If there’s one thing the whole world didn’t see coming, it’s this.
Despite all of the poll and projections, what the mainstream media considered impossible is now fact: Donald Trump is the President-Elect of the United States and on January 20th 2017 he will be sworn into office.
He will then become the first president to have successfully memed his way into the White House, with the help of nothing less than a cartoon frog.
More importantly though, he is going to become the wealthiest president in US history.
With his current fortune of 3.7 billion dollars, Mr. Trump will surpass the net worth of the previous record holder, George Washington, by a factor of six.
What many people don’t know, however, is where all of Mr. Trump’s wealth actually came from.
That’s why this week on Behind the Business we’ll be looking into the heart of his business empire, the Trump Organization.
Our story starts in rural Germany in 1883.
In the quiet village of Kallstadt, Friedrich Trump struggled as the frail fourth child in a family of seven grape farmers.
His dad had died of lung disease five years prior, and he had left his family with almost nothing.
Due to his own health, Friedrich was unable to help out in the family’s vineyards and so he desperately sought to learn a different trade.
For two years he worked as a barber’s apprentice in a nearby town, but when he came home in 1885 he found that Kallstadt didn’t have enough of a clientele for him.
Thus, the young Trump made a radical decision.
He would escape poverty and a looming mandatory service in the army by crossing the Atlantic and finding work in America.
Friedrich left his family a hasty letter, packed what little he had, and boarded the first steamship he could find to New York City.
While there, he lived with distant relatives and fortuitously found employment with a German barber.
Friedrich worked there seven days a week and pretty soon he had managed to secure some measure of financial stability.
Seeing how much success was to be had in the US, Friedrich broadened his ambitions and in 1891 he moved to Seattle to try his hand at hospitality.
For $600 , he acquired a property, which he named the Dairy Restaurant.
It wasn’t the largest of buildings, but its location was perfect.
It was in the middle of Seattle’s bustling Red Light District, and although Friedrich certainly offered quality food and drinks, sources disagree on whether hired female company was also on the menu.
Regardless, Friedrich’s Dairy Restaurant earned him a tidy income and in 1892 he finally obtained US citizenship.
Soon after, Friedrich heard that oil magnate John Rockefeller was planning a big mining investment in the small Washington town of Monte Cristo.
Friedrich realized the town could become the site of a major gold rush, and so he happily sold off the Dairy Restaurant and moved there in March of 1894.
He immediately found a prime spot for a hotel right in the town center, but there was a slight problem: that the land already belonged to someone else - absentee landlord Nicholas Rudebeck.
Friedrich didn’t have enough money to both buy Rudebeck’s land and build a hotel there, and so he opted for a rather unconventional solution.
He claimed mining rights over Rudebeck’s land, which would in theory allow him to sift through the dirt for gold.
It most definitely did not allow him to build a hotel on the land against Rudebeck’s wishes, but Trump sort of just went with it.
Fortunately for him, many of the rugged miners didn’t really give a damn about his titles, or lack thereof, and so most of them either supported his venture or built on Rudebeck’s land themselves.
To add insult to injury, Trump obtained legitimacy by getting the authorities to add his name under the “Real Estate” section of the local directory.
While business was good for a time, it soon became apparent that Monte Cristo’s gold deposits were nowhere near as rich as people thought.
The investors pulled out, the miners started to leave and Friedrich was forced to go looking for new business opportunities.
In 1896 Friedrich heard rumors that gold had been found in the Klondike region of the Yukon in northwestern Canada.
Eager to seize the opportunity, he packed his bags and went there, opening several incarnations of his “Arctic Hotel and Restaurant” along the way, first in Bennett, British Columbia and then in Whitehorse, Yukon.
These establishments were located in one of the harshest, most unforgiving arctic climates in North America, and yet Friedrich managed to to transform them into local pillars of luxury.
The Arctic in alone served several thousand meals a day and fostered copious amounts of gambling, drinking, and most likely prostitution.
In 1901, however, the local government cracked down on all the illicit activities that made the Arctic such a shining success.
By that point though Friedrich had already amassed a small fortune, and so he happily closed up shop and went back home to Kallstadt in Germany.
There he married a family neighbor, Elizabeth, and together they moved back to New York in 1902.
The couple wanted to visit Germany regularly, but the German government labeled Friedrich a military draft dodger and banished him forever.
Friedrich stayed in New York with his wife and three children until the Spanish Flu struck him down in the great epidemic of 1918.
By that point, his estate was worth roughly half a million dollars by today’s standards and after his death it went into the hands of his wife, Elizabeth.
She kept the real estate business going by hiring contractors to build houses on empty Trump properties, and then selling those houses at a profit.
Her son Frederick, who went by the nickname “Fred”, was eager to help out in the business and started doing so in 1920, when he was just 15.
When Fred finally came of age in 1923, the mother-son duo officially founded Elizabeth Trump & Son.
The young Fred quickly built his first family house in Queens that same year, turning an $800 dollar investment into a $7000 dollar building.
The company’s responsibilities slowly passed onto him and by 1927 he was pretty much running the show.
Before the Great Depression stopped him, Fred had built several hundred single-family homes and turned a significant profit selling them.
During the Great Depression, he adjusted his strategy away from the slumping housing market and invested in one of the world’s first supermarkets - Trump Market.
Then in 1934, as part of the New Deal, the Roosevelt administration created the Federal Housing Administration, which guaranteed loans and mortgages to help every American own a home.
With the secure funding offered by the FHA, Fred once again began building single family homes and steadily revitalized the entire Brooklyn housing business.
His efforts continued throughout World War 2 and by the mid-forties he had advanced to building large apartment complexes.
Shore Haven and Beach Haven were some of his biggest projects, though his magnum opus was undoubtedly the quaintly-named Trump Village from 1964, which featured over four and a half thousand separate apartments.
The village would be Fred’s downfall, however, as state officials accused him of exaggerating project costs in order to get extra funding, which he would then pocket without saying
a word.
Fred ended up having to return more than a million dollars to the state of New York, but what suffered the most wasn’t his wallet, but his credibility.
He found it increasingly difficult to secure funding for his housing projects and it wouldn’t be until 1968 that he found a solution.
That was the year his son Donald graduated college and Fred happily welcomed him into the family business.
Just three years later Fred made Donald president to give the company a fresh new face, while he himself took a backstage role as chairman of the board.
In 1974, as part of the rebranding effort, Donald renamed his enterprise the Trump Organization, which at this point had become a conglomerate comprised of more than sixty separate enterprises.
Donald’s takeover resulted in a dramatic shift in the company’s business strategy.
His approach to publicity was ingenious, and he took Fred’s concept of marketing the Trump brand name to a whole new level.
Whereas Fred had focused on large scale low-to-medium income housing in Brooklyn, Donald’s ambitions were much greater in scope.
Donald’s goal was to transform himself into a living brand synonymous with opulence and success.
To that end, he sought out as much media attention as he could get.
He established himself as an aggressive, brash dealmaker and he used that reputation to fuel his initial forays into the hotel business.
Trump’s first major acquisition came in 1977 when he bought the failing Commodore Hotel in Manhattan, whose previous owner was on the verge of bankruptcy.
Trump saw a lot of potential in the building and so he decided to renovate it in order to resell it at a profit.
What really made his investment successful, however, was that he managed to negotiate a groundbreaking 40-year tax abatement for the Commodore, the first of its kind for a commercial property.
Trump then partnered with the Hyatt Corporation to secure a construction loan and got to work overhauling the once-mighty Commodore.
The hotel was successfully reopened in 1980 as the Grand Hyatt Hotel and its success convinced Donald to pursue similar deals.
He would buy a failing high-profile building for cheap, renovate it to make it look great again and then resell it at a huge profit.
This strategy was so successful that in the span of just a few years Donald had acquired enough capital to finance one of his most ambitious plans ever: the Trump Tower.
Completed in 1983, the luxurious behemoth quickly paid for its cost and earned a $70 million dollar profit in just 3 years.
It also became the centerpiece of the Trump empire and the seat of the Trump family itself.
Throughout his career, Trump’s business strategy would revolve around similarly opulent, extravagant buildings whose ultimate purpose was to establish the Trump brand as a mark of grandeur.
After New York City, Donald turned his gaze towards Atlantic City and its bustling casino industry.
At the time, Atlantic City was investing heavily in gambling with the hope of becoming the Las Vegas of the East Coast.
Donald knew the Trump brand name would easily attract casino high rollers and so he did his best to acquire Atlantic’s most popular casinos.
His biggest deal in Atlantic City came in 1988 when he bought the Taj Mahal, the world’s largest casino at the time, for a stunning 273 million dollars.
To attract publicity Donald hosted high-profile events like the famous 1988 boxing match Tyson v. Spinks.
He also bought the world’s second largest yacht, a specialized airline and a helicopter fleet.
Despite all of its success during the 1980’s, however, the 1990’s would bring the Trump empire to its knees.
As the US entered into a recession, many of Donald’s ventures saw their profits tumble.
Some of them, in fact, had never even turned a profit.
The Taj Mahal and other Atlantic City casinos were the first to crumble, and after consolidating them Donald was forced to take them public.
He also ended up selling Trump Air, Trump Shuttle and the Trump Princess, but even that wasn’t enough to topple the 9 billion dollar mountain of debt he had accumulated.
In the end, the Trump empire barely managed to survive after a costly bankruptcy and a restructuring of most of its debts.
Donald took this opportunity for a fresh start by entering entertainment business.
In 1996 he acquired three beauty pageants, the most notable one being Miss Universe.
His new strategy was to apply his brand name to everything, from bottled water to modelling agencies to even his own video game.
One of his best moves came in 2004 when he started hosting the hit reality TV show “The Apprentice”, where he basically gets to fire people.
The 21st century has seen Donald restore the Trump Organization, whose current portfolio is made up of golf courses, a winery, and vast amounts of other real estate.
One of the key factors in Donald’s lifetime success is perhaps also the most controversial one: the way he makes deals.
Donald has, over the course of his business career, mastered the art of aggressive negotiation.
At the most basic level, that means he always questions every single invoice his contractors send.
He doesn’t pay before the job is done and when it is he mercilessly pushes the other party into accepting a lowball offer.
If circumstances ever change and force a renegotiation, Donald rarely agrees on a “fair” sum and strives to pay as little as possibly.
When he’s particularly unsatisfied by his contractor, Donald might not even pay at all, in which case the matter usually ends up in court.
This strategy doesn’t always work, as evident by the numerous such lawsuits that Donald has lost, but when it does work, he comes out ahead immensely.
Donald’s strategy, as unethical as it may sometimes appear, is illustrative of the world world of business.
Underneath the mask of friendliness and cooperation, the world of business is a battleground where only the strongest survive.
For hardballing developers like Trump, doing business is not about ethics, but rather about securing the best possible economic outcome for your business.
Trump’s strategy isn’t unique - while reprehensible to some, it is actually so common that just in 2010, the US construction industry saw a total of 64.5 million dollars being
disputed.
Of course, not all of the Trump’s lawsuits are the result of shrewd and ruthless business strategies.
Some lawsuits are simply the consequences of a failed, ill-thought out venture, with Trump University being the most obvious example.
Trump University was a pricy and supposedly-educational initiative that actually had very little in the way of accreditation or academic rigor.
The misleading claims and practices of Trump University eventually resulted in several lawsuits for fraud, which Donald only just recently settled after winning the presidency.
Speaking of the presidency, Donald’s unexpected victory has left a bit of a gap in his company’s leadership.
As president of the US Donald would be unable to manage the Trump Organization without running into serious conflicts of interest.
Presidents in the past have solved this problem by temporarily putting their assets into a blind trust, run by independent trustees who manage the assets without the President’s knowledge.
That’s exactly what Donald intends to do, but the trustees he has in mind are none other than his own children - Eric, Donald Jr., and Ivanka.
Now whether or not a trust run by your children can be blind is a pretty difficult question, but in any case it’s clear that Donald is getting ready to pass down the family business to the next generation.
At this point all three of them have served as executive vice presidents, essentially micromanaging the Organization’s vast real estate portfolio.
Whether or not they’ll be successful in managing the company during Donald’s presidency, however, remains to be seen.
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