Mar 6 02:45 PM US/Eastern
By ELLIOT SPAGAT
Associated Press Writer
SAN DIEGO (AP) - 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."