Enter Donald: The Trump Empire Goes to Manhattan

By Gwenda Blair

Fred Trump, and the apprentice

Fred Trump, and the apprentice

At the age of twenty-six Donald Trump had sealed his first multi-million-dollar deal. It was a sweet thing for a young man who had been his father’s full-time student ever since graduation from Wharton. Every morning he and his father drove from Jamaica Estates to Fred Trump’s modest office in Beach Haven, one of the large housing developments the older man had built near Coney Island in the early 1950s. Inside a nondescript, three-story brick building on Avenue Z, the headquarters of the Trump family empire still looked like the dentist’s office it had once been, with a linoleum floor, shag carpet, and chest-high partitions between cubicles.

The lessons included every thing from where to stand when knocking at the door of a nonpaying and possibly violent tenant to how to handle maintenance contracts, negotiate the purchase of supplies, and oversee repairs. After the younger man raised neighborhood hackles with plans to put an off-track betting parlor in a Trump-owned shopping mall and to lease land originally intended for tenant parking to a McDonald’s franchise, he got a quick course in using political ties to make things go his way. Similarly, when his father walked into a closing on an apartment complex he was selling and told the buyers, who had already syndicated the deal and could not afford further costly delays, that it was just too embarrassing to get such a low interest rate on promissory notes, he saw how to pull off a last-minute renegotiation. When his father put a plant and a mirror in vacant apartments and got a more favorable response from prospective tenants, he saw how an extra touch can make a difference. Likewise he saw how to pinch pennies when, in order to save on boiler-cleaning bills, his father donned old overalls, climbed inside a boiler for a lesson from an experienced boiler cleaner, and emerged covered with soot but ready to instruct his supers himself. And, always, the son saw the importance of looking professional; like his father, he never appeared in casual wear. Even on weekends he wore a suit or a blazer, with his initials on his shirt and gold cuff links.

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The son taught the father a few things, too. Gradually he overcame his father’s reluctance to refinance his holdings, then about eighty buildings with an equity value on the order of $200 million, and they raised cash for new investments. But the younger man could not convince his father to operate in Manhattan, where both costs and potential benefits were far higher. Indeed, his father seemed willing to consider getting involved in projects almost anywhere except right across the river.

By now Donald had a new job description. His father had kicked himself upstairs to be chairman of the board, and Donald was now president of the family business. One of his first acts was to bypass all the pedestrian corporate names used by his father and instead adopt one classy-sounding label, the Trump Organization, as a sort of umbrella identity.

He had upscaled his own life as well, with a move to Manhattan’s Upper East Side. Settling into a small, dark studio on the seventeenth floor of a twenty-one-floor building, he blithely referred to his new living quarters as a penthouse and began carving out a new life as a debonair bachelor. “Moving into that apartment was probably more exciting for me than moving, fifteen years later, into the top three floors of Trump Tower,” he wrote later. Every morning he drove a new, company-owned white Cadillac convertible in a reverse commute to the far end of Brooklyn, but in the evenings he could savor his new identity as a Manhattanite. A first step was to join Le Club, a members-only restaurant and nightclub on East 58th Street founded in 1960 by society columnist Igor Cassini. There the young man became acquainted with various powerful players in real estate and banking, including the lawyer Roy Cohn.

Short, bald, and heavy lidded, with a permanent tan, a bloodshot, drop-dead stare, and a pugnacious manner, Roy Marcus Cohn had been a celebrated bad boy ever since he first burst on the national scene in the 1950s as Senator Joseph McCarthy’s assistant. A master fixer of all things legal and illegal, he lived a conspicuously lavish life, but because he insisted on cash payment, he paid no taxes and stonewalled his way through IRS audits. Over the years he had faced charges for bribery, conspiracy, and bank fraud, gone to trial three times, and won acquittals three times. Now in his mid-forties, Cohn radiated power in a way that repelled many but drew in Trump, who seemed intrigued to find someone else who would do, literally, anything to win. “I think Donald was attracted by the fact that Roy had actually been indicted,” said Eugene Morris, Cohn’s first cousin.

When the U.S. Justice Department slapped the Trump Organization with a suit charging that blacks seeking apartments in Trump-owned buildings were turned away or quoted inflated rents, Donald did not follow his father’s policy of quiet diplomacy. Instead he held a press conference at the New York Hilton and announced that he had hired Cohn to fire back at the government with a $100 million damage suit. Denying any discrimination, the new president said that the government was trying to push major landlords into accepting welfare tenants despite their precarious finances.

Five weeks later the presiding judge dismissed Trump’s countersuit as “wasting time and paper,” but Cohn’s stalling tactics delayed the federal investigation for another year and a half. Donald testified repeatedly that he had nothing to do with renting apartments, although in an application for a broker’s license filed at the same time he said that he was in charge of all rentals. In June 1975 he signed a settlement described by the Department of Justice as “one of the most far-reaching ever negotiated.” It required Trump to advertise vacancies in a black newspaper, to give first notice to the Urban League for a certain percentage of vacancies, and to include welfare payments when determining an applicant’s income.

Donald Trump and Roy Cohn in October, 1984. Photograph by Bettman / Getty

Donald Trump and Roy Cohn in October, 1984. Photograph by Bettman / Getty

This time around, Trump simply declared victory and went on as before. He had seen that such a boast was unlikely to be challenged. He had also seen that being charged with discrimination did not seem to deter anyone in the public or private realm from doing business with him. Indeed, practically speaking, the entire matter appeared to add up to little more than “a spit in the ocean,” as Roy Cohn had dismissively characterized it at one point. But perhaps more to the point, Donald now had something far bigger and juicier on his plate.

Stuart Thomas Saunders had just pulled off what looked to be the biggest corporate coup of the decade, if not the century: the merger of the Pennsylvania and New York Central Railroads. Labor featherbedding, government red tape, unprofitable passenger service, and competition from trucks, planes, and, especially, each other had pushed these legendary rail giants to the edge of bankruptcy. But now the two behemoths would morph into a slimmer, more robust entity called the Penn Central. Headquartered in Philadelphia, the nation’s largest rail conglomerate would return America’s first major industry to health and profitability. Railroads, which had consolidated the nation as they carried Friedrich Trump and millions of other immigrants across it, would again come into their own. Headline writers dubbed the Penn Central “the Railroad of the Future,” and Saturday Review named Saunders “Businessman of the Year.”

It lasted exactly 872 days. On June 21, 1970, the Penn Central went belly up. The bankruptcy would help spawn a profitable new bankruptcy industry, peopled by turnaround specialists, lawyers, assessors, regulators, even publishers of newsletters devoted exclusively to this rapidly expanding field. More than that, though, the Penn Central story would produce important lessons about the modern corporate world, the nature of capitalism, the pace and course of change, and, most important, how to survive and profit from seeming disaster. As events in coming years would show, Donald Trump, then only twenty-four, would prove to be a particularly apt pupil.

Public admission of insolvency did not solve the Penn Central’s problems. Because railroads were considered vital national interests, federal law would not permit them to close up shop even if they were drowning in red ink. Under the Bankruptcy Act of 1898, insolvent lines had no choice but to file for reorganization. Doing so suspended the Penn Central’s debts, but it also meant that the railroad had to maintain the passenger and freight operations that had been losing $1 million a day. Ultimately, court-appointed trustees came up with a proposal to transfer the actual rail services to government ownership, pay the Penn Central’s debts by selling every thing not needed for rail operations, and reorganize the holding company that controlled those few subsidiaries that actually made money.

It was an eminently sensible solution. The remaining problem was getting all the many creditors to sign on — no easy task, given that most were busy maneuvering to push the others further back in the line for the railroad’s assets. Eventually, however, the sheer scale of the overlapping claims convinced banks, institutional investors, stockholders, and federal, state, and local authorities to cooperate and settle for much less than they would have in other circumstances. Penn Central had “debtor’s leverage,” meaning that its potential loss was so large, it could cow creditors into accepting crumbs — that is, a smaller than usual percentage of what was owed — for fear that otherwise they would get nothing at all. Knowing about debtor’s leverage was something that Donald Trump was, some years ahead, to find particularly helpful.

Once the framework was established, the next task was to sell off anything not directly involved in running the railroad — which, everyone knew, meant the vast real estate holdings that both the Pennsylvania Railroad and the New York Central had spent the last century accumulating. Donald knew the list was sure to include the one property he wanted more than anything in the world: the Penn Central rail yards, consisting of two huge parcels of land stretching along the eastern shore of the Hudson River. What most people thought of as a huge railroad with a lot of property turned out to be a huge railroad plus a huge real estate company. Penn Central appeared to be one of the largest private, non-government landlords in the nation. The total size of the yards was 120 acres, one-seventh the size of Central Park. And they were the same sort of undeveloped tracts on which Fred Trump had built so successfully in Brooklyn.

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By November 11, 1974, disposition of the Penn Central rail yards had opened. Donald, then twenty-eight years old, sat at a table in a nondescript federal courtroom in Philadelphia and watched. Seated next to him were his father and the Trump Organization lawyer, Bunny Lindenbaum. Nearby were nearly a dozen attorneys for various creditors and interested parties. They were there because the Penn Central trustees wanted to grant the Trump Organization an option to buy the rail yards and needed permission from the federal district court handling the reorganization.

Specifically, this and any other deal involving the Penn Central required the approval of Judge John Patrick Fullam, under whose jurisdiction the railroad had come. Fullam-watching had since become something of a necessity among the dozens of lawyers involved in the case. A former Pennsylvania farm boy, Fullam was a World War II vet and Harvard Law School graduate who ended up on the bench after he lost two races for Congress. “In chambers he was this really little guy who wouldn’t stomp a fly,” said one Penn Central lawyer. “But he was a terror up there on the bench. He controlled all of the creditors and all of us, kept us all in place.” With one of the most valuable sites in the entire Penn Central inventory at issue, the proceeding promised to be long and contentious. To make matters worse, it did not get under way until twilight had already arrived outside the large courtroom windows.

Courthouse regulars had anticipated a stressful, drawn-out session, but instead the proceeding unfolded with unaccustomed smoothness. Unbeknownst to them and to the judge, the important deal-making had already occurred before Fullam ever lifted his gavel. In the weeks leading up to the hearing, most of the people now seated in the courtroom had expected strident opposition to the trustees’ request to give Donald Trump the option. They assumed the source would be David Berger, the lawyer for the Penn Central’s stockholders, then at the bottom of the creditor heap. A stout man with a penetratingly loud voice and showy offices in a Philadelphia brownstone, he had built a successful practice representing clients in class-action suits. Exploiting their own nuisance value is a key tactic for such lawyers, and being a nuisance was something for which David Berger had a special talent. “His job was to yell and scream,” recalled one Penn Central lawyer afterward, “and he was very good at it.” Protesting reorganization expenses, complaining about the sale of assets, stringing out decisions, Berger was doing precisely what he was hired to do — making himself so annoying that the other lawyers might cut his low-priority clients into any settlement just to get rid of him. Donald knew that Berger could be a problem, but said nothing. A few days before the hearing, Ned Eichler had received middle-of-the-night calls from both men informing him that they had met. They then summoned Eichler to Berger’s office. There the lawyer announced that because the developer and he had completely overhauled the terms of the sale, he now favored it. As Berger later explained in court, the price would remain $62 million, but because payment would not occur for some time, it would come with interest, plus a larger portion of any future increase in the yards’ value and an option to acquire a larger percent of the equity. The total “improvement,” as Berger termed it, could amount to as much as $20.5 million. There was also an “improvement” for Donald Trump. As before, he would pay no deposit and receive $750,000 in start-up money from the Penn Central, but now he would not have to refund any money if the project went nowhere. And — somehow — he had convinced Berger that a nebulous future promise in return for the cancellation of any refund in the event no development occurred was an excellent deal for Berger’s clients. “Whatever Donald did, assuming he did anything, it was a very clever accomplishment,” Eichler said later. “If someone’s in your way, deal with him yourself—kill him, buy him, deal with him however. This wasn’t the only problem, but it was a big one. Then all of a sudden it disappeared.”

David Berger. Credit: Sal DiMarco, 1988

David Berger. Credit: Sal DiMarco, 1988

Berger’s sudden switch from adamant foe to ardent supporter was, at the least, puzzling. A possible explanation would emerge some years later. In 1979 federal prosecutors investigated allegations that Berger’s abrupt turnaround was related to Donald Trump’s decision to join several other New York landlords as plaintiffs in a $100 million lawsuit Berger was preparing at the same time. The suit charged major oil companies with fixing the price of heating oil. As was standard in such cases, Berger’s fee would be one-third of whatever settlement occurred, and the size of any such settlement would depend on the number of apartments represented by the suit. This number was also the basis for the advance that plaintiffs paid Berger up front. Given that the Trump Organization had more apartments than any other parties to the suit, Trump’s participation in the case was clearly to Berger’s considerable advantage. The federal probe did not find sufficient evidence of wrongdoing to yield any criminal indictments.

Whatever quid pro quo may have taken place, the deeper explanation for why things ended up going Donald Trump’s way had at least as much to do with the two men sitting next to him in the courtroom. Bunny Lindenbaum, who had represented Donald’s father for a quarter century, had become a New York legend precisely because he could always figure out how to handle a problem. Fred Trump, too, had nearly always been able to see his way around obstacles. Schooled by these two men in his chosen profession, Donald had already gotten rid of one major party that had showed interest in the yards. Starrett Corporation had withdrawn abruptly from pursuing the site after Donald paid a visit to the company’s president and reminded him of the Trump Organization’s equity position in Starrett City.

But there was an even sharper parallel. Fred Trump had faced an oddly similar situation forty years earlier, in the spring of 1935, when he, too, had been twenty-eight years old, had been trying to gain control of one of the most valuable parts of a bankrupt empire, and had encountered opposition. Another developer had topped his offer to take over the mortgage-servicing department of the Lehrenkrauss Corporation, and a group of disgruntled creditors had threatened toblock the sale of any assets. Fred had quickly neutralized both problems, joining forces with his rival, gaining the creditors’ support by including an attractive but meaningless provision in an amended offer, and winning the mortgage-servicing contract. Now, in this Philadelphia courtroom, Donald was simply following in the footsteps of his father and his lawyer, doing whatever it took to make things end up where he needed them to be.

Four months later Judge Fullam awarded the Trump Organization the option to buy the rail yards.

Gwenda Blair is the author of the bestselling Almost Golden: Jessica Savitch And The Selling of TV News. She has written for numerous magazines and newspapers, including Politico, The New York Times, Newsweek, and The Village Voice. She lives in Chicago and teaches at Columbia University’s Graduate School of Journalism.

This is the last of three profiles of the Trump patriarchs, adapted from the author's bestseller, The Trumps: Three Builders and a President, courtesy of Simon & Schuster.