In his first deal in the former Soviet Union, American property developer Donald Trump is bringing his trademark to Georgia as part of a large-scale luxury housing project. But while Tbilisi is hoping Trump’s star power helps draw investment in the country, analysts caution that there may be a limit to The Donald effect.
First made public last September, Trump’s decision to expand into Georgia – first, with a skyscraper complex in the Black Sea resort town of Batumi, followed by a second development in Tbilisi -- is being touted by the government as a breakthrough in its longstanding efforts to attract foreign investment.
Addressing Trump as “Dear Donald” and calling the event a moment that defines his country’s success, a clearly star-struck President Mikheil Saakashvili glowed with pride during a joint news conference on March 10 in New York City’s Trump Tower to announce the deal.
Foreign investment in Georgia dipped by 6.6 percent during the first three quarters of 2010, compared with the preceding year, to stand at $433 million. The hope is that Trump’s international reputation as a celebrity real estate developer will help reverse that trend.
But whether or not Trump himself is actually putting money into the project -- to be implemented with the Tbilisi-based Silk Road Group, a property developer -- is unclear. Michael Cohen, executive vice-president of The Trump Organization and Trump’s special counsel, told EurasiaNet.org that the deal is a licensing agreement. He would not disclose details about the financing.
Silk Road Group executives declined to comment about the deal. US media reports have put the price tag for the Batumi and Tbilisi projects at between $250 million and $300 million, but neither Cohen nor the Silk Road Group confirmed the figures.
In January, Trump signed a similar real estate development agreement with Rohan Lifescapes, a developer in Mumbai, India. Under the terms of the deal, Trump gives his brand name and “know-how” to the project, while project financing largely falls to the developer itself, company director Kalpesh Mehta told EurasiaNet.org.
But some analysts caution that a single brand -- even a brand as well known as the Trump name -- can only do so much for outside investment in Georgia. While the deal will help Georgia “re-alert” investors to potential opportunities, it will not blind companies to certain risks -- like security concerns in breakaway Abkhazia and South Ossetia, commented Alice Mummery, an economic analyst with The Economist Intelligence Unit.
“The decision of such a high profile foreign investor, such as Trump, to invest in the Georgian real estate market will undoubtedly re-alert foreign investors to the potentially attractive opportunities for investment in other sectors within Georgia,” Mummery wrote in an email interview.
“However, I don't think this deal will necessarily have the impact on investor confidence towards Georgia that Mr Saakashvili and the government hope for.”
Spirits, nonetheless, were running high during the March 10 event to announce the deal. Joking and trading compliments with Saakashvili under a large “Trump Invests in Georgia” banner, Trump introduced the 43-year-old president as “one of the world’s great leaders.”
“A small country has been a very strong country economically – and that shows what can be done by really good leadership,” Trump elaborated.
Saakashvili, in turn, suggested that Trump, who has harbored political ambitions, “might win” if he runs for president in Georgia. Saakashvili’s term ends in 2013.
Hype aside, Kote Gabrichidze, a real estate analyst for Tbilisi’s Institute of Polling and Marketing, stressed that the Trump deal is just one more licensing agreement; the Sheraton, Radisson and Marriott hotel corporations all have a presence in Georgia as well, he noted.
Trump’s brand name in Batumi and Tbilisi will not cause investors to “rush” into the Georgian market, said Gabrichidze. At the same time, Gabrichidze conceded that the Trump name has the power to send a positive message to potential investors.
The deal coincides with plans to hold an MTV-sponsored music festival in Batumi that could potentially attract whatever global attention the Trump name alone does not secure. Sensing a PR opportunity, the Trump Organization’s Cohen earlier congratulated MTV on choosing Batumi for the show, adding that Trump “was the first to see how special Batumi is.”
Cohen displayed similar, Trump-style optimism about the Batumi property development’s potential to attract fresh investors to Georgia. “It is a fact that wherever Mr. Trump goes into a new market -- here or in another country -- many other companies follow,” he said.
Molly Corso is a freelance reporter in Tbilisi and editor of the American Chamber of Commerce’s Investor.ge magazine.