Latest / Real Donald Trump Wisdom / The Art of the Deal - Chapter 4: Prudence Pays (1987)

Transcript

The Art of the Deal - Chapter 4: Prudence Pays (1987) · Real Donald Trump Wisdom

0:00
Hi guys, back for another episode of Donald Trump's
0:03
Art of the Deal, Chapter 4, The Cincinnati Kid,
0:07
Putin's Pays. Trump is going to let us in on
0:10
one of his very first deals while he was working
0:13
for his father. In college, while my friends
0:16
were reading the comics and the sports pages
0:18
of newspapers, I was reading the listings of
0:20
FHA foreclosures. It might seem a bit abnormal
0:23
to study lists of federally financed housing
0:25
projects and foreclosure, but that's what I did.
0:28
And that's how I found out about Swift and Village.
0:30
It was a job that I bought with my father while
0:33
I was in college, and it wasn't my first big
0:36
deal. Now, I'm just going to explain some details
0:39
of the project. Swift and Village was a 1 ,200
0:42
-unit apartment development in Cincinnati, Ohio,
0:44
and it was a very troubled place. There were
0:48
800 vacant apartments. Developers had gone under,
0:51
the government had foreclosed, and the whole
0:53
deal was a disaster. But from our perspective,
0:55
that was great because it gives us... A terrific
0:58
opportunity. A lot of time, when you are dealing
1:02
with a government agency on foreclosure, they
1:04
just want to get out of it as quickly as possible.
1:07
They aren't equipped to manage it. In this case,
1:09
things had deteriorated so badly, no one else
1:12
was even bidding. So Trump was using his free
1:17
time as a college student to look up these lists
1:21
where he could find foreclosed properties that
1:24
were going to be sold. in a hurried fashion by
1:27
government agencies. So whenever someone's in
1:31
a rush to sell, and we'll find out at the end
1:33
of this chapter, there is an opportunity and
1:37
potentially a mistake by the person who's in
1:40
a rush. All right. Eventually, Trump and his
1:43
father put up a minimal bid, which was accepted.
1:47
They ended up paying less than $6 million for
1:50
the development, and it had cost twice as much
1:53
just to build. in the previous two years already
1:57
he was getting a deal here we have an interesting
2:03
lesson that comes up he says the fact that it
2:07
was such a big job appealed to my father and
2:09
to me because it meant we could focus a lot of
2:12
energy on it without feeling we were wasting
2:14
our time it takes almost the same amount of energy
2:17
to manage 50 units as it does 1200 except that
2:22
with 1200, you have a much bigger upside. This
2:25
is something that comes up again and again. Trump
2:27
loves to say, if you're going to be thinking
2:29
anyway, might as well think big. In that context,
2:35
there's the same 24 hours everyone has them,
2:40
the same amount of energy, broadly speaking.
2:45
If you focus your energy on bigger things, you
2:48
can get bigger outcomes. A person focuses on
2:52
smaller things may use as much energy. So it's
2:58
kind of this paradigm that Trump has that to
3:01
make things interesting, go for the biggest project,
3:04
go for the biggest deal. And we see it also in
3:07
his foray in politics, right? He went right away
3:11
for the office of president. He did not attempt
3:14
municipal politics or state politics or any...
3:20
House, Senate, congressional politics. He went
3:26
straight for the presidency. That was what it
3:29
took to motivate him. Here is the takeaway to
3:34
go for the binger deals, go for the binger project,
3:39
go for the binger office. Not only is it motivating
3:43
for you because you aim higher, but also it takes
3:51
just as much energy. So it's a fallacy to think
3:54
that it's much harder to do a much bigger job.
4:02
At the end of the day, everyone has 24 hours.
4:05
The bigger the job, the bigger the teams you
4:08
have that can help you get the job done. If you
4:13
go up in an organization, the CEO gets paid much
4:16
more. He has to make bigger decisions. At the
4:20
end of the day, a CEO will have greater responsibilities.
4:26
True, he will have to make more important decisions.
4:30
True as well, for a much higher salary. What's
4:38
not true, though, is that he won't have necessarily
4:41
more work to do. There will not be more tasks
4:46
for him to complete load physically to carry
4:51
the higher up you go in an organization the less
4:57
operational is the work the more strategic it
5:00
is jeff bezos often says that he's only paid
5:05
to make one or two good decisions per year right
5:08
maybe that's catching a trend before it happens
5:13
And Trump, as a president, he's signing executive
5:16
orders. He's giving directions to the different
5:22
offices around his executive team. And he's setting
5:28
the tone for how the country is treated on the
5:32
international scene. Although he is particularly
5:38
involved and has incredible energy. compared
5:42
to his predecessors. The role is more of a strategic
5:46
role. And he's not working necessarily harder
5:52
than someone who's working a 24 -hour shift in
6:00
a hospital. He doesn't have time to golf. He
6:05
doesn't have time to see his grandchildren. He
6:08
doesn't have time to... to incorporate some leisure
6:12
in his hectic schedule so this is to say that
6:18
the more important the role of course the more
6:25
important responsibilities and the higher the
6:29
pay um higher the prestige but it doesn't necessarily
6:33
mean that it takes more energy than um quote
6:39
-unquote lesser job so here the lesson is to
6:45
aim high right then to live up to trump's statement
6:50
that if you will be thinking anyway might as
6:54
well think big all right trump moves on after
6:59
we negotiated a deal success became a matter
7:01
of management and marketing the challenge was
7:03
to get the place rented and rented to good tenants
7:06
who would stay there The tenants who were living
7:08
in the project when I took over had ripped the
7:10
place apart. Here we're going to see, it's interesting,
7:14
Trump's first kind of encounter, if you will,
7:16
with, you'll see the parallel, with his vice
7:21
president, J .D. Vance. I'm making a jump here.
7:25
Trump says, many of them had come down from the
7:27
hills of Kentucky. They were very poor and had
7:30
seven or eight children, almost no possessions,
7:32
and no experience living in an apartment complex.
7:36
Many people from Kentucky left the state and
7:39
went to Ohio, Cincinnati among them, to find
7:45
better jobs and better prospects. And J .D. Vance
7:50
explains that in his book. And he was a child
7:53
of this migration, if you will. So basically,
7:56
Trump says the situation with the tenants was
7:59
not very reliable. Trump and his father did was
8:03
that they invested. in complete renovations to
8:08
make the housing project look better. The first
8:11
thing we did was invest in beautiful white shutters
8:12
for the windows. That may not sound like a big
8:15
deal, but what the shutters did was give a bunch
8:18
of cold red brick buildings a feeling of warmth
8:20
and coziness, which was important. It was also
8:24
much more expensive than you'd guess because
8:26
you're talking about 1 ,200 units, each of which
8:29
has 8 to 10 windows. The next thing we did was
8:32
rip out the cheap horrible aluminum front doors
8:35
on the apartments. Put up beautiful colonial
8:37
white doors. I made sure the whole complex was
8:41
very clean and very well maintained. Okay, Trump's
8:44
going to give us a great lesson here. As I said
8:47
earlier, I've always had a personal thing about
8:49
cleanliness. I also believe it's a very good
8:52
investment. For example, if you want to sell
8:54
a car and you spend $5 to wash and polish it,
8:57
then apply a little extra elbow grease, fund,
9:01
you can charge an extra $400 and get it. I can
9:04
always tell a loser when I see someone with a
9:06
car for sale that it's filthy dirty. It's so
9:10
easy to make it look better. It's no different
9:13
than real estate. Well -maintained real estate
9:15
is always going to be worth a lot more than poorly
9:17
maintained real estate. Here, basically Trump
9:20
is saying that it's going for the low fruits,
9:22
basically. If you can do a little bit of efforts
9:26
on the appearance, which doesn't cost that much.
9:30
but shows that you care, you go much further.
9:33
And if someone doesn't have the reflex to do
9:41
that little step, it says a lot. And Trump usually
9:45
dismisses these people as sloppy or incompetent.
9:49
Many things are in the details, and sometimes
9:52
it's little things that make the whole difference
9:55
in separating amateurs from professionals. He
9:59
goes on with the renovations. We painted the
10:03
hallways. We sanded and stained the floors. We
10:05
kept the vacant apartments immaculately clean
10:07
and we landscaped the grounds. We also ran beautiful
10:10
newspaper ads for the project at a time when
10:13
not many people in Cincinnati were advertising
10:16
real estate. People came to check us out and
10:19
the word of mouth started getting good. Within
10:21
a year, the buildings were 100 % rented. Here
10:24
are just hints at the importance of... Marketing
10:28
or getting the word out, right? You can have
10:29
the best product in the world if no one knows
10:31
about it. No one knows about it, right? So you
10:34
have to, no matter what field you are in, also
10:39
have a communication strategy that lets the world
10:43
know about your achievement, what you're up to,
10:46
and that there's a great development in the neighborhood.
10:53
and its features here. Trump was doing marketing
10:57
then already, before he was in fashion for billings.
11:03
And now he's going to explain how he selected
11:10
the manager for the billing. Along the way, we
11:13
went through a half dozen different project managers
11:16
before we found the one we wanted. We had managers
11:18
who were honest but dumb, including one guy who
11:21
literally painted himself into the corner of
11:23
our apartment. Others were smart but didn't know
11:26
the first thing about managing. Fortunately,
11:28
we went through them fast because I tend to size
11:31
people up pretty quickly. Classic Trump trick
11:33
is sizing up quickly. If you see the number of
11:35
decisions he has to make in terms of appointments
11:38
of judges at different levels throughout the
11:42
country or... the cabinet positions that he appoints,
11:48
or the number of people he has to deal with and
11:53
he gladly deals with in all 50 states and different
11:59
towns that he has to be able to make. people
12:06
decisions very quickly, right? For who he's going
12:08
to surround himself with, who he's going to invest
12:10
his time with, whose endorsement does he want,
12:13
who will he give his endorsement to, right? We
12:17
see it in the more recent news, very important
12:19
for him and for whoever's in office to have a
12:24
loyal team. And so he says, ultimately we got
12:29
a fabulous man whom I'll call Irving. Irving
12:32
was 65 years old and a real character. He was
12:36
one of the greatest bullshit artists I've ever
12:38
met. But in addition to being a very sharp talker
12:40
and a very slick salesman, he was also an amazing
12:43
manager. Irving was the kind of guy who worked
12:46
perhaps an hour a day and accomplished more in
12:48
that hour than most managers did in 12 hours.
12:51
I learned something from that. It's not how many
12:53
hours you put in, it's what you get done while
12:56
you're working. It's a great one. It's not how
13:00
many hours you put in, it's what you get done
13:02
while you're working. So people can just quote
13:07
-unquote kill time for the whole day and still
13:10
be the first one in office and last one out.
13:13
Doesn't mean they got anything done. Whereas
13:15
someone who strolls in and out earlier, comes
13:19
later in the morning, leaves earlier in the afternoon,
13:24
could still get a much more productive output.
13:29
The appearance of the hours is not really what
13:31
makes a difference. And Trump here just acknowledges
13:33
that in a beautiful way. He understands that
13:38
what he needs is someone who's effective over
13:40
other metrics. Now he's going to elaborate on
13:45
his character. The problem with Irving was that
13:47
he wasn't the most trustworthy guy in the world.
13:50
I suspected as much from the first day, but it
13:53
wasn't until I tried to put a bond on him, something
13:55
I do with any employee. who handles money that
13:58
my instincts were confirmed my insurance agent
14:01
called me back after running a check and he said
14:04
donald you've got to be kidding about a bond
14:06
this guy's a con man it turned out that irving
14:09
had done all sorts of con jobs and swindles he'd
14:12
often been in trouble with the law my philosophy
14:14
has always been that if you ever catch someone
14:17
stealing you have to go after him very hard even
14:19
if it costs you 10 times more than he stole stealing
14:23
is the worst but with irving i had the the dilemma
14:26
he was far and away more capable than any honest
14:29
manager i had found and so long as he was in
14:32
charge no one under him would dare steal that
14:35
meant i only had to keep my eye on him right
14:38
on one person instead of on the whole structure
14:41
i used to kid irving i'd say we pay you 50 000
14:45
and all you can steal and he would act all upset
14:49
if i'd caught him in the act i would have fired
14:52
eric on the spot but i never did Still, I figure
14:55
he managed to steal at least another $50 ,000
14:57
a year. Even so, I was probably getting a bargain.
15:01
Alright, so Trump assessed and realized that
15:06
although he's a colorful character, in terms
15:09
of managing the buildings, he's pretty effective.
15:13
And he's not very reliable with certain things.
15:16
Maybe the accounting or an element of... of the
15:23
money keeping but for what trump needed him he
15:26
was effective at collecting rent among other
15:29
things then trump explains how he was good at
15:32
collecting rents and he that he had a big mouth
15:37
that he was very bold and that that got him in
15:40
trouble once so he once he took a the exercise
15:43
a bit far he he was in front of um an apartment
15:48
that was like in payment he yelled in front of
15:50
the the woman's daughter. And then he tried to
15:54
seduce the woman who was not interested. And
15:58
so he stopped then. But she mentioned it to her
16:02
husband, who was a monster, someone very tall,
16:06
very muscular. The husband barged into the office.
16:10
And it's worth going into that interaction. Trump
16:13
takes something away from it. About an hour later,
16:16
Irving and I were sitting in his office when
16:18
this huge guy, a monster, maybe 240 pounds, burst
16:22
through the door. It was first that Irving had
16:24
cursed in front of his daughter and he was ready
16:27
to strangle him for coming on to his wife. The
16:29
guy had murder in his eyes. I expected Irving,
16:33
if he had any sense, to run for his life. Instead,
16:36
he started verbally attacking the man, flailing
16:39
and screaming and chopping his hands in the air.
16:42
You get out of this office, he said. I'll kill
16:45
you. I'll destroy you. These hands are lethal
16:46
weapons to register with the police department.
16:49
I'll never forget how the guy looked at Irving
16:51
and said, you come outside, fat crap. I want
16:54
to burn grass with you. I always love that phrase,
16:57
Trump says, burn grass. And I thought to myself,
17:00
Irving's in serious trouble, but Irving didn't
17:03
seem to think so. I'd fight you anytime you want,
17:05
he said, but it's unlawful for me to fight. All
17:08
you had to do was look at Irving to know that.
17:11
Those hands were hardly registered weapons, but
17:13
Irving was very much like a lion tamer. You've
17:16
seen these guys, maybe 150 pounds, walk blithely
17:19
into a cage where there's a magnificent 800 -pound
17:22
lion pacing around. If that animal sensed any
17:25
weakness or any fear, he'd destroy the trainer
17:27
in a second. But instead, the trainer cracks
17:30
his whip, walks with authority, and amazingly,
17:33
the lion listens, which is exactly what Irving
17:36
did with this huge guy, except his whip was his
17:39
mouth. The result was that the guy left the office.
17:42
He was still in a rage, but he left. Irving probably
17:45
saved his own life just by showing no fear. That
17:48
left a very vivid impression on me. You can't
17:51
be scared. You do your thing. You hold your ground.
17:55
You stand up tall. And whatever happens, happens.
17:59
Let me repeat that. Irving probably saved his
18:02
own life just by showing no fear. And that left
18:05
a very vivid impression on me. You can't be scared.
18:09
You do your thing, you hold your ground, you
18:11
stand up tall, and whatever happens, happens.
18:15
Can't be scared, do your thing, hold your ground,
18:18
stand up tall, and whatever happens, happens.
18:20
Where do we see a parallel to this? It's in the
18:23
Butler, Pennsylvania assassination attempt. Trump
18:27
gets up right away, looks at the crowd, and says,
18:30
fight, fight, fight. While there's an active
18:33
shooter situation, that takes boldness, that
18:36
takes courage. Many people weren't. with Trump
18:39
when that happened, including Mark Zuckerberg,
18:42
who's quoted on Bloomberg saying this was the
18:46
most baddest thing he's seen in his life. Yeah,
18:49
I think this is exactly what he said with Miss
18:53
Emily Chang of Bloomberg. Right, so here's a
18:56
lesson in fearlessness and in that which the
19:01
image you project is very important. Trump is
19:04
seeing this in real time, how a little Bald,
19:08
fat, 65 -year -old is able to verbally assess
19:12
his authority and get away from a very potentially
19:17
dangerous situation just using his confidence.
19:21
So, of course, this is something that Trump is
19:25
going to remember. Irving was running it well.
19:30
Trump started spending less and less time. And
19:33
he wasn't really needed in Cincinnati anymore.
19:35
So he stopped visiting Swifton and just went
19:37
from coming once a week to once a month. And
19:40
he says he's going to a friendship. Early on,
19:45
I'd become particularly friendly with one of
19:47
the newer tenants at Swifton. He was Jewish,
19:50
an older man who'd been in a concentration camp
19:53
in Poland. He started off in America as a butcher,
19:56
then bought the shop. And by the time I met him,
19:59
he owned perhaps 14 butcher shops. He and his
20:03
wife had taken two apartments in Swifton and
20:06
put them together and they had a great place
20:08
and they were very happy there. I had a lot of
20:10
respect for this guy because he had street smarts.
20:13
He'd been around and he was obviously a true
20:15
survivor. One day, a number of years after we
20:18
first bought the place, I was out visiting. I
20:21
ran to my friend. How are you doing? How are
20:24
you feeling? I asked. Good, good, he replied.
20:26
But then he took me aside and whispered. Donald,
20:30
you are a friend of mine. And I have to tell
20:32
you, sell this job. And I said, why? Because
20:36
it's going real bad. Not the job, but the area.
20:40
It's being surrounded by people who are so bad,
20:42
they will cut your throat and walk away, not
20:44
even think about it. I'm talking about people
20:47
who enjoy cutting throats. That was exactly the
20:50
expression. I never forgot it. Now, I'm someone
20:54
who responds to people. I have respect for them.
20:57
And I listen. Again, it's instincts. not marketing
21:01
studies. So I spent an extra two days in Cincinnati
21:04
and I wrote around and I saw that there was trouble
21:06
brewing, that neighborhoods were getting rough.
21:09
I put the job for sale and almost immediately
21:12
we got an offer. So here Trump is letting us
21:17
in on another one of his big, big secrets. It's
21:21
that, right, the obvious one is great instincts,
21:25
that he relies on them, but how does he feed
21:28
the instincts? He listens. He listens to people
21:32
that he has respect for. So in confidence, elderly
21:37
person recommended to Trump to sell for a good
21:42
reason. And it was explained that the neighborhood
21:44
was not what it once was. It was turning into
21:49
something else. And Trump heeded that warning.
21:51
Trump was not dismissive of that. He looked into
21:54
it and he confirmed it. And then he put the property.
21:59
For sale. And he's going to explain how there
22:02
was a REIT that immediately put in an offer.
22:04
They sent in a young guy who just wanted to go
22:07
for lunch. Instead of visiting property, all
22:10
he wanted was to go for lunch, which Trump doesn't
22:13
like to do. So they had a very long lunch. The
22:16
guy just told his superiors to approve the deal.
22:19
Then as the deal eventually was approved, but
22:23
in the meantime, the contract. What happened
22:26
next is that we signed a contract. By then, I
22:29
could see the dark clouds clearly on the horizon.
22:32
A lot of tenants had their leases coming up and
22:35
weren't planning to renew. So Trump's going to
22:37
explain two things that he did in the contracts
22:40
to anticipate the situation and proving that
22:46
he had the right instinct and then also showing
22:48
how the other side of the negotiation were just
22:51
a bit sloppy and in a rush. They didn't do it
22:56
properly. on the property. So no diligence on
23:00
the other side. Here's what Trump did. We put
23:03
a clause in the contract of sale saying that
23:05
all representations contained in it were as of
23:08
the signing of the contract, not as of the closing,
23:11
which is what's typically required. In other
23:13
words, we were willing to represent that the
23:15
project was 100 % rented at the time of the contract
23:19
signing. We didn't want to make the same promise
23:22
at the time of closing, three or four months
23:24
down the line. Trump saw side coming that tenants
23:29
would be leaving without renewing and for kind
23:33
of hedged his end of the contract by saying it's
23:37
currently at 100 but we don't guarantee that
23:39
it will be at 100 when we close the second thing
23:43
the other thing i did was to insist on a clause
23:45
in the contract in which they guaranteed they
23:48
closed or else pay a huge penalty that was also
23:52
very unusual because it nearly In nearly every
23:55
other deal, the buyer puts up a 10 % deposit.
23:58
And if he fails to close, all he forfeits is
24:01
a deposit. Frankly, the prudent people should
24:03
have been more prudent. But as I said, the REITs
24:06
were hot to trot, and they couldn't make deals
24:09
fast enough. In the end, of course, it never
24:11
pays to be in too much of a hurry. On the day
24:14
we closed, there were dozens of faking apartments.
24:17
And so we see from the two clauses that Trump
24:21
really hedged his bet. is none of the contracts.
24:25
The first clause was in regards to the occupancy,
24:30
right? 100 % at the time of signing, not necessarily
24:33
at the time of closing. The second thing was
24:35
that on top of the deposit, Trump wanted another
24:40
punitive measure in case they didn't go through.
24:43
And that was just to add a huge penalty so that
24:47
they wouldn't just lose their deposit and they
24:50
would have to pay something else on top. And
24:53
that kind of really locked them into the contract.
24:56
And the written question, the real estate investment
25:00
trust that invested in, that bought the development,
25:03
was called prudent. And of course, they weren't
25:06
very prudent. And this is why this chapter is
25:11
called Prudence Pays. So we see that Trump was
25:16
prudent in his diligence when he purchased the
25:19
property. So there was a lot of upside. He was
25:22
also prudent when he, we can say cautious, when
25:28
he, after interviewing many different managers,
25:32
found the right one for the job, but still kept
25:35
an eye on him. With prudence, he chose efficiency
25:39
with an asterisk. And finally, Trump showed prudence
25:44
by being very diligent in the contract. By having
25:48
these two clauses. He makes sure that he gets
25:52
out of the deal with the upper hand. And that
25:56
if the market turns, if the occupancy of that
26:01
specific building or set of buildings turns as
26:05
he saw it coming, it wouldn't play against him.
26:08
Likewise, if they were to have cold feet and
26:13
not go through the deal, still, they would have
26:16
to pay such a... a hefty fee that Trump would
26:19
be winning then as well. So he didn't let, although
26:22
his friend, the Jewish Holocaust survivor, give
26:28
him advice and give him an assessment that the
26:32
neighborhood was changing. He didn't let this
26:36
reality change his hand. He still made the most
26:40
of what he had. He got out quickly. and set up
26:46
their conditions to get out while protecting
26:49
his asset. So he protected the ad he had before,
26:54
even though he knew that what was coming was
26:58
not favorable to the property. Here's another
27:01
masterclass in negotiation, or if you will, teaches
27:08
us the importance of diligence, of prudence,
27:11
and on the flip side, That what not to do in
27:15
negotiation or in dealmaking is to be the impatient
27:20
party or the undiligent party. So that was an
27:25
interesting chapter four into one of Trump's
27:29
first big deals. It landed them upside of six
27:35
million. They sold for 12 and they bought for
27:39
sex. So a quick and... Early success for Trump
27:45
and one that certainly that fueled this momentum
27:48
and ambitions as we move on. Next chapter will
27:51
be the move to Manhattan. Thanks for listening.