Trump sued for $40 million by lender on Chicago tower

By Eddie Baeb, Nov. 28, 2008

(Crain’s) — The lead lender on the Trump International Hotel & Tower is suing Donald Trump, seeking to collect on a $40-million personal guarantee the brash New York developer made on the 92-story high-rise.

A photo of the Trump International Hotel & Tower in late July. Bloomberg News photo.

Deutsche Bank Trust Co. Americas filed the suit Friday in New York state court in Manhattan, alleging Mr. Trump defaulted on the loan Nov. 7 by not paying off the remaining $334.2 million due to Deutsche Bank and its syndicate of lenders.

The move follows a suit Mr. Trump filed earlier this month, accusing Deutsche Bank and its syndicate of wrongly refusing to extend the Nov. 7 maturity date of the $640-million loan for the project at 401 N. Wabash Ave. Mr. Trump’s suit accuses the lenders of hindering his ability to sell condo-hotel units and also invokes a “force majeure” clause in the loan, claiming the world financial crisis is an extraordinary event that permits a loan extension.

Related story: Trump sues lenders for more time to pay off loan on tower

Mr. Trump’s attorney in the matter, Steven Schlesinger of Garden City, N.Y.-based Jaspan Schlesinger LLP, says he’ll move to have Deutsche Bank’s suit heard in Queens County, New York, where Mr. Trump’s suit was filed.

“We’ll have a knock-down, drag-out for the next six months over this,” says Mr. Schlesinger, who hadn’t seen the complaint Friday night. “This project will be completed and sold out before this gets resolved. … This is, in my mind, legal stupidity.”

In its lawsuit, Deutsche Bank says it made a written demand for the $40 million from Mr. Trump on Nov. 10, citing the missed payoff on Nov. 7 for the project by Trump’s development venture, 401 North Wabash Venture LLC.

“Because 401 NWV (the venture) failed to pay the outstanding debt on the maturity date of Nov. 7, 2008, Trump is obliged by the payment guaranty to pay Deutsche Bank the outstanding balance owed. To date, he has failed to pay. Therefore, Trump has breached his obligations under the payment guaranty,” according to the lawsuit, which was filed by Deutsche Bank’s attorney Steven Molo of New York firm Shearman & Sterling LLP.

The lawsuit also uses the words of Mr. Trump and some of his organization’s executives to try to refute the force-majeure claim.

Deutsche Bank says Nov. 4 was the first time it was informed the force-majeure clause would be invoked. That same day, according to the lawsuit, The Scotsman newspaper had an article in which Mr. Trump speaks of developing a new golf course in Scotland with time-share condos that he says will be “the world’s greatest golf course.”

Mr. Trump goes on in the article to say: “The world has changed financially and the banks are all in such trouble, but … we are doing very well as a company and we are in a very, very strong cash position.”

In a subsequent Scotsman article, Trump executive George Sorial tells the newspaper that Mr. Trump’s company has enough cash in the bank for the golf course project and has been well positioned through its diversity to withstand and even capitalize on the economic downturn.

“The Trump Organization executive conceded that Trump has benefited — rather than been hurt, as so many others have — by the world financial crisis,” Deutsche Bank’s suit says.

Deutsche Bank also is filing a separate action seeking to have Mr. Trump’s lawsuit dismissed.

Mr. Trump’s venture received the $640-million loan from Deutsche Bank for the tower, the largest skyscraper built in Chicago in more than three decades, on Feb. 7, 2005, and Mr. Trump also signed the personal guarantee that day.

The development, consisting of condominiums, condo-hotels and traditional hotel rooms as well as restaurants and retail space, was launched by the Deutsche Bank loan, along with a $130-million mezzanine loan from New York-based Fortress Credit Corp. and $64 million in equity put up by Mr. Trump. The developer put in another $12.8 million during construction, according to Mr. Trump’s complaint.

Sales of the unfinished tower’s condominium and hotel units have been stuck in roughly the same place for more than two years as the condo market has fallen into a deep slump and the credit markets have frozen up. So far, the developer has sold condo and hotel units valued at just more than $200 million, with another $353.1 million in purchase contracts yet to close.

Mr. Schlesinger, Trump’s attorney, says the remaining loan proceeds that have yet to be drawn are sufficient to complete the tower by next spring as planned. He says whether Mr. Trump has to pay the $40 million will hinge on the court’s ruling on force majeure — determining whether there was a default.

“You can’t call a personal guarantee until a loan is in default,” he says.

E-mails to a Deutsche Bank spokesman and Mr. Trump’s assistant Friday night seeking comment weren’t immediately returned.