Manhattan’s top real estate brokers gathered at the Harmonie Club on April 29 to dine on red snapper and to toast several upcoming luxury residential projects designed for the city’s market-fattened wealthy. Louise Sunshine, owner of the Sunshine Group Ltd., co-hosted the luncheon; she had marketed several of Donald Trump’s recent projects, including the sold-out condominium conversion of 610 Park Avenue and the Trump International Hotel and Tower.
Now, Ms. Sunshine was turning her attention to Mr. Trump’s long-awaited conversion of the dowdy St. Moritz hotel into the Trump Regent, a $110 million project that had been lovingly displayed in color on the cover of the New York Times metro section nine days earlier. As the main course disappeared and dishes of cookies and candies circulated through the room, Ms. Sunshine energetically worked the crowd. “Louise was up,” said one witness. “She was vivacious, to say the least.”
While Ms. Sunshine and her brokers savored their sweets, however, another meeting was taking place, one that would dash Ms. Sunshine’s hopes of cashing in on the St. Moritz. In the law office of Robinson, Silverman, Pearce, Aronsohn & Berman, representatives of the hotel’s owner, an Australian-based insurance company, were selling the landmark building to hotelier Ian Schrager and his financial partners, North Star Capital Investment Corporation-this after leading Mr. Trump to believe he was on the verge of creating another monument to his success.
The sale of the St. Moritz has been portrayed in the press as a clash of two Manhattan real estate titans. To hear these tales, Mr. Schrager, the former Studio 54 scene-maker who brought the spirit of the velvet rope to the Royalton, Paramount and Morgans hotels, snatched the St. Moritz away from Mr. Trump, robbing the flamboyant developer of his chance to transform the building into yet another of the burnished luxury condominiums that have made him a name-brand house-builder for a certain sort of wealthy New Yorker.
In reality, the behind-the-scenes story revolves around Rodney Adler, the 38-year-old chief executive of F.A.I. Insurances Limited, the hotel’s owner. He indulged Mr. Trump’s condominium conversion plan for the St. Moritz for more than a year, but dumped him at the last minute when Mr. Schrager and his financial partners offered a deal with more cash upfront. In an interview with The Observer , Mr. Adler acknowledged that his company was secretly negotiating with the Schrager group even as The Times reported Mr. Trump’s boasts that he would be selling the building’s most lavish condominiums for $10 million apiece.
Eleven days after the Times piece, Mr. Adler announced that he would sell the hotel to Mr. Schrager and his backers. Mr. Trump apparently was caught off-guard. Mr. Adler said Mr. Trump was livid after he was informed of the deal with the Schrager group. “It wasn’t the pleasantest of conversations,” Mr. Adler conceded. “There was no question that the Trump Organization was surprised.” Mr. Trump declined to discuss the sale. A source close to the condominium group, however, insisted Mr. Trump was fully aware of F.A.I.’s negotiations with the Schrager group and that any suggestion to the contrary was “total nonsense.” What’s more, the source said, the developer was paid $20 million to walk away from St. Moritz after doing very little work, and that Mr. Trump couldn’t have been happier with the result.
Such assertions would seem to be post-deal spin. Sources close to the Schrager group said Mr. Trump and Bankers Trust Company received a mere $3 million from the insurance company-most of which went to Bankers Trust, the developer’s financial partner in the proposed condominium project. Bank officials didn’t respond to an interview request.
Whatever Mr. Trump’s actual thoughts on the matter, Mr. Adler certainly is a happy man. He has boasted that F.A.I. reaped $181 million for a financially troubled hotel on Central Park South that had long been a drag on his company’s earnings. “The asset was an albatross around our neck for the last decade,” he told the Australian press. “It severely stunted our growth.” (He told The Observer that, even in these heady days of safe-streets tourism, the hotel was not profitable for F.A.I.)
Mr. Schrager and North Star Capital are quite pleased about the deal, although a source close to the group insisted that they will get the hotel and the land beneath it for roughly $120 million, much less than Mr. Adler’s estimate. “We’re thrilled to have it,” Mr. Schrager told The Observer .
Of course he is. The St. Moritz may be a faded three-star hotel in a five-star location-albeit one that smells unglamorously like a stable on warm summer evenings, thanks to the horse buggies stationed along the curb. But hotel experts say if anyone can turn it around, it’s Mr. Schrager. “I think it’s a perfect asset and location for what Ian does so well, which is create a style and identity that attracts an international entertainment crowd,” said John Bralower, president of Sonnenblick-Goldman Company, a real estate investment bank. “Usually, he’s gone into marginal locations and created a destination. Here, he’s going into a great location and an existing destination, but enhancing the asset.”
The St. Moritz sale would seem to be a major defeat for Mr. Trump. To understand why, it’s important to recall that Mr. Trump scored one of his greatest triumphs when he bought the St. Moritz from Harry and Leona Helmsley for $72 million in the 1980’s and flipped it to Alan Bond, an Australian yachtsman and brewery mogul, for a quick $180 million.
Mr. Trump’s gain turned out to be F.A.I.’s dismay. The insurance company had financed Mr. Bond’s audacious purchase and ended up with the hotel soon after, when the yachtsman’s business empire capsized. Mr. Adler is the first to admit his company wasn’t the ideal steward for the hotel. “We’re an Australian property and casualty company,” he said. “Our only asset outside of the Pacific Rim was the St. Moritz. It was clearly a nonstrategic asset.”
Not only that, F.A.I. took control of the St. Moritz just as the bottom was falling out of the Manhattan hotel market. Not surprisingly, the St. Moritz seemed to sink deeper and deeper into a state of somnambulism on F.A.I.’s watch. The once-proud hotel’s tiny rooms increasingly became a refuge for international tour groups on a tight budget. New Yorkers who ventured into the deteriorating St. Moritz were disheartened to discover that Rumpelmayer’s, once a thriving ice cream soda parlor that also traded in stuffed animals, had been reduced to a generic restaurant. “They didn’t quite know what they were doing,” a real estate executive said.
Mr. Adler was scolded by insurance industry analysts who told him the hotel was hurting his company’s stock price. But he didn’t want to unload the St. Moritz until the city’s hotel market recovered. And when that happened, Mr. Adler soon found himself fielding numerous inquires from people who wanted to take the property off his hands. One of them was Mr. Trump.
“We had approaches from bankers, from investment conglomerates, stockbrokers who wanted to float it off as a [real estate investment trust], condos, time shares, we had it all,” Mr. Adler said. “Trump’s was by far the best … He was so far ahead of the pack it wasn’t funny.”
Wining and Dining
That’s not to say F.A.I. didn’t have its reservations. According to a source close to the condominium group, the Australians were leery of Mr. Trump. Some blamed him for their headaches with the St. Moritz because he’d sold the hotel to Mr. Bond in the first place. But Mr. Trump pressed on, wining and dining F.A.I. officials and gaining their trust. Finally, in late 1996, Abraham Wallach, the Trump Organization’s executive vice president, traveled to Australia to present the developer’s proposal to turn the St. Moritz into a bronze-and-glass condominium tower called Trump Pinnacle. He was very well received.
Soon after, an anonymously sourced story ran on The Times ‘ front page, announcing an “agreement” between F.A.I. and Mr. Trump to redevelop the St. Moritz. Some real estate insiders believe Mr. Trump planted the article to scare away rival bidders. F.A.I. issued a statement that Mr. Trump was acting only as a consultant for F.A.I. on the St. Moritz.
Still, that didn’t stop Mr. Trump from bragging about the deal. “We are converting the St. Moritz into a superluxury condominium tower that will be among the most beautiful anywhere,” he wrote in his latest book, Trump: The Art of the Comeback . “I am very proud of this project. I was very lucky with it the first time in that I made a great deal of money in so little time. It is always nice to revisit early successes.”
In reality, Mr. Trump’s hold on the St. Moritz was always tenuous. Readers of The Times might have assumed he was acquiring an interest in the hotel. But that was never the case. Under the tentative joint-venture agreement announced last February, Bankers Trust, Mr. Trump’s financial backer, and F.A.I. would have paid for the conversion, and Mr. Trump would have served as the development manager and marketer of the Trump Regent project, with a stake in the profits. “Trump was basically employed by us,” Mr. Adler said. “You could call him the ultimate project manager. He had no equity in the building.”
Nor did Mr. Trump and Bankers Trust have a final commitment from the insurance company. According to Mr. Adler, F.A.I. had insisted on a “drop-dead clause” in its agreement, allowing it to sell the St. Moritz to another party before a certain date as long as the developer and the bank received a kill fee, the amount of which he refused to disclose.
As it turned out, Mr. Adler was to make use of the loophole. Weeks before he was scheduled to close the deal with Mr. Trump and Bankers Trust, Mr. Adler had begun to wonder about the wisdom of sinking millions of dollars of the company’s money into the Trump Regent. So F.A.I. contracted Angelo Gordon and Company, a New York City-based buyer of distressed properties with numerous hotel investments that had approached the insurance company months before, about an outright sale of the St. Moritz that might generate more immediate cash with far less risk than the Trump Regent promised. Angelo Gordon brought in Mr. Schrager and North Star, a real investment fund started last July by David Hamamoto, a former partner at Goldman, Sachs & Company, and Edward Scheetz, a former partner at Apollo Real Estate Advisers.
Mr. Hamamoto and Mr. Scheetz, two of Wall Street’s most respected real estate deal makers, were eager to buy the St. Moritz. They certainly had the financial muscle to do so. Within a month of North Star’s inception, the company snapped up a 49 percent share of Mr. Schrager’s hotel company and spurred the hotelier to embark on an expansion. North Star has since increased its stake to 87 percent and backed Mr. Schrager’s purchase of the Henry Hudson Hotel. Now, sources said, North Star and Mr. Schrager are in talks to acquire the Radisson Empire Hotel and the Barbizon Hotel.
The St. Moritz made perfect sense to Mr. Schrager and his partners, and they quickly entered into serious negotiations with F.A.I. Mr. Adler saw no need to alert Mr. Trump. “Unfortunately, we were not in a position to advise Mr. Trump nor executives at [Bankers Trust] that we were in serious negotiations with other parties,” Mr. Adler lamented.
Instead, Mr. Adler gave Mr. Schrager and North Star two weeks to come up with a favorable offer. Meanwhile, he continued to encourage Mr. Trump, closing the hotel and scheduling a sale of its fixtures. At the same time, North Star executives were negotiating around the clock with Frank Wolf, an F.A.I. official who was staying at Trump International Hotel and Tower. On April 29, the day Ms. Sunshine was schmoozing the real estate brokers, the two sides struck their deal hours before Mr. Wolf was scheduled to board a plane to Australia. It was left to Mr. Adler to break the news to Mr. Trump.
A source close to the condominium project insisted Mr. Trump was relieved not to do the conversion because he’d had to strike a deal with the New York Landmarks Preservation Commission to back off from his plans to dress the St. Moritz up in bronze and glass. Mr. Adler, however, paints a different picture.
“He was upset,” Mr. Adler said. “I was a little sad, too. I was going to buy one of those condos myself.”