Trouble with A Big T

By Christine Gorman

Before making his fateful decision to sink $1 billion into the bejeweled Taj Mahal Casino in Atlantic City, Donald Trump should have done his homework on the ill fortune that befell the builder of the original Taj. The cost of constructing the 17th century Indian marvel, which took 20,000 laborers 22 years to complete, eventually exhausted the royal treasury of the Shahjahan and triggered the decline of the Mogul Empire. Nearly 350 years later, the Taj's modern namesake may have unleashed the grandiose downfall of Manhattan's self-styled King of the Deal.

His empire lay under siege last week, staggering beneath the burden of debt Trump has accumulated in his insatiable buying spree of the past few years. The Grand Acquisitor never seemed to notice that the Roaring Eighties had ended until suddenly his cash started running out. So far, Trump has not missed any payments on his estimated $3 billion in loans and junk bonds. But his lenders and suppliers have begun to fear that Trump's domain is an overleveraged structure built on swagger and bluff. His creditors have suddenly demanded proof of his financial prowess, and he is coming up short. "He's a desperate man. Everywhere Trump is walking, there's a fire under his feet," observes Irwin Jacobs, the Minneapolis financier and sometime raider. "It shows how quickly things can go bad."

The prospect of his downfall set off a fresh round of amazement among Trump watchers, who only four months ago had savored the melodrama of his separation from his wife Ivana and his affair with the model Marla Maples. The distress of Donald, the biggest self-promoter of the past decade, was too poetic to resist. TRUMP IN A SLUMP declared the New York Daily News. UH-OWE! said the city's Post, which dubbed Trump's new casino "the eighth blunder of the world."

On the 26th floor of the gilded Trump Tower in Manhattan, the brash developer and his lieutenants barricaded themselves behind closed doors last week to meet with a phalanx of worried lenders. Officials from four major banks, who have extended an estimated $2 billion to the developer, are negotiating with Trump to reduce his debt load by stripping down his empire. Investors who hold more than $1 billion in junk bonds that Trump issued to finance his three casinos have seen the market value of their securities plunge by as much as 50%. Bondholders of two Atlantic City properties, the Trump Castle and Trump Plaza Hotel and Casino, filed a lawsuit last week charging that the tycoon had diverted clientele from his older casinos -- contrary to his assurances -- to his new Taj Mahal.

Trump's search for cash is proving painful because the economic conditions that fueled his juggernaut have changed sharply. The slumping Northeast economy has undermined real-estate values, so that many of Trump's properties are worth far less than he estimated when he borrowed against them to make other purchases. Real-estate experts believe that if Trump were to sell the Plaza Hotel, which he bought in 1988 for $400 million and spent at least $25 million refurbishing, he could lose millions on the investment.

Yet Trump knows he must part with some of his crown jewels. He is trying to sell the Trump Shuttle airline, but his timing is unlucky. Reason: the rival Pan Am shuttle is up for sale as well. Because the Trump Shuttle has failed to dominate the market as he had hoped, Trump is unlikely to sell it at a profit. And real-estate agents in Palm Beach say Trump has been offering Mar-a-Lago, his 118-room Palm Beach estate, for an asking price of $30 million.

For the most part, Trump has steadfastly denied his difficulties, perhaps observing a lesson from his own book. "The worst thing you can possibly do in a deal is seem desperate to make it," Trump wrote in his 1987 best seller, The Art of the Deal. "That makes the other guy smell blood, and then you're dead." But Trump's arrogant business style is haunting him now that he needs understanding. "Trump's personality works against him," says a top investment banker. "His own behavior created a level of scrutiny about his judgment, his ability to pay and his 'high moral standing,' which are the criteria in lending money."

Trump built his empire on rising land values. New York City was flirting with bankruptcy in 1976, when, at 30, Trump and hotel magnate Jay Pritzker bought the run-down Commodore Hotel at Grand Central Terminal for $10 million. The partners tore down the Commodore and built the Grand Hyatt luxury hotel in its place. The city recovered, and the hotel's value (current estimate: $70 million) soared with it. Borrowing against his stake in the Hyatt, Trump parlayed his first success into more and more prime real estate.

The seed of his current trouble was planted in 1987, when Trump got tangled in a bruising takeover battle with another tycoon, Merv Griffin, for control of Resorts International. In a deal they both claimed as a victory, the two split up the company, with Griffin taking most of Resorts and Trump getting the uncompleted Taj Mahal. Griffin's older, debt-laden properties went into bankruptcy only two years later. Trump had to borrow an estimated $1 billion to finish the monstrous Taj. Ominously, the city's casino business, which had grown pell-mell during the '80s, abruptly stagnated.

At the same time, Trump began to suffer from management problems. Last October his casino operations suffered a tragic loss, when three of Trump's top-notch casino executives died in a helicopter crash. Among them was Stephen Hyde, 43, chief executive of Trump's gaming operations. "Steve knew how to force Donald to listen," says Jack O'Donnell, who headed the Plaza Hotel and Casino until he resigned in April. "Once Steve was gone, Donald had to get more involved in the business. He started operating the budget based on his ego, not on reality." As the opening of the Taj came under repeated delays, | Trump grew increasingly abusive toward employees.

A month before the Taj Mahal's opening, industry analyst Marvin Roffman predicted the casino would have trouble bringing in the cash flow -- $1 million to $1.3 million a day -- necessary to make loan payments. When an enraged Trump threatened to sue Roffman's employer, the Philadelphia brokerage Janney Montgomery Scott fired Roffman instead. So far, Trump officials contend the Taj's total revenue averaged $1.6 million during May, but industry analysts believe the cash flow could fall perilously low during the slow fall season. The casino-hotel has already laid off 350 of its 7,200 original employees, which Trump executives describe as a routine streamlining.

Another wild card in Trump's finances is his estranged wife's claim on Trump properties. While Ivana signed a prenuptial contract limiting her settlement to $25 million in case of divorce, her lawyers have argued that she helped build Trump's holdings and have filed claims to half his estate. Yet Ivana refused to take advantage of her husband's financial distress last week. While dedicating a new public plaza outside the Plaza Hotel, which she runs, Ivana tossed a couple of pennies into the fountain. "Hopefully it will bring us good luck," she said. "It can't get much worse."

Trump is by no means finished, but he will need help to get him through his liquidity crisis. "Long term he has some good deals here," says one investment banker. "If he has the cash flow to pay the debt, in five years he really would be a billionaire." Trump's creditors may decide that it is in their own best interests to save him. "The banks may not want to shut him down because they may then have a whole lot of potential real-estate problems on their hands," says one Wall Street source.

Trump seems ill prepared for hard times, but he must have seen them coming. "The '80s have been a time of great opportunity," he said last December. "I think the '90s are going to be much trickier than the '80s. There will be many more traps." Ironically, one person in a position to rescue Trump is his father, Fred Trump Sr., a real-estate developer in Brooklyn and Queens. According to one financier, Trump pere owns enough debt-free property and other assets that he could easily loan his son a few hundred million dollars. Evidently Donald didn't pick up his debt habit at home.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Joe Lertola.

CAPTION: THE TRUMP INDEX.

With reporting by Mary Cronin/New York and William McWhirter/Chicago