In early February, it was announced that the hotel that launched Donald Trump’s real estate career would be demolished. As Village Voice reporter Wayne Barrett made clear in a 1979 cover story, the Grand Hyatt New York had all the hallmarks of a Trump deal, and shows how instrumental New York’s Democratic political machine was in Trump’s rise to prominence. The story was the Voice’s third investigative feature into Trump’s dirty dealing, and Barrett would prove to be the real estate developer’s bête noire over the next few decades, right up until Barrett’s death on January 19, 2017, the day before Donald J. Trump was sworn in as the 45th president of the United States.
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A Seamless Web
February 26, 1979
The Grand Hyatt going up on the site of the old Commodore, at 42nd and Lexington, with its 1400 $70-a-night rooms, is the city’s and state’s first venture into the luxury-hotel business. The bureaucrats’ assumption seems to have been that the modern bankrupt American city ought to be opening hotels for its visiting rich while closing hospitals and schools for its unwanted poor. While entire neighborhoods could qualify for city vacate orders, tax exemptions to the tune of $160 million were granted to subsidize the redevelopment of midtown’s wealthiest core. Under the aegis of the state’s Urban Development Corporation, set up in 1968 to rebuild slums, the city is exchanging hospital beds for hotel beds. The Commodore deal is a perfect example of what government calls a “business-incentive program,” which uses public power and takes public risk for private profit — profits that will ultimately accrue to Hugh Carey’s principal campaign contributors.
But the list of Carey supporters who stand to gain is only one phase of this transaction. The deal is laced with apparent conflicts involving practically every public official who ever touched it — from the unknown city and state aides who packaged it to Comptroller Harrison Goldin, Carey appointee Richard Ravitch, and former deputy mayor Stanley Friedman.
In previous stories, I detailed the conflicts and serpentine relationships that made up Trump’s convention-center deal (Voice, January 22), but in acquiring the contract for the Commodore renovation, Trump outdid himself. He persuaded city and state officials to designate him developer on a site he didn’t own — or even have an option to own. Later, he got a binding lease and acquisition agreement from the city and state, though he had no financing commitment to back him up. The Commodore caper is part shill game, part intrigue. Its apologists make it part soap opera. But the size of the deal’s subsidies — it is perhaps the most costly incentive project in city history — make it news.
On the Bluff
Trump started his negotiations for the Commodore with Michael Bailkin, at the time counsel to the mayor’s office and a protege of then-deputy mayor John Zuccotti. According to Bailkin, Zuccotti and economic-development administrator Alfred Eisenpreis had been interested in renovating the hotel even before its owners — the Penn Central — had ever notified the city that the company was considering closing it. Early on, they instructed Bailkin to design a tax-abatement program for Trump’s proposal. Explaining the city’s interest in the deal, Bailkin said, “It was a combination of political access and a solid scheme. I was aware that he had political clout. Frankly, I thought that was a plus.”
Trump’s clout with the city administration was detailed in my two-part series last month. His family and Brooklyn-based real-estate firm were tied to the same county Democratic organization that had created Beame. His father had known Beame for 30 years and had contributed to every Beame campaign. Beame’s closest brokers — attorneys Bunny and Sandy Lindenbaum and lobbyist Howard Rubenstein — represented Trump on a host of deals. By fall 1975 Sandy Lindenbaum had been put on a Trump retainer to push the Commodore through the Board of Estimate.
But Bailkin says the reason the city chose the Trump deal was the developer’s option on the property. “Trump’s strength was his exclusive arrangement with the organization representing Penn Central, Victor Palmieri Co. The city had no option except to deal with Trump. He had site control.”
The problem with this reasoning is that Trump had no option on the Commodore until February 1977, a year and a half after he’d first brought his proposal to Zuccotti and Bailkin. Trump, in fact, had no claim on the property when the Board of Estimate and the state’s Urban Development Corporation gave him project approval in May and September of 1976. John Koskinen, president of the Palmieri firm, told me Trump “had absolutely no agreement or assurances of any kind — formal or informal” with Penn Central until 1977.
Walter Prawzinsky, the city’s deputy comptroller, who participated in the Commodore negotiations extensively, was stunned when I told him that Trump had had no option at the time of the Board of Estimate vote. “He certainly told city negotiators he had an option,” Prawzinsky said. “Other city officials involved told me he had an option. If we didn’t think he had an option, we wouldn’t have talked to him. What’s the use of talking to him and designing a program specifically for him if all he’s going to do is go peddle the program?” Prawzinsky then called the city’s corporation counsel and asked if that office had a copy of Trump’s option on the Commodore. Prawzinsky told me the city had only one copy. “Trump had sent a copy that is only signed by him. That’s all we have.”
Trump was even quoted in the Times shortly before the Board of Estimate vote, claiming that he “has an option — with no particular time limit — to buy the Commodore for $10 million from the railroad trustees.” An earlier Daily News story describes a “purchase contract” between Trump and Penn Central, which it reports was agreed to in May 1975. Dan Dorfman, in a New York magazine article at the time the city approved the plan, repeated Trump’s claim. Though there were stories suggesting that Trump was merely negotiating to buy the hotel, the impression created by the press was that Trump had a claim to the property. Indications are that this impression was created by Trump himself. Indeed, Trump seems to have convinced himself. When I interviewed him recently he offered the following chronology: “I went to Penn Central and said let me buy this building subject to tax abatement and a lot of things. We signed a contract subject to those various elements.” Trump was claiming to have signed a contract with Penn Central in May 1975, almost two years before he actually did. Penn Central officials wanted to leave no room for doubt when I raised the question with them. They wrote me a letter, stating “Whether or not Trump actually stated he had an option, he had no option and no one ever indicated on behalf of Penn Central that he had one.”
Since Trump in fact did not have the option, the city was free to advertise its interest in establishing a tax-incentive program for any private developer willing to renovate the hotel. It could then have negotiated a program with the developer whose proposal offered the best renovation at the least expense to the city. Apparently this approach was not considered because of the misconception that Trump, as Bailkin put it, had “site control.” Further, the resolutions creating the tax benefits on the property had been written so as to apply exclusively to Trump.
Packaging the Profits
In structuring the abatement program, Bailkin at first [ed note: due to a printing error, a line of text is obscured in the original issue from which this article was transcribed] hotel, sell it to the city for a nominal sum, and then lease it back on a 99-year lease at a minimal rental (with no taxes) for 50 years. Drafts of this proposal were submitted informally to the Board of Estimate in December 1975. As an afterthought, Beame issued a vague policy statement, attempting to place the Commodore deal in the context of an investment-incentive program.
This kind of loose arrangement — where deals are bound by no set of publicly adopted city standards and are implemented on a project-by-project basis — is precisely the open-market condition where connections can best dictate both terms and eventual profits. It is an invitation to the brokers who live at the public trough, shuttling between the roles of campaign donor and publicly aided developer. Indeed, it was the vague terms of the program that permitted Trump to be its first beneficiary, though he was completely unconnected to the property when he received the abatement. Since 1976, the city, under the banner of this program, has given away over a quarter of a billion tax dollars.
Bailkin’s proposal ran into some trouble with comptroller Harrison Goldin. The result was that Trump, Bailkin, and Zuccotti abandoned the notion of a city leaseback and instead proposed that the leaseback arrangement be made with UDC, which could grant the project total tax exemption.
In March 1976, the UDC board of directors, chaired by chief Carey development adviser Richard Ravitch, voted initial approval of the Commodore as part of a two-step UDC process. But in a letter to Zuccotti, the state agency warned of the possibility that the city’s rental scheme might result “in a windfall profit” for Trump and recommended changes in the arrangement to prevent that possibility.
Ravitch’s opposition to the deal threatened to delay UDC approval and perhaps even end agency participation in the project. Ravitch, who told me he still thought the deal was a “mistake,” said he was pressured by Beame, Zuccotti, State Senator Manfred Ohrenstein, Assembly Speaker Stanley Steingut, and Trump to approve the deal. “They all called and wanted me to move the thing faster,” said Ravitch. Ravitch kept telling the callers that the city could get better terms and told Trump not to call again. “I didn’t like this political stuff,” Ravitch said. “I didn’t want another call from another politician.”
Ravitch also recalled that “at the same time the Commodore was put before UDC,” Trump announced that he’d hired Louise Sunshine, the governor’s chief fund raiser, to be a staff coordinator. The announcement of the Sunshine position in the Real Estate Forum occurred the same day Zuccotti wrote Ravitch to invite UDC’s participation in the Commodore.
“I called Carey,” said Ravitch. “Trump had a proposal before UDC and I thought the whole thing [with Sunshine] was tasteless. Carey told me to do whatever I thought was right.” His hostility forced Sunshine to stay away from Commodore business until he left UDC in 1977. But after his departure, Sunshine became an active expediter on Commodore problems and a political force at UDC.
Despite Ravitch’s opposition, the Board of Estimate voted to approve the project in May 1976. The final version of the plan contained the following controversial and extraordinary terms, granted specifically to Trump though he still had no option on the property:
In the end, despite all the objections, Ravitch and his board authorized a draft agreement and lease with Trump in September 1976. Even while UDC considered and approved the agreement, Trump had no option on the land — an issue, as Ravitch recalls, no one ever raised.
The parallels between Ravitch’s handling of the Commodore and his handling of the 34th Street convention-center site are striking. As a private developer, he had bid against Trump in an effort to acquire the convention-center site. His analysis of the Trump bid, filed in federal bankruptcy court in Philadelphia, charged Trump with attempting a windfall profit on the land. But he refused to litigate his claim, and, in effect, backed down in the end. He wound up chairing a Beame-appointed panel that selected Trump’s site for the convention center and his company, HRH Construction Co., was retained by Trump to do a cost analysis of the project.
Similarly, he went halfway on the Commodore, raising thorny questions but, at the same time, writing Zuccotti and concluding that he “hoped” and “trusted” that his board’s decision on the deal “will be favorable.” He wound up voting for the project himself and presiding over an agency that tailored its own special benefits for Trump’s deal, even beyond those contained in the city plan. And ultimately, after his construction company was sold to Starrett, it was selected by Trump to build the new hotel. One negotiator on the city side of this deal says that Ravitch’s objections to the Commodore were simply efforts to create a record for himself. “Political posturing” was how he described Ravitch’s tactics.
But, after three telephone interviews with him, I found him a man caught in the contradictions of his own complex relations and ethical standards. His business partner had died, he wanted out of HRH, and his best potential buyer was both Trump and UDC-connected Starrett Housing Co. His role at UDC was inseparable from his close relationship with the governor, whose most crass political brokers were at his door in search of approval of the Trump deal. Ravitch was also a budding mayoral candidate who eventually left UDC to fund raise for a campaign he subsequently abandoned. His public record on issues of city policy like the Commodore and his relationships with Carey, Trump, and Sunshine interacted with his political ambitions. And, finally, he was a developer himself, inclined toward this kind of development regardless of Trump’s terms and methods, which he found distasteful. In committing UDC to the Commodore, he reshaped the agency and fundamentally altered its social function. It is now no more than a tax-shelter and condemnation resource for private developers. In the world Ravitch lives in, that was a positive transformation.
The Bailkin Connection
The same week that the Board of Estimate approved the Commodore project in May 1976, Michael Bailkin, the city’s architect of the plan, left the government. A few months later, Bailkin’s staff counterpart at UDC, David Stadtmauer, who’d negotiated the initial lease terms between Trump and UDC, left his position as director of commercial affairs for the state agency. Like Bailkin, Stadtmauer had been an advocate of the Commodore project. When he’d chaired UDC’s public hearing on the project, he’d abandoned his obligatory neutral posture and made a ringing 10-minute speech on behalf of the Commodore deal.
While still with the state and city, Stadtmauer and Bailkin had decided to form a law firm. That firm has since built its practice around economic-development projects, including projects under the Investment-Incentives Program, which they had designed.
Their first client — who promised Bailkin a $10,000 initial retainer before he left government (the offer that provided the income base to create the firm) — was the 42nd Street Redevelopment Corporation, sponsors of an investment-incentives project. Bailkin told me that he and his client had discussed the applicability of the incentive program to his client’s project before he’d left the city. Less than two months after his departure from the city, Bailkin had completed the mortgage closing, acquired the properties, and submitted a site to the city for an investments project.
The project was Theatre Row, the conversion of West Side porn houses into Off-Off Broadway theatres. In 1975 Bailkin, then with the city, was asked by city officials to help design the incorporation of the group.
“Their concept was of 42nd Street as a river-to-river boulevard, connecting institutional and business uses on the East Side and theatre-related uses on the West Side,” said Bailkin. The Commodore project was an important spur to that development and Bailkin admits that his future employers at the 42nd Street Corp. told him, while he was putting together the Commodore package, how much they favored it. Theatre Row was the West Side complement of the Commodore.
After Bailkin and Stadtmauer had left the government, they were hired as consultants to the city and state. Zuccotti retained his protege Bailkin and assigned him to report on the progress of the Commodore. His $10,000 contract ran through the remainder of 1976 and 1977. His memos as a consultant continued the strident advocacy of the project he’d begun while with the city. Stadtmauer stayed on as a UDC consultant, advising his replacement on the Commodore and other projects, earning some $6300 until April 1977. Both were acting as consultants throughout the period that the city and UDC considered their firm’s Theatre Row project, but Bailkin claims he never discussed Theatre Row with public agencies, except in his private capacity as attorney for the developer. But an analyst at the comptroller’s office who renegotiated incentive projects told me: “I never knew who Bailkin represented or whether he was wearing a public or a private hat.”
The importance of this interrelationship is that in their continuing relationship with the Commodore project — which was widely cited as a prototype for the incentive program — Bailkin and Stadtmauer were using their public positions after they left full-time public employment to define the terms that would then shape the smaller projects represented by their firm. Bailkin himself said, in a Post article, that the Commodore was “a precedent-setting deal.… When other developers come in with other deals, they’re going to say, we want what Trump got.”
Bailkin was so successful in packaging the first $1.3 million Theatre Row project that it actually closed months before the Commodore and became the first completed incentive project. He has since shepherded a second theatre project, worth almost $8 million, through the Board of Estimate and is now working on additional potential incentive projects for 42nd Street and other developers.
In addition, Bailkin parlayed his government contacts into several consultant contracts, including a $43,000 UDC contract and two other city contracts. His former agency, the Office of Development, recently awarded his client, 42nd Street Corp., a $350,000 commercial revitalization grant, including a budget for its legal costs. Stadtmauer says that he was not personally involved in any way with either Theatre Row project and that, since leaving UDC, he has been primarily engaged in development work in New Jersey. However he did acknowledge that he now serves as counsel to the Greater Jamaica Local Development Corp., developer of several city projects. Their firm has also done work on two incentive projects begun while Bailkin and Stadtmauer were still in government, but Stadtmauer contends they received no fees on one and were paid as UDC consultants on the other.
Bailkin did go to the city’s Board of Ethics for an opinion on his post with the 42nd Street Corp. But the narrow issue before the board, according to Bailkin, was whether his work on incorporating the organization while still a city employee disqualified him from employment with them. Bailkin says the board initially barred him from taking the job on even those narrow grounds. He then marshaled some of his powerful allies in city government and went back to the board, which reversed itself.
The board opinion, however, apparently didn’t address Bailkin’s continuing involvement as a private attorney with the public program he’d originally designed and was still shaping in his capacity as consultant to the city. Bailkin showed me the board’s letter dated July 15, approving his retainer with 42nd St. almost two months after he’d begun to work for them. He insisted that the board notified him by phone before he joined the company. I asked if he would waive the confidentiality of his board file and allow me to examine the records. He refused.
The final link between the Bailkin firm and the Commodore project is an attorney who worked for Bailkin through most of 1977, Stephen Seldin. Seldin also represented Trump on the closing of the Commodore deal. Indeed, he is an officer in Wembey Realty, the Trump firm that is developing the Commodore.
Bailkin attempted to minimize his association with their firm, claiming Seldin had left them in October 1977. Yet he appeared with Bailkin, representing the 42nd Street Corp. at the Theatre Row closing in November 1977, and two weeks later Seldin represented Trump at the escrow closing of the Commodore. In March 1978, while representing Trump in final negotiations, Seldin joined Stadtmauer as part of a group that applied for a state commercial revitalization grant. Bailkin also claimed that Seldin did not begin his association with their firm until March 1977; but he had notarized Bailkin’s purchase of the Theatre Row properties nine months earlier.
Bailkin also did the legal work on a City Planning Commission report favorable to Trump’s planned housing project on the 60th Street railyards. While a consultant to the city, after he’d left full-time employment, he generated the financing schemes (Triboro Authority bonds with UDC ownership) that was subsequently applied to Trump’s convention-center site. He and Trump were calling each other and comparing notes on my recent interviews with them. The Seldin link to both is a tangible sign of the relationship between Bailkin and Trump during the Commodore negotiations.
The Web of Connections
Bailkin’s connections are more than matched by the questions that surround his successor as chief city negotiator on the remaining Commodore questions, Mark Levine, the corporation counsel’s former real-estate director. It was he who had asked for a copy of Trump’s Commodore option and received the copy signed only by the developer. Levine had been involved with Bailkin in the early negotiations before the Board of Estimate approval and worked intensely on the project until he left the city in September 1977. He had worked out the detailed terms of the 150-page lease and many subsidiary agreements vital to the final closing of the deal. Levine is now an associate in Sandy Lindenbaum’s law firm, which represented Trump on several aspects of the Commodore. I talked with Levine, but, when I told him I was writing about the Commodore, he abruptly ended the conversation, promising to get back to me. But he never returned several calls from me.
Stanley Friedman, as deputy mayor, rushed all the city commitments on the Commodore to conclusion in the final weeks of the Beame administration, then went to work for another law firm retained by Trump on the Commodore. Richard Kahan, as UDC director of commercial projects, joined Friedman in the last-minute march, similarly committing the state to the deal, then was backed by Trump — and Trump’s top political guns — for Carey’s appointment as president of the agency.
Victor Palmieri and Co. represented the Penn Central trustees in the sale of the hotel to Trump, completed in May 1978, though Trump had failed to meet the terms of the option three times and in fact had no legal option when Palmieri permitted him to exercise it. Palmieri and Penn Central lawyers conducted the sale at the same price set in 1975 discussions, though the city’s hotel market had boomed in the interim. While Palmieri let Trump’s price stand, it was simultaneously at the receiving end of a bid war on three other Manhattan hotels that resulted in a $10 million increase in the previously accepted price. Palmieri did not get an updated appraisal on the property (his last update was nearly two years old).
The Commodore sale was consummated one month after Trump brokered a lucrative deal for the Palmieri Co. on another, unrelated contract. Trump arranged the sale of Levitt and Sons, Inc., a home-building company divested by International Telephone and Telegraph in a federal antitrust case. Palmieri Co. was the court-appointed management firm assigned to sell Levitt — a task no one had been able to accomplish since 1971. Trump found a buyer, Starrett Housing Co., which purchased Levitt for $30 million, out of which the court paid Palmieri a healthy fee. Trump says Starrett paid him a brokerage commission on the sale.
John Koskinen, the Palmieri president who handled both the Commodore and the Levitt sale, says that discussions between Levitt and Starrett began in December 1977. At the same time, though the option agreement had clearly expired, Palmieri and a single trustee — without the required approval of the bankruptcy court — amended their agreement with Trump and gave him a three-month extension though, by the terms of the court-approved agreement, Trump’s option was automatically voided by his failure to meet the deadlines. At the end of February 1978, the Levitt/Starrett sale was completed. When Trump failed to comply with even this three-month extension, he was permitted to buy the hotel a month later, subject to the terms of his expired option.
This is the ethos of a Trump deal. Harrison Goldin assigns the project to the political side of his office after his first discussion with Trump. Richard Ravitch is pulled by conflicting interests. The Bowery Savings Bank, with a strong economic interest in the Commodore renovation, uses its influence at UDC to shape public policy. Commerce and government blur together.
No Purpose But Profit
The Commodore plan had nothing going for it but connections. Its defenders said it would generate jobs. But all construction does. This project is less labor-intensive than most. At the time it was approved in 1976, the hotel market was depressed and there was no sign that the operation of the hotel would actually create jobs. A new hotel wasn’t likely to do much more than simply redirect tourists from one place to another. Neither can it be said that the city was prophetic, anticipating the hotel boom, knowing that by the time it was built it would create jobs. If the city had known that, it shouldn’t have had to subsidize what it was expecting to be a booming business.
In order for UDC to use all its statutory powers of exemption and condemnation, the board actually had to adopt a resolution that described the Grand Central area as a “substandard or insanitary area.” We have redefined triage if East 42nd Street is the “substandard” neighborhood that a post-default UDC sees as the site for its largest project.
To try to justify the project, a city study identified one statistical index reflecting a decline in the area — namely an unusually high rate of tax arrearages. The rate was almost wholly due to the enormous back taxes Penn Central owed on the Commodore itself, which, of course, the bankrupt company owed on all of its properties. The city’s report stated: “Some speculative assemblage activity is still occurring in the area, which may mean guarded confidence in the district’s future.” Nonetheless, the city and state rushed in with well in excess of $100 million in abatements to fight blight that apparently speculators couldn’t see.
The other rationale for the abatement plan — one advanced by Trump — was that Penn Central wasn’t paying taxes anyway and that anything he paid “was better than what the city is getting now.” But Penn Central had entered an agreement to pay its taxes on all city delinquent properties, completely independent of Trump’s purchase of the Commodore.
Palmieri Co. closed the hotel two days before the Board of Estimate hearing on the Commodore abatement. The company denies that the closing was an attempt to affect the Board’s decision on the Commodore. What seems clear to me is that it was Trump’s and the city’s interest in the hotel that precipitated Penn Central’s abandonment of it. In 1974, Penn Central spent $2 million on improvements at the hotel in an effort to restore it as a successful operating hotel. In January 1975, Palmieri asked for another $2 million from the trustees, though the hotel lost almost half a million in 1974 and more losses were anticipated in 1975. Their judgment was that the losses could be reversed. Then Trump offered $10 million for it. The capital improvements were then postponed “during discussions with Trump.” Palmieri Co. indicated they would make no deal with Trump until he got all of his pieces in place, including financing and city approvals. Everyone knew that would take a long time.
The effect of these decisions was that Penn Central gave up on the hotel. In effect, their position was not dissimilar to that of a slumlord seeking urban-renewal acquisition: the worse things get, the more likely it is that the city will be forced to buy. Whether the closing right before the Board of Estimate vote was intended to influence it is incidental. That was its effect. The hotel closing was merely the final, visible sign of a year-old process of abandonment that could lead nowhere except to a sale.
The need for the project was a sham — partially contrived by those who would profit from it. Trump’s claimed option on the property was a sham; he was working immense deals with nothing but a handshake. Then the project passed through a sham closing, orchestrated by its Trump-connected public sponsors, and binding the city and state. What is real, and will get more and more real in this busted city in the next 41 years, is what we gave away. Revenue not collected is as real a loss as revenue expended. The Commodore is the largest symbol of the new state and city resolve to “stimulate economic development” by giving away the future. IBM, ABC, CBS, WNET-TV, New York Telephone, the Palace Hotel, Howard Johnson’s have already gotten abatements under the new state program. Twenty-six projects have been abated in midtown already. Nine projects have been approved under the city’s incentive program, though it is still no more than a phantom program. These abatement programs are the moral-obligation bonds of a future city collapse.
This article from the Village Voice Archive was posted on February 28, 2019