November 10, 2008 - Trump International Hotel & Tower, Las Vegas

Is it just another symptom of a collapsing hotel-condo market or was it fraud? A group of investors in the Trump International Hotel & Tower Las Vegas are joining a growing list of hotel-condo buyers who are suing to get their money back.

The group of eight named plaintiffs has filed a lawsuit in District Court that will soon be before a federal judge. The group will seek class status for the case.

The investors, more than half of whom live out of state, allege they were lured into buying the units based on securities violations, a lack of disclosure and fraud.

The complaint names Trump Ruffin Tower I LLC, a company that lists billionaire Donald Trump as its managing member, and involves claims that unit buyers were sold a bill of goods in the then-unopened property. Among the allegations: Trump Ruffin sales agents promised one price for a certain-sized unit, only to cut the condo's size by as much as 100 square feet without dropping the price.

The group that bought the Trump condo-hotel units were enticed by talk of high-yield returns on the rental units that would cover mortgage payments and other costs associated with buying the property, said Ricardo Ehmann, an attorney for the disgruntled owners.

His clients weren't just told that a rental program existed, but sold on its rental-income potential, he said. If the developer was selling the condo units as investments and promoted rental returns on the property, federal law requires the investors to be informed of the risks and a prospectus be provided. None of this happened, Ehmann said.

"The decision to buy the condo unit is supposed to be separate from the rental program," he added. "When you start talking about 90 percent occupancy, all of a sudden, the owner's judgment gets cloudy."

The lawsuit seeks damages that include the return of the down payments, damages of up to $2,500 per violation or $100,000 for multiple violations, and attorney fees.

The 1,300-room Trump International opened this spring, near the Fashion Show Mall on the Strip. The plaintiffs put 20 percent down on their units but have sought their money back. The complaint alleges that Trump Ruffin violated the Securities Act of 1933, and committed fraudulent negligence, misrepresentation and inducement, among other things.

Attorneys for Trump Ruffin did not return calls requesting comment at press time.

The lawyers for the group of eight Trump owners are well familiar with lawsuits by condo-hotel buyers. The firm, Gerard & Associates, is also representing a number of buyers in a handful of lawsuits filed against the Signature at MGM Grand hotel-condo. Some of the same securities violations and allegations of inflated rental claims were brought up in those cases, Ehmann said. One of those complaints is going through mandatory arbitration.

"This is very similar to the Signature cases," he said.

The Trump Ruffin investors are demanding their down payments back and claim they were promised a share of the profits from room rentals. But that talk of room rates was based on an inflated figure, said William Spradlin, an investor and plaintiff who has since moved to Las Vegas. He said he was told the rooms would run as high as $650 a night on weekends, only to be told later the rooms would go for closer to $240 a night.

Describing it as "his last big investment," the longtime Southern California teacher and real estate investor wanted a retirement nest egg. He "did the math in his head" and bought in with his sister, Shirley Spradlin, another plaintiff in the lawsuit.

That initial talk of 60 percent of the rental profits dropped to 50 percent and just kept declining, however, as did the room rate projections, the buyer said.

"The $240 (a night rate), it could have never covered the mortgage, if you did the simple math," he said. "The first figure ($650 on weekend nights and $350 on weekday nights) could have covered the mortgage ... at least after the second or third year."

The reduction in size but not cost also upset William Spradlin.

"The square footage kept changing," he said of his then-620-square-foot unit that ended up closer to 500 square feet for the same price. "We purchased for (about) $620,000 and were told verbally that it would be (approximately) 620 square feet. We were paying $1,000 a square foot so (the size reduction) was $100,000 worth."

It got worse from there, the investor said. After he had paid his required 20-percent deposit, which amounted to $120,000, the requirement was raised to 30 percent to 40 percent down, Spradlin claims. He said real estate agents for Trump told him that the change came because financing was only available from one lender then.

"That's when I said to myself, 'This is really wrong.'"

Ehmann said the hotel-condo boom lead to the lawsuits today.

"In the craze of 2005, it could have been difficult for a sales agent not to talk about the rental program, but they are cracking down on that now," he said.

Spradlin said he feels deceived.

"This is the worst thing that has ever happened to me," he said. "And I've had a lot of bad things happen to me."

He maintained he is not one of those get-rich quick out-of-town investors. He was willing to wait two or three years for his purchase to show a profit, if Trump Ruffin had followed through, he said.

"I did not expect the doors were going to fly open and money was going to fly into my hands."

Original story - LVBusinessPress.com