How long is a piece of string? Mar-a-Lago and the vagaries of asset valuation
What is Donald Trump's Florida country club really worth?
Donald Trump is currently touring America’s state and federal courthouses accompanied by his legal entourage. When not seated in court, scowling in curmudgeonly silence, Trump is outside in the foyer between sessions, standing before battalions of news reporters, railing against the Justice Department for having the temerity to bring charges against him.
One of his overriding fixations concerns the allegations against him in New York, where New York Attorney General Letitia James is said to have assembled compelling evidence of Trump’s fraudulent business dealings over decades, many allegedly conducted with the alleged knowledge and connivance of his two sons.
Core to the prosecution case is the assertion that Trump manipulated the value of his real estate assets, assigning them a lower value in his tax returns than when leveraging those same assets to raise capital (when the valuations he submitted to the banks were considerably higher).
For example, Trump seems particularly exercised by Letitia James’s appraisal of his Mar-a-Lago Florida estate at $18 million. In his opinion, its open market value is likely to be closer to $1.5 billion.
Who’s right?
When the millionaire socialite and collector Marjorie Merriweather Post built Mar-a-Lago in the 1920s, she employed two internationally renowned architects and designers to help her. Namely the noted New York architect Marion Wyeth and the celebrated Viennese architect and theatrical designer Joseph Urban, both of whom left their idiosyncratic mark on the Hispano-Moresque confection that Donald Trump was eventually to acquire in 1985.
Mar-a-Lago was completed in 1927 at a cost at the time of $2.5 million, a considerable overspend of Mrs Merriweather Post’s original budget, much to the consternation of her then husband, Edward Francis (E.F.) Hutton, who looked askance at what he saw as his wife’s wilful extravagance.
Adjusted for inflation, $2.5 million in 1927 is the equivalent of $41,920,480 today. From an insurance perspective, would it cost $41.9 million to rebuild Mar-a-Lago in 2023? How to explain the $18 million valuation arrived at by Letitia James’s appraisers?
Perhaps Donald Trump has once again exposed his bacchanalian bad taste and disregard for aesthetic traditions by despoiling the interiors to such an extent that much of the historical value of Marjorie Merriweather Post’s original vision has been lost. I cannot say, as I have never had the dubious honour of being invited. I was, however, briefly in the same room as Trump when he bought Ronald Reagan’s stainless steel Colibri wristwatch at a New York charity watch auction in 1999 on which I reported as a journalist.
More importantly, some of us have not forgotten Trump’s philistine destruction in 1980 of the iconic Art Deco limestone relief facade of the Bonwit Teller building in New York in order to erect another of his ugly phallic towers. Who knows what he’s done to the interior of Mar-a-Lago. Media photographs of the grubby shower-room in which he stored the top secret documents appropriated from the White House isn’t a promising indicator.
Moreover, there is now a growing consensus in the business world that the global Trump brand has been critically devalued as a consequence of its eponymous founder’s reckless behaviour and the rapidly metastasising legal jeopardy he faces.
Marjorie Merriweather Post never quite succeeded in her hope of bequeathing Mar-a-Lago to the nation to be used as a Winter White House. Instead it fell into the grifting hands of Donald Trump, who on acquiring the estate in 1985 immediately sought to break it up on account of its onerous running costs. Now he’s bleating about its open market value.
What is Mar-a-Lago worth today? Letitia James’s $18 million or Donald Trump’s $1.5 billion? Only the market can decide. That time may come sooner rather than later if Trump loses in his New York business case.
Mrs Merriweather Post forked out $2.5 million to build her beloved Mar-a-Lago estate. That would have been the equivalent of $14.8 million in 1985, when Trump acquired it for $10 million. That $10 million is the equivalent of $28.1 million today (adjusted for annual inflation of 2.76 percent over the period.)
Prestige real estate and blue chip fine art share some similarities in terms of the ‘hedonic’ characteristics that present a challenge to valuers. The Mar-a-Lago estate is unique, as is any painting by Jackson Pollock, Rembrandt, or Cézanne. All, to some extent, defy the traditional economic principles that govern the valuation of rapidly traded asset classes in the financial sector.
It’s tempting, for example, to think back to the pre-sale appraisals of the blue-chip art collection formed by the New York real estate mogul Harry Macklowe and his wife Linda, which came to auction in New York last year as a result of the couple’s divorce settlement. The process offered a glimpse into the vagaries of valuing unique high-ticket assets.
The two professional fine art appraisers brought in by the Macklowes to assess the value of their collection revealed that different valuation methodologies — while both rigorous and comprehensive in their consultation of diverse data sources — can occasionally deliver quite divergent conclusions of value.
For example, Linda Macklowe’s expert, Christopher Gaillard of Gurr Johns,
valued the collection at $625 million, while Harry Macklowe’s expert, Elizabeth von Habsburg of Winston Fine Art, appraised it at $788 million. Meanwhile, a 2015 insurance valuation by Christie’s estimated the collection at $937.5 million. The two separate Macklowe estimates of the collection’s ‘Fair Market’ value was thus between $625.6 million and $788.7 million.
The final sale total was $676.1 million.
How, one wonders, might Christie’s Real Estate department value Mar-a-Lago today? An answer to that question may come sooner rather than later if, as some legal eagles believe, Trump could be forced by New York judge Arthur Engoron to liquidate some of his real estate assets including, potentially, Mar-a-Lago.
Where might the hammer fall? In the environs of $18 million? Or closer to $1.5 billion?
All eyes are on New York…
For more information on Marjorie Merriweather Post and the building of Mar-a-Lago, see Nancy Rubin (2004 [1995]) American Empress: The Life and Times of Marjorie Merriweather Post, iUniverse Star Inc., Lincoln, NE.