Trump's Business Record in Russia Is Humiliating
The latest Trump-Russia revelations -- this time concerning a Moscow real estate project scuttled in early 2016 -- fit in well with the comical history of Trump's attempts to do business in Russia. They are the latest proof that, unlike many craftier U.S. entrepreneurs and executives, the current U.S. president never figured out how to deal with Russians.
The story began in 1987, when Trump first visited Moscow, then the Soviet capital, and negotiated with bureaucrats from the State Foreign Tourism Committee who offered him an opportunity to build a luxury hotel in Moscow. In a Playboy interview in 1990, Trump recalled that he told the officials it was impossible to get financing for a development project in which the land was "owned by the goddamn motherland." They offered a lease; he wanted ownership. The Soviets also offered to set up a dispute resolution committee consisting of seven Russians and three Trump representatives, a deal Trump didn't like. He came away thinking, correctly, that the Soviet system was a "disaster." The Soviet leader, Mikhail Gorbachev, according to Trump, didn't have "a firm enough hand" -- which didn't prevent the flustered developer from crowing how honored he was when Gorbachev impersonator Ron Knapp paid him a surprise visit in Manhattan a year later.
In the Soviet Union's last years, Communist officials had been eager for deals with Western capitalists; as with Trump, they always tried to impose their ridiculous terms. That didn't stop companies such as McDonald's from doing business in Moscow. The fast food giant set up a 50-50 joint venture with the Moscow city government to open its first restaurant on city-owned premises in 1990. It was a brilliant move that led to fast expansion: There are 614 McDonald's restaurants in Russia today. Coca-Cola supplied its concentrate to the Soviet Union in exchange for Lada cars it struggled to sell in the West -- but it has never regretted the arrangement because it immediately knew what to do when Russia opened up to private business. Trump wasn't into that kind of long-term thinking, though, and he missed his chance.
He got another, even better one in 1996, when the Moscow city government tried to involve him in the refurbishment of two derelict hotels -- the Moskva and the Rossiya, both right next to the Kremlin. They wanted him to invest $250 million. The terms have never been made public, but apparently they weren't particularly sweet. In 2004, when the Moskva was finally demolished, it was 49 percent owned by the city, and an opaque U.S.-based company called Decorum Corp. -- likely owned by Russian investors -- held the rest of the stock; by the time the hotel was rebuilt in 2013, several wealthy Russian businessmen were suing each other over the stake. Trump probably did well not to get involved, but his lack of interest in a project that was important to the city made it impossible for him to do anything else in Moscow, firmly controlled at the time by Mayor Yuri Luzhkov, whose wife became a billionaire developer during his tenure.
By 1996, Russia was not the same country as in 1987. But doing business there still involved investing in friendly relations with officials. Enka, the Turkish developer, realized that in the mid-1990s; it renovated government buildings at cost, and it came to own 1.6 billion square feet of offices in Moscow. At one point it became the city's biggest foreign developer. Again, Trump didn't operate that way, and again, he came away with a low opinion of Russia and how it was run. He called President Boris Yeltsin, whom he had never met, "a disaster" and "one tough hombre" with "a major alcohol problem."
By the late 2000s, Russia was a new country again -- the land of state capitalism in which even billionaires were at the Kremlin's mercy. By that time, pretty much every significant developer in Moscow was wealthier than Trump, and the market was carved up. By then Trump's business model had also changed. He was mainly interested in selling franchises rather than investing in development. For a time in 2004, Ukrainian-born developer Pavel Fuks almost licensed Trump's name for a tower he was building in Moscow's new skyscraper district, the City, but was apparently stopped by the price, which reportedly amounted to 25 percent of project cost, or, in the case of Fuks's tower, some $300 million. The Trump name has never been worth that much in Russia. Not even Aras Agalarov, the Azerbaijani-born billionaire who partnered with Trump to hold the Miss Universe pageant in Moscow in 2013, ultimately wanted to do a deal, though the two discussed a tower just outside Moscow city limits, where Agalarov owns land. Moscow real estate was by then out of Trump's reach.
The project that failed in 2016 is further proof that Trump's name did not carry the cachet he expected. By 2015, Moscow was run by a Kremlin-picked mayor, and major projects were going to people with Kremlin ties. These were billionaires who helped President Vladimir Putin stage the $50 billion winter Olympics in Sochi, as well as some Luzhkov-era holdovers who managed to build relationships with the new authorities. Felix Sater, the Trump associate who promised to get Putin on board for a major real estate project in Moscow, wasn't among them. He'd never built anything in Moscow. That Trump's lawyer Michael Cohen was desperate enough to send an email to a general Kremlin address, seeking help from Putin spokesman Dmitry Peskov -- a man far removed from the Moscow real estate market -- shows that neither Sater nor people in the Trump organization had the right contacts to compete or cooperate with the big local players.
Trump may admire Putin as a firmer hand than Gorbachev or Yeltsin, but it's even harder for someone like him to do business in, or with, Putin's Russia. It's a country where the state runs deeper than during the chaos that began in the late 1980s, where money and power are entrenched, transparency is a sign of weakness, and foreigners are distrusted until they prove their loyalty.
Trump never had what it took to be a player in Russia -- not when it was a land of limitless opportunity as it began its flirtation with capitalism, and not today. This may not be comforting to Americans. To have a leader incapable of negotiating with Russians is probably worse than having a president with business ties to the Kremlin-connected elite.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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