The Billionaire Behind Trump’s $175 Million Bond Is No Stranger to Risky Deals

Billionaire businessman Don Hankey made headlines in early April when his company, Knight Specialty Insurance, provided the $175 million bond that Donald Trump posted in his New York civil fraud case. 

Source: WSJ | Published on April 23, 2024

Billionaire behind Trump bond

Billionaire businessman Don Hankey made headlines in early April when his company, Knight Specialty Insurance, provided the $175 million bond that Donald Trump posted in his New York civil fraud case.

“I wouldn’t say I’m a big Trump fan,” Hankey told The Wall Street Journal this week. “I’ve voted for him in the past. And I think he’s business friendly. And that’s what I’m looking for.”

It isn’t the first time Hankey has financially backed a troubled real-estate developer.

In Los Angeles, where he is based, Hankey’s companies have bankrolled some of the area’s most ambitious—and sometimes eccentric—mansion developers. Sometimes, they did so just as those developers began to fall into financial jeopardy.

Perhaps most notably, Hankey provided more than $100 million in financing for The One, a scandal-plagued Bel-Air megamansion once slated to ask as much as $500 million. The 105,000-square-foot estate was eventually sold at auction for a comparably paltry $126 million in 2022 after its developer, the bombastic and volatile spec-home builder Nile Niami, defaulted on loan payments.

Priyesh R. Bhakta, president of Hankey Capital, said Hankey isn’t put off by strong personalities, so long as the underlying business fundamentals are strong.

“There are eccentric personalities in our business…we will tolerate those eccentricities if they’re smart and their business plan makes sense,” he said.

Not So Much ‘The One’

In L.A. real-estate circles, Hankey is perhaps best known for backing Niami, whose decadelong odyssey to build The One, complete with its own nightclub and five swimming pools, captivated the real-estate industry amid delays, cost overruns and defaults. When Hankey issued the initial loan of $82.5 million, The One was about 80% complete. The financing was slated to help Niami pay back other creditors and apply the finishing touches.

Bhakta said that Hankey made the loan because the company was confident that the U.S. single-family home market would continue to deliver $100 million-plus deals, as the economy created more and more billionaires. At the time, he said, Niami was considered a pioneer in the spec-home market. He had three or four unsold mansions on his books. Hankey figured that once Niami sold those, the developer would have a favorable cash position.

Ultimately, The One unraveled along with Niami’s personal life. Following a 2017 divorce from his longtime partner Yvonne Niami, the developer began to get a reputation in the real-estate industry as a party boy with erratic ideas.

“Sometimes, you look at someone’s track record, but that doesn’t necessarily correlate directly to what their future is going to look like,” Bhakta said. “In this case, his [wife] turned out to be the more rational person in that relationship and she kept him grounded. When he didn’t have that grounding, he kind of went crazy and unfortunately things unraveled there.”

Rayni Williams, a luxury real-estate agent who worked with Niami on the deal, said Hankey gave Niami more chances than many lenders might have. “I think he was rooting for him to succeed,” she said.

In October 2021, after issuing Niami several extensions on his loans, Hankey filed a foreclosure action on The One, with the balance of the loan having ballooned to more than $100 million. Niami responded by putting the property into bankruptcy. The property was ultimately sold at auction for a fraction of its onetime projected asking price, leaving a string of lenders vying for their money back from the proceeds.

While Hankey was first in line to be repaid, his position was challenged in court by another of the creditors, an entity associated with Canadian investors Julien and Lucien Remillard. In court papers, that entity accused Hankey of “unfair and unscrupulous predatory business practices,” alleging it had engaged in a “scheme to secure payment of exorbitant default interest payments and potentially misappropriate a valuable asset while leaving other creditors ‘high and dry.’ ”

So far, Hankey has recouped some of his cash, but is fighting for the remaining balance in court. Neither the Niamis nor the Remillards could be reached for comment.

Bhakta said he couldn’t say much about the case because it is pending. “We’re still defending ourselves there,” he said. “But [litigation] comes with the territory.”

Foreclosure Is ‘The Reality of the Business’

While Bhakta said it is rare, Hankey Capital has foreclosed on some of its developer clients.

“We really try to avoid having to foreclose, but unfortunately, that’s the reality of the business,” Bhakta said.

In the case of L.A. developer Nicholas Keros, in 2019, Hankey’s company foreclosed on and took title to a five-bedroom spec mansion in the prestigious Bird Streets area of the Hollywood Hills. The roughly 14,000-square-foot property had walls of glass, walnut millwork, a steam room, a dry sauna and an infinity pool.

Hankey took a loss on the property, selling it for $25 million. That was less than the roughly $23 million loan the company made to Keros plus the approximately $5 million to $10 million investment made by Hankey to finish construction on the house once the foreclosure was completed, Hankey said. Keros couldn’t be reached for comment.

While other spec home properties Hankey has financed have sold for significantly less than initially projected, Bhakta said Hankey usually gets its money out safely. He said the company tries to keep its basis on each project low, rarely lending more than around 60% of the perceived value of a home.

Kris Halliday, a luxury home builder from Australia, said Hankey provided a $25 million bridge loan so that Halliday could repay a construction loan before he sold the 20,000-square-foot Malibu spec home he completed in 2022. The property had floor-to-ceiling motorized glass walls, a 2,000-gallon aquarium and a 20,000-gallon koi pond. Its initial asking price was $74.8 million.

After a series of price cuts, the house sold to an unidentified buyer at auction last year for just $26.5 million. While Halliday said he was “very disappointed” with that price, it was enough to make Hankey whole again. He said he couldn’t fault the lender for the outcome.

“My experience with Hankey was everything they promised, and they delivered [the money] in the timeframe that they said they would do it,” he said.

The Richest Man You’ve Never Heard Of

A Los Angeles native, Hankey, 80, originally made his name as the king of subprime car loans. His Westlake Financial Services works with tens of thousands of U.S. car dealerships to provide car loans to borrowers with bad credit.

In an interview, he said he started in that business in the 1970s after his father died, leaving behind an interest in a Ford dealership. A self-described “finance guy,” he and his mother bought out the other partners in the dealership and slowly turned it into one of the most profitable in the region, turning to car-loan financing for additional revenue. For car buyers with bad credit but a good down payment, Hankey would finance purchases.

“Instead of losing deals, we decided to carry our own paper,” he said.

Hankey said he got interested in real estate after making a play to buy the property where the dealership was located. He had heard that the owners had plans to turn it into a shopping center.

“I made an effort and finally was able to buy the real estate underneath the Ford dealership to secure my land,” he said. After seeing how much the land appreciated in value, he became a “big believer” in real estate, he said.

The Hankey empire has since expanded to encompass real estate, insurance (through Knight Specialty Insurance), finance and technology companies. It posted revenues of $4.6 billion in 2023, according to its website, and had $23.4 billion in assets. The Bloomberg Billionaires Index pegs Hankey’s net worth at about $7.5 billion.

White-haired with a deep tan, Hankey and his wife, Debbie Hankey, own a mansion in Malibu, Hankey said. He said he is an avid horseman and tennis player, and gets chauffeured around in a Mercedes Maybach.

Bhakta said Hankey, despite his advanced age, is in the office before sunrise almost every day, often by 5:45 a.m. “He tries to be the first one here,” he said.

The Hankey Group of companies includes eight companies, two of which invest in real estate: Hankey Investment Company, which owns and develops its own real estate, and Hankey Capital, a bridge-loan provider, Bhakta said. Hankey Capital has about $1.4 billion in outstanding loans today, Bhakta said. Its bread and butter is “helping high net-worth families acquire real estate,” Bhakta said, noting that most of the company’s borrowers have at least about $50 million in net worth.

Those families are willing to pay slightly higher interest rates if it means being able to close quickly. Bhakta said Hankey’s rates could be as much as 3% higher than a traditional bank or other private lender. Made up mostly of commercial loans, Hankey Capital’s loan portfolio is about 15% composed of single-family mansion bridge loans, Bhakta said. It is an area that most traditional lenders shy away from, Bhakta said.

“It’s very risky,” Bhakta said.

Hankey to Trump’s Rescue

Hankey said he reached out to Trump’s representatives after having read about the former president’s race to secure a nearly $500 million bond in his civil fraud case. The courts later said they would accept a far smaller bond of $175 million.

Bhakta said Hankey considered providing Trump’s bond financing even at the higher amount, though he said the former president didn’t have the cash on hand to collateralize it. As a result, Hankey’s team began evaluating Trump’s real estate, including Mar-a-Lago, his private club in Palm Beach. One red flag, he said, was that the property is zoned exclusively for use as a private club and couldn’t automatically be turned into a single-family compound. That significantly impacts its value, he said.

If that zoning restriction remains, “it wouldn’t have the same value that [Trump] thinks it has,” Bhakta said. “Thankfully, we didn’t go down that road,” he said.

Ultimately, once the bond requirement was reduced, the bond could be fully collateralized by Trump’s liquid assets, meaning cash, stocks and bonds, Bhakta said. “It was a very good business decision,” he said.

Hankey declined to comment on the terms of the bond, but a person close to the Trump Organization said the auto billionaire’s firm is making a 1% commission on the deal, netting it $1.75 million.

The New York attorney general’s office has taken issue with Hankey’s bond, noting that his company isn’t registered to issue appeal bonds in New York. It has questioned whether Knight is financially capable of fulfilling its obligation to pay the bond if Trump defaults.

Bhakta described the scrutiny as “a proctology exam.” He has yet to decide, he said, if the limelight has been “a net positive.”

“We have gotten hate mail, all of us. But, by the same token, we’ve gotten praise mail,” he said. “We’re big boys about it, trying to take it with a grain of salt and just keep our head down and keep working.”

Hankey said he didn’t expect the level of scrutiny that the company has been put under. “I thought this might go down quietly,” he said.