Two recent data points make us think The Donald might be insolvent again.
First, he admitted in a recent deposition that he exaggerates the value of his properties and that his net worth is whatever he feels like it should be.
Second, more importantly, third-party estimates of Trump’s net worth (which he has denounced) put it at $150-$250 million in 2005 and $788 million in 2007…and the real estate market has crashed since then.
As you know, real estate is financed heavily with debt. The Donald’s “ownership” of at least one of his real-estate projects consists only of licensing fees–which is actually lucky, considering the state of the market. But he does have an actual ownership position in some other projects–and, unfortunately, “ownership” in this case means the amount that’s left over after the debt is repaid. It’s the debt we’re worried about.
Let’s say the total value of all the real-estate The Donald owns a piece of was $25 billion at the peak. Let’s say that real estate was conservatively levered at 4-to-1, meaning that the equity portion was $5 billion and the debt portion was $20 billion. (Knowing The Donald’s penchant for using other people’s money, the leverage ratio is likely much higher). And let’s say the value of The Donald’s properties, like the value of most other real estate on the planet, has dropped, say, 30%.
Then The Donald is broke.
Because the empire that was once worth $25 billion is now worth $17.5 billion–or $2.5 billion less than the $20 billion of borrowed money The Donald and his partners financed it with.
Put differently, to the extent The Donald has any of his net worth in real estate, he has to be hurting. The value of the real estate itself is likely down at least 30% since 2007. So the value of the equity in that real-estate–the part that wasn’t financed with borrowed money–is down anywhere between 30% and 100%, depending on the leverage ratio. The Donald could, of course, have $2.5 billion of un-escrowed cash or other assets sitting around, in which case he’d be solvent, but the value of his real estate has almost certainly plummeted.
Of course, real estage moguls aren’t required to mark their holdings to market, so The Donald won’t ever have to tell anyone what his real net worth is. As long as he can manage his cash flows and keep collapsing individual projects from toppling his whole empire, he’ll be fine. And if worse comes to worst, he can always bail himself out by writing The Art Of The Second Comeback.
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