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(This article first appeared in Real Estate Investor's Monthly.)
In recent years, I have become disgusted with the majority of book-store real estate investment books. They are typically come-on, lead generators for criminal con-men seminar and “mentoring” businesses. One bright spot in the genre has been books by long-time institutional players who tell stories from their careers—guys like office leaser Julien J. Studley and national auctioneer Steven Good.
Ross, who is the guy sitting beside Donald Trump in the TV show The Apprentice, is an institutional player with decades of experience. The book has lots of great stories that illustrate interesting real estate investment principles. You should read it. But it is unfortunately full of other stuff that I must comment on lest my general recommendation be regarded as approval of everything in the book.
One problem comes from the fact that Ross and/or his publisher, Wiley, are apparently concerned that small investors will not buy the book because it is about huge buildings in Manhattan. The subtitle is, “Billionaire Lessons for the Small Investor.”
Ross has vast experience—50 years—with investors who owned vast holdings. I respect that. But his attempts to prove that Trump approaches will work for a duplex buyer in Altoona, PA are half-vast and unpersuasive. He does not know what he is talking about and makes a fool of himself in those parts of the book.
For example, on page 14 he says if you are selling a house with an old refrigerator, you should tell the buyer that you will buy him a new one if the one in question does not last at least a year after closing. My advice would be to remove the fridge altogether if it looks bad and either not replace it or replace it with a better-looking used one. You should never hand out guarantees like that. There is a moral hazard. Most likely, the buyer will sabotage the old fridge just before the first anniversary so he can get a free new one from you.
Ross’s publisher is Wiley. They have been after me to write for them, too. Wiley used to be highly respected, but they lately have gone into get-rich-quick schlock. I was surprised that Wiley does not provide the one thing that major publishers usually add to even the worst real estate books: competent copy editing. This book is full of punctuation mistakes and misspellings stemming from ignorance. On page 148, Ross advises, “Give investors something to peak their interest.” He means, “pique.”
On page 39, Ross says a tenant offered $250,000 a year rent and he told them it was missing one zero. He wanted $25 million. It takes two zeroes, not one, to convert $250,000 to $25,000,000. This slop job is a product of the vaunted Trump organization?
I am surprised that a big-time Manhattan lawyer like Ross does not know how to spell or punctuate, that a big-time company like Trump does not have secretaries who can spell or punctuate, that Ross’s well-known co-author Andrew McLean cannot spell or punctuate, and that a big-time publisher like Wiley does not have copy editors who can spell or punctuate.
I am not complaining about Trump’s assistant and publisher not meeting my standards regarding typos. I have long decried objections to typos as anal-retentive. See my Web article on the subject. Rather, I am pointing out that neither the publisher nor the Trump organization is meeting its own vaunted standards in this book.
In fact, much of what Trump does would not apply to the small investor. But Ross generally tries to say otherwise, apparently to increase sales. Donald Trump’s main thrust has been development of new or renovated high-rise office, retail, residential, and hotels in Manhattan.
Nevertheless, Ross would have you believe that you can apply Trump’s principles to a duplex in Altoona. That is not true because of the following unique Trump aspects:
• targets ultra-high-wealth market segment
• use of government incentives unique to New York City
• effect of unique Manhattan zoning and building rules and real estate interests almost only used in Manhattan like air rights
• extreme scale, i.e. buildings costing hundreds of millions or billions of dollars
On page 3, Ross says, “It’s not the scale of your real estate investment project that counts.” Bull! To a large extent, huge-scale projects are quite different from small ones. You use different lenders. Your target tenants are quite different. Alliances with other organizations, like hotel chains, are often needed.
I do not mean to say that the little guy cannot learn from Trump and Ross. He can. But Ross overstates the applicability and understates the need to reduce specifics of Trump’s approach to more general principles that would apply to both billion-dollar Manhattan buildings and duplexes in Altoona.
Ross is big on talking about how much integrity he and Trump have and how important it is in real estate. Then he describes negotiating trick after trick that can only be described as misleading and dishonest. I guess when Ross speaks of integrity he means what passes for integrity in New York City real estate development.
It is well known in the business world that products shipped to New York City often result in businesses there falsely claiming they did not receive the products or that they were short shipped. One used to also short-change my invoices claiming a non-existent discount for paying within thirty days. “Only in New York” is a phrase with many meanings.
Ross approvingly quotes one of his negotiating students who said, “[Negotiation] is one aspect of life where there are no governing rules. Lying is not only permitted, it is an accepted practice.”
Bull! Lying is lying. In his chapter on negotiation, Ross recites trick after trick involving misleading the opponent in a negotiation. He uses word after word connoting deceit to describe these tricks, apparently oblivious to the dishonest nature of what he is saying.
On page 61, he urges using articles from “apparently” authoritative sources to prove points. Why not authoritative, period?
On that same page he says to structure “plausible” responses for negotiations in advance. Why not just give a truthful response when asked? Still on that same page, he says to rehearse negotiation responses in advance, but to present them to the other side as if you just came up with them. This is all dishonest.
Again on pages 78 and 79 he urges the use of “apparent,” but not true, things to win negotiations. On page 83, he uses the word “appearance” urging another deceitful technique.
On page 84, he says to try to renegotiate a price you previously agreed to by saying you made a mistake in calculations. I actually did make such a mistake once and had to change my purchase offer. The other side totally blew up and killed the deal. On two occasions, person negotiating to buy my properties tried that on me in bad faith. I blew up both times and told them where to go.
On pages 86 and 87, he brags about a former boss who got opponents to lower sale prices or raise purchase price just by angrily yelling, “What!?” repeatedly when they said their number. I am mildly surprised that ever worked, but it sure won’t work for Ross or Trump anymore now that he has bragged about it in a book.
I would not be surprised if this crap works in New York City, but if you or I—or Ross or Trump for that matter—try games like this outside of New York City, I expect that the game-player in question will be thrown out of a bunch of offices and told not to come back. Neither your reputation nor your deal will survive this nonsense in my non-NYC experience and observation.
I have seen this pattern many times in the Army and big organizations and in real estate where dishonesty is often so routine that its practitioners have lost the ability to recognize the plain meaning of their own words. In my experience, when such people are confronted with the deceitful nature of what they are doing or advocating, they protest, “Oh, stuff like that doesn’t count!” There is even a legal concept—puffery—that says commissioned salespeople lie so much, and that fact is so well known, that they cannot be held legally liable for many of their exaggerations. In fact, integrity, like pregnancy, is an all-or-nothing proposition.
I was more astonished by Ross’s bragging about deceiving people than I was by his admitting it. For example, on page 13 he says, “[Trump] told Der [big-name architect] to make it appear that [Trump] had spent a huge sum of money on the [architect’s] drawings.” These drawings were shown to city officials and lenders.
Why does it not occur to Ross and Trump that city officials and lenders are going to read or hear about this book and get angry that they were misled about the expense of the drawings on the Commodore Hotel project? Why do they not think that henceforth, such persons will wonder if they are not seeing another Potemkin Village-type extravaganza next time Trump or Ross makes a presentation?
Time and again in the book Ross brags about how he and Trump or he and one of his prior celebrity clients misled negotiating opponents and gained some advantage as a result. I would expect he has gratuitously generated enormous bad will by doing so and that the two of them will face much rougher than necessary sledding in future negotiations as a result.
It is a minor sidelight, but George Ross is, in part, a professional suck up. Before working for Trump, he worked for a couple of other celebrity New York investor-developers.
One would almost assume that you had to be a professional suck up to do that. And if there were any doubt, you only have to read this book. Starting on the cover where the word “Trump” is in the largest letters on the cover in spite of the fact that the book is by Ross and covers all of his experience both with Trump and with other celebrity landlords.
It continues inside the book as he repeatedly refers to his current boss’s “genius” and “brilliance.” I guess such fawning is inevitably part of any book written by an employee of a celebrity. If they comment on this, I am sure Ross and Trump will deny he is a suck-up. That would just prove that the three-thousand-year string of suck-ups swearing they are not suck-ups, and employers of suck-ups swearing they would not want to employ suck-ups, is unbroken.
I think the principles Trump used are good, but they have long been in my books and newsletters and are fairly well known in real estate business and long have been. I would characterize Trump as aggressive, persistent, and generally competent with a flair for publicity, not as a genius or brilliant.
Ross began life as a lawyer. He made the transition from lawyer lawyer to business-oriented lawyer. He describes the difference well. His first landlord boss used to greet his revelations of various legal problems in deals with the question, “What will it cost to fix?”
That caused Ross to realize that the normal deal-killer mode of lawyers was inappropriate and he began to think of all legal problems as having a cost to fix and to see that it was only a deal killer when its cost exceeded the likely profit. But Ross is still predominantly a lawyer who advises investors, not an investor himself, although he did some deals for his own account on the side.
Many of the great stories in the book relate to encountering some seemingly insurmountable problem that Ross and/or Trump or Ross’s prior clients overcame. Persistence was one of the important factors in their success, as is always the case in business and especially in a deal-oriented business like real estate.
For example, he tells of a property his pre-Trump bosses wanted to buy in NJ. The title report showed exception for rights owned by the State of NJ because the land had been filled in. That problem caused all other buyers to flee. Ross met with NJ officials and discovered that NJ could be bought out of the property and they simply cut the offering price by the minimal amount they would have to pay NJ.
What he did right was not assume, as all others did, that, “You can’t fight city hall.” The main lesson to be learned is, when you encounter any problem, go see if there is a way to fix it or cover the cost of it. Never assume it is unfixable.
Another strength of the book is its emphasis on building trusting relationships with other players in the business starting with the relationship between Ross and Trump and carrying over to trying to maintain good relations with those whom you try to make a deal with but can’t, and with persons you do make a deal with. Ross differentiates between how you treat people you expect to have a long-term relationship with versus those you don’t.
I am not sure that’s wise. It’s too hard to tell. I once rented an apartment to a newly-minted reporter on the Corsicana Sun newspaper in Corsicana, TX. Years later I was being interviewed by a Wall Street Journal reporter. Guess where he had lived when he first got out of journalism school.
A runty freshman in my platoon at West Point when I was a senior grew up to be Rhode Island Senator Jack Reed. Better you should assume every relationship is long term.
Most the lawyers I have faced across the table conducted themselves like jerks gratuitously because they have no class and think that’s part of their job description. There are other lawyers who conduct themselves like gentlemen while representing others and make such a good impression that the erstwhile opponent later hires them. Ross tells of getting a number of clients, including Trump, that way.
That’s not to say you should suck up to everyone you meet. Some people are unreasonable or sociopathic. I am famous for my Soup Nazi approach to marketing my books and newsletter.
That is, I treat customers reasonably as long as they behave reasonably. But I show them the door quickly if they are too quick to complain or complain improperly like starting off accusing me of trying to steal their $30.
Similarly, when I did real estate deals, I consciously tried to maintain good relations with as many people as possible including title clerks and sellers and agents. But when a person got clearly out of line, I called them on it and wrote them off. Life is too short to waste any of it dealing with unreasonable people or sociopaths.
At West Point, they taught us to behave so that the best soldiers wanted to be in our unit more than any other and so that the last unit the worst soldiers wanted to be in was ours. The same applies to your business dealings. You want the bad buyers, sellers, and tenants to stay away from you so you do not have to waste time, or worse, dealing with them.
Ross makes much of using your enthusiasm to capture the imagination of key players. Trump is big on that. That would be important when renovating a hotel costing hundreds of millions, but I doubt it would be relevant to the duplex in Altoona. A small-time developer might get some mileage out of it, but I think the scale that Ross says doesn’t matter does matter and one of the ways it matters is that the bigger the scale, the easier it is to capture imaginations.
He also says to focus on the “large outlines” of the deal rater than the numbers initially. Again, on small-scale deals like a duplex, the “key players” are going to ask for the numbers immediately. They already understand the “large outline” of a duplex deal without a presentation.
Ross says Trump’s hiring of a prominent retired banker to help him obtain financing for the Commodore hotel, Trump’s first big deal was an example of showmanship. That was a good idea, but it’s not showmanship. It’s connections.
They often can be a big help. I once hired a former FHLMC office manager to get me an FHLMC mortgage. He did. One of my clients once hired the former mayor to get her a zoning variance in that town. He did.
Ross and Trump are big on hiring name architects. This is another example of where scale and target market segment render his advice generally inapplicable to the little guy. In a high-rise in Manhattan, a certain amount of architectural expertise is needed to get approval from tenants, neighbors, lenders, government, and buyers. Also, the percentage of a budget attributable to the architect is relatively low in a high rise.
In the vast majority of other real estate situations, I recommend against architects. They tend to be very expensive directly (their fees) and indirectly (the effect of their designs on the other labor-and-materials cost of the building). Also, many architects tend to overemphasis aesthetics and underemphasize practicality and fundamental competence like making sure the roof does not leak.
Too much of Ross’s book tells you how to manage from the 50th floor when you only have a two-story building. His advocacy of architects for small investors is an example of inappropriate big-timing of small-time deals.
Trump had various people issue press releases designed to pressure NYC officials to approve his Commodore Hotel deal. Ross advocates your doing that. That sort of thing can backfire big time. It is an interesting story, but a dangerous tactic.
Another Trump-Ross tactic is to improve the neighborhood by building or renovating some landmark building. Again, this may work in Manhattan with a high-rise, but small-time buyers of rental houses or store-fronts generally cannot affect their surroundings enough to achieve a neighborhood improvement. Again, scale does, too, matter when trying to emulate Trump.
Ross repeatedly says that Trump “overpays” for location and finish and that you should, too. Ross’s articulateness falls a little short of that required to be a writer. And so does that of Andrew James McLean, who is listed on the cover as Ross’s co-writer.
In fact, overpaying, per se, is, by definition, dumb. What Ross really means is that paying more than is generally paid for location or finish can make economic sense in those cases where the market is undervaluing the location—probably because they are not envisioning the optimum use of it—and where expensive finish is uniquely cost effective because the target market segment uniquely appreciates such quality or show-offishness.
Also, Ross seems blind to Trump’s nouveau riche, arriviste ostentatiousness. (Trump himself is not a nouveau riche person, but he plays one on TV. He was born with a silver spoon in his mouth courtesy of his New York City developer father Fred.)
Many wealthy people are turned off by Trump’s propensity to show off wealth. Ross even says that Trump consciously makes his buildings look expensive so his buyers and tenants can imply their own wealth by buying or renting there.
In other words the “Trump Touch” to a large extent is showing off one’s wealth and enabling his customers to do the same with his help. If I may use another French word, that is gauche. That certainly appeals to part of the wealthy market segment, but it turns off other parts. A lot of very wealthy people are appalled by Trump’s crassness.
An example of smart ideas in the book relates to a NYC condo. NYC law required that each condo owner own part of the ground under the building. But giving the residential buyers in a mixed-use high-rise ground ownership proportionate to their square footage of the building would have made those units too expensive.
So Ross came up with the idea of just having the residential owners at the top of the property own only the land under the 24 main support columns that each had a four-square-feet footprint. It got approved. That’s the kind of entrepreneurial thinking that is one of the reasons you should read this book.
Ross says to never do a quick deal. Always negotiate for some time because the other side will think he gave in too soon if you accept his offer too quickly. While I agree that can happen and is always a danger, I think Ross is dead wrong. Again, too New York City.
I have, on a number of occasions, been presented with a deal that I thought was good. I said “Sold” in each case and have never regretted it, plus I have urged my readers to do the same. Trying to make an adequate deal better, or playing games for the sake of playing games, can and often will cost you the deal. I have never experienced a negotiating opponent feeling remorse because I accepted too fast.
One of my rules is that you should accept the first adequate job, prospective employee, or real estate offer, not always try to look for a better one, because the best people, jobs, and deals go the fastest. Take the first not the best is the short version of that rule. I have a chapter on that in my Succeeding book. Ross is telling readers to try to improve on a deal that is already good—just for show. Not wise.
Sometimes, Ross and his co-author are just muddled. Trying to apply diverse multiple income sources to little properties, he says to charge the tenants separately for Internet service. “This strategy helps to diversify the income from the property so it doesn’t come completely from one source (e.g., rents).”
That’s really dumb. Charging separately for Internet does not diversify risk. The income still comes from one source: the tenant. If the tenant moves out, both the rent and the Internet fee will stop coming in. Again, Ross is telling you how to manage a two-story building from the 50th floor.
On page 106, Ross tells of a Trump opponent who said he would renege on an option to purchase that he had granted to a tenant. He had no legal basis for doing so, and admitted that, but said it would tie up the deal while it was being litigated. Trump offered the guy ownership in the property he was building to get him to agree to the purchase. This guy is another developer whom Trump considers a friend and has since done other deals with. New York City again. I would have nothing to do with such a person.
I have also warned readers repeatedly that in real estate, unlike the stock market, people think nothing of reneging on options and other agreements that turn out to be disadvantageous for them. This is further proof.
You should read this interesting book for the ways that Trump and Ross get around obstacles to deals, but the rest of it is questionable advice at best. I was surprised to find such things in a book that is basically a Trump PR document.
John T. Reed
This originally appeared in Real Estate Investor’s Monthly newsletter.