Capital City: Gentrification and the Real Estate State by Samuel Stein

Author:Samuel Stein
Language: eng
Format: epub
Publisher: Verso

Fred Trump: The Rational Comprehensive Builder

After working construction in high school and studying engineering at the Pratt Institute, Fred Trump started developing properties in Queens. He began with single-family homes in Woodhaven, Queens Village and Hollis, always financing the next project with the sale of the last. The 1920s were booming times, both for Queens and the property racket in general, but it would all come crashing down in 1929. The Depression hit, and millions plunged into poverty, hunger and homelessness. Fred, however, did all right; he spent the next six years running a supermarket, and kept his eye out for new opportunities created by the crisis.

His first big break was the fall of the Lehrenkrauss Corporation in 1934, and the foreclosure of thousands of Queens homes. Lehrenkrauss had issued $26 million in mortgages for 40,000 homes.19 Due to fraud and debt, however, they were going out of business and auctioning off their properties. Through some clever self-inflation, Fred managed to place the winning bid on Lehrenkrauss’s mortgage-servicing department, giving him a stream of income from debt-paying borrowers as well as an inside scoop on homes that were about to fall into foreclosure and could be purchased cheaply.20 Fred was back in the real estate game, with a great deal more firepower than his one-by-one projects had previously afforded him.

At the same time, the Roosevelt administration was searching for ways to jump-start the economy, and looked to mass homeownership and construction as one key pathway out of the Depression. Congress passed the National Housing Act of 1934, which established the FHA and its system of government-backed private mortgages. Under this program, the federal government would act as a backstop for banks against creditors who defaulted. This was an enormous boon to potential homeowners, who suddenly had access to capital, as well as to banks, whose lending risk fell dramatically, and to builders, who now had an enormous new pool of financiers and clients.21 It was also the beginning of institutionalized redlining, a long-term process of divestment from integrated and Black neighborhoods and investment in segregated White housing.22

This enticed Fred Trump. In 1936—nine years after being arrested at a Queens Ku Klux Klan rally—Fred got his first FHA contract to build a 450-home row house project in East Flatbush, Brooklyn.23 The federal government provided about $750,000 dollars in mortgage insurance for what Trump described as an “exclusive development,” which qualified him for even larger amounts of private loans.24 Soon he expanded to other parts of Flatbush and Crown Heights, and by 1937 had built over 2,000 government-financed homes for aspiring middle class Whites.

In 1941, with the Second World War in the air, Fred expanded his operation to Brighton Beach and told potential investors, “In the event of war, I believe that the profit will be quicker and larger.”25 He was right. That year the federal government established the Office of Production Management (OPM). The OPM was mostly in the business of converting industrial sites to military production, but they also sponsored real estate projects in “defense housing areas.

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