIONS
U.S. Trade negotiations with China are to begin Friday in Switzerland. Analysts suggest that China will take a tough stance against the Trump administration. While the White House calls Trump the “Dealmaker-in-Chief,” The Atlantic’s Michael Schuman argues that “U.S. policy has appeared to vacillate, its strategy and goals uncertain.”
The true story of one of the Trump Organization’s biggest deals suggests that Trump is a problematic negotiator, vulnerable to manipulation, and willing to toss aside sound professional advice. Trump’s decades-long effort to rewrite the story of his purchase and sale of New York’s famed Plaza Hotel have been central to his political myth. In 1988, Trump paid $407 million for the Plaza, then the highest price ever for a hotel. Eight years later the Trump Organization sold the hotel for $325 million, an $83 million loss.
“CONSIDER ME INTERESTED”
In 1987, the owner of the Plaza Hotel, Allegis, decided to sell its Westin Hotels subsidiary. Trump began buying stock in the company in hopes of acquiring the hotel chain—and selling it all off to keep only what he called “the ultimate trophy in the world,” the Plaza Hotel. But Allegis sought to auction off the chain and turned down several offers from Trump.
Trump’s main rival in the Westin Hotels bidding war was Texas oil billionaire Robert M. Bass, who had inherited oil wealth and expanded it into a real estate and industrial empire. His right-hand man was 40-year-old Lebanese-American lawyer Tom Barrack. The Bass Group led a rival collection of bidders for the hotel chain, and Barrack convinced Bass to make the Plaza Hotel his stake in the Westin deal.
To maximize its profits, Allegis organized a blind auction for the Westin Hotels sale. At the same time, Bass, concerned about the outcome, wanted Barrack to identify potential buyers for the Plaza if he won the bid. Barrack sought out Trump, who later described the Plaza as “number one on my secret wish-list.” The two met at Trump Tower, where—according to Trump’s own book, Surviving at the Top—he telegraphed his strong interest in the hotel, telling Bass’ lawyer, “Tom, if you ever find yourself wanting to sell the Plaza, consider me interested.”
“A GUY I’M GOING TO BE DOING A VERY BIG DEAL WITH”
During the auction process, the Black Monday stock market crash of October 1987 hit, causing Allegis’ stock to plummet. Barrack bypassed the blind auction, hand-carrying what would become the Bass Group’s successful $1.35 billion bid into the auctioneer's office. Bass’s stake—the Plaza Hotel—was valued at $350 million.
With the Westin Hotels deal secured, Bass began exploring the possibility of flipping the Plaza Hotel. Trump, telegraphing his interest, invited Barrack to a Mike Tyson-Larry Holmes fight at his Trump Plaza hotel in Atlantic City. In Surviving at the Top, Trump recalled introducing Barrack to a lot of people at the fight “as a guy I’m going to be doing a very big deal with.”
USUALLY I’D KNOW EVERY SCREW AND BOLT
But Trump and Bass remained far apart—Bass wanted $450 million for the Plaza Hotel, while Trump’s offer stood at $350 million.
Sensing Trump’s strong interest in the property, Barrack decided to use Trump’s insatiable hunger for press coverage against him. He leaked word of a potential Plaza sale to another buyer to New York Times mergers reporter Robert J. Cole. The same day the Times’ story on the Plaza deal was published, Trump took the bait, calling Barrack to reopen negotiations.
In Surviving at the Top, Trump makes no mention of the Cole story. Instead, Trump claims "I just sensed in my gut it was time to get the deal done.”
A business executive familiar with the negotiations later told reporters that “the Times’ story really softened Donald up. Tom played Donald like a Stradivarius.”
Bass wanted a key concession from whoever bought the Plaza—a non-contingency clause preventing the buyers from suing Bass Group if issues arose with the property. Trump’s rivals, the owners of the Mandarin hotel chain, balked at the clause, leaving Bass with Trump as his only viable suitor.
Typically, such a clause would be a deal-breaker for the litigious Trump. But as recounted in the New York Times’ classic piece on the deal, “Stalking the Plaza,” Barrack bluffed, insisting it was now or never. Trump agreed to buy the hotel for $400 million — a hefty profit for Bass.
Bass then decided to ask for more, Barrack returned two weeks later to Trump’s office in Trump Tower overlooking the hotel. Barrack informed Trump he would now need to pay $410 million for the Plaza. Trump’s attorney, Jonathan A. Bernstein, was strongly opposed the non-contingency clause and argued Trump should demand the clause be dropped. But the impulsive Trump dismissed Bernstein and without his attorney present, Trump caved, signing the deal for $407 million.
Despite this, Trump later told the Times he only paid $390 million. In months, Barrack had turned $80 million profit for the Bass Group.
REWRITING HISTORY
In Surviving at the Top, Trump rewrote the story of the Plaza deal, falsely claiming the contingency clause had been dropped. Yet when interviewed for “Stalking the Plaza,” Trump defended signing the clause, explaining: “I'd know every screw and bolt before I bought. But that's an income investment, not an art investment. If you have to check each room in the Plaza, you shouldn't be buying it.”
Trump’s attorney, Bernstein, would later tell the Times: “Trump wasn't Trump in this deal. Normally we'd tear a property like this apart.“
The deal quickly turned sour for Trump. He mortgaged the entire purchase of the Plaza—but despite raising profits, the interest payments on the hotel exceeded its revenue.
By 1992, Trump was forced to sell 49 percent of the Plaza as part of a debt restructuring. In 1995, he sold his remaining stake, with all proceeds going to pay off his debts.
The Plaza deal marked the beginning of a long and continuing friendship between Tom Barrack and Donald Trump, who recently appointed Barrack U.S. Ambassador to Turkey.
At the 2016 Republican Convention, Barrack supported Trump’s effort to reshape the narrative surrounding his $83 million loss on the Plaza. On the convention’s last night, Barrack reinvented the story to help Trump’s election bid in a speech introducing his friend.
Recalling the battle for the Plaza Hotel, Barrack reframed the contingency clause, claiming Trump had forced him to reveal and fix every problem with the hotel. He then consciously flipped the famous Stradivarius comment, from the Times’ “Stalking the Plaza,” saying instead that Trump “played me like a Steinway piano.”