White House

Trump's Hotel in the Swamp

The government is your landlord. You run the government. Let's make a deal.

Let's make a deal.

Photographer: BRENDAN SMIALOWSKI/AFP/Getty Images

With all eyes focused on the Republican struggle to replace Obamacare on Thursday, a federal agency (overseen by President Donald Trump) told the Trump Organization (overseen by President Donald Trump) that a Washington hotel (owned by President Donald Trump) could continue leasing the land it sits on from the federal government.

Leases can be nifty deals for real estate guys like Trump. They give builders the ability to comfortably pour hundreds of millions of dollars into erecting or rehabilitating a structure that they don’t own -- often also on land they don’t own -- confident that they can do business on the site long enough to earn piles of money from their investment.

Two of Trump’s signature Manhattan buildings – Trump Tower and 40 Wall Street – sit atop land that he leases. Such is the case with the Trump International Hotel in Washington, too, but with a notable difference: The federal government owns the building and the land in Washington, while private entities own the land beneath Trump’s New York skyscrapers.

Trump’s Washington landlord is the General Services Administration, an agency he also happens to supervise (presidents get to appoint the head of the GSA). The GSA is charged with procuring goods, services and offices for other federal agencies as well as trying to preserve historic properties that the federal government owns.

Trump’s hotel is a conversion of the Old Post Office Tower, which has occupied the site since 1899 and which was part of the GSA’s portfolio of federal properties. Trump entered into a development deal on the Post Office in 2013 – years before he launched his successful presidential bid -- promising that he would spend at least $200 million to spruce up the building and pay the GSA $250,000 per month, with annual increases, in return for a 60-year lease.

The Trump International Hotel opened last September. But once Trump captured the White House in November, he began careening toward a confrontation with his federal landlord because of the language in the lease he had signed. It states that no “elected official of the Government of the United States” is entitled to “any share or part” of the lease “or to any benefit that may arise therein.”

A strict reading of the lease suggests that the moment Trump was sworn in as president on Jan. 20, he was in violation of the lease agreement. After all, the practical implication of his presidential victory was that he was now leasing land to himself, as both the steward of the federal government and as the owner of a privately held company. In other words, Trump had yet another financial conflict-of-interest.

But that’s not how Kevin Terry, the GSA’s contracting officer, sees things. He approved the Trump Organization’s continued operation of its Washington hotel on Thursday, saying that the leasing deal occurred before Trump became president and therefore remained viable. He also said, essentially, that Trump is in compliance with the lease because his sons now run the Trump Organization and profits from the hotel don’t flow directly to the president.

Terry’s argument assumes that Trump’s sons are authentically independent of him. It also assumes that that Trump somehow forfeits that forbidden "benefit" from the operation of the hotel because its profits pour into a trust (of which Trump is the sole beneficiary) instead of directly into the president’s wallet.

Trump and his lawyers said in a January press conference that they would extricate the president (and his daughter and adviser Ivanka) from the Trump Organization by turning over its management to his two eldest sons and making sure that they were monitored by a pair of internal ethics and business supervisors. Trump also promised to forward profits from his hotels to the federal government to avoid violating constitutional restrictions against payments to presidents from foreign entities. 1

Thanks to documents unearthed recently by ProPublica, a nonprofit investigative journalism group, we know that Trump appears be even less removed from his business interests than the smoke and mirrors of that press conference suggested.

According to the documents, Trump has established a trust, the Donald J. Trump Revocable Trust, that will house all the president’s assets tied to the Trump Organization. But the trust has only two managers, Donald Trump Jr. and Allen Weisselberg. Weisselberg is a longtime Trump confidant who first worked for Trump’s father, Fred, and who has been the Trump Organization’s chief financial officer for years.

Trump receives “exclusive benefit” from any assets in the trust. While Donald Jr. and Weisselberg have legal control over those assets, the president can revoke their authority at any time. We'll probably never know how much money flows from the Trump International Hotel to the Trump Organization and then on to the president because Trump won't release his tax returns.

Ivanka Trump, who recently was granted security clearance and an office in the West Wing, retains an ownership interest in the hotel, according to the GSA’s financial records. Her own businesses are also in the Trump family’s version of a trust – a legal veil that, as the New York Times recently noted, still allows her to control her fashion enterprises (and, presumably, her stake in the Washington hotel).

The Trumps have already made the Washington hotel a locus of activity for lobbyists, diplomats, White House staffers and members of Congress, giving the luxury guesthouse an enviable, Gilded Age business boost (and prompting a Washington competitor to sue the Trump Organization, alleging that the company’s proximity to the president gives it an unfair business advantage).

It’s also unclear how serious the Trumps are about remitting profits from the hotels to the federal government as a way of limiting their financial conflicts. The Trumps’ business partner in their Las Vegas hotel, Phil Ruffin, recently had this to say about the likelihood that the Trumps would pass along hotel profits to the government:

“They’re not going to do that,” he told Forbes, before repeating: “They’re not going to do that.” One of the president’s sons later contradicted Ruffin, saying the Trump Organization would, indeed, remit the funds.

Andy Grewal, a law professor at the University of Iowa, argues that the GSA’s ruling on the Trump lease was sound because it was built on the argument that the Trump Organization entered into the lease agreement before Trump became president and wasn’t yet conflicted as a government official. In that narrow sense, Grewal notes, the Trumps are compliant.

But Laurence Tribe, a Harvard Law School professor, described the GSA’s ruling in a Bloomberg News interview as “bizarre.” 

“It’s not hard to conclude that GSA is disinclined to displease the president of the United States,” Tribe added.

Citizens for Responsibility and Ethics in Washington, a legal watchdog group, sued Trump after he was sworn in as president, arguing that any payments he or the Trump Organization receives from foreign governments amount to a constitutional violation. It called the GSA’s ruling a “disappointment.”

“Trump still owns the hotel, still will benefit from payments and still has a vested interest in its success," said the group's executive director, Noah Bookbinder. "The problems remain, as they were on Inauguration Day, unaddressed."

Anyway, the Trumps are happy.

"We would like to thank the GSA for their diligent review of this matter," the Trump Organization said in a press release. "We are immensely proud of this property and look forward to providing our guests with an unrivaled luxury experience for years to come."

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. "No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State." Article I, Section 9, Clause 8

To contact the author of this story:
Timothy L. O'Brien at tobrien46@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE
Comments