Or, it can’t be sold at all.
How many people can actually afford to buy such a luxury yacht, especially when the maintenance and ownership costs are considered? You might be able to solicit a select few potential buyers, but it’s not the sort of thing that would attract a legitimate bidder on the open market.
So wouldn’t you think that getting a bank to lend you money for a luxury yacht that they dread repossessing would be, at least, costly, and at most impossible? “Lend me 14 Million to buy this boat that, if I fail to repay the loan, you would then own but it would never get you 14 million back.” If I’m a bank don’t I say, “No thanks”?
My personal theory is that the banks have figured out a different approach for celebrities. You’ll notice, for example, that Deutsch Bank’s Personal Wealth division has an office in Hollywood.
Someone like Michael Jackson or Charlie Sheen is probably horrible with money. They didn’t get to the top of the heap through financial acumen, they’re just good at amusing people. And that effectively means that they’re the same as average joe’s who are living check to check and hitting up the payday lender every Friday.
Payday lenders don’t mind betting on people who are spending money faster than they make it because they charge interest rates high enough to not care and the people who frequent them need that money the same as a heroin addict needs their heroin and they’re not going to get any more unless they keep forking over a giant chunk of everything they make.
It’s a good bet that every time a Hollywood star pulls in a few million for their most recent blockbuster, most of it goes to Deutsch and then the sucker comes in to borrow less than they paid in, so that they can buy a new Maserati. Deutsch says okay and slaps 20% interest on it.
Trump’s banks don’t need to take his boat. Until he sells a new book, sells an NFT, or starts a new PAC and reroutes all that money to Deutsch, he’s not getting any more money. And then where would he be? He’d have to take the money that he’s taking and manage it himself. Well, that’s just a recipe for it to go away even faster than giving it to the payday lender.
Homebuyers face similar issues. Banks don’t want buyers to default on the loan, so they generally insist on one of two terms for the purchase:
#1: The bank will only lend for up to 80% of the purchase price. If they foreclose, they can quickly sell the house for considerably less than the purchase price and still avoid incurring a loss.
#2: if the buyer wants a mortgage for more than 80% of the purchase price, they’re required to buy mortgage insurance.
Seems like a cautious lender could apply similar policies to the purchase of a luxury yacht, with parameters adjusted to suit an asset that depreciates very quickly and is hard to resell.
So, like any other big business?
Reading the articles about Deusch, it seems schmoozing and being starstruck at celebrity fame seems to affect their judgement. they made loans that took Trumps word for cash flow without too much scrutiny. IIRC too, the Chicago tower Trump had defaulted, then talked the bank into refinancing about $300M and writing off the extra $80M; they looked at the numbers, I presume, realized they’d made a BIG mistake, but rather than foreclose and take over a money losing enterprise, they wrote off $80M hoping that whatever was blamed on a problem with the economy would eventually turn around and the cash flow would improve, they’d get paid that much. (Basically it would have been a “take it all or leave it to us to manage” proposition.)
Since most of these enterprises, like his casinos, were individual enterprises and sank or swim on their own while Trump walked away with license and management fees already paid - in the last few years the banks have done the next best thing and demanded Trump’s personal guarantee from his own wealth.
Apparently his real estate enterprises have been steadily losing money for years, and only the massive income from “The Appprentice” franchise kept him afloat between 2000 and 2016.
well yes. But from what I have heard he stiffs little guys as often as banks. Local copy centers in New York have been burned by the Trump organization. I don’t think (I don’t know but have never been there) that big businesses make a practice of stiffing the little bills. Maybe, don’t know.
It’s one of a series. One of them went into his personal debt load in some detail.
If you want to read the article you can do so here:
It links to the NYT article: “Long-concealed Records Show Trump’s Chronic Losses and Years of Tax Avoidance”
No, not in my experience. Most take some pride in being tough but fair.
Large yachts are bought and sold all the time. They depreciate fast but do sell. And actually a client of mine just sold one for substantially more than he paid - though that was probably something of a blip due to COVID.
Rachel Maddow’s guest host today went over some Trump debt issues. The Trump tower on Fifth Avenue has a $100M loan due Sept.6th - meanwhile it is significantly underperforming in rent, and some are bailing - Ronaldo sold his apartment there for less than 50% of what he bought it for, just to get out. The show also mentioned that more than half of the $590M in debt due in the next 4 years is personally guaranteed by Trump. Also, that his erstwhile accounting firm stating the last 10 years of financial statements are unreliable, which should not help when he goes shopping for any bank refinancing.
Also, other articles suggested that it was the huge income from the TV that kept his many money-losing properties afloat in the last two decades. Suspicion is that appealing for donations from his base may be the means of keeping him afloat in the future…
Michael Cohen in his book goes into the paint fiasco at Doral. they opted for the cheapest quality of paint, and when it was … cheap… they refused to pay the painting contractor or distributor, eventually got the manufacturer to send them a truckload of free paint. Even though they were warned the paint was not the level of quality for a high-traffic, frequently cleaned area like hotel rooms.
In the documentary on Netflix, the fellow who actually repaired the Central Park skating rink recounts how Trump coopted him to do the job for nothing 'for the publicity" and then neglected to give him any credit when the press came calling.
I actually first heard of Trump when my brother-in-law the stock investor raved about him - “here’s this guy who just built this tower on Fifth Avenue and put in the cheapest fixtures and doors and flooring and everything. Why? Because anyone who buys an apartment for millions of dollars (an exorbitant price at the time) first thing will rip out everything and redecorate - so why spend on top of the line stuff? What a clever move!” Michael Cohen tells it differently - Trump filled the tower with the cheapest shit because he was cheap and didn’t think it mattered. He just happened to be right, or else some of the people renovated because it was all cheap.
Yes. But their defamation of “fair” and the man on the streets is a bit different
Most businesses understand reputation and cannot afford to burn bridges with the support business community they must continue to do business with. Some simply then go from city to city and manage to outrun their reputation, and similarly rely on multiple foreign banks who are more interested in getting a toe-hold in the US market than in closely examining the details of a business.
One article I read detailed how Trump when faced with lawsuits managed to discover that any relevant but inconvenient records no longer existed, they’d been shredded as a natural course of cleaning up. After stalling discovery process for as long as possible. Remember the Trump University case dragged on for years, and was only settled when it would have been inconvenient for it to have the POTUS dragged into court to testify. (“University” from 2004 to 2011, lawsuit filed August 2013, settled November 2016 right after the election.)
Similarly, Cohen pointed out that the dispute with the contractor over Doral paint job was several hundred thousand, but they threatened the contractor he would have to go to court and legal costs would eat any profit from the legal action. The contractor subsequently went bankrupt.
Shipping law is your practice area as I recall.
Back when I was a junior, a bank client of ours ended up with a bulk carrier as a result of a case. Let’s say they learnt a lesson why ships needs to be maintained all the time.
I don’t agree. The depiction of all businesspeople as venal morally bankrupt assholes is a cartoonish stereotype.
Ship chartering is a particularly tough school but even there, there is substantial honour and decency.
For reasons @md-2000 states the vast majority of business people play fair (even by the standards of the man in the street). Even from the perspective of someone who is totally amoral and selfish, it’s just plain bad for future business to be an asshole.
Even assuming Trump is only half as bad as the stories suggest, he is qualitatively different to normal business people.
I don’t follow this. If I had defaulted on my mortgage, the bank would simply have auctioned the house. If it sold for less than I owed, I would still have been liable for the balance. I know two people that this actually happened to in the last slump.
You don’t need much expertise to hold on to a house. You need locks, and maybe a caretaker. Disconnect utilities.
A ship needs ongoing maintenance. Stuff which needs qualified people. Might need special equipment. Things like engine, electronics etc need to be maintained
Otherwise you will soon no longer have a ship but a rust bucket.
There are regular marine auctions and I bet that many of the lots are put in by finance houses due to loan defaults.
For yachts in the hundreds of thousands to low millions sure. But not for yachts that need a permanent crew, cost a few million a year to run, and go for many tens to hundreds of millions. They get listed by high end brokerage firms and take a long time to sell. There just aren’t enough buyers in the market. Not every billionaire even wants a big yacht. Those that do mostly already have one. Many prefer to commission their own design. Fashion is no stranger to luxury yachts. They go out of style wiping more value from older vessels.
The scale of things matters.
And even those small yacht auctions are invariably losing money for the banks. Marine assets depreciate at rates that would make your nose bleed. People are expecting bargains.
Buying any boat is risky. It is all to easy to find ruinously expensive to fix problems and nice the deal is done. You minimally need a proper survey done of the vessel. Auction prices reflect the risk.