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The winding history of Donald Trump’s first major Manhattan real estate project

The Commodore Hotel was a key remnant of Midtown’s Terminal City

On May 18, 1976, a tourist named W.J. Schaap, of St. Louis, Missouri, settled his bill at the front desk of the Hotel Commodore and became the final guest to leave the premises. The hotel, a fading gem next to the even more dilapidated Grand Central Terminal, had opened on January 29, 1919, as an important part of the New York Central railroad’s ambitious Terminal City project. On opening night, nearly 3,000 people gathered in the Moorish-inspired grand ballroom on 42nd Street—among them Mayor John Hylan and opera star Enrico Caruso—to celebrate. The 2,000-room Commodore, billed as the “most wonderful hotel in the world,” was part of a boom in accommodations in New York; many of the same revelers had opened the Hotel Pennsylvania on Seventh Avenue just four days earlier.

By 1976 the Commodore was rundown and a little seedy. The previous April, a massage parlor in the hotel had been evicted on the grounds that it was a “sex palace.” John Koskien, a representative of the hotel’s management company, said at the time that “the only thing that could save the Commodore is a major turnaround in labor and economic conditions”—or a knight in shining armor.

A young real estate entrepreneur named Donald J. Trump was waiting in the wings.

Trump, whose father, Fred, had built upward of 22,000 units of housing in the outer boroughs, was itching not only to enter the Manhattan real estate market, but to do so as audaciously as possible. He had a plan to strip the Commodore down to its bones, rebuild it for $100 million, and get the Hyatt corporation—which then owned no Manhattan hotels—to run everything. All he needed in return was a sweetheart sale price from the railroad—under $10 million—and a 50-year tax abatement from the city.

Trump argued that if he was not allowed to take over the hotel, the Commodore would be “boarded up,” becoming not just an eyesore on 42nd Street, but a potent symbol that New York had hit rock bottom.

Was this true? It didn’t matter. Trump’s approach worked, and the Commodore reopened in 1980 as the Grand Hyatt, with a shiny glass facelift courtesy of architects Gruzen Samton and Der Scutt. Trump had played on the fears of city officials, in essence creating a crisis where none existed so that he could get his way.

For years, Trump and his admirers have cited the Commodore deal as a symbol of the real estate developer’s acumen, but that symbol will soon disappear. In February, just one week after the largely ignored centennial of the Commodore, developer TF Cornerstone announced that the hotel will be torn down to make way for a “2 million-square-foot tower that includes office and retail space as well as a new Hyatt hotel.”

In destroying the hotel, not only will Donald Trump’s first major Manhattan real estate project be erased, so too will one of the most important vestiges of the original Terminal City, a development that forever changed New York City real estate.

Grand Central Terminal opened on 42nd Street in 1913 as the third train station on that spot. An 1854 ordinance had banned steam locomotion south of 42nd Street, so after Cornelius Vanderbilt—the self-styled Commodore for whom the hotel was later named—purchased the Hudson River Railroad and the Harlem and New York lines in the 1860s, he quickly jettisoned the custom of having horses haul passengers south to the more populous part of the city. He built Grand Central Depot in 1871; this was expanded into Grand Central Station between 1898 and 1900 before being replaced by the 1913 Beaux-Arts terminal.

A number of pressures sparked the New York Central to consider building a new station at the turn of the 20th century. The Pennsylvania railroad had received approval to tunnel under the Hudson River and was snapping up land near 34th Street. The new IRT subway, which would link Grand Central to the burgeoning theater district at Times Square as well as downtown offices, was under construction.

But the immediate cause was tragedy. On January 8, 1902, the engineer of the White Plains local heading into Grand Central couldn’t see that he had a red signal against him as it was obscured by soot, smoke, and steam. The locomotive barreled into the rear of another passenger train that was waiting to enter the station; the accident killed fifteen people instantly, injuring dozens more.

In the wake of the crash, William Wilgus, the railroad’s engineer, advocated a radical solution: fully electrify the trains; massively expand the station’s capacity; cover the tracks; and pay for everything by profiting from the previously unusable land the railroad would be reclaiming.

The most famous result of Wilgus’s plan is the terminal itself, a joint project of architecture firms Reed & Stem and Warren & Wetmore, and a true monument to the City Beautiful era. But Wilgus’s most enduring legacy may be the 70-acre Terminal City concept—the first large-scale use of air rights—that made building Grand Central both a financially viable proposition and, with hotels like the Commodore, the new hub of 42nd Street.

In his memoirs, William Wilgus claimed credit for inventing the concept of air rights, writing that the “idea, born in 1902, that revenue plucked from the air might be used to finance [a project’s] tremendous cost, had its fruit in the inception of a new Grand Central Terminal.” As Wilgus noted, the “keynote” in his plan for Grand Central was the fact that electric trains no longer needed “great vaulting spaces, for the dissipation of their products of combustion.” To use the previously wasted space above the train sheds by pulling “wealth from the air” was, in Wilgus’s estimation, “obviously...the thing to do.” (Wilgus’s use of air rights is akin to current development at Hudson Yards, where developer Tishman Speyer spent $265 million to acquire the rights from the city and the MTA to develop the previously unusable site above those railyards.)

Wilgus predicted that the terminal—which he envisioned as a 12-story building rising above the platforms—would conservatively generate $2.3 million a year from rentable office space. This would be in addition to any money generated from leasing the air rights on land around the station and up Park Avenue, as Fourth Avenue had been renamed in 1888. The New York Central approved Wilgus’s plan in the summer of 1903, and the complex work of converting the train to run on electricity—while building a massive new station without disrupting its existing traffic—could begin.

Grand Central Terminal and the Hotel Commodore, later the Grand Hyatt Hotel, in the background.
Corbis/VCG via Getty Images

Concurrent with the terminal’s construction, phase one of the Terminal City project concentrated on the area directly around the new station, starting with the US Post Office and the Grand Central Palace exhibition hall; these were soon joined by the Yale Club and Biltmore Hotel on Vanderbilt Avenue.

The Biltmore, the first of the Terminal City hotels, set the stage for future development. Designed by Warren & Wetmore, the Biltmore boasted 1,000 rooms built around an “H” shape that allowed for greater access to light and air. As would be the case with many buildings surrounding the terminal, arriving passengers never had to step outside Grand Central: a private elevator at platform level whisked them up to the hotel’s lobby.

Within a couple of years, the Biltmore had been joined by the Hotel Chatham just north on Vanderbilt Avenue and, in 1919, by the Commodore, which was the last building to be erected as part of Terminal City’s first phase.

With 2,000 rooms, the Commodore was the largest of the Terminal City hotels, and boasted luxuries many visitors in 1919 would never have experienced, from the elegant waterfall in the lobby to such modern conveniences as circulating ice water in every room. The hotel catered not just to tourists—who could, as at the Biltmore, enter the hotel directly from Grand Central—but to corporate clients, and it remained a favorite spot for trade shows, black-tie dinners, and press conferences for decades, even after the luster of 42nd Street began to fade.

In the Roaring ’20s, the Roosevelt, Park Lane, Barclay, and Waldorf-Astoria hotels were built as part of Terminal City’s second phase, but even as early as 1922, the Hotel Association of New York was sounding the alarm. In a dispatch to The Hotel World, a trade magazine, the association decried that:

Bankers and builders have gone mad in the race to put hotels wherever they could find an available site, forgetting that the war period was abnormal in every respect… [and] with 11,236 rooms thrown on the market within a short period of time, New York will have more than enough hotel accommodations…. The town will be overbuilt for another ten years.

Still, as Jason Barr points out in Building the Skyline: The Birth and Growth of Manhattan’s Skyscrapers, “from the perspective of a real estate developer in the late 1920s, there was every reason to expect the new [Grand Central area] office space to be absorbed in rapid fashion. No rational investor could have been able to foresee the Great Depression.”

Historian John Tauranac concurs; when asked about congestion in the area, “boosters sidestepped the answer…. Nothing, according to the builders and realtors indicated that the Grand Central zone was overbuilt, as some ‘cautious’ people feared.” In 1929 and 1930 alone, the equivalent of 469 stories of floor space was constructed in the Grand Central area, adding over 5 million square feet of commercial space to an already crowded district.

Terminal City had no place to go but up.

Even after the market crashed in 1929, Grand Central, with its 44 platforms, remained the largest hub in the world and continued to serve hundreds of thousands of long-distance passengers and commuters a year. The new jewel of the Terminal City complex was the sumptuous Waldorf-Astoria, which opened in October 1931, soon welcoming presidents and celebrities.

Advertisement for the Commodore hotel (on Lexington Avenue next to the Grand Central Railway Terminal), New York, New York, 1919.
Getty Images

While some other nearby hotels were forced to shutter, properties like the Hotel Commodore soldiered on, hosting meetings and advertising convenience to tourists. Room rates, which had started at $2.50 per night when the hotel opened, had only risen to $3.50 by 1931.

What finally eroded the Commodore’s standing was the shift away from passenger railways after World War II. In the two decades following the war, “non-commuter rail passenger travel declined an incredible 84 percent.” The Commodore had been able to weather the greatest economic downturn in American history, but its location next to what was now an outmoded form of travel seemed to spell its doom.

Things weren’t any better on the West Side. The Pennsylvania Railroad, hoping that modernization would lure people back, made, as the critic Lewis Mumford put it, an “almost indescribable botch” of a renovation to Penn Station in 1958. When the remodel failed to halt the railroad’s slide, the Pennsylvania sold the air rights above the terminal and, in 1963, the old station was torn down so that Madison Square Garden could be built in its place. But this didn’t save the railroad from economic collapse either. In 1968, it merged with the New York Central—to become Penn Central—in a last-ditch effort to remain solvent, but in 1970 declared bankruptcy.

While some Terminal City properties, like the Waldorf-Astoria, still had nostalgic allure, there was continued talk of demolishing Grand Central, too, in favor of an office tower. The first such proposal, originally dubbed “Grand Central City,” was then replaced by a design for a skyscraper called the “Hyberboloid” designed by I.M. Pei. What was ultimately erected was the Emery Roth-Walter Gropius-Pietro Belluschi-designed Pan Am building just north of the station.

Even after the terminal became a New York City landmark in 1967, Stuart Saunders, the CEO of Penn Central—and the Pennsylvania Railroad executive who’d demolished Penn Station—was soliciting bids for an office tower to rise over Grand Central. (New York had already shown itself perfectly willing to rescind landmark designations.) The railroad settled on a 55-story, Marcel Breuer-designed International Style skyscraper, later dubbed by critic Sibyl Moholy-Nagy “Hitler’s Revenge.” A fight between preservationists and the railroad broke out and would ultimately have to be settled by the Supreme Court.

But to potential visitors, battles over modernist skyscrapers vs. Beaux-Arts railroad stations were the least of their concerns. To them, the question was: Will I be safe?

The city’s ailments were being shown to them in films like 1969 Academy Award-winner Midnight Cowboy or 1970’s The Out-of-Towners, in which Jack Lemmon and Sandy Dennis arrive at a dilapidated Grand Central, walk through garbage-strewn streets (a major plot point is that most city services are on strike), lose their room at the Waldorf-Astoria, and are mugged in Central Park. New York’s woes were exaggerated for cinematic effect—but there was no denying that the glory days of 42nd Street and Terminal City appeared to be long gone.

By 1975, with the city teetering on the brink of bankruptcy, city services were being slashed. The police union put out a brochure for tourists, “Welcome to Fear City,” as a bargaining tactic for higher wages. The widely projected image of New York was so dire that The Out-of-Towners was beginning to seem quaint. The last thing most people were thinking about was the fate of the Commodore Hotel.

Into the fray came Donald J. Trump with a risky plan: save the Commodore to save the city.

Donald Trump has been concerned with self-mythologizing for so long that it’s nearly impossible to tease fact from fiction when investigating the Commodore Hotel story.

In The Art of the Deal, Trump recalls visiting the hotel in 1974, while he was finishing up a deal—later undone—to purchase Penn Central’s west side railyards. “The brick facade of the Commodore was absolutely filthy, and the lobby was so dingy it looked like a welfare hotel.” But Trump saw just how many commuters were passing through Grand Central and knew it was a “superb location.”

Trump refers to what happened over the next five years as a “juggling act.” His longtime lawyer and Apprentice co-star George H. Ross calls it an example of Trump’s “critical personal qualities,” such as “enthusiasm, relationship-building skills, showmanship, preparation, and tenacity.”

Both men are probably right, but “the Commodore caper” was also, Village Voice reporter Wayne Barrett wrote in 1979, “part shill game, part intrigue.”

There’s no denying that Penn Central was in dire financial straits and that it owed somewhere close to $15 million in back taxes on the Commodore property. It’s also true that the railroad felt the hotel was—despite that superb location—its worst-performing hostelry. But just how badly the hotel was doing is unclear. Once Trump came up with his plan to buy the hotel, it seems likely that he urged Penn Central to make the property, and by extension the entire neighborhood, seem in terrible shape.

As Kim Phillips-Fein writes in Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, Trump’s

plan was elaborate. Trump would be allowed to purchase the property from the railroad for $9.5 million. Then he would sell it for a dollar to the Urban Development Corporation... [a state agency that had] its roots in low-income housing. Finally, the UDC would lease the property back to Trump and Hyatt Corporation for ninety-nine years, allowing the developers to pay taxes far below the normal rate for four decades—a windfall worth hundreds of millions of dollars.

To make the deal happen, Trump had his surrogates and Penn Central’s spread the idea that if the Commodore shut down it would, in the words of a WCBS editorial, “lie vacant, taxes unpaid, a monument to urban failure.”

City officials concurred: “A closed Commodore would have a very serious blighting influence on the east midtown area,” said Alfred Eisenpreis, New York’s Economic Development Administrator. Trump needed to play up the urban blight angle both to keep the purchase price low and to ensure that no one else would swoop in and offer more than $9.5 million.

At the same time, Trump needed to convince the city that a 50-year tax abatement (later reduced to 40 years) was the only way to get someone to take on the risk of running a hotel in “Fear City.” He had the hotel’s management company shutter the Commodore on May 18, 1976—two days before the city’s Board of Estimate was to meet about the tax-abatement issue. As Wayne Barrett reported in 1979, the hotel’s management company denied “that the closing was an attempt to affect the Board’s decision on the Commodore.... Whether the closing right before the Board of Estimate vote was intended to influence it is incidental. That was its effect.”

Donald Trump with Alfred Eisenpreis, New York City Economic Development Administrator. Sketch of new 1,400 room Renovation project of Commodore Hotel.
NY Daily News via Getty Images

For Penn Central, Trump’s arrival must have been a huge relief. Rather than continue to pump money into a money-losing venture, if the railroad went along with Trump’s ideas they could simply off-load the property and walk away. Would any other potential buyer offer them the same peace of mind?

Two days after the Commodore shut down, the Board of Estimate approved Trump’s tax abatement proposal. Though it would take additional wheeling and dealing, Trump was able to arrange that his $9.5 million purchase price be used to settle the hotel’s back taxes; that the United Development Corporation become the owner of record (which helped with eminent domain issues of evicting long-term hotel tenants); and that the Hyatt organization pay a lease to the city in lieu of taxes. Phillips-Fein estimates that over the first 36 years of the tax abatement, the hotel would have paid about $360 million in taxes; instead, the owners paid only $202 million in rent and fees.

When the Commodore reopened at the Grand Hyatt in 1980, it was not as complete a makeover as Trump had originally promised, with the most visible transformation being its glass facade and Der Scutt’s new atrium jutting out over 42nd Street. In The New York Review of Books, James Traub wrote of that “blindingly reflective glass skin”:

For Trump, the Commodore, and perhaps also Grand Central and the Chrysler Building, was part of a played-out past; New York City was languishing in a deep recession, and all those bricks and stones and entablature signified exhaustion…. Trump had produced the kind of shiny artifact that tourists like, though at the same time he had damaged forever the texture of East 42nd Street. Trump has the populist contempt for critical opinion, but he adds to this the belief that critical opinion itself ultimately bows down before commercial success. In The Art of the Deal, he writes, “Many of the same critics and preservationists who hated the original concept of my building now love it.” Maybe; the American Institute of Architects’ guide to New York buildings refers to the façade as an “utter and inexcusable outrage.”

Inside, the Grand Hyatt suffered from the fact that it was, at its heart, still the 1919 Commodore: the elevators were too slow, the rooms tiny. When the hotel first opened, a bath in every room was a novelty. Now, the hotel suffered from antiquated plumbing as well as a heating system that was centrally controlled. By trying to renovate the Commodore as cheaply as possible, Trump had, in many ways, not renovated it at all.

Amtrak—which had taken over Penn Central’s passenger service in 1971—announced in 1988 that it would cease running regular long-distance train service from Grand Central, thus divorcing the hotel from its original reason for existing. At the same time, new hotels were sprouting up around the just-beginning-to-gentrify Times Square. As the city began to bounce back from two decades of economic malaise, the Grand Hyatt found itself marooned on East 42nd Street. Today, with Grand Central a shopping and dining hub, and development around Terminal City—such as One Vanderbilt—the location is once again exciting. It’s too bad the outdated Commodore simply can’t compete.

The most lasting legacy of the Commodore is the tax abatements that Trump insisted on in exchange for renovating the hotel. As Barrett wrote in The Village Voice in 1979, Trump’s Commodore deal was

the largest symbol of the new state and city resolve to “stimulate economic development” by giving away the future. IBM, ABC, CBS, WNET-TV, New York Telephone, the Palace Hotel, Howard Johnson’s have already gotten abatements under the new state program. Twenty-six projects have been abated in midtown already. Nine projects have been approved under the city’s incentive program, though it is still no more than a phantom program. These abatement programs are the moral-obligation bonds of a future city collapse.

Thirty years after Barrett wrote those words, the city tried to incentivize Amazon to come to the city with $386 million in tax abatements—a deal that may or may not now be quashed. If Governor Cuomo is somehow able to rescue the Amazon deal, it will be in large part because of tax incentives that Donald Trump and the Hotel Commodore pioneered.

The Commodore is dead—long live the Commodore.

James Nevius is an urban historian and author of a number of books about New York, including Inside the Apple: A Streetwise History of New York City and Footprints in New York: Tracing the Lives of Four Centuries of New Yorkers. He is currently researching a book about American utopianism. Follow him on Twitter or Facebook.

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