That one time Trump wanted to invest in Mexico not long ago

200 investors lost 20 million dollars after Trump's real estate project failed in Mexico; now, the POTUS threatens U.S. companies that invest in Mexico with big border taxes.
Between 2006 and 2007, the now President of the United States Donald J. Trump and his children promoted the Trump Ocean Resort Baja Mexico real-estate development that ended in a class action lawsuit against the magnate. (EL UNIVERSAL / file photo)
24/01/2017
19:52
Eileen Truax
Los Angeles, California
-A +A

“I'm very, very proud of the fact that when I build I have investors that follow me all over. They invest in me. They invest in what I build,” says Donald Trump in a promotional video attracting investors to his then planned real estate project in Baja California, Mexico, which was supposed to be, according to Trump, a spectacular beachfront luxury resort headed by the successful Trump Organization. What could have possibly gone wrong?

Flash forward some years to 2013, and an undisclosed settlement took place that officially ended a lawsuit filed against Donald Trump, his son Donald, his daughter Ivanka and the Trump Organization. The class action lawsuit was filed by over 200 people who claimed to have lost a total of 20 million dollars after investing in the real estate project in 2006 and 2007 that Trump and his children had promoted as a lucrative investment opportunity.

“One of the things I most love about this project is the fact that it's in Baja, Mexico, and Baja is one of the really hot places. Baja right now is where Cabo was 10 years ago and you know what happened to Cabo,” said the now President of the United States in the promotional video.

Trump Ocean Resort Baja Mexico was planned as a three-tower development with 526 luxury apartment units. This was at the height of the housing bubble and prior to the recession. A total of 132 investors left an average deposit of around 160,000 dollars for their own units. The construction company that oversaw the project was Irongate Wilshire LLC, which was founded in 2003 and headquartered in Los Angeles, California.

In 2008, after the housing bubble burst, investors pulled out of the project. By then, developers had already invested 32 million dollars in the project, which included the buyers' desposits, and construction stopped. In 2009, Trump terminated his agreement with Irongate, arguing that the company had failed to comply with the terms of the licensing agreement. The project was then abandoned.

The next 4.5 years was a living nightmare for those who had put their faith in the Trump brand when they made their investment. In an interview with The San Diego Union-Tribune in 2006 before the project had been abandoned, Trump said his own investment in the project had been significant. However, after the lawsuit had been filed, his team of attorneys denied that he had been of the project's developers. Instead, they argued that the Trump Organization was not economically liable because he had only licensed his name for the project and established certain operational standards. The buyers were left on their own.

When the legal dispute had become widely reported in Southern California, where the lawsuit had been filed, one of the plaintiffs' lawyers argued that Trump's involvement in the project was the main reason the client decided to invest in the project in the first place. In a promotional video released in 2007 that promoted the sale of the second phase of the project, a couple who had bought a unit during the first phase share their story by saying that they had decided to invest in the project because “the Trump name was very important for us.”

In July 2016, a few years after the matter had been settled out of court between the Trump Organization and the plaintiffs, The Washington Post released the original agreement that was entered into between the magnate and the real estate developer. As part of the agreement, Trump wasn't required to make an initial investment. Instead, he received a nearly one-million-dollar advance for the earnings he would have received had the project gone forward as planned. The agreement established that Trump could abandon the project if certain conditions weren't met. However, the agreement did require Trump and his children to make periodic visits to the future development—with expenses covered by the developer—to ensure the success of the project. The Trump brand was the investment in the project.

In addition, potential investors were ensured that Trump's companies were overseeing the project.

In the video that promoted the second phase of the project, Ivanka Trump claims that she was so impressed with the project that she bought a unit for herself. Jason Grosfeld, one of the founding partners of Irongate, appears alongside Ivanka in the video and talks about the “magnificent” opportunity that investing in the Trump brand is for investors.

In October 2012, three years after the lawsuit was filed, Irongate agreed to pay 7.25 million dollars in damages. Trump, however, filed several appeals to avoid paying any damages and instead settled the case out of court.

The land where the future project was to be built is today just as it was left in 2009.

In October 29, 2016, former Mexican congressman Jaime Martínez Veloz filed a federal complaint against Donald J. Trump. The congressman accuses Donald J. Trump of fraud and tax evasion as a result of his involvement in the Trump Ocean Resort Baja Mexico.

In the official complaint that was filed with the Mexican Attorney's General Office in Tijuana, Maríntez Veloz requests that appropriate legal action be taken against the defendant, since there is no proof that the appropriate permits were ever obtained to build the project in the first place or that any taxes were ever paid.

When news broke out of the project's failure and the lawsuits filed against the Trump Organization, the former congressman discovered that there weren't, in fact, any records of those involved in the project ever filing for the necessary permits or legal status in Mexico.

Martínez Velos believes that, had the requests actually been made, developers would've been denied the appropriate construction permits since the project's location was just a short distance away from one of Tijuana's major ocean sewage pipes that discharges into the sea.

Since the Trump Ocean Resort Baja's failure, the Baja California state government has amended real estate laws to now require agents to register in a state database and provide proof of their licenses.

Martínez Velos would like the Mexican government to investigate whether Trump and his associates had the appropriate visas necessary to do business in Mexico, since Mexican federal law requires all foreigners to obtain special visas to do business, directly invest, represent a foreign company or carry out commercial transactions in Mexico.

“You can't just come into our country without the appropriate documents and do whatever you want. Especially not if that person is now the President of the United States,” said the former congressman.

Even though Trump has repeatedly called investments made outside of the U.S. as being unpatriotic, it's especially difficult to take his attacks against U.S. companies that invest in Mexico serious given his own investment project in Mexico just a few years ago.

The most notable of his attacks was that against the Ford Motor Company, which Trump threatened to levy a 30% border tax against for cars the company makes in Mexico, but sells in the U.S. After the threat, on January 3, Ford announced that it was canceling the construction of its 1.6 billion dollar plant in Mexico.

Without even taking into account his failed real estate project in Mexico, a country which he has constantly made threats against for well over a year, Trump's criticism against companies with foreign investments seem hypocritical given the fact that out of the 12 hotels that the businessman owns, six of those are abroad.

Not only that, but a report published by Fortune magazine in May of last year claims that companies such as Nabisco and Carrier Corp., which Trump has directly criticized for having plants in Mexico, or Apple and Disney, which he has also criticized for manufacturing their products outside of the U.S., all have something in common: at one point or another, Trump has been one of their investors.

Finally, perhaps one of the most interesting Trump contradictions is the fact that, with an estimated value of around 500 thousand and one million dollars, in the list of Trump's investments appears the Ford Motor Credit Company.

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