News

Why Didn’t Trump Build Anything in Russia?

Thirty years ago, in July 1987, Donald and Ivana Trump flew to the Soviet Union, apparently at the invitation of the Soviet ambassador to the United States, in order to scout locations for a Trump hotel in Moscow. “It was an extraordinary experience,” Trump wrote in The Art of the Deal. “We toured half a dozen potential sites for a hotel, including several near Red Square.” He came away “impressed with the ambition of the Soviet officials to make a deal.”

And yet a deal was never struck, neither then nor in 1996, when the Moscow real-estate market really cranked up and Trump tried to bid on a renovation of Hotel Rossiya near the Kremlin. Nor did anything come to fruition in 2008 when Trump announced plans to build in Moscow, St. Petersburg, and Sochi; nor in 2013, when he visited Moscow and said he was going to build a Trump Tower there with the help of Russian mega-developer Aras Agalarov. In June 2015, shortly before declaring his presidential candidacy, Trump bragged to Bill O’Reilly that, “I was over in Moscow two years ago and I will tell you—you can get along with those people and get along with them well. You can make deals with those people. Obama can’t.” At the time, it has since been reported, Trump’s surrogates Felix Sater and Michael Cohen were actively pursuing another real-estate development on Trump’s behalf in Moscow, but, by winter of 2016, that project was moot, too.

The American president has often bragged about his ability to cut deals and about how well he gets along with the Russians. The press and investigators have speculated about the extent of his connections to the Russian business and political elite. And yet, when it came to Trump actually building something in Moscow, he fell short. When the president said, shortly after his inauguration, “I don’t have any deals in Russia,” he wasn’t wrong.

The question is why. When just about every other major hotel chain in the world was able to build in Moscow and beyond, why couldn’t Trump close a deal in Russia?

The absence of Trump real estate in Russia, it turns out, is a revealing reflection of the disconnect between the image Trump projects and the reputation he and his surrogates have established in Russia.

In part it was because, as Donald Trump Jr. once said himself, Russia “really is a scary place.” In a 2008 interview with a small trade publication, Trump Jr. said that he had taken “half a dozen trips to Russia in the last 18 months” and that “several buyers have been attracted to our projects there.” But there was something getting in the way of those trips adding up to a Trump Tower Moscow. “It is definitely not an issue of being able to find a deal,” Trump Jr. said, “but an issue of ‘Will I ever see my money back out of that deal or can I actually trust the person I am doing the deal with?’ As much as we want to take our business over there, Russia is just a different world. … It is a question of who knows who, whose brother is paying off who, etc.”

Trump Jr., who did not respond to request for comment, was right: The world of Russian business is a dark and treacherous place, and Moscow real estate is one of its darkest corners. “Moscow is like New York in many ways, just way more corrupt,” says a Western real-estate developer in Russia, who asked for anonymity in order not to jeopardize local partners and ongoing business deals. “To pull a building out of the ground, you need so many permits, so many authorizations—the mind reels. And all of it is so corrupt, it’s insane.” To navigate all this, the Trump Organization would have needed a local partner that was not just a capable developer, but had the right political connections to secure all the necessary permissions. “You need a good Russian partner, otherwise there’s no way,” says Mark Stiles, an American businessman who had extensive real-estate holdings in Russia.

In 2013, Trump worked with Agalarov, who had stellar connections at the very zenith of Russian political and business life. But that deal went sour after it caused a scandal in Kyrgyzstan—long story—and after the Russian economy took a nosedive in 2014.

But at other times, Trump’s man on the ground was Felix Sater, a Russian-born wheeler and dealer from the Russian-immigrant enclaves of Brooklyn. Sater, who declined to comment on the record for this story, once served a year in an American prison on an assault conviction after he stabbed a man in the face with the stem of a broken margarita glass. Not long after he got out of jail in the mid-90s, he was charged with securities fraud. Sater struck a deal to avoid prison time by becoming an FBI informant—a role that included providing the U.S. government with Soviet-era weapons purchased from an arms dealer.

In 2002, Sater, who was renting office space in Manhattan’s Trump Tower, worked his way into Trump’s inner circle. In 2004, Sater started traveling to Moscow and tried to put together Russian real-estate deals for Trump. One potential deal, a Trump building on the territory of Moscow’s Soviet-era Sacco and Vanzetti Pencil Factory, fell through when the Russian partner was unable to get the right permits.

In late 2007, in addition to his work for Trump, Sater also began serving as an adviser to the real-estate developer Sergei Polonsky, a flamboyant builder who has called himself Russia’s Donald Trump. (“And yet he’s gone bankrupt twice,” Polonsky said of Trump, according to the Russian news agency RIA Novosti, “and I haven’t, ever.”) Polonsky, who named his son after his development company, Mirax, was behind some of Moscow’s hottest developments. Sater was tasked with helping Polonsky develop international projects, but only one ever came to fruition.

This didn’t exactly surprise Polonsky’s lieutenants. Alexey Kunitsin, who at the time was chairman of the board at Mirax, told me that Polonsky had been warned about Sater and his past, but Polonsky didn’t care. “I would never hire somebody like that,” Kunitsin said. “You can’t trust him in any way, not in a professional setting, not in a personal setting. You could see it very clearly. He was telling constant crazy stories, wild fantasies about all the people he knew. He was not a balanced dude. He’s very emotional and gets into conflicts very easily.” Kunitsin recalled that Sater would also brag to his coworkers at Mirax about how good he was at spending all the money he allegedly earned. “It didn’t really inspire confidence, especially when he described it all so colorfully,” Kunitsin said. Another former Mirax employee who dealt with Sater paints a similar portrait. “He’s not a serious person,” the former Mirax employee said. “He’s not a total bullshitter, he can do some things, but he’s also a bullshitter. He tries to create the impression of someone who is extremely well-connected and very busy.”

That Sater raised suspicions and turned Moscow businessmen off with tales of conspicuous consumption, in a city where it is practically a sport, is deeply telling. “You really have to be very talented to do that,” said a prominent Russian real-estate consultant, who spoke on condition of anonymity because he worried that speaking to a journalist would jeopardize his professional relationships in Moscow. “And most people didn’t take him seriously. He was ready to pay for a few bottles of Cristal in the club, but was not someone you want to make a serious deal with.”

Polonsky was hard hit by the 2008 financial crisis, which also killed off Trump’s plans for building Trump buildings in Russia. But this didn’t derail Sater, who ditched Polonsky and, in 2010, became a senior adviser to Donald Trump, according to his business cards and email signature. That year, he was working on Trump’s development plans in Russia, again. And he ran into trouble, again. Sater told people in Moscow he had a signed authorization from Trump to enter into negotiations on his behalf, but because of Sater’s flamboyant manner, few people believed the document was authentic. “He was walking around with a power of attorney or something from Trump,” the Russian real-estate consultant said of Sater. “It was a very suspicious-looking document.”

Sater’s reputation continued to haunt him, even in Russia. “In 2010 when you Googled him you got a story form The New York Times about his past and it made things difficult for him,” says the former Mirax employee, referring to a 2007 article by Charles Bagli. The piece was the first to dredge up Sater’s checkered history and to put it in one, reputable place. Sater tried spelling his name “Satter” but it didn’t help.

A boutique Moscow PR agency offered to help rehabilitate his image. “Nice people [in Moscow] didn’t want to do business with him,” says a representative of the now-defunct agency. His assessment of Sater’s dilemma, which he shared with me on condition of anonymity, was stark. “Your mass media image today is the classical negative image of businessperson who is likely to be connected a criminal,” the PR agency wrote to Sater in September 2010. “Your media image is created by a third party, not you. You [sic] story is covered by media sources in a negative fashion. As a result, it affects even neutral news on your persona.” (Sater did not end up hiring them.)

It also didn’t help that Sater was a freelancer, and an outsider. He may have been born in Moscow, but he had left as a child. Despite a stint in Moscow in the 1990s, his return visits were brief and sporadic, his Russian accented by his long life in America. He would have read to Russians as an American, a foreigner. He had no obvious krysha, or “roof”—political protection as insurance against things going sideways. “The first question when you’re doing business in Russia is: who’s your krysha?” says one longtime Western investor in Moscow, who asked for anonymity because of the sensitivities of doing business in such a treacherous environment. “No krysha, no deal.” Polonsky had provided one such krysha, but by the time Sater tried in 2015 to build a Trump Tower in Moscow City, the capital’s modernist financial district, Polonsky was in prison and on trial for embezzlement. (He has since been released.) Trump, whom Sater claimed to be representing, was not a good krysha either: He was a foreigner, lived in New York, and had no pull within the various power structures in Russia. (The White House referred queries about this story to the Trump Organization. In response to repeated inquiries, a spokesperson for the Trump Organization underscored that it “has never had any real estate holdings or interests in Russia,” but declined to address questions about the president’s previous business relationship with Sater.)

In the fall of 2015, months after Trump declared his presidential candidacy, Sater was at it again, according to reports in The Washington Post and New York Times. In emails obtained by the Times, he bragged to Michael Cohen, Trump’s lawyer and unofficial campaign surrogate, that he had lined up financing for a Trump Tower in Moscow City from VTB, a bank under U.S. sanctions. He also bragged that “I will get Putin on this program and we will get Donald elected.” That year, Trump signed a non-binding letter of intent, and Cohen told the Times that he spoke with Trump three times about the deal.

Again, the deal went nowhere. According to the Times, for all his blustery promises of getting Putin involved, Sater did not even have the connections to get the proper permits to get the project going.

But there were two other factors. One was the sad state of the Russian economy. 2014 had brought the twin shocks of plummeting oil prices and Western sanctions, and the ruble collapsed. The sanctions cut off access to cheap financing, including to banks like VTB, known as the wallet of the FSB, one of Russia’s intelligence services. Real-estate development ground to a halt; vacancies rose. It was a punishing, prohibitive environment in which to build a new luxury high-rise.

The other factor was that Sater’s Russian partner, Andrei Rozov , did not have the economic heft or the political connections to overcome these obstacles. Sater knew Rozov when they worked together at Mirax, but he was the wrong partner for a Trump Tower Moscow. Rozov mostly developed residential projects in a sleepy, shabby bedroom community far from Moscow’s center. It is not, in other words, the kind of prime real estate where one would build a ritzy hotel. Moreover, by 2015, Rozov was trying to rescue his money and invest it in the United States, in the shale boom towns of the Dakotas. According to two sources who know Rozov, he was scheduled to attend Trump’s inauguration but didn’t make it. Rozov declined to comment for this article.

With the project hopelessly stalled, Cohen tried to nudge it forward in January 2016 by calling in the big Russian political guns Sater had bragged about. But Cohen seriously misfired, and instead emailed Putin’s mustachioed, bon vivant spokesman Dmitry Peskov for help with the Trump Tower project. Moreover, Cohen told me, he sent the email to the general inbox for press inquiries listed on the Kremlin website. Peskov confirmed to the Russian press that his office had received the email and chose to ignore it. “As far as we don’t respond to business topics, this is not our job, we did not send a response,” Peskov said.

Some Western observers saw this as evidence of high-level contact between the Trump Organization and the Kremlin, but to veterans of the world of Moscow real estate, it was nothing but a rookie mistake. They see the story as emblematic of why Trump could never build anything in Moscow, despite three decades of talk. “That is like the stupidest, most absurd thing ever,” says the Western real-estate developer of Cohen’s email. Nor were they surprised that the Trump team committed this error, given who was on the team. “The Russians that he associates with, I would never do business with,” says the Western real-estate developer of Trump and his business partners from the former Soviet Union, like Sater. “I’ve been involved with Russia for 25 years. … A genuine developer could’ve done a lot with that brand.”

Yet the brand, for all its potential appeal to Moscow’s gaudy nouveau riches, didn’t have much cachet in Russia. It was not well-known enough for Moscow developers to pay a premium to license the name. “The Trump brand, which in America is very strong, in Russia it doesn’t have that kind of pull,” the former Mirax employee said. “Russians won’t agree to pay 30 percent more for elite real estate” just because it was branded “Trump,” because “no one in Russia watched The Apprentice.” The Russian real-estate consultant voiced a similar sentiment. “In Russia, Trump’s name was never that interesting or notable so that someone would be willing to invest and license it,” he said. “Everything that was built in Russia appreciated well without Trump’s name, so there was no need to pay for his name. There was no business sense in licensing his name.”

Hotel brands like the Ritz Carlton or the Four Seasons are paid not just for their names but to actually run the hotel built by a developer. All Trump offered was his name, and at a hefty mark-up at that. The Russians were skeptical, especially given that Trump was not investing anything in any of these projects. “Trump didn’t invest anything,” says Kunitsin, the former Mirax board chair, “and in my opinion, the brand is a little too expensive.”

“Trump wants a fee for branding and doesn’t put money in, so most developers’ in Moscow responses are ‘so what the fuck do we need him for?’” says one person familiar with the various licensing talks. This was especially the case with Polonsky, who felt that his name was worth more in Moscow than Trump’s. Says the source familiar with the talks, “Developers were all looking for people to bring money there, and Donald doesn’t write checks, he takes checks. They said, ‘Why should we pay Donald Trump 10 or 15 percent, plus you had to write a check for a million up front to show you were serious, when we could pay three percent to Hyatt or four percent to Ritz Carlton? What’s the big deal about Trump?’” (The catch, of course, is that Trump’s brand is far more recognizable in Russia now that he is president, but given the suspicions about Trump’s ties to Russia, any potential deal would also attract negative attention.)

And for all Trump’s talk of being able to negotiate with the Russians in a way that Obama couldn’t, Trump’s people inspired no respect at Moscow’s real-estate negotiating table. “Trump wants everything and he’s dealing with the Russians, who aren’t stupid,” says the Western investor in Russian real estate. “If you want everything from the Russians, they’re not going to give it to you. Trump’s way of negotiating is to ask for every fucking thing. The Russians have a different philosophy of negotiation: He who asks is the weak party.”




Source link
0

Leave a Reply

Pin It on Pinterest

Share This

Share this post with your friends!