The Art Of The Deal

Monday, March 28th, 2016

Scott Alexander started Trump: The Art of the Deal with the question: what exactly do real estate developers do?

They don’t design buildings; they hire an architect for that part. They don’t construct the buildings; they hire a construction company for that part. They don’t manage the buildings; they hire a management company for that part. They’re not even the capitalist who funds the whole thing; they get a loan from a bank for that. So what do they do? Why don’t you or I take out a $100 million loan from a bank, hire a company to build a $100 million skyscraper, and then rent it out for somewhat more than $100 million and become rich?

As best I can tell, the developer’s job is coordination. This often means blatant lies. The usual process goes like this: the bank would be happy to lend you the money as long as you have guaranteed renters. The renters would be happy to sign up as long as you show them a design. The architect would be happy to design the building as long as you tell them what the government’s allowing. The government would be happy to give you your permit as long as you have a construction company lined up. And the construction company would be happy to sign on with you as long as you have the money from the bank in your pocket. Or some kind of complicated multi-step catch-22 like that. The solution — or at least Trump’s solution — is to tell everybody that all the other players have agreed and the deal is completely done except for their signature. The trick is to lie to the right people in the right order, so that by the time somebody checks to see whether they’ve been conned, you actually do have the signatures you told them that you had. The whole thing sounds very stressful.

The developer’s other job is dealing with regulations. The way Trump tells it, there are so many regulations on development in New York City in particular and America in general that erecting anything larger than a folding chair requires the full resources of a multibillion dollar company and half the law firms in Manhattan. Once the government grants approval it’s likely to add on new conditions when you’re halfway done building the skyscraper, insist on bizarre provisions that gain it nothing but completely ruin your chance of making a profit, or just stonewall you for the heck of it if you didn’t donate to the right people’s campaigns last year. Reading about the system makes me both grateful and astonished that any structures have ever been erected in the United States at all, and somewhat worried that if anything ever happens to Donald Trump and a few of his close friends, the country will lose the ability to legally construct artificial shelter and we will all have to go back to living in caves.


  1. Slovenian Guest says:

    We could really change entrepreneur to “permiteur” at this point.

    This also reminds me of the Golden Gate bridge, it was build in half a decade back in the thirties, essentially by hand with slide rulers. So you would think they could do it in half the time, if not sooner, today, with modern heavy duty equipment, computers and better materials, right?

    Wrong, the other, Oakland Bay Bridge took a whole decade to build, construction begin was 2002, construction end 2013! They even had to import Chinese welders, it was really sad all around.

  2. Rob Sperry says:

    What percentage of the barriers are put there by established developers in cooperation with government to prevent upstart or potential developers from becoming developers? Start with the Taxi industry and a basis for comparison.

  3. Jeff R. says:

    He misses a really big piece of the puzzle: developers put their capital on the line. Banks aren’t going to lend anybody 30 million to build an office park that might wind up only being worth ten if the tenants who were going to occupy it pull out or go bankrupt two years into a ten year lease or what have you, so the banks want demand developers put up otherassets as additional collateral. Sometimes it’ll be your own personal assets, sometimes it’ll be your investors, but of course the more partners you have, the smaller the profit you’ll make, so it makes sense to use your own as much as possible. It helps to already be rich if you want to make money in real estate development.

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