by George Casey, CEO of Stockbridge Associates, LLC
Like most of you, I suspect, I have just been shaking my head at what has been going on this Presidential Primary season.
As the group Three Dog Night sang in the 1970s tune “Momma Told Me Not to Come”:
“This is the craziest party that could ever be
Don’t turn on the lights ’cause I don’t wanna see……
I seen so many things I ain’t never seen before
Don’t know what it is–I don’t wanna see no more”
Also, like many of you, I have been staring in raw fascination at Donald Trump’s campaign and many of the statements and actions that seem to be both designed to garner headlines and to just raise the hackles of specific demographic segments and, almost always, the Republican establishment.
My first reaction was to question why someone would do these things and think that they could somehow cobble together a coalition to win not only the primary, but the general election. Needless to say, the Republican establishment seems to be sweating bullets and divining esoteric strategies to derail the Trump Express in fear that in the general election the TE could cause the loss of the Senate, deplete a majority in the House and cause the loss of a conservative majority on the Supreme Court for a generation.
Hoards of locusts look better than this.
But, in a recent CNN article, I noticed a discussion about how fuzzy the laws are regarding being able to buy-off delegates to a political convention. It seems that almost anything goes and, although not perfectly legal, it seems like it is not overtly illegal, either.
That got me thinking about the race from a different perspective. That of a real estate developer.
I am not saying that what I am about to postulate is what is going to happen; only that with a new perspective it could.
Hear me out and think about it.
In real estate development, we try to generate value by creating something that is worth more than we have into the deal.
In an entitlement deal, we try to option a property, without really owning it, for as little as possible and then set out spending money to attain an entitlement to build something on the property.
If that entitlement is attained, usually the property is worth more than its costs and value is generated.
At that point, the developer has the option of flipping the deal and realizing a profit or continuing on to a development phase, where more money is spent and hopefully even more value is developed.
Again, in development, the project sponsor has the ability to flip what they have or to continue into the phase of actually building the vertical building(s), at which there is another opportunity to sell the asset again and realize more value.
As a real estate developer, Trump has done all of these things at one time or another.
Politicians, however, are driven by a combination of ego and desire for power. The pursuit of popular acclamation by winning and the ability to exercise power are goals in themselves. The fact that there may be future economic value after the holding of office (lobbying or giving six figure speeches to investment banks, included) I am sure plays in the equation, but is usually not primary.
But, what if a seasoned developer looked at the primary process as a development deal?
If you are able to collect 1237 delegates, you attain an “entitlement”: to be able to be the party’s candidate for the presidency. Just like in development, money has to be spent to attain the entitlement. If you can use other people’s money (campaign contributions and free media attention) rather than your own, all the better.
Just like positive value can be created (something that a lot of people want and are willing to pay for in an amount greater than your cost), negative value can be created also.
Think gaining an entitlement for a pig farm next to a high-end subdivision. What would the residents pay you to just get out or convert it to open space or…whatever! You want to protect YOUR asset and the value you are willing to pay to get rid of the nuisance bears little resemblance to the inherent value of that other use.
If one imagines a developer with a deal background looking at the current terrain, the phrase “Buy me out!” starts looking like it could be considered at several stages of the “entitlement”:
- Don’t quite have the 1237 by convention time? Go to the establishment money players and ask the Buy Me Out question. Maybe they would pay hundreds of millions to have you withdraw and free the delegates. That way the convention could be manipulated into a consensus candidate and Trump could walk away with one of the biggest deals of his career monetarily. Of course, ego would have to subvert to pecuniary interest, which is not at all out of the question.
- Have the 1237 at convention time? Maybe the price goes up even more?
- Have the nomination? This is where it really gets interesting. I don’t know what the rules are for a nominee who pulls out of a race after attaining the nomination? In recent memory, only George McGovern’s VP in the 1972 race, Sen. Thomas Eagleton, withdrew after just a few weeks due to discovery of treatment for depression a decade prior. The party chose his replacement. How replacing a presidential candidate between nomination and the election would play out is totally unknown territory. But, the price for Buy Me Out could skyrocket initially, as the chance to salvage the undercard would still be a possibility. Maybe billions at this point?
- Of course, once the full fall campaigning starts, the value of a buy out drops precipitously, particularly if the polls show a sure weak hand and the time for salvage dissipates.
A smart real estate developer would make a gut call on the risks and rewards of whether to monetize the value they have created and when.
As I said at the start, I don’t know whether any of this could happen. But, as a long time developer, one has to appreciate the art of creating potential value (primarily the negative kind that people will pay for to remove your project) with very little of your own money at risk.
This could be the deal of a lifetime and a first to recognize that politics and business have more in common than most realize.
And it would be HUUUUGE!
