Friday, July 22, 2016

Donald Trump's Family Fortune was built with Affordable Housing Profits

Donald Trump's father built his 400 million dollar estate with Affordable Housing.


Most people think of Donald Trump as the brash developer of Casinos, Golf Courses and Luxury properties.  Not too many people know that his family fortune was built by on the foundation that his father Fred Trump (1905-1999) built with affordable housing in the New York area

[Fred]Trump embarked on a career as an entrepreneur through real estate development, building, and operating affordable rental housing via large apartment complexes in New York City, including more than 27,000 low-income multifamily apartments and row houses in the neighborhoods of Coney Island, Bensonhurst, Sheepshead Bay, Flatbush, and Brighton Beach in Brooklyn and Flushing and Jamaica Estates in Queens.[2]

The next time you hear about "non-profit developers" remember that there is huge money in public sector housing development.  A business must be organized as a non profit corporation to qualify for HUD financing.

The business plan may be different than market rate housing but it is very profitable just the same.  The average low income apartment costs $250,000 to $500,000 per unit  making it far more expensive per square foot than market rate real estate.

Remember that "low income" only refers to the resident.  Everyone else makes a very healthy living.  That is why developers love One Bay Area Plan and the mandate for low income housing.  

Low income housing provides greater certainty for profits at lower risk.

Just ask Donald Trump!

4 comments:

  1. Just to clarify. There are two types of affordable housing developers; for-profit and non-profit. For-profit developers are driven by efficiency and cost. Non-profit developers do give a damn about either! Chances are Mr. Trump did not develop the housing as a "non-profit" developer. He could not have made any money otherwise. Yes, there is money to be made in the affordable housing development business, but not to the extend that you think. The real waste is on the non-profit side of the business. Since a non-profit cannot make any money to benefit any individual, they are a huge squanderer of public resources. They have no incentive to build cost effectively and less incentive to run a project efficiently. Often, localities will provide "loans" for the construction/development of a housing project. These "loans" are never paid current and are never repaid at maturity. The "loans" simply accrue the interest, and are forgiven at maturity. The only loan that is repaid is the senior bank loan. Budgeting is a simple zero sum game. The rents are sufficient to pay the debt service on the bank loan and operate the project. There is no incentive to generate cash flow, as anything left over after the debt service on the bank loan would have to go towards the locality "loan". Often, the non-profit will absorb the excess by inflating operating expenses. (Most non-profits self manage their properties. ) Had those resources been turned over to the private sector, we would not have an affordable housing crisis in this County. As an added benefit, the "loans" would be paid currently, and repaid at maturity. Once repaid, that money could be recycled into development funds for new housing.

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    1. The "non profit" status is required for securing HUD loans, grants and special programs. Just because the developer is "non profit" doesn't mean that it is no profit. Subsidiaries can reap huge amounts of money.

      Do you know that the New York Stock Exchange once was a "non profit"? It's CEO earned a directors salary of $140 million dollars.

      Millions are reaped by contractors, financiers, partners, managmenent fees, construction etc. It is corporate welfare.

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  2. Non-profit status is not required to secure HUD loans. HUD insured loans are available to both for profit and non-profit entities. How do I know this? I was a commercial mortgage banker for 25 years and made these types of loans. And what is wrong with the profit motive? What you should be concerned about is the allocation of scarce resources.

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  3. You are correct that you do not have to be a non profit to secure HUD loans but certain programs are reserved for non-profits such as the LIHTC (Low Income Housing Tax Credit). This program allow non profits to sell their tax credit to other large investors at a discount. It is a huge source of funding for Low Income Housing.

    Perhaps you can help us understand this. We are not experts.

    There is nothing wrong with the profit motive when it is a result of the free market system. When government creates special incentives outside the free market, it distorts the systems and burdens the tax payer. This is corporate welfare using social policy as a means to achieve the ends. Non profits drain the tax revenue pool, burdening we "little people" who will pay more taxes. Also, the non profit/government insider competes unfairly against fair market for profit competition. The taxpayer and consumer loses again. Solyndra.

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