Understanding Donald Trump from a property tycoon’s perspective
December 3rd , 2016
As ridiculous as Donald Trump is, there is a grain in truth in the tactics he employs
Whether you love him or hate him, American Presidential candidate Donald Trump couldn’t have escaped your attention. The one thing almost everyone agrees on – regardless of what they think of the man’s policies – is that he has a talent for controversy.
The way he thinks is also unconventional (in a manner that can be described as “crass” or “unconventional” depending on your perspective). Well, we at Icon solutions have an explanation for it. You see Donald Trump is a property tycoon, and once you see it from this industry’s perspective, Trump is easier to understand.
Trump as a property tycoon
Donald Trump took over from his father, Frederick Christ Trump, who was a property developer. The total net worth behind Donald Trump is now estimated to be US$3.9 billion (and not US$10 billion as he often claims).
Nonetheless, Trump is in property. He builds and oversees buildings (property development), in addition to running hotels and casinos (hospitality, which is tangentially related to property). Now in his 70s, the man has been doing it most of his life.
So, to understand Donald Trump, it makes more sense to view him as another property tycoon, than as a politician. People in the cutthroat world of property* think, speak, and act differently. And the traits that Donald Trump exhibits are the same ones we see in some veteran property investors:
(*Okay, cutthroat is an exaggeration. It’s mostly a lot of shouting and angry emails, and then everyone being told by the general contractor to please make up our bloody minds).
Key things to look for are:
- Trump’s “highball” approach to negotiations
- Not seeing debt as a big deal
- Understanding that emotions matter more than facts
Donald Trump’s “highball” approach to negotiations
“Highballing” is a common tactic used by business people, and especially in the property industry. When an interior designer gives you a budget, they don’t start with the low estimate: they start with the high. When property agents want to sell you a house, they don’t start with the lowest possible price either; they start way at the top.
The reason is simple – you will negotiate the price downward, so they have start high to get some “buffer room”.
Now, let’s look at one of Donald Trump’s many over-the-top campaign promises. One of these is that he will deport over five million people with a “special deportation force“, from the “first day” he comes into office.
Now for a politician, that would be irrational. Even if you agree with the stand, you’d know you can’t just start barking orders and getting people rounded up in trucks. That’s the sort of thing that makes people start to mumble about Hitler and the Nazis. It’s almost impossible to do it from the “first day”, and over five million people is a ridiculous number (that’s almost the population of Singapore).
Politicians just can’t talk like that. Because politicians don’t highball in their campaign speeches. They’re expected to make actual promises, which they will see through.
Trump, on the other hand, is negotiating. He knows he can’t get it done from day one, and he knows he probably can’t kick over five million people out of the country. But he can start a serious talk about it. In the end, he might be able to get deportations started in two years. And he might end up kicking out, say, 100,000 illegal immigrants instead of millions.
But that’s probably what he had in mind in the first place. He only came up with that absurd statement so that (1) he had room to negotiate downward, and (2) he got a lot of attention.
If you understand that Trump sees his campaign as a sort of property sale, his outrageous promises start to make sense.
Not seeing debt as a big deal
People in the property industry are so used to leveraging (borrowing), that there’s little fear of debt. And Donald Trump exemplifies that, having filed for bankruptcy six times!
For those of you are wondering how it’s possible to go bankrupt that many times, it’s because the company and the owners are separate. For example, say you own a property development company, and you start building a condo. Partway through the company (not you, but the company) runs out of money. You declare the company bankrupt and walk away, your wealth mostly unscathed.
Trump did this with a resort in Baja, where people who bought property there were left hanging when he shut it down.
So yes, scary story: property developers can do that to people. That’s why Singapore property is in such high demand: our local authorities have a barrage of regulations to ensure developers have enough money to complete construction.
But back to Donald Trump: the man’s view on debt is that it’s not a problem. He’s almost cavalier with it, at one point calling himself “the king of debt”.
Now we hate to say this but…that’s how a lot of people in the property industry are. Even among home owners, for example, we’re used to the notion that we don’t really have to pay the interest rate on a mortgage (we refinance on the fourth year, into a cheaper loan).
And if you ask a property investor whether he’s nervous about owing $800,000 on a house, the answer is often “why would I be?” The house will appreciate in value, so it can be sold off to cover the loan as a last resort (or so the presumption goes).
People in property are, in short, unafraid of debt. Sometimes it’s like we don’t really believe it exists. If you recall, the global financial crisis in 2008/9 was caused by property buyers being over leveraged.
Not stock traders or bond traders, but property people. There were people with incomes below $40,000 per month (in Singapore dollars) that owned more than one property, on loans alone.
And that’s why Donald Trump is willing to talk about haircuts on the US debt (paying back less than the country owes). While shocking to some, it’s hardly a big deal to him.
Understanding that emotions matter more than facts
You know what asset class deals in facts? The closest you can get is commodities. Stuff like coal, and even then there’s some emotion involved. In the stock and bond markets, sentiment decides what goes up and down. In the property market, it’s probably 80 percent emotion and 20 percent facts.
This is why some HDB flats can be sold for a million dollars. The buyers aren’t interested in potential capital gain, rental yields, or the median transaction range in the area. They’re buying a home and guided by emotion – they don’t care.
The same goes for issues like proximity to the MRT station (is a house that’s three minutes closer really worth a few hundred thousand dollars more?), hauntings (because there’s no such thing as ghosts), and paying more for unit #8-88. Property is an emotion driven investment.
Any developer who tries to sell based on dry facts is doomed. That’s why the pool is “a design inspired by the river banks of the distant Nile”, and not “a three metre, roughly linear design with a two-pump system”.
Trump understands that emotion is what sells, not facts. While his opponents were busy spouting statistics, he was yelling about the end of America and the loss of jobs. He struck a nerve, and that got people to buy in droves.
So, there’s no point harping on about how Donald Trump “doesn’t seem to present facts”. It’s probably a deliberate choice on his part, because he knows how he makes you feel is more important.
Remember that the next time you hear a property sales pitch.