PANAMA CITY, Panama – Guests at the Trump International Hotel in Panama are being treated to unusual sights these days: police in tactical gear striding through the lobby and fights breaking out between burly security guards.
This week the hotel lost control of some its bank accounts in Panama, according to sources familiar with its operations, and its website was not taking reservations despite having plenty of rooms available.
As if things couldn’t get worse, there was no water in the rooms, including the shower and toilets, all day Wednesday and part of Thursday.
It’s all part of a bizarre legal struggle for control of the failing five-star luxury hotel that opened to great fanfare in 2011.
The battle over the eye-catching 70-story hotel, which stands out in the shape of a ship’s sail overlooking the Pacific Ocean, boiled over in recent days after the owners of the hotel, private equity fund Ithaca Capital Investments, fired 10 of its 200 employees as part of an effort to terminate the management contract held by the Trump Organization.
Since then, a game of cat and mouse has ensued as the fired employees have remained in their jobs, hiding from the owners and police, in apparent loyalty to the Trump Organization, which is vehemently opposing its ouster from what was once one of Trump’s proudest possessions.
The saga has created the unprecedented situation of a company owned by president of the United States facing an investigation by officials of a foreign government. After being elected president, Trump refused to divest himself of ownership of his multi-billion dollar global real estate brand, creating what many experts consider a potential conflict of interest between the Trump Organization and the office of the president.
The $400 million hotel and condo project was developed by a group of investors, some of whom are alleged to have links to money laundering and drug trafficking.
Trump lent his brand name to the project, earning him around $45 million, according to court documents. The Trump Organization has not been accused of laundering money, but questions have been raised about the company’s due diligence efforts.
Financial problems, criminal complaints
In recent years, several Trump projects around the world have hit financial trouble, including a hotel and condo in Toronto and a golf course in Puerto Rico. Other projects in Brazil, Mexico and the Dominican Republic never got off the ground.
The Trump Organization currently faces several criminal complaints by the owners of the hotel in Panama, the details of which are not public. One leaked to the press involves the hotel general manager, who is accused of illegally taping a confidential meeting of the owner’s association. Other allegations involve misuse of funds by the Trump management team as well as access to the hotel’s book-keeping records, Univision has learned from two reliable sources.
A Justice of the Peace visited the hotel with a police escort on Wednesday to order Trump hotel executives to allow owners access to a security room where surveillance cameras are monitored.
Ministry of Labor officials also visited the hotel on Wednesday to inspect if employees were still being paid.
In a statement sent to Univision, Trump Hotels accused Ithaca Capital of ignoring the terms of the management contract, as well as “mob-style tactics.” It added that a Nov 21 contract termination notice sent to the hotel by the owner "is not only invalid but the product of fraud."
For its part, Ithaca Capital declined to make any statement, saying dispute arbitration rules require the parties to refrain from public comment until a decision is reached.
On Tuesday Univision tried to book a room. The official Trump Hotels website wasn’t taking reservations, apparently a result of its Panama bank accounts being blocked by the hotel owners. A receptionist at the front desk also declined to check in a Univision reporter saying the hotel was “sold out.”
That was odd considering the owners of the 369 hotel units voted to boot the Trump Organization in October, arguing “horrific management” as well as financial irregularities, that has seen occupancy fall below 40%.
Sure enough, Univision was then able to book a room using the travel booking site Kayak.com, at a heavily discounted price of $156, breakfast included. (By the weekend the hotel website did appear to be accepting reservations once more.)
“This place is empty, it’s certainly not making any money,” said Herbert Levetown, 87, a retired chemical industry businessman from New Jersey who was vacationing at the hotel this week.
“I’d like to see him go,” he added, referring to Trump when asked about the hotel contract dispute. “He's not a nice guy, but the American people elected him," he added.
Like most guests and residents he was oblivious to the legal battle going on in and outside the hotel, and was enjoying seeing the sights, including a tour of the Panama Canal.
Staff at the hotel were also mostly in the dark. One housekeeper who has worked five years at the hotel told Univision that she continued to be paid normally and had no complaints about Trump's management team. She was previously employed at another hotel and said she much preferred Trump International.
It was unclear Thursday how long Trump would be able to cling to the management contract after seemingly being out-maneuvered by the hotel owner, Orestes Fintiklis, the 39-year-old founder of Ithaca Capital, a little-known private equity fund.
The Trump Organizations already lost its management contract in 2015 for more than 600 condo apartments in the 1,000-unit hotel and tower, which also boasts a casino, shops, four swimming pools and three restaurants.
A judge is expected to rule later this week if the firings are legal. A ruling in favor of the owners would be a major blow to Trump’s authority over the rest of the hotel staff.
The hotel’s stunning design and luxury amenities make it an attractive proposition even in Panama City’s saturated upscale hotel market. It boasts the largest conference center in Central America, as well as a casino, owned by Sol Kerzner the billionaire South African luxury resort developer.
In photos: A glimpse inside Trump's Panama hotel
Other hotel management groups, including JW Marriott, have already shown interest in the property.
The hotel operates as a condominium, with rooms owned individually, under a management contract with the Trump Organization, which runs until 2031.
But under Trump’s management, the hotel revenue has dropped 40% in the last three years, according to financial statements sent to the unit owners and obtained by Univision.
In December alone, the hotel lost $500,000, the unit owners were told. Trump’s management group still made a profit from its percentage of sales in 2017, although it amounted to only $200,000.
“There are no winners and losers here. We are ALL losing money and it is getting worse,” Fintiklis wrote to the owners association on Feb 7. The Trump Organization “continues to clip management fees whilst our hotel is driven into the ground,” he added, comparing it to “a leech draining our last drop of blood.”
One option would be for the Trump Organization to settle quietly and exit the management contract, perhaps with a portion of the amount it might have earned over the next decade.
“Unlawful corporate takeover”
Right now, both sides are far apart. Ithaca Capital has sued for $15 million in damages claiming economic distress due to Trump’s alleged mismanagement. Trump countersued for $150 million, accusing Ithaca Capital of being “engaged in “an unlawful corporate take-over,” according to court documents.
“It’s a great building. Trump doesn’t want to lose it. It feeds his ego,” one of the hotel condo owners, Al Monstavicius, told Univision.
Trump’s name is all over the hotel, from the exterior signage to bathrobes and bottled water in the rooms.
In court documents, Trump’s lawyers say the owner’s decision to terminate the contract is “null and void” until the arbitration process is over. Trump’s lawyers argue that Ithaca Capital is in violation of an agreement signed when it bought into the hotel “to refrain from any action, directly or indirectly, to interfere with or undermine the rights of” it management operations.
The issue could boil down to a principle in contract law regarding legal remedies in the event a contract for “personal services” is broken. Trump’s lawyers argue the decision by Fintiklis and Ithaca Capital to break the contract is unlawful and insist on their right to continue operating the hotel. But Ithaca Capital argues that a contract can always be broken if appropriate damages are paid.
Trump’s lawyer in the case, Todd Soloway, is a “go-to lawyer for high-stakes litigation” in complex real estate cases, according to the website of his firm Pryor Cashman.
Ironically, his website highlights as one of his most significant legal victories the case of the owner of the iconic Eden Roc hotel in Miami Beach, in which Soloway convinced a New York appeals court that the management contract between the parties was terminable as a personal services contract.
Soloway’s website observes: “This precedent-setting case frees owners of hotels worldwide to control the destiny of their own investment and to rid themselves of unproductive hotel managers and their onerous contracts.”
The man taking on Trump: Who is Orestes Fintiklis?
On the other hand, little is known about Fintiklis and Ithaca Capital, a private equity fund with undisclosed real estate holdings. It comprises a dozen wealthy family investors from the United States, Europe, Latin America and Asia, according to the company’s website.
The group paid $24 million for 202 hotel units and 13 other spaces, including the Trump restaurants and two swimming pools, according to company documents.
Fintiklis, a Cyprus-born businessman and lawyer who lives in Miami Beach, has a law degree from Oxford University and graduated first in his class in 2003, according to his biography. He also holds a master’s in business administration from the prestigious INSEAD Business School outside Paris, France, and previously worked for a top London firm Clifford Chance, where he was involved in structuring transactions for banks and high net worth individuals as well as international commercial arbitration.
The situation grew tense last week when the owners, led by Fintiklis, arrived at the hotel seeking access to the hotel’s books and records to check for any financial irregularities. The owners allege an audit concluded $1.4 million was missing, according to legal documents.
Trump’s security guards intervened and tried to block Fintiklis entering the hotel offices, setting off a shoving match, and yelling.
Trump staff could be seen behind the manager’s glass door moving files, according to witnesses. One witness said they heard a document shredder.
In the battle for control, Fintiklis and some friends decided to stay in the hotel. They booked rooms online but when they went to check in a receptionist would not accept their reservations. After demonstrating that they had already paid, Trump officials arranged to compensate them with rooms at another hotel.
Even so, Fintiklis and his friends spent the evening hanging out in the Trump International lobby, where he played Zorba the Greek on a piano and the group ate pizza ordered from one of the hotel’s restaurants, which are not controlled by Trump.
In fact, Fintiklis has taken to playing the hotel piano each time he feels he has scored a victory over Trump. He was recorded by the Washington Post on Tuesday playing ‘Für Elise,’ a popular Beethoven composition.
There was one good piece of news for Trump on Thursday: the water came back on.