Trump Sees Act of God in Recession

CNBC.com Donald Trump

Guess who is complaining that condominiums in Donald Trump’s latest big project are ridiculously overpriced.

Donald Trump is.

But he isn’t cutting the prices. He says the banks won’t let him.

The project is the Trump International Hotel and Tower in Chicago, which is to be the second-tallest building in that city (after the Sears Tower). By Mr. Trump’s account, sales were going great until “the real estate market in Chicago suffered a severe downturn” and the bankers made it worse by “creating the current financial crisis.”

Those assertions are made in a fascinating lawsuit filed by Mr. Trump, the real estate developer, television personality and best-selling author, in an effort to avoid paying $40 million that he personally guaranteed on a construction loan that Deutsche Bank says is due and payable.

Rather than have to pay the $40 million, Mr. Trump thinks the bank should pay him $3 billion for undermining the project and damaging his reputation.

He points to a “force majeure” clause in the lending agreement that allows the borrower to delay completion of the building if construction is hampered by such things as riots, floods or strikes. That clause has a catch-all section covering “any other event or circumstance not within the reasonable control of the borrower,” and Mr. Trump figures that lets him out, even though construction is continuing.

“Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would,” he said in an interview. “A depression is not within the control of the borrower.”

He wants a state judge in the Queens borough of New York to order the bank to delay efforts to collect the loan until “a reasonable time” after the financial crisis ends.

Deutsche Bank thinks the idea that an economic downturn should free people from the obligation to pay their debts is laughable.

Mr. Trump, it may be noted, does not think remorseful condominium buyers are in a similar position. When I asked him if he would let them walk away from contracts to buy apartments at predepression prices, he said he would not. “They don’t have a force majeure clause,” he said.

The suit, and a parallel one by Deutsche Bank seeking the money, provide a glimpse into both how Mr. Trump does business and into the way the real estate loan market was operating in 2005, when the loan was made.

For this big project, built on the site of the old Chicago Sun-Times building, it appears from the court papers that Mr. Trump put in little of his own money. He got a construction loan for up to $640 million from a syndicate headed by Deutsche Bank and a $130 million junior loan from another syndicate headed by Fortress Investments , a hedge fund operator that has troubles stemming in part from bad loans made for other real estate projects.

The people who negotiated the construction loan did not think real estate prices could tumble. The loan agreement requires partial repayment each time an apartment is sold and provides a detailed list of the minimum prices to be charged.

According to Mr. Trump’s suit, he cannot cut prices without the unanimous consent of the lenders, and that has not been forthcoming. There are a lot of lenders in the deal, and some of them appear to be banks and hedge funds that are no longer in good shape.

The loan was due Nov. 7, and the lenders did not grant a requested extension. Mr. Trump filed his lawsuit just before that deadline.

CONTINUED : “I figured it was the bank’s problem, not mine."

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