Legal and Financial Troubles Mount at 40 Wall Street
A landmark Lower Manhattan skyscraper owned by former President Donald Trump has been put on a mortgage watchlist because of the declining amount of office space currently leased there, as well as rising costs. In a story first reported by Bloomberg News, loan manager Wells Fargo cited a vacancy rate of 18 percent at 40 Wall Street, while also noting that operating costs have risen 11 percent since Mr. Trump took out a $160-million mortgage on the building in 2015. That loan currently has an outstanding balance of $126.5 million, the full amount of which is due in slightly more than two years.
At issue is the “Wells Fargo Commercial Mortgage Trust 2015-LC22,” an investment security consisting of approximately $900 million in debt on multiple commercial properties that the bank bundled together seven years ago and shopped to investors. Along with an office complex in New Jersey, a shopping center in Connecticut, an airport parking lot in San Diego, and a Marriott hotel in Florida, Mr. Trump’s mortgage on 40 Wall Street was added to this mix. Even after selling Mortgage Trust 2015-LC22 to investors, Wells Fargo has continued to act as the “master servicer” for this security, which means that the bank must disclose each month in a public filing any material developments that have come to its attention about the underlying creditworthiness of the borrowers.
In adding the 40 Wall Street mortgage to its watchlist (a move that essentially warns investors that the debt backing a security may carry a risk of default higher than previously believed), the bank noted that the building’s “debt service coverage ratio” (DSCR) had declined precipitously. The DSCR is the fraction created when a property’s cash flow is divided by the cost of staying current on a mortgage. A value of greater than one means a building is generating more than sufficient revenue to cover its debt. A DSCR of exactly one means that debt service and earnings are equal. And a value of less than one means that the property is bringing in less money each month than is owed to lenders. The Well Fargo disclosure also documented that the DSCR for 40 Wall Street was 2.13 at the time of the loan’s origination in 2015, but has dropped to a current value of 0.92.
In the decades since Mr. Trump acquired the building in 1995, 40 Wall Street has become home to a host of troubled and legally questionable enterprises. In addition to the now-defunct Trump University and Trump Mortgage, the building has housed multiple unregistered securities dealers specializing in penny stocks, an attorney who eventually pleaded guilty to stealing millions of dollars from clients, another attorney who specialized in large-scale immigration fraud, a Ponzi-scheme operator, a marijuana smuggler, and two financiers who (separately) tried to fake their own deaths when clients sought to withdraw their funds. (Both were later imprisoned.) The most unimpeachably wholesome tenant in the building, the Girls Scouts of America, has been seeking to terminate its lease since 2021.
The balance sheet at 40 Wall Street may be the least of Mr. Trump’s troubles related to the neo-Gothic skyscraper, which dates from 1930. In September, State Attorney General Letitia James filed a civil suit against Mr. Trump, alleging that he cheated lenders, insurers, and tax collectors by making false claims about the value of his properties, especially 40 Wall Street, which is believed to be the most valuable of his New York holdings.
Ms. James’s suit, which seeks a penalty of $250 million and a court ruling that Mr. Trump and his adult children can never do business in New York again, began in 2019, after Michael Cohen, Mr. Trump’s onetime personal lawyer and erstwhile fixer, testified before Congress that, “it was my experience that Mr. Trump inflated his total assets when it served his purposes, such as trying to be listed among the wealthiest people in Forbes, and deflated his assets to reduce his real estate taxes.” During the same hearing, when Mr. Cohen was asked if the President or his company ever overstated the value of assets when applying for a loan, he answered, “yes.”
Court papers filed by the Attorney General’s office allege that Mr. Trump and his team “received a series of bank-ordered appraisals for the commercial property at 40 Wall Street that calculated a value for the property at $200 million as of August 1, 2010 and $220 million as of November 1, 2012. Yet in the 2011 Statement, they listed 40 Wall Street with a value $524 million and increased the valuation to $527 million in the 2012 Statement, and to $530 million in 2013—more than twice the value calculated by the ‘professionals.’”
The legal brief continues, “the inflated asset valuations in the Statements cannot be brushed aside or excused as merely the result of exaggeration or good faith estimation about which reasonable real estate professionals may differ. Rather, they are the result of the Defendants utilizing objectively false assumptions and blatantly improper methodologies with the intent and purpose of falsely and fraudulently inflating Mr. Trump’s net worth to obtain beneficial financial terms from lenders and insurers.”
In August, Mr. Trump was summoned to the Attorney General’s office at 28 Liberty Street (steps away from 40 Wall Street), to testify at a deposition prior to Ms. James’s suit coming to trial (expected to begin in October). Citing the Fifth Amendment protection against self-incrimination, he refused to answer questions more than 400 times.