Four years ago, Trump offered about 40 insiders a sweet proposition: low, low contract prices—in some cases roughly $500 a square foot—on condos in his planned Trump International Hotel & Tower.

Right now, similar units in that Chicago New Construction condo building—which is scheduled for completion in 2009—are being offered at up to $1,343 a square foot. This would seem like a bonanza for the “friends and family” group who got the early discount . . . except for one minor hitch.

Trump is now telling them that their agreements are “null and void.”

This elite group of buyers, many of whom have business connections with the project, received letters from Trump’s attorney informing them that their deals had been canceled. They now have to pay an inflated rate, much closer to current market prices, if they want to close on their condo units.

Real estate experts are baffled at the maneuver.

Kevin Ahearn, president of a Boston-based real estate firm specializing in luxury residences, said that, “In my experience it would be very unusual for a developer to get out of a purchase-and-sale contract because prices have gone up.”

If Trump asked people involved with his project to buy units “to help [it] appear successful and achieve certain hurdles,” said Richard Peiser, a professor of real estate development at the Harvard Graduate School of Design, “it would seem the buyer should enjoy the upside.”

The “friends and family program” allowed certain people affiliated with the Trump tower project to buy one traditional condo or hotel condo unit at 10 percent below its original sales price. They were also able to put down an initial deposit of only 5 percent, rather than 15 percent deposit required of other buyers.

“As we anticipate raising prices periodically throughout the pre- and post-construction period, this opportunity would become increasingly more worthwhile with each price increase,” says a Sept. 24, 2003, letter from the Trump Organization and Koenig & Strey GMAC Real Estate, sales agent for the project. The letter instructed buyers that they could re-sell their units, or transfer their purchase agreements to any third party, whenever they chose after construction began.

Since the real-estate boom sputtered to a halt two years ago, sales of condos in the $775 million tower have slowed, with about 21 percent of them still on the market. Meanwhile, construction costs have gone through the roof.

Trump explained that he was reneging on the deal with his associates to give himself “more income to handle potentially higher construction costs.”

“This job has become a tremendous success because of me,” he added, with characteristic modesty. “Everyone knows, with a friends and family program, if a job is very successful, people have clauses whereby you renegotiate or terminate.”

“Anyone who buys preconstruction gets a financial benefit for the risk they take,” argued Judi Diamond-Falk, an architect who designed an early sales office for Trump in Chicago.

Trump gained a marketing benefit from the early sales, she said, because he “could say that a certain percentage of units are presold to get his financing and tell the public a certain percentage was presold. People didn’t know they were friends and family sales.”

In other words, he paid his friends to make his project look more viable than it actually was, and now wants to take their money back.

Technorati Tags: Trump Tower, Chicago Condos, Condo News

This entry was posted on Friday, January 26th, 2007 at 7:13 pm and is filed under Market Update(t) . You can leave a response.