For seasoned observers of Mexico, the failures of two Donald Trump “branded” real estate developments here, stretching over seven years and involving multiple lawsuits and bitterness on all sides, might at first seem like a case of government corruption or careless business practices south of the border.
“There are lots of abandoned high-rise real estate projects here,” said New Jersey-born Glenn Druce, a retired priest of the Episcopal Church, referring to Playas de Tijuana, an oceanfront suburb where he has lived eight years. Only 30 minutes south of downtown San Diego, Playas de Tijuana attracts thousands of American residents who enjoy its beach, Mexican culture and relaxed lifestyle.
One scuttled project in this area is the Trump Ocean Resort Baja Mexico, as the luxury hotel and condominium project was dubbed. Gaping holes in the beach where construction was begun are all that remains of it. Surrounding the scar are rocky cliffs and a highway that offers breathtaking views of the Pacific as one glides south along the coast of Baja California Norte.
Continue 70 miles farther along this spectacular road and you reach the much-visited city of Ensenada, where Mexican-American legal consultant Lee Amate offers his perspective on such dramatic failures.
“A lot of development projects here never get properly permitted by Mexican authorities,” he explained, adding that enforcement of permits is also notoriously lax in Mexico.
However, while permits may have been part of the problem, Amate points out that Trump Ocean Resort Baja, at least in part, followed another story line. The defunct project, initiated in 2006 and terminated seven years later in lawsuits settled in U.S. courts, was the product of the same speculative frenzy that created the real estate and credit bubble leading up to the 2007 crash in the United States, Amate said.
This fever was then abetted by a big dose of dishonesty on the part of, not Mexican officials, but the Trump family, according to Amate, and 190 prospective American buyers who got burned in the project.
“The main reason we went ahead … was because it was a Trump project,” said Hamed Hoshyarsar, a Southern California investor with a large family. Hoshyarsar told CBS that he lost a down payment of $US165,000 on a Trump Ocean Resort Baja condominium.
“With Trump’s name and face all over it, they figured it was a sure bet,” the report continued, showing Trump in a promotional video for the project, saying, “When I build I have investors that follow me all over.”
The suing investors said Trump made a promotional appearance at a lavish San Diego event and appeared in ads crowing that the project “will set the standard of premier property ownership and excellence in service for all of Northern Mexico.” In 2006, the San Diego Union Tribune quoted Trump saying his organization would be a “significant” equity investor in the huge project.
But with the onset of the U.S. financial crisis in 2007 and the project’s shutdown in 2009, Trump took the opposite tack, trying to distance himself from the failure and saying he had only rented his name to developers.
Investors reacted with lawsuits against the Trump organization as well as against the U.S. and Mexican developers. A Trump attorney counterattacked by implying investors were to blame. Regardless of what Trump suggested, they should have read the fine print. Still, “without a lawyer, it can be difficult,“ the attorney admitted, referring to a similar Trump failure in Fort Lauderdale, Florida.
Now, experts lament that, although the principal guilty parties in this and other debacles were not Mexican, Mexico has come out on the losing end in the public eye.
“What is so disturbing to us, as professionals in foreign investment, is that Mexico is painted as the culprit” in the U.S. press, said legal consultant Amate. Instead, blame should be placed where it belongs: Trump is a “gangster … responsible for the theft of tens of millions,” he fumed.
Trump’s other abandoned project in Mexico, the Punta Arrecifes Resort on the pristine southern Mexican island of Cozumel, was promoted by the Trump organization and developers starting in 2007. But its demise was far more shadowy than that of Trump Ocean Resort Baja. In 2012, around the time when environmentalists apparently got the Mexican government to declare parts of Cozumel a natural protected area, Trump retreated from the project.
Newspapers and magazines had once reported that the Trump family was brought to the area by government officials, but after Trump withdrew from the project, a Quintano Roo family involved in the resort took another tack, and Fernando Barbachano, president of Mayaland Resorts, stated in late 2013 that the new plan included respecting the environment.
Not long after, in May 2014, although Trump had already lost the lawsuit by U.S. investors in the Baja project, he apparently still harbored friendly feelings toward Mexico. In a speech before the National Press Club in Washington, D.C., he declared Mexico was doing “phenomenally well” and predicted it would be “the next China.”
Yet nine months later, something had happened. “I have a lawsuit in Mexico’s corrupt court system that I won but so far can’t collect,” Trump infamously tweeted. “Don’t do business with Mexico!” He threw in incoherent insults against the Oscars: “… a great night for Mexico & why not – they are ripping off the U.S. more than almost any other nation.”
In Mexico’s sometimes opaque legal climate, the lawsuit has never been clarified, but circumstances suggest it is related to the fact the Cozumel project moved ahead without Trump. And thus began his infamous epoch of enmity with Mexico.
“He’s right about the judicial system,” explained Amate. “Everyone buys their way out. Still, you can do business in Mexico,” he underscored. “But you need good counsel and tight contracts.”
And corruption and careless business practices do exist here. Guadalajara resident Robert Sorensen, who lived south of Playas de Tijuana for six years, noted that, in addition to uncompleted construction projects, “property ownership there is very unstable,” with squatting and legal battles not uncommon.
Amate added that officials sometimes expect bribes and that getting advice can be treacherous for foreigners. An advisor needs to speak and read Spanish and English, he said, and understand foreign and Mexican investment law.
“You can’t always trust lawyers,” he added. “They’re unethical and cynical. The Mexican bar associations have no teeth — they can’t pull your license.” All of this makes gringos easy to fool, he said.
Adding to the uncertainties of doing business in Mexico was a deluge of other problems during the months in which Trump’s Mexican projects foundered.
“This was when two-hour waits to enter San Diego started. And a drug war broke out between gangs for control of Tijuana. People’s heads were displayed on stakes on overpasses,” Druce pointed out. “I couldn’t get friends from San Diego to visit. That surely decreased interest in investing here and it happened at the same time I saw Trump’s photo on the oceanfront billboard advertising for investors.”
In addition, speculation that had been fueling wild real estate growth in the United States also made Baja California dangerous for investors.
“They made these high risk investments in a trance-like state,” said Amate. “The ‘flipping’ of condos, held with large deposits during ‘presale,’ became popular and profitable in the Baja boom days – 2002 to 2007. During construction, condos would often triple in value.”
That speculation dried up in tandem with the faltering of Trump Ocean Resort Baja. In 2007, only about a year after the project was announced and just as the U.S. economy began convulsing, construction started and Donald Trump’s daughter Ivanka assured investors that Trump projects were immune to slowdowns. In 2008, financing for the building froze and the developer missed key deadlines. In 2009, the project shut down and condo investors faced the loss of their funds, typically $US200,000 to $US300,000.
But, despite these possibly exculpating factors in the economic and social climates, how might these investors now assign blame? How might they feel about Trump claiming, “I have made myself very rich. And I would make this country very rich,” and about his drive for the U.S. presidency?
Donald Isbell, one of the condo buyers who sued over losing his investment in the Playas de Tijuana project told the New York Times, “I have come to the conclusion that what I did wrong was to trust Donald Trump.”
In a similar vein, Druce recounts the experience of his friend, a business owner in Atlantic City, New Jersey, who was an electrical contractor at a Trump casinos there. (Three Trump casinos in Atlantic City have since been involved in bankruptcies.)
“He won a contract and the work was discharged but it was ‘slow pay and no pay’ from the Trump casinos. This caused my friend’s business to fail; it ruined him.”