How every investor lost money on Trump Tower Toronto (but Donald Trump made millions anyway)
Donald Trump called himself a “genius” for investing in Toronto’s Trump Tower— but behind the scenes, he had no money on the line. The inside story of an unlikely bankruptcy, and the investors who lost everything when they bet on the Trump brand.
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Let’s say you’re Donald Trump.
It’s 2002, and you’ve agreed to have your name emblazoned across the top of the tallest residential tower in Canada: a $500-million, five-star condo-hotel in downtown Toronto.
Here’s the thing: Only months into the project, your lead developer is publicly exposed in the pages of the Toronto Star as a fugitive fraudster on the run from U.S. justice. Your major institutional partner — the Ritz-Carlton Hotel Company — bails shortly after.
Your remaining partners in the deal — a group of investors assembled by the criminal who was just outed — include a New York camera store owner, a former Chicago nursing-home administrator, two small-time landlords in Britain and a little-known Toronto billionaire who earned a fortune in the former Soviet Union.
The one thing they all have in common — no experience in condo tower development.
Do you pull out? For Trump, the answer was no. The billionaire dug in, repeatedly told the world he was investing his own money in the project — claims that would prove false — and gushed about its spectacular promise, knowing his profits were guaranteed.
“Nothing like this has ever been built in Toronto,” Trump said in 2004 as he relaunched the stalled project. “It is going to be the ultimate destination for business, pleasure and entertainment.”
Fast forward to 2016 and Trump’s Toronto tower is built but bankrupt — a rare failure in Toronto’s booming downtown condo market.
In the last decade, more than 400 condominium towers of 14 storeys or more have been successfully built in Toronto, according to records at City Hall. Among those, the half-dozen industry insiders and analysts interviewed for this story could identify only one that went bankrupt after completion: the Trump International Hotel and Tower Toronto.
An investigation by the Toronto Star and Columbia Journalism Investigations in New York reveals the tower that until recently bore the U.S. president’s name was so hamstrung by inexperienced partners and an unorthodox foreign financing deal that it couldn’t be saved by Trump’s public assurances of excellence.
“It’s pretty hard to make a mess of a real-estate investment (in Toronto),” said Toronto lawyer Marc Senderowitz, who represented four of the project’s minority investors. “In retrospect, I could have taken their money, bought a small commercial building and sat on it for 15 years ... Things just went off the rails.”
A review of bankruptcy documents and public records in three countries, as well as interviews with the rotating cast of players involved in the deal over more than a decade provides new insights about Trump’s business approach, the unconventional partners he works with and the risks for those who bet on the Trump brand.
In the end, every investor lost money on Toronto’s Trump Tower. Everyone except Trump, who walked away with millions.
“Trump never put money in; he just took money out,” said John Latimer, a former Toronto developer who worked briefly for the project.
Now that Trump is U.S. president, his conduct during the Toronto project gives an indication of how he might manage challenges with far higher stakes than a mere real estate deal.
“As I understand it, in Toronto, Trump made inaccurate statements” that may have influenced people who invested in the project, said Kathleen Clark, a law professor at Washington University in St. Louis who specializes in legal and government ethics. “He has shown a willingness to speak inaccurately and encourages people to rely on his inaccuracies, even when that ends up causing harm to them.”
“In the case of the Toronto deal, the harm was financial. In the case of the presidency,” she said, it could be “apocalyptic.”
Trump projects around the world — from the former Soviet republics of Georgia and Azerbaijan to New York City — have attracted media scrutiny for their partners with Russian links and the Trump organization’s questionable due diligence.
The parallels between Trump’s tower in New York’s SoHo neighbourhood — which also entered bankruptcy — and the Toronto development, are striking: Both towers used the same hybrid hotel-condo model; both ran into trouble when the global financial crisis hit in 2007 and some unit purchasers walked away, while others sued. In both projects, Trump claimed to have a financial stake, only later to admit that it was a licensing deal. In both projects Trump family members presented inflated sales figures when the towers, in reality, stood nearly empty.
In the New York case, Trump’s children Donald Jr. and Ivanka were investigated for potential felony fraud charges for their role in misrepresenting sales figures.
Today, more than five years after the Toronto tower opened, the skyscraper on Adelaide St. remains three-quarters empty, current property records show.
Last fall, the tower’s development company, Talon International Inc., went bankrupt, unable to repay more than $300 million owing on the construction loan. While the tower’s new owners have removed Trump’s name, the full story of who partnered with Trump to build in Toronto has never been told.
The first try
Initially, the name at the top of the tower on Bay and Adelaide Sts. was to read “Ritz-Carlton.”
The project was the dream of Trump’s original partner, Leib Waldman, a Toronto condo developer with a track record of several successful towers and apartment blocks across the GTA. Waldman hired the prestigious architect Eberhard Zeidler and raised seed money in the Orthodox Jewish community in Toronto, New York and London, U.K.
Waldman’s minority investors, some of whom have never been publicly identified, have varied and often colourful backgrounds, but no experience in condo tower development.
- Brooklyn-based camera shop operator Eugene Mendlowits, 51, owned a 4-per-cent stake in the tower through a shell company called Barrel Tower Developments. In 2005, as the Toronto tower was in development, he and two partners purchased a New York sweater factory and converted it into lofts without the city’s permission. The building subsequently racked up more than 100 complaints from tenants, for issues relating to inadequate heat and faulty wiring, and dozens of bylaw violations. In 2009, the city ordered everyone evicted because conditions were “hazardous to illegal tenants occupying (the) building.” In 2014, one of Mendlowits’ partners in the factory — Menachem “Max” Stark — was kidnapped and bundled into a minivan, his body later found smouldering in a gas station dumpster. Mendlowits declined to answer written questions for this article.
- Former Chicago nursing home administrator David Meisels, 70, is listed as a director of a shell company called Harvester Developments, which owned 4 per cent of the Toronto tower. Since 2001, when he invested in the project, Meisels and his nursing home companies have been sued at least five times, including for allegedly failing to make staff welfare and pension contributions and for allegedly diverting money from public insurers — Medicare and Medicaid — to relatives and close associates. He has denied the claims and the cases were settled out of court. In 2010, federal authorities cut funding to one of his facilities, fearing that residents’ safety was at risk. Meisels and his son, Joseph, who Meisels said was also involved in the tower investment, have not responded to requests for comment.
- London-based auto body shop owner Jacob Gross, 43, is co-director of Harvester Developments and the former head of an almost identically named company in the U.K., Harvester Investments Ltd, which has been purchasing small-scale real estate in and around London since the mid-1990s. He has also held leading roles in more than a dozen other small U.K. companies, most in local real estate and automotive repair.
- Two more shell companies, Exeter Development Inc. and Haddar Development Corp., owned a collective 15-per-cent stake in the tower. The only name connected to them in public records is Joseph Teitelbaum, 43, a London, U.K., landlord, who was 27 years old at the time of the deal. Teitelbaum owns several million pounds’ worth of rental units through his interests in 42 companies registered in the U.K.. One of Teitelbaum’s companies defaulted on obligations to cover cost overruns for the Toronto tower and both were bought out in August 2011. Reached for comment, Teitelbaum denied personally investing any money in the Trump Tower and said he was a nominee signatory only. He would not name the investor he said he represented.
- Little-known Toronto billionaire Alex Shnaider, 49, would become the Toronto projects’ principal investor. Shnaider made his fortune in the former Soviet Union in the 1990s and 2000s. In less than a decade, he went from mopping floors at his parents’ deli near Bathurst and Steeles Sts. to making hundreds of millions through the purchase of a Ukrainian steel mill. He then diversified into other industries like malls, convenience stores and electricity across Eastern Europe.
- Toronto businessman Valery Levitan, 54, who worked with his father running a slot machine-repair service, owned a 12.5 per cent stake through a numbered Ontario corporation. Levitan, who convinced Shnaider to make his initial investment, also co-founded a company specializing in banknote validation technology for casinos. Levitan declined to comment.
The four foreign partners — Mendlowits, Meisels, Gross and Teitelbaum — made their investments through shell companies registered in New Brunswick.
“They had to have corporate entities to make the investments, but those corporations never carried on active businesses,” said Senderowitz, who helped set up the shell companies. “They were only incorporated for the purpose of owning ownership shares in this project.”
The only investor who agreed to speak on the record was Gross.
“I don’t know why this failed and so many other projects were successful,” Gross said. “It is mind boggling to us.”
At the Trump Organization, concerns over Waldman emerged almost immediately, said a source familiar with the deal.
“We quickly learned that Waldman was an empty suit. I recall one or two of his cheques bouncing,” said the source, who requested anonymity because he was not authorized to speak about the development. “He was difficult and disreputable to deal with.”
The Ritz-Carlton project collapsed in 2001 after the Star revealed Waldman was a wanted fugitive who had fled to Toronto from the U.S. after pleading guilty to bankruptcy fraud and embezzlement in 1995.
Waldman was detained for extradition, leaving everyone pointing fingers at each other.
“Neither the Ritz-Carlton nor the Trump Organization would have entered into this partnership if they had knowledge of this,” a senior Trump executive said in the aftermath of the Waldman revelations. “To some extent we were looking for the Ritz-Carlton to do due diligence.”
The Ritz-Carlton pulled out, leaving the minority investors, the architect, lawyers and engineers with unpaid invoices and little hope of seeing the plan come to fruition.
Trump remained convinced his brand would save the project.
“Having his name on a project brought great credibility to the project, particularly if the developer did not have a great track record,” said the source familiar with the project.
For a short while, Waldman continued to run the tower project from a jail cell in Etobicoke.
“I had to go to the Mimico detention centre to have him sign documents. I drew the short straw. I’d never been in a prison before,” said Senderowitz.
Contacted for comment in Israel, where he moved after serving his prison sentence in U.S., Waldman said: “There was the Toronto Star article and the project was getting some bad publicity. I removed myself.”
John Latimer, a former Toronto developer, was brought in to rescue the project. He called a meeting and told everyone: either you keep working for free in order to get this project off the ground, or you’ll never get paid anything.
“They wanted to keep this thing alive so they could get their money back,” Latimer said in an interview.
Zeidler, the tower’s architect, recalled being relieved.
“We are $270,000 in the hole, but at least the project is moving,” Zeidler wrote in his autobiography.
Shnaider steps up
Alex Shnaider, who had originally agreed to a smaller investment alongside the others, was persuaded to become the project’s main backer.
Shnaider initially agreed to a sit-down interview for this article but cancelled more than a month later. Instead, a Washington, D.C., public relations firm acted as a go-between, relaying written questions and answers.
On paper, Shnaider was a promising lead investor. He was wealthy, and despite his lack of condo and hotel experience, he was a business phenom.
Under the banner of the Midland Group, Shnaider built his sprawling business portfolio in the countries that had just emerged from behind the Iron Curtain. He started out in the early 1990s, working for Seabeco, a controversial investment firm run by his father-in-law, Boris Birshtein, who had links to powerful political figures in the former Soviet Union.
From there he expanded rapidly. By his early 30s, Shnaider — with his partner Eduard Shifrin, a Ukrainian businessman — was already co-owner of one of the largest steel mills in Ukraine. By 2001, they were able to acquire 93 per cent of the factory for the bargain-basement price of $70 million (U.S.), according to multiple media reports. Shnaider’s spokesperson challenges that figure, saying in a written statement that they paid “significantly” more.
In 2005, their stake had reportedly grown to be worth $1.2 billion.
Shnaider then diversified into industries as varied as Russian Formula One racing, Moscow shopping malls, Ukrainian convenience stores, an Israeli soccer team and the Armenian electricity grid. He was rewarded with hundreds of millions in profits. Everything he touched seemed to turn to gold.
Back home, Shnaider was living a life few Canadians can imagine.
In 2006, he bought a $4.3-million (Canadian) mansion in Toronto’s exclusive Bridle Path neighbourhood, which sold last year for $22 million. He travelled on a private jet and vacationed on his yacht, the 52-metre Midlandia.
Two years later, Shnaider’s former wife rented a hangar at Pearson International Airport to celebrate his 40th birthday, allowing their jet-setting guests to fly in and out for the party.
He would one up her for their daughter’s 16th birthday in 2013, hiring Justin Bieber to perform in a private concert at the Art Gallery of Ontario.
For all his wealth, Shnaider was virtually unknown in Toronto until he stepped into the limelight alongside Donald Trump in 2004 to launch pre-construction sales for their tower.
Three years later, wielding golden shovels, they broke ground side by side at a ceremony to mark the start of construction.
Financial documents, made public when Shnaider’s development company, Talon, went bankrupt, show his European bank financed the tower in a way no Canadian institution would; he hired his friend Levitan, the slot machine-repair businessman, to manage the construction and sales, and Levitan’s wife, Inna, to do the interior design; he allowed his sales director, Adina Zak, to sell units to herself and flip them to buyers at a profit.
Shnaider’s spokesperson denied he had a decision-making role in the tower.
“Mr. Shnaider did not have an executive role in this project and was not a developer — he was not involved in the sale of units,” she said.
Waldman had been the only one with any experience in tower development, and his departure left a team of condo rookies, as well as his son, Joseph, to whom he transferred his 11-per-cent stake in the tower. Levitan was put in charge of managing the construction and sales for the $500 million tower.
By all accounts hard-working, Levitan was in over his head.
“The trouble is, as nice and smart a guy as Val was, he didn’t really know the process,” said Latimer, the developer who briefly worked on the project.
But the lure of Trump’s wealth and success convinced the tower’s backers that they would succeed, said Senderowitz, the Toronto lawyer.
“They just wanted Trump’s star power to pull this off,” he said.
Teitelbaum, in particular, was convinced of its success, Latimer recalled.
“All he could see was the dollar signs ringing up. This was gonna be a big payday for him,” said Latimer. “Two years later he called me to ask if I’d buy a suite in the hotel. That made it seem like things were in trouble.”
Teitelbaum rejects this account, claiming he was never an investor.
Until now, the real ownership of the tower has been shrouded in secrecy.
Without ever providing details, Trump started telling reporters in 2001 that he had made a “substantial” investment in the Toronto tower. As late as 2007, Trump was publicly bragging about his supposedly savvy investment, which would have benefitted from the appreciating Canadian dollar.
“People are saying, ‘great play,’ but I actually didn’t mean to invest because of the dollar. I just ended up being a genius for all the wrong reasons,” Trump told the Star in 2007.
It wasn’t until 2011 that Talon disclosed Trump only had a contract to license out his name and manage the hotel.
“He showed up when they broke ground, did a press conference … and walked away,” said Senderowitz.
Levitan and Shnaider became the tower’s real salesmen, but their project was a tough sell on Bay St.
Levitan met with Canadian construction financiers in a series of meetings in 2006, according to sources.
“Everyone passed on it,” said one Toronto financier, who met with Levitan and turned him down.
Even though Shnaider was based in Toronto, the fact that virtually all his assets were overseas didn’t sit well with local lenders.
“We didn’t like the fact that it was an inexperienced developer coming from abroad,” said the financier, speaking on the condition of anonymity because he is not permitted by his employer to discuss confidential financial matters. “If a loan goes into default, we have to go after the debtors. When they’re foreign, we can’t get their assets.”
In the end, the financing for the tower’s construction came from an Austrian bank, Raiffeisen Zentralbank Osterreich, which had little experience in the North American market.
One of its only other projects on this side of the Atlantic was the Red Leaves resort in Muskoka, a project that also went bankrupt.
Raiffeisen, which invests heavily in the former Soviet republics and had financed several of Shnaider’s previous ventures, faced scrutiny about a decade ago when a deputy central banker in Moscow accused it of acting as a conduit for wealthy Russians to launder money abroad. Raiffeisen denied wrongdoing, according to news reports.
The bank declined to comment for this article.
Adam Powadiuk, director of commercial finance at First National Financial, a real-estate lender in Toronto, reviewed the tower’s financing agreement and said it contained many “wacky” elements that “amplify the risk in a significant way.”
Typically in Toronto, banks require developers to sell enough pre-construction units to cover the entire cost of a loan before any funds are released. Not so in this case.
Raiffeisen asked Talon to pre-sell $250 million in condos and hotel rooms — only about 80 per cent of the $310.5-million loan.
Talon didn’t even reach that lower bar.
While Shnaider publicly stated the tower had sold more than $250 million in units, the bankruptcy documents tell a different story. Based on purchasers’ deposits, it appears Talon only ever sold $218-million worth of units.
One investor, auto body shop owner Gross, said that the tower’s backers were aware construction started before enough units were sold.
“We knew,” Gross said in an interview. “We were hoping that time would be on our side.”
In public, the sales figure was constantly shifting.
Seventy five per cent of the units were sold, Shnaider said in 2007, shortly before groundbreaking. A few months later, Trump said the number was 70 per cent. By 2012, Talon was reporting 60 per cent were sold. The next year, the company admitted less than half the units had been bought.
In 2007, Shnaider announced he would buy for himself the tower’s $20-million, 12,000-square-foot “super penthouse” — Canada’s most expensive condo at the time. Public records show he never closed the deal. And Shnaider wasn’t the only buyer to back out.
According to Talon’s bankruptcy, the company only ever collected $108.3 million in unit sales — less than half of what it had said was sold and more than $200 million shy of what was needed to pay off the principal of the loan.
While revenue wasn’t coming in, construction costs were spiralling due to the exceptionally small building lot, design changes on the fly that would cut 13 storeys off the top of the planned 70-storey tower and eight months of delays caused by extreme weather.
When Talon maxed out the bank loan, the investors had to come up with another $106 million to cover the tower’s completion, bankruptcy records show.
The minority investors contributed at first but eventually, Shnaider was paying for everything out of his own pocket.
At the same time, records from the Panama Papers leak show Shnaider and his partner sold their stake in the Ukrainian steel mill to a VEB, a bank controlled by the Kremlin. They received $850 million (U.S.). Shnaider’s lawyer initially told the Wall Street Journal that $15 million of that money went to cover cost overruns at the Trump Tower. He later told the New York Timesthat none of the sales proceeds were used to cover costs in Toronto.
Even once the tower was complete, few people wanted to buy in.
Typically, banks intervene quickly when sales stall in an effort to protect their investments, real estate experts say. They bring in their own sales and marketing teams; they might even bring in contractors to finish construction.
But between 2008 and 2013 — the depth of the global financial crisis — the Austrian bank pushed back the repayment deadlines 12 times, according to bankruptcy records, waiting for sales to materialize. The tower was built, but it sat three-quarters empty, hemorrhaging money just to keep the lights on.
When Talon finally declared bankruptcy last year — nine years after taking out the construction loan — it still owed Raiffeisen $301 million on the $310 million it borrowed, bankruptcy records show.
Powadiuk called that level of outstanding debt “enormous” and “very strange” in the Canadian context.
“I can’t picture a scenario, the way that most lenders in Canada do these things, where you end up with that kind of chain of events,” Powadiuk said.
An empty grand opening
The tower’s lavish ribbon cutting — originally planned for September 2010 — didn’t take place until April 2012.
The pomp and ceremony included Trump and his children, each with a pair of golden scissors, surrounded by models, alongside then mayor Rob Ford bearing a wide smile.
As dignitaries and Toronto’s most powerful businesspeople gathered to fete the project’s success, the tower’s failure was likely already sealed.
Another five-star hotel, a new Ritz-Carleton, had just opened in Toronto and a second, the Shangri-La, was about to do so. Trump’s decade-old project looked stale by comparison.
“This one was dragging on and suddenly it has a bad smell,” said Latimer.
After the hotel opened its doors, too many rooms sat empty. Hotel room purchasers were hit with thousands of dollars of additional fees and commercial property tax. One disappointed buyer tried to auction off his condo, but no one met the minimum bid. Several unit owners sued Shnaider’s company for misrepresenting their projected profits and a judge ordered one buyer’s deposit returned. A class-action lawsuit on behalf of other buyers is pending in Superior Court.
When business didn’t pick up, Talon publicly clashed with Trump, blaming the future president’s people for mismanaging the hotel. The president’s organization filed a legal motion to prevent the termination of its licensing agreement, alleging Talon was plotting to sell the remaining units and walk away. The motion was shelved.
One thing was now clear: Trump’s brand offered no guarantee of success.
“(Trump) wasn’t hands on,” said Senderowitz. “He just delegated everything. His own management style was literally chaotic.”
Everyone was losing money, including Shnaider.
“Mr. Shnaider lost more money on the Trump Tower Project than anyone else,” a spokesperson said in a written statement. “Mr. Shnaider had high hopes for the project and wanted it to succeed. These hopes were not realized.
“The project was unsuccessful, in Mr. Shnaider’s opinion, because of the global financial crisis and its effect on buyers’ and potential buyers’ ability to close or obtain funding to close, and because of inexperienced management.”
In the end, the tower and every investor’s stake in it went to JCF Capital, which had bought the tower’s debt and paid the Trump Organization to exit its licensing agreement in June. Two days later, JCF sold the hotel to InnVest, a major Canadian hotel operator. The 74 unsold condos are now back on the market, being offered under the St. Regis brand.
The total amount of money Trump received from the failed Toronto project is unclear.
Public financial disclosure documents filed by Trump in the U.S. show he collected $1.7 million (U.S.) in management fees from the Toronto project between 2014 and 2016. Walking away from the deal brought Trump’s organization a further payout of at least $6 million (Canadian), according to a 2017 Bloomberg report citing an inside source.
Requests for comment from The Trump Organization went unanswered.
“I don’t know why it failed. It’s a mystery to me,” said the source familiar with the project. “The only thing I can really conclude is the Trump brand didn’t have popularity in Toronto.”
The five letters at the top of the tower came down this summer, amid global headlines and downtown rubbernecking. The hotel has been temporarily renamed the Adelaide in anticipation of a full rebranding next year.
All that remains of Trump’s name now are a few plaques adorning the building’s street-level facade. They’ve been covered with a silver film that doesn’t quite hide the infamous moniker.
Shnaider and the minority investors have dispersed. No one wants to have anything to do with Trump anymore. Even Shnaider, who heavily promoted the tower, now wants to distance himself from its namesake.
“Mr. Shnaider and Mr. Trump met a total of four times in person,” reads a written statement from Shnaider’s spokesperson. “The two did not discuss substantive business issues. They do not have any ongoing relationship.”
With files from Asaf Shalev
Columbia Journalism Investigations. CJI is a team of leading investigative journalists, Columbia University faculty, graduate students, postgraduate fellows, coders and others who conduct deep investigations into urgent issues of public interest, without respect to beat. Funding is provided by the Graduate School of Journalism.