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Trump at Cap Cana: A failed project where everyone lost, except Trump
As Trump made millions in the Dominican Republic, the biggest loser was a state bank that ended up with Trump lots as payment for several defaulted loans.
POR:UNIVISION
26 FEB 2018 – 12:46 PM EST
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TRUMP AT CAP CANA
A failed project where everyone lost, except Trump
By Manuela Andreoni
Ramón Luis Pérez, a Puerto Rican businessman, paid $100,000 just to get a seat at the table, and yet he felt lucky. That was the price of a ticket to attend the launch party for the Trump Farallón, a project with villas situated on a 230-foot cliff overlooking the Caribbean Sea at the Dominican Republic’s newest and hottest resort, Cap Cana.
The ticket meant he would have the chance to buy one of 68 available lots and build a luxurious villa next to Trump-branded golf courses, hotels and a Trump Tower. “They sold us paradise,” he said.
The event took place on a sunny Saturday morning in May 2007. Ricardo Hazoury, of the family that owns Cap Cana, was there and so were Donald Trump and two of his children, Eric and Ivanka. The Hazourys, who own the country’s most exclusive university, Universidad Iberoamericana, are well-known in the Dominican Republic.
The event room was buzzing with excitement. A month earlier, the project had been featured in the season finale of Trump’s reality television show, The Apprentice. A friend Pérez took to the party was so enthusiastic he even offered to buy Pérez’s ticket. Pérez declined.
After many speeches, the event’s host began calling each of the ticket holders to the front to choose the lots they wanted to purchase. In four hours, most had been sold for a whopping total of $306 million, according to court records. Pérez purchased two lots, one for $2.6 million and another for $5.6 million.
But a financial crisis loomed for investors in the U.S. Two months after Trump Farallón’s launch, Bear Stearns, the bank that issued Cap Cana’s bonds, was forced to bail out two hedge funds, wreaking havoc on Wall Street. By February 2008, leaders of the G7 had concluded that worldwide losses from the crisis could reach $400 billion. Cap Cana struggled to meet its financial commitments, and so did buyers.
Today, miles of land along the cliff, once marketed as the most valuable real estate in the Cap Cana project, are abandoned. Almost nothing was built.
But at least one partner left with pockets full despite having invested no funds: the Trumps.
Records show the Trump Organization took in more than $15 million from the failed Farallón project.
One of the only villas where construction was started at the Trump Farallón is now abandoned MANUELA ANDREONI FOR UNIVISION One of the only villas where construction was started at the Trump Farallón is now abandoned MANUELA ANDREONI FOR UNIVISION One of the only villas where construction was started at the Trump Farallón is now abandoned MANUELA ANDREONI FOR UNIVISION One of the only villas where construction was started at the Trump Farallón is now abandoned MANUELA ANDREONI FOR UNIVISION
All of the project’s investors appear to have lost money. At least three went to arbitration court claiming they had been deceived. Years after promises were made, there were no villas, no golf course, and no Trump Tower. While arbitration court records aren’t public, Univision confirmed that one investor managed to win in court against Cap Cana, while two others lost.
The biggest loser was the government of the Dominican Republic, via its commercial bank, Banreservas. The bank already had granted $30 million in loans to Cap Cana in 2003, but when the company showed up in need of cash once again, the bank’s board – whose members are all designated or appointed by the Dominican president – decided to help.
Banreservas signed a $68 million credit agreement with Cap Cana to save the Trump Farallón project, according to an audit ordered by the Trump Organization. The amount covered debts from buyers for 20 lots.
Today, the bank owns at least 11 empty lots originally valued at $52 million. Banreservas has tried to sell the Farallón lots at a 65% discount. One of those lots was seized from Ramon Luis Pérez after he stopped paying installments.
Univision and Columbia Journalism Investigations spoke by phone with Trump-lawyer, Alan Garten, in January seeking comment for this report. Upon his request, detailed questions were submitted by email. At the time of publication, Garten had not responded, despite several follow-up phone calls and emails.
According to Pérez, about a year after he stopped paying, after he had already invested over $2 million, Cap Cana informed him that the bank now held one of his lots. He said he tried to negotiate paying a lower price for it, but the bank wouldn’t budge. After repeated attempts, Univision was unable to confirm this with Cap Cana or Banreservas.
It is unclear why the bank decided to invest in the Trump Farallón. According to the audit report, the bank made payments between December 2007 and May 2008, after the financial crisis had already started but before its darkest hour, when Lehman Brothers filed for bankruptcy in September 2008.
WHEN YOU GO THERE, YOU ONLY SEE WILD BUSHES
An official with knowledge of the negotiations with Cap Cana who spoke on the condition of anonymity said the bank did contact owners, but some decided not to pay. The bank then signed onto the credit agreement, the executive said, because its board considered it likely that buyers would pay their debts, as all of the investors were wealthy.
One lot the bank was stuck with belonged to Jose Ramón Peralta, a wealthy businessmen who is a member of the current Dominican president’s Cabinet. Another was purchased by a former government minister, Diandino Peña, who was recently ousted as director of the Metro of Santo Domingo after becoming entangled in a corruption scandal. There is no evidence either have paid the bank, and both lots were adjudicated. Neither men responded to requests for comment for this story.
According to the official, the bank viewed the lots as prime real estate because no one had foreseen how bad the financial crisis would become. When the official learned how much Trump had made while the bank took on debt, the source expressed shock.
By 2008, it was becoming clear to some investors that the project was a bad investment. “When you go there, you only see wild bushes,” said Máximo Bisonó, co-owner of the country’s largest construction firm, who also had his property seized by the bank. Bisono decided it wasn’t worth it to continue paying.
Today, in addition to the 11 lots at the Trump Farallón, Banreservas owns 56 apartments in two separate condo-hotels and the main golf course at Cap Cana, Punta Espada. The golf course was given to the bank as payment for the initial $30 million loan in 2003 that Cap Cana was unable to repay. But Banreservas, the bank official said, has not made a penny from it because Cap Cana stayed on as administrators.
Cap Cana has blamed the global recession for derailing the project. It claims to have fulfilled its contractual part of the deal – to develop infrastructure. The rest of the project, it said, had no fixed time frame for completion.
Ramón Luis Pérez sees things differently. A year after the launch, he said it was clear there was no intention of building, because Cap Cana had stopped maintaining the property as a result of the financial crisis. Looking back, Pérez said he believes he and other investors were misled. “All of us realized it was a scam by the Hazourys, with Trump’s help,” Pérez said, although he has no evidence that this was planned.
These findings are part of a series by Univision and Columbia Journalism Investigations that looks at the Trump Organization’s licensing business. This investigation revealed that 15 of the 27 international projects include an investor or a developer that has faced criminal allegations.
It wasn’t the first time the Dominican bank found itself holding questionable investments. In 2005, the bank loaned $14 million to a Spanish businessman named Arturo del Tiempo, who was well enough connected that then-President Leonel Fernández attended a groundbreaking ceremony for Del Tiempo’s project. Del Tiempo recently had arrived to the country and wanted to build a luxury residential high-rise. Five years later, he was arrested and convicted in Spain of trafficking more than a ton of cocaine. There is no evidence the bank knew of his drug connections.
Banreservas took over the building after Del Tiempo didn’t pay his debts. It’s unclear whether the bank lost money from the transaction, but officials say the bank hasn’t sold the apartments. Investors filed lawsuits against Banreservas in an attempt to recover more than $20 million in funds. That case currently is being heard in civil court.
The issue is a sensitive one for Dominicans. While Banreservas functions as the biggest commercial bank in the Dominican Republic, it is a government-owned institution under close public scrutiny. In 2016, when the bank spent an undisclosed amount to change its logo, a watchdog group complained that the move was unjustified in the middle of an economic crisis.
When Cap Cana was launched in the early 2000s, it was considered one of the most important tourism projects in the Dominican Republic, according to Felix Jiménez, a former secretary of tourism. The resort’s property is bigger than the island of Manhattan, and the plan was to build most of it in about 10 years, even when it took about 30 years to develop similar resorts in the country.
Despite the crisis, Jorge Subero, Cap Cana’s vice president, said that most investors paid for their lots in the Trump project. “They bought it with payment plans, practically everyone paid, through the Banco de Reservas,” he said.
Asked to clarify what happened to those who didn’t pay, Abraham Hazoury said that “after you buy a property and finance it with the bank, each person is responsible for complying with the bank or losing the property.” He said he didn’t know how much of the project was now owned by the bank. Univision later asked Hazoury to clarify Banreserva’s involvement in the project, but a Cap Cana representative never replied.
Bisonó and Pérez said they never signed an agreement with the bank, and instead were informed by Cap Cana that it now owned their debt. “They passed the properties over without my authorization,” Bisonó said. Univision was unable to independently confirm this.
I AM EXCITED TO BE BUILDING TRUMP AT CAP CANA
There is no evidence that the Trump Organization was involved in any of the dealings with the bank. The Trumps seem to have only learned about it when they ordered Cap Cana audited in July 2009 and then demanded their cut. The audit report shows Trump was owed $3.8 million in commissions on the lots covered by Banreserva’s credit assignment. The Trumps’ cut in Pérez’s lot alone was $385,000.
These payments covered the Trump Organization’s marketing service, Hazoury said. The contracts and the marketing material never stated that the Trump Organization was a developer or was investing any equity. But a February 2007 press release announcing the partnership added confusion among unsuspecting investors.
“I am excited to be building Trump at Cap Cana,” Donald Trump was quoted as saying. “We look forward to developing thousands of spectacular acres into an elite destination that will be known worldwide in the years to come. I look forward to visiting often with my family.”
After the crisis, Cap Cana ran into significant financial trouble. While the Trump Organization began demanding its share of sales, Cap Cana’s executives said they were out of cash.
WE WOULD LIKE TO BEGIN A NEW PHASE OF DEVELOPMENT
In December 2009, Fernando Hazoury, one ofthe brothers running Cap Cana SA, sent a letter to Eric Trump asking to refinance the debt the company owed the Trump Organization. “You are being paid out sooner and faster than ANY of our senior secured lenders,” Fernando Hazoury wrote. “We ask for your understanding that the only way for us to generate the cash to pay you is for the Cap Cana name to be fostered and our most visible relationship to be perceptibly enhanced over 2010.”
Regardless of that pledge, in 2012, after Cap Cana again failed to follow an agreed payment schedule, the Trumps sued them in a New York court, accusing the company of “textbook fraud.” The Trump Organization had already been paid over $12 million in licensing fees, but it demanded another $5.8 million. In 2013, it settled for an undisclosed amount. But a review of Cap Cana’s corporate records shows that the Trumps were paid $1.1 million in cash, plus two lots at the Trump Farallón originally valued at $17 million in total.
After the litigation in New York, many investors thought the Trump deal was no longer in place. No signs of the Trump name currently are displayed at the project.
But Hazoury says the deal never ended. Days after President Donald Trump’s inauguration, in February 2017, Cap Cana paid for Eric Trump to visit the project again. “We would like to begin a new phase of development,” Eric Trump said. “We haven’t proposed to cancel [the licensing agreement] and neither have they. We are interested in moving forward.”
In October, six months after Eric Trump visited Cap Cana, the Dominican Tourism Ministry, without notice, changed zoning regulations in the development area to allow high-rises near the beach, which would benefit any new projects between the two companies. The largest hotel association in the region immediately appealed that decision, arguing that regulations have always set a maximum of five stories for the area. The association has been negotiating with the ministry to pull back the deal.
But two towers had been planned for the Trump project since 2007, and there is no evidence the new plans have influenced this current proposal. Nevertheless, in December, media reports noted that the country’s Tourism Promotion Board approved tax incentives for the construction of 17 hotel towers at Cap Cana, during a session that drew a negative vote from the hotel association.
It’s unclear how much the Trump Organization continues to believe in the Cap Cana project. Alan Garten, the company’s lawyer, has not denied the company’s interest in continuing to develop the project, despite it potentially flying in the face of Donald Trump’s promise to avoid new deals abroad while he is president of the United States.
In 2015, the organization sold one of the lots it was awarded after the litigation in New York. It went for $2 million, less than a quarter of its original price.
Beyond litigation with the Trump Organization, Cap Cana has had even more legal troubles.
In 2009, a disgruntled investor in a different project filed a complaint in a local court accusing Abraham Hazoury and others of fraud and money laundering over two corporate entities based in the British Virgin Islands. After a request from the investor’s lawyer, prosecutors allowed the case to proceed as a private criminal case.
The local Supreme Court overruled that decision and ordered the prosecutor’s office to investigate the matter. No charges were filed, and the case never gained publicity, although the court’s decision is available online. Hazoury says the complaint lacked merit and prosecutors found no wrongdoing. “This judicial terrorism was judged and rejected,” he said. Univision could not confirm if the investigation was ever concluded.
The Trump Organization has always maintained that it conducts thorough due diligence of its partners. It is unclear how much the Trump Organization knew about this case during its involvement with Cap Cana, because it occurred two years after the Trump contract was signed.
However, a due diligence effort should have found that Cap Cana SA was ultimately owned by a Panamanian bearer shares corporation called Wilmer Trading, meaning it was impossible to legally determine who owned it. Three layers of people and companies exist between Cap Cana and its ultimate owner, including corporations based in offshore and opaque jurisdictions such as the British Virgin Islands.
CAP CANA’S CORPORATE STRUCTURE
Cap Cana’s corporate structure raises transparency concerns
Hazoury said the structure was put in place because at one point the company had other shareholders, though he wouldn’t disclose their names. Presented with Cap Cana’s corporate structure, John Madinger, a former IRS investigator and money laundering specialist, said he would be hesitant to sign a deal with Cap Cana, given its complexity.
“You’ve got crucial red flags: You’ve got the bearer shares corporation, which already has no transparency, then multiple corporations in multiple jurisdictions,” he said. “If you’re an American business or citizen, you have got to have some assurance that you’re not dealing with dirty money.”
THEY PUT ON A SPECTACULAR SHOW
The Trump Organization wasn’t the only international brand present in Cap Cana. In July 2017, construction of two Hyatt hotels was included in the project. That groundbreaking ceremony was attended by Dominican President Danilo Medina.
It’s not hard to find disgruntled investors who feel they have been fooled by the company. In 2016, investors in another project that was never completed, Racquet Village, sued Cap Cana and accused it of money laundering. Local prosecutors said the accusation lacked merit.
Pérez, the Puerto Rican investor, said he never thought about suing. “I didn’t want to put one more dollar in those lots,” he said. Pérez invested in other projects in Cap Cana, and today, he spends part of each year livingin an apartment by the marina.
Pérez said he had high hopes for the Trump project, which was supposed to become the most exclusive one in Cap Cana.
“They sold more than 60 lots in the same day. In four hours, they made more than $300 million, with Donald Trump running the show. They fooled us as well,” Pérez said. “But they put on a spectacular show.”
Amanda Gomez, Rebecca Schuetz, Mónica Cordero and Alicia Ortega contributed reporting.
Continue reading:
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