Trump Fails At Real Estate: Walks Away From $13.2 Billion

I’ve heard a lot of silly reasons why people are voting for Trump, but among the silliest is this idea that Trump is somehow a consummate business man. He’s really not, and, in fact, he’s an underperformer despite nearly 40 years of experience in dealmaking.

$13.2 billion dollars

Developed in the 1970s by the Washington-based trade group National Association of Real Estate Investor Trusts, the FTSE NAREIT All Equity REITS Index describes itself as: “a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs [this means Real Estate Investment Trust, a company that owns and operates commercial real-estate -Th.]. Constituents of the Index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.”

Put simply, this means it tracks the performance of publicly traded real estate investment companies that own commercial properties, like offices, hotels, apartments and so forth.

And Trump doesn’t rank very high on this index, according to John Griffin,  professor of finance at the University of Texas:

Mr. Trump has underperformed the real estate market by approximately $13.2 billion, or 57%.

Griffin came to the conclusion when he compared Trump’s stated net worth with four decades of returns on the FTSE NAREIT All Equity REITS index.

Trump’s net worth was “more than $200 million,” according to a New York Times interview published in 1976. According to Griffin, the FTSE NAREIT All Equity REITS Index-compounded return on that should be about $23.2 billion by the close of 2015.

This figure is well above Trump’s own reported worth of $10 billion.

Rather than rely on Trump’s words alone, though, Griffin also did some number crunching himself, using two independent assessments of Trump’s wealth: A BusinessWeek estimate that Trump was worth $100 million in 1978, and a Forbes analysis that put Trump’s current worth at about $4.5 billion.

Based on the BusinessWeek analysis, the NAREIT index would have returned $8.6 billion by the end of 2015. That’s nearly twice what Trump’s current worth is, according to the Forbes estimate and consistent with “an underperformance of 48%.”

Of course, the NARIET doesn’t leave room for living experiences and taxes — although, as Griffin notes, the numbers don’t take into consideration account leverage:

These numbers do not take into account leverage. The REIT equity funds have current leverage rations around 36%, while Trump is documented to have been levered to 69%. If one were to lever the REIT returns at Trump’s rate, then the index’s performance would be considerably higher.

According to MarketWatch:

[I]nvesting in a passive REIT also has a cost: At an average expense ratio of 1.03%, a $23 billion REIT position would cost the investor about $230 million a year in fees, an amount that would go a long way toward meeting living expenses.

If you can’t survive on $230,000,000, then you need money management courses. Just about everyone I know can survive on less than 0.0001 percent that amount a year, because poor people do something called “money management.”

This leads Griffin to conclude that Trump is a chronic underperformer who has no idea what he’s doing:

[N]ot only is the $13.2 billion a potential understatement of Trump’s underperformance, but also it seems he needed to take on a market-exceeding amount of risk in order to achieve his performance.

And Republicans will look at this and still think the man is a winner who knows what he’s doing in the realm of business, because facts don’t mean anything and the alternative this year is apparently Ted Cruz.

Feature image via Flickr

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