Koch himself was not exactly effusive about what we’d accomplished. Again, I think the media may have been a factor. In October, all the local newspapers ran stories that surely must have made him a little defensive. The Times, for example, ran a lead editorial that began, “New York City bungled the job of reopening Wollman Skating Rink for six years, wasting millions,” and ended by saying, “The lessons of the Wollman Rink ought not to be forgotten.”
Whenever they were asked, both Koch and Stern told reporters that after the job was done, the city intended to meet with me, and my people, to see whether the lessons of Wollman Rink could be applied to other city projects. If I heard them make that statement once, I must have heard it a dozen times, including in several speeches on November 13, the day we officially opened the rink to the public.
I’ve yet to get a call from any city official seeking a meeting. I can’t honestly say I’m surprised. The bad press has died down, and that’s all any of them were really concerned about.
Still, I believe there are some lessons the city could take away from what we accomplished at Wollman Rink. At one point, Koch offered his own explanation for why we were able to do what the city could not. “Trump put in a cushion,” Koch said, “and then he was able to reduce it by working as hard as he could with an elite crew, who knew that if they screwed up the job, they would never work for Donald Trump again.”
That explanation wasn’t totally wrong. What Koch didn’t understand is that the city could have done some of the very same things I did. I’m not suggesting they would have been able to complete the job in five months, as I did, or even in six months. But there is no conceivable excuse for not completing it in a year, much less for failing for six years. That’s incompetence, plain and simple, and incompetence was at the heart of this whole sad saga.
City officials invariably cite two reasons why they can’t move as quickly as private developers. The first is that, by law, the city must award any contract to the lowest bidder, regardless of whether that person is best qualified to do the work. There is at least a partial solution. Objective qualifying standards ought to be adopted for any bidder on a city job. Provable past performance, for example, should be required across the board. In addition, any contractor who does good work for the city—coming in on time and on budget—ought to be given priority on future city jobs.
The other disadvantage city officials cite is the so-called Wicks law. It requires that on any public construction job budgeted over $50,000, the work must be divided among at least four separate contractors. The law was designed to increase competition and reduce building costs, but it does just the opposite. No single general contractor is permitted to have overall responsibility, and the result is frequent delays, disputes, and overruns.
I don’t deny that these laws put a crimp on the city, but I believe a far bigger problem is leadership.
I know from my own experience that the only way to get even the best contractor to finish a job on time and on budget is to lean on him very, very hard. You can get any job done through sheer force of will—and by knowing what you’re talking about. As it is now, a contractor will come in and say to a city official, “I’m sorry, but we’ve run into this problem, and we’re going to need another one million or two million dollars to finish the job.” No one argues back, because virtually no one in city government knows anything about construction.
Worst of all, no one in the city government bureaucracy is held accountable for failure. I’ll give you what I consider the classic example. Back in 1984—by which time the city had already spent four years trying to rebuild Wollman Rink—a man named Bronson Binger held a press conference. At the time, Binger’s title was assistant parks commissioner, and his primary responsibility was the renovation of Wollman Rink. Binger made a bold, confident announcement to the reporters who showed up. If the Wollman isn’t ready to reopen in time for next season, he told them, then he’d resign his job.
A year passed, the rink obviously didn’t reopen, and Binger was true to his word. He resigned. There was just one catch. A short time later he was named deputy commissioner in charge of prison construction for the State of New York. I don’t know much about building prisons, but one thing is certain: renovating ice rinks is a lot easier. You don’t reward failure by promoting those responsible for it, because all you’ll get is more failure.
The one group that does benefit from the city’s incompetence are the contractors who do the work. When a subway project or a new highway or a bridge goes over budget by millions of dollars, contractors clean up. You won’t read the names of these people on the Forbes Four Hundred and they may not all speak perfect English, but I’ll guarantee you this: many of them have become immensely wealthy working for New York City. They earn vast sums from huge, unwarranted cost overruns that city officials approve—and taxpayers underwrite.
The gala opening celebration for the rink was produced by former skating champions Dick Button and Aja Zanova-Steindler. They managed to bring together for one show most of the world’s best skaters: Peggy Fleming, Dorothy Hamill, Scott Hamilton, Debbi Thomas, Robin Cousins, Toller Cranston, the teams of Torvill and Dean and Blumberg and Seibert, and others. It was a great occasion.
Had the city then turned over the finished rink to a second-rate operator, this story might still have a bad ending. But because normal competitive bidding would have led to a new delay in opening the rink, the city asked me to operate the rink on a temporary basis for the first season. Again, I just looked for the best rink managers available. The answer I came up with was Ice Capades. Besides doing great ice shows, Ice Capades operate some of the best rinks in the country.
They’ve done an impeccable job with Wollman Rink. It’s not only beautifully run, it’s been highly successful. During the 1970s, when the rink was still open and run by the city, it earned an average gross of approximately $100,000 a year and never took in more than $150,000. Although we charged prices below those of any private city rink—$4.50 a session for adults, $2.50 for children—we earned $1.2 million in revenues during our first season. Profits exceeded $500,000 after expenses, and all of it went to charity and the Parks Department. But equally important, more than a half million skaters enjoyed the Wollman Rink.
Even now, as I write this in the spring of 1987, I get a real kick every time I look out the window of my living room in Trump Tower and see hundreds of skaters on the Wollman Rink. However, I won’t be one of them. People have been waiting for years to watch me fall, but I’m not about to help the cause. Skating isn’t my strong suit.
13
COMEBACK
A West Side Story
THE TOUGHEST business decision I ever made was giving up my option on the West Side yards—seventy-eight riverfront acres between 59th Street and 72nd Street—in the summer of 1979. The easiest business decision I ever made was buying back those same hundred acres in January 1985.
I have a tendency to get very enthusiastic about any deal I make, but I suspect few people would argue that those hundred acres represent the single best undeveloped piece of property in America today.
It has been reported that I paid $95 million for the West Side yards, or about $1 million an acre, which is not far from the correct figure. Taking the time value of money into account, I paid less to purchase the site in 1985 than I would have if I’d exercised my option to buy them in 1979. During the intervening years, the price of most Manhattan real estate increased as much as five times. Even before I put up a single building, I’m certain I could sell the property at a very substantial profit, and I’ve turned down numerous offers already. Consider just one comparison. Very shortly after I bought the West Side yards, another group of developers paid approximately $500 million for the Columbus Circle Coliseum site, a tiny property by comparison, and just four blocks away.
I got the yards at a great price because a bank was foreclosing on a desperate seller, because I made the deal before the property was offered for sale on the ope
n market, and because I was one of the few developers both willing and able to pay millions of dollars a year in carrying costs for as long as it took to get the yards developed.
Securing the option to purchase the West Side yards from the Penn Central Railroad back in 1974 was the first major deal I made in Manhattan. At the time, as I’ve said, the city was on the verge of bankruptcy, and the West Side was hardly considered a great place to live. But I had a simple conviction: I couldn’t go very wrong buying spectacular riverfront property in the middle of Manhattan at a bargain-basement price.
Over the next five years, however, government subsidies dried up for the kind of middle-income housing I was proposing, community opposition to any development on the West Side reached a fever pitch, and banks remained reluctant to finance any large-scale developments. Perhaps most important, I was launching other projects—among them the Commodore/Hyatt, Trump Tower, and my first Atlantic City casino. Nor was I eager to load myself down with huge carrying costs while my personal resources were still very limited.
By devoting myself to other deals instead, I generated a cash flow large enough to support the carrying costs on virtually any project. I also built a record of success that made banks happy to lend me money for nearly any deal.
Shortly after I gave up my original option in 1979, the Penn Central sold the West Side yards to my friend Abe Hirschfeld. Very quickly, Abe went out and got himself a partner on the deal. Francisco Macri became wealthy in the 1960s building bridges for the government in his native Argentina. Under the deal with Hirschfeld, Macri agreed to take over the job totally. Hirschfeld retained a substantial percentage of profits but no ongoing role in the project. Macri, in turn, gave the job of overseeing the project day-to-day to a man named Carlos Varsavsky, a former physics professor who’d been running Macri’s Argentinian company, BA Capital.
The Macri team had plenty of brainpower. What they lacked was practical experience, especially in New York City, where it is so difficult to do any sort of real estate development.
The first key to developing any huge Manhattan site is getting the necessary approvals to build a job that is economically viable. Rezoning is a complex, highly political, and very time-consuming process that ultimately involves a dozen city and state agencies, as well as local community groups and politicians.
Macri did finally manage to get his zoning for the project he named Lincoln West. But in the process he made far too many concessions to the city. Being forced to sell out may have been the best thing that ever happened to him. If Macri had ever tried to build the project under the terms to which he’d agreed, he would have lost hundreds of millions of dollars.
It was sad, in a way, because Franco Macri is a wonderful and well-meaning man. But he made a critical misjudgment from the start: he assumed that in a project as big as the West Side yards, he could afford to absorb nearly any costs and still end up with a huge profit. The truth is that unless you design a project to be self-supporting as you build it, you risk getting eaten alive before you’ve turned the corner into profit.
One of Macri’s problems was that he tried to apply the principles of bridge-building to a residential development. When you build a bridge, under contract to the government, you calculate the costs and sign a contract for a set amount. All you need to do to earn a profit is bring the project in on budget. In developing real estate, it’s a whole different ball game. You can budget building costs, but you can’t truly project revenues, because you’re always at the mercy of the market. The variables include how much you get per unit, how long it takes to sell out, and what your carrying costs are along the way. The less you commit to spend up front, the less you’re at risk later.
Instead, Macri spent three years mostly in the business of giveaways. The city, eager to get all it could in return for approving the project, asked Macri for concession after concession. Macri began by agreeing to provide $30 million to refurbish the 72nd Street subway station nearest to the project—even though the projected renovation amounted to little more than widening a single platform by four feet. For $30 million, you ought to be able to totally rebuild a station.
Next, Macri threw in a $5 million pledge for a railroad flat-car operation in the South Bronx to replace the one he’d be eliminating in the West Side yards. Then he promised to chip in $30 million for a public park within his development. Later, he agreed to build a new public through street connecting with the existing city grid—a job that would have surely cost tens of millions of dollars.
When Con Edison asked Macri to underwrite the cost of rebuilding a smokestack the company owned on the site, he even agreed to that. This I found particularly preposterous. Con Edison already gets one of the highest utility rates in the country. When I met Macri, I asked him why he’d agreed to do anything for Con Ed. Wasn’t it enough, I asked, that over the years he was going to be buying billions of dollars worth of electricity from them?
“They told me they were going to oppose my project,” Macri explained. “And anyway, what’s the big deal? How much can a smokestack cost?”
Suddenly I understood: Franco Macri hadn’t bothered to check. But I did. To put a needle 500 feet into the air, it turns out, costs nearly as much as putting up a building. “It could run to thirty or even forty million dollars,” I told Macri. He still didn’t seem fazed. By the time he’d finished being generous to anyone who asked, Marci had committed more than $100 million in giveaways. Worse yet, he’d agreed to pay in full for much of it before he’d erected any buildings—much less sold a single apartment.
Equally bad was the zoning to which Macri finally agreed. By the time the process was finished, he’d been negotiated down to less than 4,300 residential units on his hundred-acre site—a density lower than you find in some six-story apartment complexes in the suburbs. More specifically, Macri agreed to build just 850 units in the most valuable part of his site—68th Street to 72nd Street—which was adjacent to an existing residential neighborhood. The great majority of his apartments he agreed to put in the undeveloped industrial southern end of the site, where the residential market remained totally untested.
Antidevelopment forces on the Upper West Side barely had to fight with Macri. He became his own worst enemy.
The last major mistake Macri made was that he never set out to create any excitement about his Lincoln West project. During the four years when he owned this terrific piece of property, virtually not a word was written about it. Even the name Lincoln West implied that, despite the fact that this represented one of the largest and potentially most important developments in the United States, it was merely a job located west of Lincoln Center.
An average 150-unit luxury high-rise building in New York takes two years to sell out—and that assumes a strong market and good promotion. To sell literally thousands of units in a new development requires that you have both something unique to sell and a very aggressive approach to selling it. Macri had neither. The Lincoln West development he had proposed—two dozen relatively short brick buildings—was as bland and uninspiring as any of a dozen public housing projects that were thrown up around Manhattan during the 1960s. It was scarcely surprising that not one of at least a dozen banks Macri called on over three years was willing to lend him money for his construction, even though banks were practically throwing money at dozens of other New York City developments.
By late 1983, Macri also had personal cash problems. The war in the Falklands apparently had hurt his business interests in Argentina. By this point, counting outlays for architectural staff, environmental-impact studies, and carrying costs, Macri was probably in to Lincoln West for more than $100 million. Caught in a crunch, he began defaulting on the original loan he’d taken from Chase Manhattan to purchase the land.
In the spring of 1984 I got a call from Abe Hirschfeld. He told me that Macri was in trouble and was interested in selling. I went to see Macri, and we began a long negotiation. He was eager to get out with a profit. At the same time, the
bank was breathing down his neck. Sure enough, in November, we finally agreed to an all-cash price of approximately $100 million, and Chase agreed to finance a good part of the transaction.
One of the reasons Franco Macri agreed to sell to me, I’m convinced, is that I’d done him a favor long before we finally made a deal. Shortly after our first meeting in early 1984, we agreed on the terms of a tentative deal under which Macri would sell me the project. He wasn’t yet certain that he wanted to sell, but he was willing to consider signing at least a letter of intent. One of the first things that anyone should learn about real estate—and New York real estate in particular—is never to sign a letter of intent. Years can be spent in court trying to get out of a seemingly simple and “nonbinding” agreement.
Macri did not fully realize this, and in addition, my lawyer, Jerry Schrager, drafted a letter of intent that was significantly more binding than most.
It was with an eye to getting this letter signed that Jerry and I sat down in mid-1984, in an extraordinary apartment at the Sherry Netherland Hotel, along with Macri, his young son, and a beautiful interpreter named Christina. She was a true Latin beauty, and all of us were somewhat distracted. I’ll never forget Christina’s stopping in the middle of translating a complex legal point and saying to Macri, “You really should get a lawyer to help you understand the meaning of this document. It’s very complicated.”
“No, no, Christina,” he said. “As long as I can get out of it, it’s not so important.” And he went ahead and signed.
As it turned out, Macri retained his dream of proceeding with the project, and several months later he called and asked me to let him rescind his letter of intent. I declined, but he asked if we could meet, and I agreed.
Macri explained that the project was killing him, but that he desperately wanted to make one last effort to get his financing and move forward. I couldn’t help feeling sympathetic, having spent years myself working to launch difficult projects. I also appreciated his openness.
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