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Trump: Winner of Presidency, Loser of Luxury Brand?

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Sean Mashian

Sean came into the Baker program with a background in public accounting and finance. He most recently interned at Capstone Advisors, a diversified real estate investment, development and asset management company. In his role as Summer Associate, Sean helped update asset management models for over 1 million square feet of real estate, and worked on special development projects as they arose Sean also has career experience in complex analysis models for the calculation and presentation of discounted cash flows, IRR, hurdle rates, cap rates, financial statement analysis, and profit & loss projections for purchases and developments across the country. He also has received CPA licensure in California. Sean graduated cum laude from UCLA in 2013 with a Business Economics major and an Accounting minor
President Elect - Donald Trump
President Elect – Donald Trump

Donald Trump, the 45th President-Elect of the United States, is a controversial man and has been his entire life. From “The Apprentice” to “Miss Universe”, Trump has always found his way into mainstream media and has been known as one of the foremost developers in New York. During his presidential campaign, Trump worked hard to portray himself as a “builder”, or as someone who would know ways to create jobs for everyday Americans. But that has not really been the focus of his career.

From early on, Trump realized branding provides the greatest returns on investment. It may not be easy to remember now, but the Trump brand has always attempted to be a “Business Luxury” brand. Over the years, with projects such as Trump Towers and Trump Soho, Donald Trump has been largely successful in this endeavor. Yet, with the views of Trump changing vastly in the past few years, can the argument be made that the “Trump” brand still demands the real estate premium considered?

From the moment Donald Trump joined his father’s real estate empire from a young age, Trump always had a vision of attaching his name with high-end real estate. But ever since his upset election victory over Hillary Clinton, the Trump flagship properties have seen a decline in premium. In New York City, his properties now sell for about $1,915 per square foot. This is just a 2% premium over the prices charged by other luxury properties in the city, a fall from the 5% premium he had been earning in price per square foot this summer. This decline is also more profound when it comes to a per-unit basis.

Trump International Las Vegas
Trump International Las Vegas

In 2015, Trump branded condominium units had been selling for $2.8 million , a 9% premium compared to the $2.6 million sales price of other luxury units in New York. But in 2016, Trump branded condos have dropped to an average sales price of $2.6 million, while other New York City luxury condominiums have increased their sales price to $3.1 million. This means that Trump branded properties now sell at a 22% discount in comparison to other luxury units, a major swing in just a matter of one year.

So why has his properties dropped in value? Politics are the first, if not the obvious, factor that comes in mind. Protests have been famously been taking place in front of his luxury buildings in Manhattan and Chicago. Whether or not one agrees with his policies, it would be difficult to live in a place dealing with such controversy, especially if this place is supposed to represent luxury.  People may also be choosing to avoid his properties because they do not support his controversial policies. Earlier this year, former MSNBC host Keith Olbermann sold his Trump Palace apartment for $3.9 million, after purchasing it for $4.2 million in 2007. “I got out with 90% of my money and 100% of my soul!” Olbermann tweeted after the sale. Other tenants, who may not be in the public eye as much, may have followed suiting in severing ties for moral reasons.

Politics may have played a strong role, but the real estate market is also a constantly changing dynamic and looking at one year changes may not paint the full picture. Manhattan has seen many new luxury buildings complete market shifting transactions, such as the over $100 million penthouse apartment sale at One57 on so called “Billionaires Row”, and the nearly $88 million penthouse sale at 432 Park Avenue. Also, it is noteworthy that the sale of luxury properties has been slowing down as 2016 goes on. Redfin notes that as of Q3 2016, we have seen seven consecutive quarters of high-end properties lagging in price growth.

Ultimately, Donald Trump’s property and brand has seen a decline in 2016. It appears a combination of market dynamics and politics has influenced the perception of his brand among potential buyers. But, like his impeding Presidency, it may take another four years to truly see what the name “Trump” now means in the public eye.

Trump International Golf Course Scotland
Trump International Golf Course Scotland
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