Are real estate guys much richer than the estimates?
I’ve heard from and talked with a couple people who have said that a lot of real estate guys especially in the US and europe are worth way more than the vast majority of estimates. (like generally 3-5x more) They say wealth held in property is much easier to keep quiet. One guy brought up Donald Bren who is supposedly the richest US developer worth about 16-18 billion, and what he said essentially amounted to "the guy has over 110 million sq feet largely in f***ing California and its mostly debt free, Dude probably cashflows over 2 every year."
With the usage of LLCs, it is pretty easy to hide wealth in any sector, not just real estate.
Think it goes both ways though. Nobody knows if you own 1% of an LLC or 100% unless you tell them. One could be much richer or much poorer than estimates.
Maybe Bren is, but seems unlikely that as a whole they’re consistently worth 3-5x public numbers. I agree public estimates are highly inaccurate, but it goes both ways. Real estate guys famously like to value their at buildings at prices they’ll never realize, may conceal that there’s a shit ton of debt and a pref on top of them, might say they “own” a property when really they have a stake in a JV, etc.
Already tough to value illiquid assets with imperfect economic information, but made even harder without cap stack details
I had a whole response that the site ate, but I tend to disagree with this take.
Very, very few wealthy real estate investors are out there pumping up their net worth. Frankly, this is why people like Donald Trump are such an aberration in this business, and not the norm. And also why he's being sued out the wazoo - it's really hard to brag about how wealthy you are and then turn around and plead poverty to the tax man.
Think about it this way. Anecdotally, I know a couple old school real estate families, not active developers but the kids or grandkids of them, who have opened family offices off the back of the 6 or 7 multifamily buildings their grandpa built on the Upper East Side 60 years ago or whatever. Rental units up there trade for what? High six figures a door? You own 1,000 - 2,000 units and you're worth a billion, easy. And those assets either have absolutely no leverage on them, or the family has funded other ventures by taking out debt. Either way you're thinking mid nine figures of net worth, right now, and probably much more. There are a lot of families like that in NYC alone. Maybe asset valuations aren't the same in Boston or Philadelphia... but it doesn't take much. Just an investment horizon you measure in decades or generations instead of months or years. Also, when someone clears a couple hundred million dollars in an IPO, the press goes wild, especially if they're young - it's not easy to make that kind of killing in real estate, and the slow accumulation of assets doesn't lend itself to that kind of "sexy" reporting.
Look, no one is approaching Jeff Bezos in this industry. But real estate in general rewards risk mitigation, not risk taking (like most other industries where the risk/reward balance is way out of whack), and that also probably encourages the success of quieter, less flashy people who don't tend to splash their wealth around. So the combination of a group of wealthy folks who don't brag about their wealth and whose assets are incredibly difficult to identify, let alone accurately value, means that you see a massive understatement of wealth.
I'd actually argue quite strongly that in general, the more you see a real estate developer/owner boasting about their wealth/lifestyle, the less there is to back that up. Which makes sense, since it's a hugely capital intensive business and someone splashing out tens of millions of dollars a year on homes and yachts and places and jewelry doesn't have that money to plow back into their business. Donald Trump isn't a real estate guy anymore, for example, and hasn't been for decades - he's a marketing genius and a reality TV star, but he has no active involvement in anything successful that is real estate related, he just licenses his name and his brand. Grant Cardone, or Tai Lopez, they're in the business of scamming naive people into buying his courses, not actively managing assets.
This is true. So many owners and developers in NYC alone that many people haven’t heard about or truly understand the portfolios they own. One example is Lalezarian. He’s emerging as one the of country’s most prolific rental developers and doesn’t even have a website or done an interview.
I wouldn't lump developers and owners in together. Think there's a strong argument to be had that real estate development is about risk-taking, while real estate ownership is about risk mitigation. Hence the rise of REITs.
Granted, plenty of people do both. And plenty of REITs have associated development arms. But IMO that's more because of the overlap in skillsets required to be successful in either, than the risk-reward ratio of the businesses.
I think development is the business that is most about risk-mitigation! It is inherently such a risky business to be in that the best developers are the ones that do the best job in de-risking as much of the process as possible.
Well I agree that development is a lot riskier, which is why the reward is so high (as you say). But I think the risk inherent in the business is not necessarily the same as what it takes to be good at said business, which again, is risk mitigation. If you have a low floor, high ceiling business, you want to do everything you can to raise the floor. If you have a high floor low ceiling business, then you want to push the margins on risk and raise the ceiling. This is why fee-oriented businesses like finance are so prone to absolutely imploding - there is no inherent reason someone who is performing a service with someone else's money should be paid anything more than a fairly nominal sum. It's Wall Street's ongoing quest to find riskier and more complex financial devices in order to juice bonuses that leads to periodic crises.
Yeah, it going both ways makes a lot of sense, especially with guys like Grant Cardone out there who seem like the polar opposite of Bren. It just always seemed weird to me that the top guys in supposedly the largest asset class in the country and world hardly even crack the top couple hundreds in terms of net worth.
Yup. Can confirm. We call ‘em coots, and even they don’t know of all the stuff they own.
Unde ut asperiores nobis. Fuga sit odit quo hic quasi earum quia. Aspernatur perferendis dolor impedit excepturi asperiores. Voluptatem consequatur qui eligendi.
Vel qui eveniet rerum deleniti. Sequi voluptatem eos sunt nihil ex. Tempora velit adipisci inventore. Aut sed explicabo et deleniti qui quibusdam accusantium quisquam. Quia minus sequi rem aut voluptatem fugit.
Expedita quos qui qui sed voluptatem. Dolorum cumque explicabo dolorem tenetur cum non. Beatae repudiandae ipsa ex est vitae aut. Voluptatibus quos repudiandae mollitia voluptatem et tempore optio. Asperiores voluptas aperiam fugiat totam ad rerum id.
Dignissimos sit tenetur pariatur voluptatem voluptates. Omnis et et ut vero.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...