Trump Tower profits in 2010 magically increased by $ 3 million in new loan deposits – ProPublica

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This story was co-published with WNYC.

Ten years ago, loan deposits showed Trump Tower in New York City to have a reported profit of around $ 13.3 million. But when the tower refinanced its debt soon after, profits for the same year – 2010 – seemed somehow higher. A new lender said profits were $ 16.1 million, 21% more than previously recorded.

The following year’s income for the building also “improved” between the two depots. Profits for 2011 were listed as 12% higher under the new loan than the old one, according to reports from Loan Services and data provider Trepp.

ProPublica uncovered the Trump Tower discrepancies by examining publicly available data for mortgages that are aggregated into securities known as commercial mortgage-backed securities, comparing the same years in reports from different CMBSs. If a bank had kept the loan, instead of selling it to investors, this information would have been kept confidential. No evidence has emerged that the Trump Organization was involved in changing the profit figures.

Alan Garten, chief legal officer for the Trump Organization, said: “Not only were the numbers provided to the server accurate, the Trump Tower is considered one of the least operated commercial buildings.

The spreads in tower earnings fit a pattern described in a whistleblower complaint filed with the Securities and Exchange Commission, which ProPublica unveiled this month. The lawsuit accuses commercial lenders of fraudulently inflating loan income figures in many CMBSs.

The lawsuit named seven repairers and 14 lenders, including two of the nation’s largest CMBS issuers – Ladder Capital and Wells Fargo. Both were involved in the most recent Trump Tower loan, one as a lender, the second as a financial institution that conditioned the loan in a CMBS. The complaint does not say which entities changed specific numbers and does not say whether the borrowers were involved in or were aware of the alleged fraud.

Wells Fargo declined to comment. Ladder Capital did not answer questions about Trump’s iconic Fifth Avenue tower. Ladder answered questions from the previous ProPublica article; he admitted to having modified the historical figures of two other loans requested by ProPublica, in order to suppress the expenses which did not recur in the future. The lender said his actions were appropriate. (Ladder is a publicly traded commercial real estate investment trust with more than $ 6 billion in assets. It employs Jack Weisselberg, the son of longtime Trump Organization CFO Allen Weisselberg, as executive director whose job it is to make loans. Jack Weisselberg declined to comment.)

When the Trump Organization refinanced its Trump Tower loan in 2012, it increased its loan size from $ 27.5 million to $ 100 million, extracting $ 67.9 million in cash. The interest-only loan originally accounted for about 8% of mortgages over $ 1 billion raised in CMBS. (Only the commercial part of the tower – with retail tenants such as Gucci and offices, including for the Trump Organization – served as collateral for the loan.)

For 2010 and 2011, data shows that the variances in net operating income between old and new loans for Trump Tower were largely due to the new loan showing lower expenses. The most recent loan prospectus stated that “historical spending excludes security associated with Donald J. Trump’s personal services” – although it does not specify dollar amounts for the change. Higher income was also mentioned for the two years under the new loan, but the prospectus did not explain why.

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The whistleblower’s complaint, filed by a CMBS industry insider named John Flynn, concerns the nearly $ 600 billion CMBS market. He accuses lenders and managing agents of manipulating historical cash flows, not reporting misrepresentation, changing property names and addresses, and “misleading and inaccurate” depiction of loan representations. The complaint claims that Flynn has found overestimates in CMBS’s $ 150 billion since 2013.

The misrepresentation allowed properties to qualify for loans they otherwise wouldn’t have, says Flynn, while leaving investors in the dark.

The SEC took no public action in response to Flynn’s complaint; the agency declined to comment.

Changing past earnings without providing an explanation is “highly questionable,” John Coffee, a Columbia Law School professor and securities regulatory expert, told ProPublica for his previous article on CMBS.

As hotels, businesses and offices face unprecedented hardship due to the virus that has shut down much of the country, Flynn says the manipulations have increased the likelihood and potential severity of an accident.

Last year, ProPublica revealed another round of income gaps in Trump Tower and other company-owned buildings, those that appeared to draw on testimony from former Trump attorney Michael Cohen who said Trump would inflate income numbers when he applied for a loan and deflate the numbers when filing income tax. Other properties of the Trump Organization studied by ProPublica reported higher profits on CMBS returns than on tax returns. A spokesperson for the Trump Organization said at the time that “comparing different reports is comparing apples to oranges” because the reporting requirements differ.

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Elizabeth J. Harris