Contact Us

Trump Investigation Brings More Scrutiny To Secretive Way Commercial Properties Are Valued

A high-profile investigation into the biggest name in commercial real estate is shedding new light on the tight-lipped world of commercial property appraisals and revealing how owners — and their service providers — can skew their property values to mislead banks and tax authorities.


New York Attorney General Letitia James’ three-year investigation into The Trump Organization has ramped up in recent months after her office announced its findings in January that the former president’s company misrepresented the value of its properties to financial institutions for its own benefit. 

The investigation has ensnared one of commercial real estate’s largest services firms: Cushman & Wakefield’s appraisals on Trump’s properties are key to James’ investigation, and the firm was ordered by a New York judge last month to turn over the documents related to the appraisals it performed on comparable buildings. 

The Office of the Attorney General argued that Cushman’s fluctuating valuations on Trump properties justified looking at potentially thousands of other appraisals the firm has performed. Trump and Cushman have denied all wrongdoing.

“New York State has a strong interest in Cushman & Wakefield making true statements about the value of properties,” New York Assistant Attorney General Austin Thompson said during a hearing last month. “Cushman appraisers have made repeated misstatements in the documents we’ve seen so far, so we’re entitled to look at other documents they’ve submitted.”

New York State Supreme Court Judge Arthur Engoron agreed, ruling that the firm had until May 27 to produce the documents. Cushman & Wakefield appealed that order on May 11; its attorney argued in the April hearing that the OAG's request was overly broad and the appraisals it performs for its clients are “intensely proprietary, private, confidential financial data."

How the investigation will ultimately impact the Trump Organization and its business partners remains to be seen, but the probe could have broader implications for the commercial real estate industry.

These latest developments in the civil suit have raised the issue of secrecy in the appraisal process and highlighted how many of the calculations behind it are kept out of public view. Commercial landlords across the country take advantage of the lack of transparency in the assessment process to lower their tax payments, appraisal experts told Bisnow, and advocates say reform is needed to ensure the industry is contributing its fair share to local government coffers. 

“Implicit in every assignment, there’s some pressure, meaning nobody’s getting an appraisal just for intellectual curiosity,” said David Wilkes, a partner at real estate tax firm Herman Katz. “You’re getting an appraisal because you want something, and that something depends on the value of the property. It could be that you want a mortgage, in which case they would want a high value, or you want lower property taxes, so therefore it’s probably in your interest to have a low value.”

Trump appears to have several instances of dramatically altering property valuations, including a Wall Street skyscraper that his firm told lenders was worth $550M, while reportedly telling property tax officials it was worth $16.7M.

While appraisal experts told Bisnow the wide disparities between valuations for Trump properties are on the extreme end of the spectrum, they also said differences in valuations as wide as 20% are common in commercial real estate. 

Experts say the differences can occur for a variety of legitimate reasons, and the pandemic has created even more volatility in valuations, as opinions vary widely on future demand for office space, giving appraisers a greater ability to skew numbers toward what their client desires.

“As real estate has developed over the years into a mega-player in the investment world, appraisers do end up with a lot of incentives to be swayed, to be biased,” Wilkes said, adding that it doesn’t necessarily mean an appraiser will adjust their results to cater to their clients’ objectives. 

“An appraiser wants to be hired and rehired, so you can imagine where there are some pressures to make a number,” Wilkes said. “So there’s no question that’s out there, and the question is: When does the government step in to try to regulate that? And how do you regulate it? It’s very difficult.”

‘This Is Way Out On The Extreme Side’

The New York OAG began investigating the Trump Organization’s business practices in March 2019, a month after former Trump attorney Michael Cohen testified to Congress that Trump deflated the values of his assets when trying to reduce its real estate taxes and inflated the values when that benefited him.

New York Attorney General Letitia James

Nearly three years later, the attorney general detailed a series of significant disparities in Trump property valuations in a Jan. 18 legal filing that appears to back up Cohen’s claims. 

“Thus far in our investigation, we have uncovered significant evidence that suggests Donald J. Trump and the Trump Organization falsely and fraudulently valued multiple assets and misrepresented those values to financial institutions for economic benefit,” James said in a statement at the time

The revelations center around several Trump properties in New York City, Westchester County, New York, and California. 

40 Wall St., an office tower Trump owns through a ground lease in Manhattan, was appraised by Cushman & Wakefield multiple times between 2010 and 2012, with values between $200M and $220M, according to the OAG filings. In 2015, as Trump was trying to renegotiate the property’s loan, the same Cushman team performed an appraisal that valued the building at $550M, according to the filings.

The OAG argued this assessment used “demonstrably incorrect facts and aggressive assumptions.” During that same period, Trump told property tax officials the building was worth $16.7M, The Washington Post reported, citing city records. 

At Seven Springs, a 212-acre property in suburban Westchester that Trump purchased in 1998 for $7.5M, the company increased the value of the property on financial statements to lenders from $80M in 2004 to $291M in 2012, based on the claim that it was zoned for nine luxury homes that could net $160M in profit, according to the OAG filing. In 2016, Cushman & Wakefield performed an appraisal for Trump that valued the property at $56.5M, according to the filing, and OAG said even that lower valuation included misrepresentations and was “improperly inflated.”

In 2013, Trump told Los Angeles County property tax authorities that the value of a golf course and adjacent residential development sites was $900K, the Washington Post reported. But one year later, Trump sought to obtain a conservation easement on the property, agreeing not to develop the homes in exchange for a tax deduction. For that purpose, in which a larger valuation would create a greater tax deduction, he received an appraisal from Cushman & Wakefield that pegged the property’s value at $25M, according to the OAG filings. OAG said Cushman’s appraisal “significantly overstates the development value” of the residential sites. 

Norm Miller, a commercial real estate appraisal veteran who now serves as the Hahn Chair of Real Estate Finance at the University of San Diego, said that while it is common for different valuations to be reported for the same property, the disparities in Trump property valuations that have been made public appear far wider than what is typical in the industry. 

“They’re going outside the bounds of being reasonable,” Miller said. “This is way out on the extreme side to the point of not being credible.”

Trump's Lower Manhattan skyscraper, 40 Wall St., is at the heart of the investigation into his company's business practices.

Kevin Riordan, a real estate finance professor at Montclair State University who reviewed Trump financial documents as part of a ProPublica investigation in 2019, said the disparities in Trump property valuations occurred in part because of differences in reported capital expenditures. He said that the Trump Organization appeared to report lower expenditures in financial statements with lenders than it did when providing financial information for tax assessments, making the properties appear less profitable to property tax appraisers.

Reducing a property’s profit margin leads to a lower assessed value, decreasing its property tax bill.  

“What I was observing in historical tax filings was that Trump was expensing on the forms tremendous amounts of capital expenditures, then when you got to the loan amount, it’s a fraction of it,” Riordan said. “The cash flows were really different on the bottom line.”

A Cushman & Wakefield spokesperson said in an emailed statement the firm has cooperated with the investigation for two years, responded to multiple subpoenas and provided all documents related to its work for the Trump Organization properties involved in the investigation. The spokesperson said the firm filed an appeal to protect the privacy of its other clients. 

“We believe the evidence is clear that Cushman’s appraisers exercised independent judgment and frequently refused or rejected suggestions from The Trump Organization or its outside counsel,” the spokesperson said. 

Miller said he has seen multiple cases of appraisal firms being subpoenaed for documents on properties that were the subject of an investigation, and they are “always” willing to provide them. But he said this is the first case he has seen in which an appraisal firm was subpoenaed for documentation on similar properties from other clients. 

“This is a little bit unusual, but clearly there’s a distrust going on,” he said. 

The OAG’s push to obtain documents on Cushman’s non-Trump clients likely revolves around the assumptions its appraisers make for future market changes, Miller said.

A significant part of commercial valuations deal not with the specifics of a property itself, but rather with projected changes in rents, vacancies and operating expenses that illustrate how the appraiser thinks the market will affect a building’s valuation in the future. An appraiser’s assumptions about the market should typically remain consistent for comparable properties in the same area that are appraised around the same time, Miller said.  

“If they see that for this one organization their assumptions were totally out of line with other clients, the question is: Why?” Miller said.

The New York Supreme Court building in Manhattan.

In the hearing last month on the motion to compel Cushman to turn over the documents, attorneys for OAG and the real estate firm argued before the judge about whether the appraisals of non-Trump clients would be relevant to the investigation, and about what type of financial information an appraisal firm can be compelled to reveal. 

Cushman & Wakefield’s attorney, Sawnie McEntire of Parsons McEntire McCleary PLLC, argued that OAG has no relevant reason to look at appraisals from other clients because every appraisal is made under unique conditions that can’t be reasonably compared, including appraisals for the same building made at different times. 

“The reason they can't achieve public purpose is because every appraisal will be fundamentally, if not dramatically, different than another,” McEntire said, according to a court transcript. “You can have different appraisals for the same piece of property undertaken by the same appraisers six months apart. And depending on the macro and microeconomic conditions and what occurred, it could be dramatically different.”

Thompson, the assistant attorney general, argued that the issue isn’t whether appraisals can be compared, it is whether Cushman & Wakefield made false statements in multiple instances. 

“Cushman’s assertion that industry practice doesn’t allow one appraisal to be compared to another; it’s completely irrelevant,” Thompson said, according to the transcript. “We’re not worried about industry practice, we’re worried about misstatements contained in appraisals and whether they have been repeated more often than we’ve already identified.”

How Appraisers Can ‘Fudge’ The Numbers

Skewing valuations for a property by tweaking market assumptions, capital expenditure statements and other financial metrics isn’t unique to the Trump Organization. Appraisers not only have a series of levers they can pull to alter a valuation, experts say they often have an incentive to come up with a number that suits their client’s needs. 

Many of the assumptions that go into a property’s valuation are subjective, and experienced appraisers can arrive at different numbers than their peers for a variety of legitimate reasons. 

One aspect that often generates disagreement, Miller said, is how much of the value of an asset should be attributed to the real estate itself, and how much should be categorized as the value of the operating business inside it. This can occur in all sectors but is especially prevalent in the hospitality industry, as the hotel brand and operations carry a significant amount of value that goes beyond the structure of the property itself. 

Appraisers valuing a property for loans or tax purposes are only looking to come up with the value of the real estate, but they often disagree on exactly where that line is drawn. 

In some cases, appraisers receive pressure from their clients to arrive at a certain number and input market assumptions that differ from their true beliefs, Miller said. He said this practice of “fudging your assumptions to suit the client” can be done for projections around rent growth, the growth rate of operating expenses, changes in the market vacancy rate and changes in interest rates. 

“I could show you about 10 places in a pro forma cash flow statement where you could bias a report,” Miller said. “Any professional I know could do this, and doing it at the extreme of the market ranges … those things have a tremendous influence on value.”

He said that appraisers staying within a reasonable range of market assumptions could arrive at valuations up to 20% different from one another. 

The level of scrutiny given to appraisal calculations depends on the venue. Miller said lenders often want to see the underlying assumptions and the financial details on a property’s leases and rents, but most local tax assessors don’t dive into a property’s individual lease terms, instead looking at market rents for a particular area.

“It’s easier to bias the information in the property tax assessment approach than it is in financial mortgage,” Miller said. 

Donald Trump tees off at the opening of the Trump National Golf Club, June 22, 2015.

Large property owners not only have the ability to skew the numbers on appraisals for tax purposes, but they also have enormous incentive to do so. For properties like a downtown office tower, high-end hotel or shopping center with valuations in the $500M range, Miller said receiving favorable appraisals can save owners more than $1M a year. 

“The DNA of owner-developers is to take more aggressive postures to reduce taxable income,” Montclair University’s Riordan said. 

For a city like New York, with billions of square feet of commercial properties, minor reductions in the assessed value of buildings can have major impacts on local government revenues. 

Ana Champeny, deputy research director at the Citizens Budget Commission of New York, said that during the pandemic, the city experienced a decline in property tax revenues for the first time since the 1990s. She attributed the drop to decreases in value estimates for hotels and office buildings. Property taxes make up about one-third of New York City’s annual revenue, she said, and of that portion, about 40% of the money comes from commercial properties. 

Champeny, whose nonprofit acts as a watchdog on city and state budgetary matters, said she would like to see more transparency around the capitalization rates that the city’s Department of Finance uses to arrive at commercial property valuations. 

“What happens to values year-over-year is that capitalization rates change,” she said. “And that’s a little bit of a black box into how the department does that. That’s why we think there should be a little bit more public accessibility into understanding how these rates are set, because they’re an important part of the valuation equation.”

She said she made this recommendation in 2018 as part of her testimony on the city’s property tax reform efforts. But the bulk of property tax reform recommendations from CBC and other advocacy groups have centered around residential appraisals and ensuring they are made equitably. While this remains an important issue to address, she said more scrutiny should be given to commercial property tax assessments. 

“There’s not that much scrutiny, even by the academic community, there hasn’t been as much devoted to commercial,” Champeny said. “I think that’s the next step is to take a closer look at commercial property taxation and see if there are reforms that should be made.”

The attention the Trump investigation has brought to the appraisal process will likely lead to more calls for reform, Miller said, but it may be difficult to achieve meaningful change. 

“There will be political pressure for more transparency and auditing and investigation,” he said. “But at the same time, the local governments, the county governments don’t usually have the budget to do more than they’re doing.”

CORRECTION, MAY 25, 10 A.M. ET: A previous version of this story misstated the name of the university where Kevin Riordan is a professor, Montclair State University.