Nelson Johnson - Boardwalk Empire - The Birth, High Times, and Corruption of Atlantic City

Elizabeth Trump was a seamstress, and Fred went to work shortly after his father’s death. Early in his teens, Fred supplemented the family income working in the booming New York housing industry as a “horse’s helper.” In winter months it was often impossible for horse- and mule-drawn wagons to make it up hilly streets with construction materials to a job site. In an age when there were no child labor laws, contractors hired strong young boys to substitute for horses. Fred carted many heavy loads of building materials up icy slopes to busy carpenters. “I replaced a mule,” he said later. While still a teenager, Fred became a carpenter himself. Studying at Pratt Institute in Brooklyn, he immersed himself in the building trades, learning how to read blueprints and prepare mechanical drawings. He would later say, “I learned how to frame walls more efficiently than other people, how to read a blueprint more accurately and faster. They weren’t huge skills, but they gave me an edge.” He had the edge on his competition his entire career.

Fred was self-employed by age 18. Too young to enter into a contract or even sign checks, Fred’s first company was “Elizabeth Trump and Son.” His initial project was a single-family home in the Woodhaven neighborhood in Queens. From the profits on the sale of that home, he built two more in Queens Village, followed by 19 in Hollis. No need to wander from where his father had begun, the Borough of Queens was where he established himself, building everything from mansions in Jamaica Estates to homes for teachers, firefighters, and merchants in Woodhaven and Queens Village.

As he branched out into Brooklyn and Staten Island, Fred built thousands of units for sale and rental. In July 1938 the Brooklyn Eagle praised Fred Trump as “the Henry Ford of the home-building industry.” By exploiting government financing and tax incentives available after World War II with a skill unequaled by anyone in New York City’s history, Fred amassed a fortune. Throughout the ’50s and ’60s he was dogged by controversy and government inquiries from one development to the next. While there were allegations of bribes and kickbacks, Fred remained unscathed and became the city’s largest landlord. By the time his son, Donald, had completed prep school at the New York Military Academy in Cornwall-on-Hudson and graduated from the Wharton Business School at the University of Pennsylvania in Philadelphia, Fred’s empire comprised nearly 25,000 units, with rental income of more than $50 million annually. And it was his alone—he had no partners.

The enormous equity Fred had built up in his rental properties was irresistible to his son. Donald convinced his father to use that untapped cash to venture where Fred had never gone, across the East River to the island of Manhattan.

The Manhattan real estate market is no place for amateurs. Smart players with equity and good timing can make fortunes in Manhattan but it’s also a graveyard for many would-be real estate barons. Donald Trump had not only his father’s money but also his instincts. From the time he was a child, he had watched and worked with his father whenever he wasn’t in school. He learned much. While still in his 20s, Trump had developed maturity for the real estate game far beyond his years.

Trump’s first opportunity to test his talent in Manhattan came on property owned by the ailing Penn Central Railroad. In 1974, Trump Enterprises secured options to buy several large waterfront parcels along the Hudson River. The timing was critical. Not only was Penn Central in trouble, but New York City was having serious financial and image problems of its own, and there were no other buyers. The purchase price for Penn Central’s land was $62 million, but Trump paid nothing for the option. Better still, the railroad agreed to pay all of Trump’s soft costs for the approvals needed to build a housing project that would contain thousands of units. Tax abatements from the city and long-term, low-interest financing (Fred had close ties to Mayor Abe Beame) assured success of his plans. Another deal where Trump put up little of his own money was the Grand Hyatt. Again, Penn Central was the seller, and this time Trump had a partner in the Hyatt Hotel chain. He agreed to buy the aging Commodore Hotel for $10 million and convinced the city to give him an unprecedented 40-year tax abatement, valued at a minimum of $160 million. When terms of the deal became known to other developers, the city was widely criticized. But Trump was probably the only buyer for the Commodore and, at the time, the only developer willing to gamble on building a new hotel in New York City.

Trump had seized the opportunity created by a city desperate for development. He continued his roll going on to acquire the Bonwit Teller building and the air rights above the adjacent Tiffany’s on Fifth Avenue. There, he built the centerpiece of his Manhattan empire, Trump Tower, a glittering palace housing hundreds of seven-figure condominiums—only in New York. Shortly after that transaction Trump expressed interest in becoming a player in Atlantic City.

Despite the initial success of casino gambling, a mind-set similar to New York’s prevailed in Atlantic City at the time Trump began looking for property—namely, development of any kind was welcomed. It had been so many years since anyone was willing to invest in Atlantic City that for the first 10 to 15 years after the legalization of gambling, any new developer, especially a high-profile real estate tycoon like Trump, was received with open arms. There was so much rebuilding to be done that Donald Trump was embraced immediately. While he was eager to cash in on the Atlantic City boom, Trump had waited too long to get in on the really easy, big money raked in by Resorts, Bally’s, and Caesar’s. During their early years, the first three casinos were virtual money factories. Trump didn’t begin looking seriously for a casino hotel project until early 1980. By that time, there were at least six other casinos under construction and a dozen more on the drawing boards. The lure of a quick return on investments had attracted all types, ranging from established firms like Hilton Hotels and Holiday Inns to stock swindlers and the mob.

Donald Trump’s first casino hotel, the Trump Plaza, was one of those projects that started as a con game. Plans for the casino were first developed by Robert Maheu, an associate of reclusive billionaire Howard Hughes. It had been eight years since he was forced out of Hughes’ Summa Corporation, where he was involved in the company’s extensive Las Vegas casino operations. In 1978 when Resorts International opened, he was president of Houston Complex, Inc., a Las Vegas company that claimed to be in the computer software business. His partner in the venture was Grady Sanders, president of Network One, Inc. Like Steve Wynn, Maheu and Sanders saw gamblers waiting in line to lose their money at Resorts International and they wanted a casino of their own. With a bravado bested only by the likes of Donald Trump, Maheu and Sanders announced they would build a 1,000-room hotel on an undersized Boardwalk lot next to Convention Hall. It would cost more than $100 million.

Maheu’s press release attracted the attention of the Securities and Exchange Commission (SEC). Comments by Maheu and Sanders about their plans had generated intense speculation on Wall Street, and the price of the stock of the two companies shot up. In late August 1978, just days after they signed a lease for the property, the SEC halted trading in the stock for 10 days while it took a closer look. About two weeks after the SEC first intervened, Maheu and Sanders unveiled plans for another project, a $60 million, 600-room casino hotel. “The marching orders have been given and everyone is gung-ho,” Maheu said at a press conference. The announcements continued. Partners were added, leases and financing packages were developed, and construction plans were revised. There were other projects, too. Network One told stockholders earlier in the year that it was developing a “tamper proof” videotaping system that would be sold through 90 distributors and generate $2 million in sales in the first year. A year later, there were no distributors and no sales. The firms also made announcements about a planned satellite cable television network and a two-mile-long roller coaster project in Las Vegas—neither of which ever got off the ground. Then the SEC returned. It charged the two companies had issued “false and misleading statements about the firms which were designed to create the illusion that they were well established, highly regarded Las Vegas firms engaged in diverse activities.” Instead, the two were nothing but “defunct publicly traded shell corporations.”