Donald Trump claimed he had a plan to save a failing Puerto Rican golf resort: He would streamline its budget and attract new members. Those promises, repeated for years, helped the club sell a raft of government-backed bonds that it had very little chance of repaying.
Trump collected hundreds of thousands of dollars in fees from the resort, but he never did oversee the golf course's daily operations. He didn’t attract more than a handful of new members or reduce its multimillion-dollar annual losses. Its costly, self-dealing contracts remained in place. In late 2011, six months after selling the bonds, the club defaulted, leaving Puerto Rican taxpayers — already suffering through a major economic crisis — on the hook for as much as $32.7 million, according to an analysis by the Securities Litigation and Consulting Group.
The Trump family distanced itself from the project’s failure, claiming that the real estate developer merely licensed his name to the property. But a review of hundreds of pages of corporate and legal filings, undertaken by BuzzFeed News, shows that Trump promised the club’s investors and the government of Puerto Rico something entirely different.
As Trump enters the home stretch of a presidential campaign boasting about his shrewd business sense and his “unbelievable company,” the failure of the Trump International Golf Club Puerto Rico offers an unusually stark example of some strategies by which he advanced: leveraging his name to attract starry-eyed investors, making all-but-impossible promises, and risking public resources without significant investment of his own.
The Trump Organization declined to comment on the project; the resort’s developers, the Díaz family, best known for owning the road-building business Betterroads Asphalt, did not respond to requests for comment left with their main business, Empresas Díaz.
The two courses of what was first named the Coco Beach Golf & Country Club cover a peninsula on the island’s northeast corner, near the El Yunque rainforest. The surrounding resort includes a luxury hotel, timeshares, and the Trump Founders Residences, condos whose buyers are required to join the golf club.
The resort was built with ample support from the Puerto Rican government. Its tourism agency agreed to cover losses on $18 million in bonds sold in 2000 and another $7.5 million in 2004. The government also invested $50 million to support the hotel — a crucial source of paying customers for the golf club, though not nearly enough to break even.
Hundreds of thousands of dollars ended up back in the hands of the Díaz family, which built and owned the resort. The family’s asphalt company provided construction and helped arrange financing; a separate utility that they owned treated wastewater from the resort. The utility had no experience, no other clients, and no way to cover its losses without the owners’ help.
Amid a tough and worsening tourist economy, the club’s losses piled up, and its developer loaned the project millions to keep it afloat. So in 2008, the resort turned to an outside expert, one known for owning and managing top-flight golf courses.
At the beginning of that year, Donald Trump signed two deals. The first, a licensing agreement, allowed developers to rename the club as Trump International Golf Club Puerto Rico. The second, a management agreement, positioned Trump to handle the club’s operations in exchange for a share of its annual revenue and a separate slice of any profit it produced.
In effect, Trump was guaranteed income even if the project lost money; by the end of 2012, he had claimed more than $600,000.
According to the project’s annual reports, Trump had developed a plan to increase membership and cut costs, helping the club to become profitable at last. Trump repeated the promise each year, according to the reports.
The club got a boost in visibility when, in 2008, it started hosting Puerto Rico’s only PGA Tour event, the Puerto Rico Open. Financially, however, little changed at the resort in Trump’s first three years as manager. Yet in 2011, when the company returned to seek government support for another round of financing, it presented Trump’s plans as central to the project’s future prospects, according to official documents used to market the bonds to investors
The club’s viability — and, therefore, the likelihood that it would repay the bonds without government help — depended on its ability to attract customers and limit its spending, investors were told. Trump, as manager, “has developed a plan to achieve and maintain positive operating cash flows sufficient” to keep the doors open, according to the official offering document. “In particular, the Club Manager has developed programs to attract members and use the Club, while containing operating costs,” it said.
Throughout the bond offering, Trump is positioned as crucial to the club’s hoped-for turnaround. “The Borrower will rely on the Club Manager [Trump] to manage the Project,” one section header reads. Another passage, however, suggests that Trump’s involvement in the project was limited. Trump currently worked “in consultation” with the owners but did not handle day-to-day operations of the club, the document said.
To Craig McCann, of the Securities Litigation and Consulting Group, who has testified in cases involving Puerto Rico municipal bonds, Trump’s promise to put the club in the black was “ridiculous on its face.” McCann wondered “how this statement can be made repeatedly when the resort had huge negative cash flows every year from 2008 when Trump took over to 2012 and beyond.”
“If it could plausibly be made in 2008 it could only be made recklessly without regard to the truth of the statement after years of revenue stuck well below $3 million and operating expenses of $7 million,” McCann continued. “That doesn’t come close to positive cash flow.”
Investors bit. But the turnaround did not happen. At the end of 2012, the club had 63 members, up from 50 when Trump took over, but still not nearly enough to cover expenses. Its yearly operating loss averaged $5.3 million in the two years before Trump signed on; from his arrival through 2012, the figure rose to $6.3 million.
About six months after the bonds were sold, the resort starting missing payments, citing “financial difficulties.” The project limped along with the government repaying bondholders and the resort owner continuing to lend it millions to cover losses. The company also quietly sought to unload the resort, according to bankruptcy filings last year. But no buyers emerged.
Last July, after 11 years of losses, the Coco Beach club filed for bankruptcy protection. Responding to an inquiry from Bloomberg News, Eric Trump minimized his father’s role in the mess. “This has absolutely nothing to do with Trump,” he said. “This is a separate owner. We purely manage the golf course.”
The Díaz family valued the two golf courses at only $1 million in bankruptcy filings — a fraction of the roughly $50 million value they had attached to the property a few years earlier in annual reports. And they proposed selling most of the golf club’s assets to OHorizons Global LLC, for just $2.2 million.
The Coco Beach club was one of many wobbly companies with which the territorial government cast its lot. As failed investments like this one drained its coffers, Puerto Rico had to cut spending across nearly every government department while raising taxes and retirement ages. The island’s unemployment now stands at 12.6%.
Today, the club operates under its original name: Coco Beach Golf & Country Club. Bankruptcy court erased much of its debt to the government. And the new owners were able to reverse years of poor maintenance within months, enabling it to retain the PGA tournament.
In March, the ninth annual Puerto Rico Open was held, as it has been every year, at the spruced-up Coco Beach golf club that once bore Trump’s name.