February 11, 2009 - Trump Ocean Baja Resort, Baja Mexico

Donald Trump pulls name out of the planned three-tower Trump Ocean Resort

$32 Million in buyers deposits spent........

Donald Trump pulls name out of the planned three-tower Trump Ocean Resort

A Trump Ocean Resort Baja highway billboard with a large photo of Donald Trump that advertises condos for sale remains on the project lot on the outskirts of Tijuana, Mexico, Friday, Feb. 27, 2009. The failure of Trump Baja is a big blow to a real estate market just south of the border from San Diego that was booming just two years ago with U.S. buyers looking for second homes and easy profits. As if Mexico's drug-fueled violence and the global economic crisis weren't enough, buyers now wonder if they will get deposits back if developers flee with nothing built.

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Fueled by rapidly rising U.S. real estate prices, the Baja California coastline was booming in October 2006 when Donald Trump lent his name to a planned luxury condo-hotel development overlooking the Pacific Ocean.

But as a global credit crisis envelops the real estate market on both sides of the border, the famed New York real estate mogul has severed his ties with the much-touted project known as Trump Ocean Baja Resort.

Planned on a 17-acre site about 10 miles from the U.S.-Mexico border, the project envisioned 526 units that ranged in cost from $300,000 to $2.5 million. The project has yet to break ground.

The developer late last year informed purchasers that it still was looking for loans and that the purchasers' deposits, totaling more than $32 million, had been spent, according to a document obtained by The San Diego Union-Tribune.

Experts say the project's financing difficulties reflect the changing real estate climate, a situation that is not unique to Baja California nor to the Trump development. But many purchasers, most of them from the United States, have said that Trump's association with the project had made them feel it would be a secure investment.

“I bought this development for one reason, and one reason only – the Trump name,” said Gregory Starn, 47, a U.S. citizen living in Cancun, Mexico, who in 2006 signed a contract for a studio apartment costing $437,000 – but now wants the developers to return his deposit of more than $80,000.

“I'm afraid that without Trump's name, it's less likely the developer will be able to arrange financing,” said Robert Culbertson, 59, a stockbroker from Orlando, Fla., who put down a 30 percent deposit on a one-bedroom unit.

Trump told the Union-Tribune in a 2006 interview that the Trump organization would be a “significant” equity investor; yet he never put his own money into the project, according to the developer. Rather, Trump, who stars in his own television show, “The Celebrity Apprentice,” allowed the developers to use his name on the project through a license agreement.

That arrangement was terminated last month.

“The developer did not comply with certain terms of the license agreement, including the deadlines to obtain construction financing and begin construction,” Trump's executive assistant, Rhona Graff, said in an e-mail.

A billboard with Trump's photograph still loomed over the site one afternoon last week, abandoned save for a security guard at the entrance. Trump's erstwhile partner in the project, Los Angeles-based Irongate, did not return telephone calls.

The numbers for sales agents, attorneys, public relations firms and the escrow company listed on legal documents either did not work or went into voice mail. The project's Web site was recently removed.

A Mexican company, PB Impulsores, is listed as the developer on legal documents. Jorge Torres, named on one document as the company's representative, said last week in a telephone interview from Mexico City that he was not at liberty to talk about the project.

An e-mail sent out by PB Impulsores to purchasers Jan. 28 said that given Trump's termination of the license and pending litigation, “the developer will provide no further comment concerning the project.”

The purchasers' predicament highlights the common practice of using deposits from pre-construction sales to finance development of many Baja California coastal projects.

“We always recommend that buyers read the documentation,” said Ross Buck, president of a the Rosarito Beach branch of AMPI, a national real estate agents group. “It will clearly state how the funds are to be used, if they are able to be used.”

Under California law, builders must keep deposits in escrow or post bonds to protect the funds, said Chris Neri, assistant commissioner of the California Department of Real Estate. Neri added that “a good percentage of builders hold the money in escrow.”

Baja California law allows deposits to be used to finance projects, but only if a series of conditions are met, said Rafael Gama Pérez, a Tijuana attorney who frequently represents U.S. citizens buying coastal property in Baja California. In cases where a builder is determined to have broken the contract, investors are entitled to the return of their deposit plus interest, he said.

“The issue is whether the defendant has the resources to guarantee repayment,” Gama said.

With the heady Baja boom days over, some experts see an end to such financing arrangements for unbuilt projects.

“The market can now settle down to the real world of brick and mortar, finished properties for people who really want to live there, as opposed to speculators,” said Brian Flock, a longtime real estate agent in the region. “The people that I'm talking to these days have some connection to Baja.”

Gama, the Tijuana attorney, believes there will be room for a range of projects, including luxury developments and retirement communities.

“The opportunities will be there, as will the people to take advantage of them,” he said. And with the days of easy credit now over, “the buyers are going to be more solid.”

Original Story - San Diego Union Tribune

Update March 6, 2009

Trump venture folds, leaving buyers strapped

Stephen and Linda Drake cast aside concerns about owning property in Mexico because they believed in Donald Trump.

The Southern California couple paid $250,000 down payment on a 19th-floor oceanfront condo in Trump Ocean Resort Baja in 2006 before the first construction crew arrived.

But admiration for the celebrity developer and star of "The Apprentice" has now turned into anger and disbelief as Trump's luxury hotel-condo plan collapsed, leaving little more than a hole in the ground and investors out of their deposits, which totaled $32.2 million.

"I can't even stand to see Trump's face on TV," says Linda Drake, a psychologist, whose husband is a commercial airline pilot and financial adviser.

Investors were told last month their money was spent and they won't get a penny back. A single mother in suburban Los Angeles lost $200,000 and won't be able to send her sons to private universities. A Los Angeles-area businessman lost a deposit of more than $1 million on four Trump units, including two penthouses.

The project's collapse comes at a delicate time for Trump, whose casino company, Trump Entertainment Resorts Inc., filed for bankruptcy protection last month. He also is embroiled in a lawsuit to avoid paying debt on the struggling Trump International Hotel & Tower in Chicago.

Trump and his children heavily promoted the northern tip of Mexico's Baja California coast. He sold 188 units for $122 million the first day they went on a sale at a lavish event in a downtown San Diego hotel in December 2006.

"I went out and saw this site, and I was blown away by it," Ivanka Trump told The Associated Press in June 2007. "From the minute I saw it, it was a deal I had to do."

The location was a contrast to more expensive Mexican coastal markets such as Puerto Vallarta, Los Cabos and Cancun, she said.

The Trumps remained buoyant even as the U.S. housing market began to crumble. Ivanka assured buyers in an October 2007 newsletter that all Trump projects were immune to a slowdown.

"In characteristic Trump fashion, Trump Ocean Resort Baja will be the best of the best, and consequently always in demand," she wrote.

All that remains of Trump Baja is a highway billboard with a large photo of Donald Trump that advertises condos for sale. It hovers over a closed sales center and showroom, a paved parking lot, a big hole that cuts a wide swath, drainage pipes and construction equipment.

The failure of Trump Baja is a big blow to a real estate market just south of the border from San Diego that was booming two years ago with U.S. buyers looking for second homes and easy profits but is now similarly swooning. The market has been hammered by Mexico's drug-fueled violence and the global economic crisis.

Other developers completed big projects nearby in recent years and the area remains home to thousands of Americans, but the cliff-lined coast is pocked with partially built towers. The steel frame of one oceanfront high-rise is rusting, with air ducts hanging from one floor and an idled crane out front. A wind-tattered sales sign hangs outside twin towers nearby, one that appears almost complete and the other a much shorter steel skeleton.

Trump Baja demanded about 30 percent down for units that sold from less than $300,000 to $3 million, buyers said.

Deposits on abandoned projects are also at risk in the U.S., even in states like California that prohibit developers from spending the money on construction, lawyers say. The risk may be higher in Mexico because consumer protection laws are generally weak.

"The bottom line in Mexico is caveat emptor, buyer beware," said Art Spaulding, an Irvine, Calif., real estate attorney who does business south of the border.

Trump's condos went on sale when Southern California home prices were near their peak, offering a lower-cost alternative in the Mexican border city of Tijuana. The Trump Organization teamed up with Los Angeles developer Irongate Capital Partners LLC, the partnership behind Trump International Hotel & Tower Waikiki in Honolulu.

Guadalupe Mendoza, 47, paid a $200,000 deposit at the first-day sale in San Diego, refinancing her Downey home and getting a loan from a sister. She watched a giant screen show units getting snapped up.

After signing papers, buyers were ushered to a buffet of sirloin tip and fish tacos. Cheers erupted in the hotel ballroom for each new owner.

"I did it in less than a minute," said Mendoza, an administrator in the Los Angeles County Office of Education. "I remember my head was hurting and thinking, 'My God, what was that?' I was thinking maybe I should have asked questions. It was like a roller-coaster ride."

Buyers pressed for updates as construction fell behind schedule. They got a bombshell letter in December that said negotiations for a construction loan from German bank WestLB AG collapsed and Trump Baja had only $556,000 left. It quoted a contract clause that gave the developer a right to spend their deposits.

Another letter came in January that said Trump was removing his name.

A Feb. 16 letter from a Mexican entity, PB Impulsores, said the project was scrapped "given the extreme dislocation of the financial markets." It said there was no money left to refund deposits.

The December letter says Trump was not an investor, but buyers said they were sold on his imprimatur.

"We thought of Donald Trump," says Linda Drake. "If Donald Trump was behind it, it was going to work ... I am embarrassed to tell people we got caught up in this."

Ivanka Trump told the AP in 2007 that her father "is the boss" when asked about his role in the project.

"He is involved in every capacity," she said.

In response to a request to interview Donald and Ivanka Trump, the Trump Organization issued a statement that said its partner violated an agreement to license the Trump name, missing deadlines to obtain financing and begin construction.

Timothy Hughes, an attorney for Irongate, said the project "will not be going forward" but declined to answer questions.

One buyer sued Trump and Irongate in Los Angeles Superior Court last month and more litigation is expected.

"They put their trust in this project and feel betrayed," said Bart Ring, a Woodland Hills attorney who says he represents about 75 buyers who haven't sued.

Homeowners and brokers in Baja welcomed the publicity and higher prices that Trump brought. Now they wish he never came.

"It was a two-edged sword that's cutting the wrong way," said broker Brian Flock. "Everybody is shellshocked. I call it post-Trump syndrome."

Update Story - Associated Press