White Elephant - Explained
What is a White Elephant?
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Table of ContentsWhat is a White Elephant?How Does a White Elephant Work?Examples of White Elephants in Real Estate
What is a White Elephant?
A white elephant refers to an investment whose maintenance costs are not in sync with the value of the product or item. Talking in terms of investment, it can be a property or business activity that involves such a huge amount of maintenance and operating costs that it is hard to even reap gains.
How Does a White Elephant Work?
The white elephant refers to a symbol having roots in Thailand, earlier known as Siam. As these animals were less in number, the ruling monarch used to receive them as a gift. This is the reason the national flag of Thailand has a white elephant on the red area. It is conceived that the monarch used to consider the white elephant as a bearer of good luck or bad luck. So, if the person who received the gift from monarch was his favorite, he would receive the elephant along with a land so that he could incur the costs associated with the upkeep of the elephant. In case, the monarch didn't like a person, he would just give him the elephant, and not the land, thereby, turning the gift into a curse. The term white elephant, originated in Asia, represents any type of investment, specifically property that involves huge maintenance costs, is not profitable, and is hard to sell. It represents an investment that is not desirable in nature, for instance, the landowner had no clue that the apartment would turn out to be a white elephant at the time she purchased it.
Examples of White Elephants in Real Estate
Some of the best examples of white elephants are the Empire State Building, the Ryugyong Hotel, and the Sprint Center. The Empire State Building, after its completion, took over 2 decades to start making profits. The building never achieved the purpose for which it was built, to be an office building. In 2006, the buildings rent per square foot was $37 which was lower than the average rental cost of midtown in New York. However, the vacancy levels appeared to be 18%. Another example is that of the Sprint Center that Kansas City owned. It was launched in 2007 with its very first event being that of Elton Johns concert. However, the National Basketball Association or National Hockey League team was not a part of it. And in the next 10 years, none of the sports anchor teams agreed to be a part of it. The cost of the Sprint Center was $309 million. The last example is of the Ryugyong Hotel that was meant to have 5 revolving restaurants and more than 3,000 luxurious hotel rooms. Having 105 stories overall, this hotel is the tallest in the entire North Korea. The making of this hotel started in 1987. But in 1992, the construction had to be hindered because of inadequate funds. After a huge gap, the construction was again started in 2008. In 2012, the hotel was supposed to have a big launch on the occasion of the centenary of the birth of Kim II-Sung. However, it didn't go as per the plans, and the construction of the hotel was still incomplete in 2017. This delay in its finish makes it uncertain for the building to be one of the tallest ones in the world.