Donald Trump's Baja Scam

The Big Hole He Left Behind

Donald Trump's Baja ScamPhoto Credit NY Times
Photo Credit NY Times

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Donald Trump is once again in the headlines, this time for insulting Mexico and its justice system after Mexican film director Alejandro Iñarritu won the 2015 Oscar for best director and best picture for his film, “Birdman”.

“The Oscars were a great night for Mexico & why not – They are ripping off the US more than almost any other nation”, read one of Trump’s tweets. Also: “The Mexican legal system is corrupt, as is much of Mexico. Pay me the money that is owed me now – and stop sending criminals over our border.” “Don’t do business with Mexico!”, read part of another tweet.

This was not the case seven years ago, when the giant head of "The Donald" overlooked the Tijuana-Rosarito scenic highway from the vantage point of an enormous billboard located on a seventeen acre ocean front development site at Punta Bandera, roughly half-way between Playas de Tijuana and the golf courses of Real del Mar.

This spectacular location was to be the future home of the ultra-elite Trump Ocean Resort Baja, a configuration of three sixteen-story towers with the emphasis on luxury living and exclusivity featuring swimming pools, spas, tennis courts and fine dining. Ivanka Trump was reportedly one of the first buyers of one of the projected 525 units.

VIDEO: What Trump's Baja Resort was supposed to look like

The buzz generated by the announcement of the Trump Ocean Resort Baja sent waves of excitement throughout the local real estate community and signaled a hope that at long last the Northern Baja coastline, after numerous false starts over the years, was finally about to explode with the same kind of development that Cabo San Lucas had experienced earlier in the 1980’s.

But the ground had barely been broken on the future luxury resort project when it ran into financial difficulties and was foreclosed as a result of the housing bubble which burst in 2008. Then in March of 2009, the entire oceanfront project was permanently scrapped.

The high-rise towers of Trump’s much-hyped resort never even got off the ground, leaving behind a closed sales center and a closed showroom with its scale models of the projected resort complex, the towers, and demos of various floor plans.

When the dust had settled, all that was left of Trump Ocean Resort Baja was a big hole in the ground and a large pile of dirt – and millions of dollars lost by credulous investors.

Later in 2009, buyers who had paid deposits for units in the resort project filed suit against Donald Trump. In the lawsuit, more than 69 prospective condo buyers claimed to have paid deposits totaling approximately $20 million for 71 units.

VIDEO: It ended up being a giant Trump Ocean Hole in Baja

The buyers were told that there was no money left to refund their deposits, and that the project only had $556,000 left after collecting more than $32 million dollars in total deposits. As a result, the investors sued Trump, his children, and other involved developers of the project, accusing them of fraud, negligence, unjust enrichment and violation of federal disclosure laws.

Trump’s claim is that he was not responsible for the project, and that he had merely licensed his name to PB Impulsores, a shell entity for Irongate Capital Partners, LLC, a Los Angeles developer. But the project had been aggressively marketed in the U.S. and Mexico as a partnership between Trump and Irongate, which had previously partnered-up to construct another proposed Trump resort in Hawaii.

But sales brochures and marketing hype at the time stated clearly that Mr. Trump was personally involved in everything he put his name on — and buyers trusted his name to invest money in the project on that basis.

It wasn’t until late 2008 that investors discovered that Trump had only licensed his name to the resort development for a handsome fee and did not stand behind the failed project at all. In late 2011, the lawsuit was settled by Trump. By then, there were more than 100 would-be condo buyers involved in the lawsuit.

According to an article by the New York Times in 2011, hundreds of pages of court documents and interviews showed that the real estate mogul had aggressively marketed several other luxury high rises as “Trump properties” and “signature Trump” buildings, and had even made appearances at the properties to woo buyers and to command higher prices.

Buyers that lost millions of dollars in deposits claimed they had been exploited and deceived. They claimed that there was no disclaimer that he was not the developer and, in making deposits, had detrimentally relied upon his misrepresentations that he was securely behind the projects. Only when the projects underwent financial problems did it became apparent that Trump had merely rented out his name and washed his hands of all responsibility.

This allegedly is the modus operandi of Donald Trump, who puts his name on projects around the world and then claims that he is not responsible when they go belly-up.

For example, in 2013 the New York attorney general’s office sued Donald Trump for more than $40 million in State Supreme Court alleging that he defrauded over 5,000 people out of as much as $35,000 each to attend Trump University, which later changed its name to Trump Entrepreneur Initiative since it lacked accreditation to be called a university.

The “University’s” lessons, in fact, were not lessons at all but were rather in the nature of a year-long “extended infomercial” on which Trump pocketed $5 million.

According to students who filed a lawsuit, the “academic” program took advantage of the economic downturn and consumer desperation to market non-accredited products and which included such things as field trips to Home Depot.

Of course the Trump name has also been associated with highly-successful ventures. He has backed many successful real estate projects over the years, a TV show, and his own clothing line. But a large portion of his business portfolio as of late has also consisted of highly paid licenses in places like Canada, Hawaii and New York City.

But in other places such as Tampa Bay and Fort Lauderdale, Florida, and in Baja California, Trump’s brand did not work out well. In one instance, in exchange for $4 million plus a share of profits, Trump arrangement was to license his name and mingle with buyers up to two times.

What is most disturbing about the Trump Towers Baja case is that through the use of a reassuring name, such as Trump, prospective buyers unskilled in foreign laws and customs are lulled into a false sense of complacency and fail to perform due diligence, instead relying on the alleged strength of the brand.

In this manner, over the years, many buyers in Baja have relied on the assurances of U.S. companies with names like Donald Trump, Century 21, Remax, and Coldwell Banker — but when it turns out that the title to their property is flawed, as in the Punta Banda debacle of 2000, Mexico is made out to be the “bad guy.”

No buyer should ever have been involved in Punta Banda after even minimal research regarding the murky title situation. The same is also true when developments run out of money and leave behind one of the dozens of rusty steel skeletons that line the Baja Coastline today.

Although Mexico may lack many of the regulatory controls found in some other countries, a prospective investor can avoid many pitfalls by not taking for granted that such types as Donald Trump and other big names have done their due diligence for them.

Many investors have lost their nest eggs for their golden years; took out second mortgages on their houses in order to put down deposits; and are now in deep debt while Donald Trump has moved on to his next deal.

People wanting to invest in Mexican real estate should hope that people like Donald Trump and his ilk stay as far away from Mexico as possible. The last thing that Mexico needs is another glamorous Big Name using power and money to dazzle and dupe consumers into parting with their life’s savings.

borderzonie@gmail.com

@borderzonie

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