For most American billionaires, the stock market has played an instrumental role in creating their wealth. Whether through founding a company that later goes public or making the most of the long-term power of compounding, many people have become rich in the stock market.
But for Donald Trump, who once said, "I'm not a stock person," real estate has been the key to his estimated $4 billion net worth, and his brazen personality and refusal to accept permanent defeat has made him an icon among the billionaire ranks.
All in the family
Donald Trump's father, Fred Trump, was a real-estate tycoon in his own right. As a homebuilder in Brooklyn, Fred Trump created a fortune of his own, helping to build housing for servicemembers and their families during World War 2. Donald got his start in his father's business, learning about the rental-housing market but setting his sights on leaving the outer boroughs and entering the upscale Manhattan market.
In the mid-1970s, Donald Trump made a crucial deal that would mark his entrance into the big leagues of Manhattan real estate. Trump managed to acquire an option to purchase the Commodore Hotel near Grand Central Station, and then, joining forces with Hyatt Hotels (NYSE:H), he negotiated with the New York City government to get a 40-year abatement from taxes before making a dramatic renovation to the property. In 1980, the Grand Hyatt opened, and in the mid-1990s, the property had been successful enough that Trump was able to sell his stake to Hyatt for $140 million.
Subsequent developments have cemented Trump's place in the New York real-estate scene. With his Trump World Tower near the United Nations building, Trump briefly claimed the record for the tallest building composed solely of residential units, at 72 floors and 861 feet in height. Other residential and commercial projects are scattered across Manhattan Island. Moreover, Trump has expanded well beyond New York City, with holdings in areas like Miami, Las Vegas, and Chicago.
Because of his reputation, Trump has been able to use the power of his name as a selling point even for projects that he doesn't own. In many cases, buildings that bear Trump's name are actually the result of licensing deals that Trump negotiated with the projects' actual developers. By taking equity stakes in the projects, Trump is essentially able to earn risk-free gains if the projects do well while suffering nothing but a reputational loss if they don't pan out.
The other side of the Trump coin
To be clear, Trump has suffered his share of failures. In particular, the gaming industry has been harsh to Trump, with his Taj Mahal casino having to file for bankruptcy in 1991 and the Trump Plaza Hotel filing in 1992. Ten years ago, the Donald's Trump Hotels & Casino Resorts filed for Chapter 11 bankruptcy, which eventually forced Trump to give up a controlling interest in the corporation. In the aftermath of the financial crisis in 2009, Trump Entertainment Resorts filed for bankruptcy, and Trump settled for just a 10% interest after the company emerged. Finally, just last month, the Trump Taj Mahal again filed for bankruptcy, reflecting the decline of gambling in Atlantic City even as the Trump Plaza was already scheduled to close its doors.
Yet each time, Trump proved his business savvy, having insulated his own personal assets from individual projects and corporate entities. By using bankruptcy laws to his full advantage, Trump was able to bounce back from losses on certain real-estate investments while holding onto the profits from his more successful ventures. In large part, that has helped Trump build up the fortune he has today.
Trump has never shied away from controversy, having faced numerous legal battles and other allegations throughout the course of his career. Given the real-estate market's inevitable ups and downs, Trump has suffered massive swings in the value of his holdings, especially given the extent of the leverage that he took on with his various investments. His dependence on outside financing has also led to disagreements with his partners on occasion, and his selection of locations for various developments has spawned local opposition among neighboring property owners.
In recent years, Trump has leveraged his business acumen in other directions, making repeated brief forays into Presidential politics and also producing the well-known reality show The Apprentice. He even made multiple appearances on various World Wrestling Entertainment (NYSE:WWE) programs.
Yet in the long run, you can count on Donald Trump to keep his hands in the real-estate industry. His net worth is only one concrete sign of the amount of influence and prestige Trump has in real-estate investing, and Trump's reputation and name are arguably more valuable to the billionaire than all of his financial assets.
Donald Trump inspires strong emotions from fans and critics alike. His story, though, shows how the advantages of learning the ropes in a family business can blossom into unbridled ambition and success under the right conditions.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Hyatt Hotels. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.