Real estate tycoon Donald Trump filed a lawsuit Thursday against a Los Angeles developer that paid to use his name for an oceanfront condominium project in Baja California but then failed to build it.
Filed in federal court in New York, the lawsuit comes one month after dozens of buyers sued Trump and Los Angeles developer Irongate Wilshire, demanding return of $32 million of down payments they made in 2006 and 2007 for the planned luxury condos.
The earlier lawsuit accused Trump and Irongate of misleading buyers about Trump’s role in the project, having described him as a co-developer when he had merely accepted a licensing fee to lend his famous brand to the 525-unit project.
In his $40-million lawsuit, Trump accuses Irongate principals Jason Grosfeld and Adam Fisher of failing to follow through on promises to build the five-star resort, at which units sold for $275,000 to $3 million. Grosfeld and Fisher could not be reached. Trump declined to comment.
The legal battle centers around plans for a three-tower project to be built on 17 oceanfront acres about 10 miles south of the U.S. border. Trump Ocean Resort Baja Mexico was intended to achieve a five-star rating, with a fine-dining restaurant, full-service spa, swimming pools, tennis courts and hiking trails.
Buyers lined up at a San Diego hotel in 2006 for the first opportunity to buy, snapping up 80% of the available units. Many units in a second tower were sold in 2007. Buyers were required to make 30% down payments to secure their purchases.
In February, Trump announced that he had withdrawn from the project because the developer had run out of money and was not able to complete the job.
A month later, the developer disclosed that it was not going to complete the Baja development.
Trump said in an interview Monday that he was unfairly targeted in the buyers’ lawsuit. He said he played no role in managing the development and was unhappy with what happened.
“We’re looking into the whole situation because it doesn’t make me happier than it makes them. I don’t like to see people lose money,” Trump said.
His lawsuit seeks $40 million in compensatory and punitive damages and a full accounting of what the developer did with the $32 million in down payments it collected from condo buyers. Trump has told associates in his organization that he wants to use the lawsuit as a mechanism to help buyers recover those down payments, according to a source familiar with the lawsuit.
“Defendants, as the developers of the project, were entrusted with ensuring that the project would be constructed and developed in accordance with the buyers’ purchase contracts and in keeping with the high standards of luxury, quality, reliability and dependability associated, throughout the world, with the Trump name,” the lawsuit said.
Concerns about the project surfaced in mid-2008 as buyers started to grumble about a lack of progress. In December, Irongate’s subsidiary, PB Impulsores, disclosed in a letter to buyers that Trump did not invest in the project and had no role in managing it. The company said it had spent all of the deposits and was unable to secure additional financing to complete the job.
In a one-page accounting provided to buyers, the developer said it had spent $45.3 million and was out of money. The accounting said that $8.7 million went to advertising and marketing, $8.3 million to acquire the land, $6.9 million on architecture and engineering, $6.4 million on loan fees and $2.6 million on “site and building costs.”
An attorney representing dozens of buyers in the lawsuit against Trump and Irongate said he hoped that Trump’s efforts would make it easier for buyers to recover their down payments.
“We would welcome any and all efforts by anyone, including Donald Trump and his organization, to rightfully return the deposits that were made,” said Bart I. Ring, one of the attorneys representing buyers.
“It doesn’t matter where the money comes from. If Mr. Trump was able to do that, it would be good for everyone.”
Bloomberg News was used in compiling this report.