What Is a White Elephant?
Let me explain what a white elephant really means. It's something where the cost of keeping it up doesn't match its actual usefulness or value. When we're talking investments, think of it as an asset, property, or business that's so pricey to run and maintain that turning a profit from it is nearly impossible.
These white elephants are also typically illiquid, which means you can't sell or exchange them quickly for cash without taking a big loss.
Understanding White Elephants
You should know that a white elephant is essentially a burdensome possession. In the investment world, it describes anything that's expensive to maintain, doesn't make money, and is tough to sell. Put simply, it's an undesirable investment that's more hassle than it's worth.
Companies often pour money into property, plant, and equipment hoping these fixed assets will boost their profits down the line. But if the economy shifts, these can turn into white elephants. For instance, imagine a company builds a factory for a new product line that's expected to sell big. If the product flops, that factory just sits there as an expensive drain, not generating enough revenue to cover its own costs.
Over time, the term has connected to government-funded construction too. Governments push these projects to spark quick economic growth by dumping money into subsidized buildings and infrastructure. In the US, this funding sometimes comes via earmarks—those are spending bits snuck into laws to fund pet projects of politicians. Critics rightly call out these white elephants as poorly thought out, badly planned, and a straight waste of taxpayer dollars.
History of White Elephants
The term comes from Asia, specifically tied to the white elephant as an icon in Siam, which we now call Thailand. These rare animals were seen as holy in ancient times and were automatically given to the ruling monarch.
The legend is that the monarch would gift a white elephant as a sign of good or bad fortune. If he favored you, he'd include land to help cover the elephant's high upkeep costs. If not, you'd get no land, making the gift a financial black hole.
Examples of White Elephants
White elephants show up a lot in real estate, and I'll walk you through a few clear examples.
The Empire State Building
Take the Empire State Building—it started out looking like a classic white elephant but eventually turned things around. It didn't make money until the 1950s, over 20 years after completion. Built during the Great Depression, it struggled as an office building despite that being the plan.
Today, owned by a real estate investment trust, it pulls in revenue from multiple angles. In 2019, the observation deck alone brought in about $128.8 million, making up 39% of total revenue. It also earns from office and retail leases, plus fees from TV and radio broadcasters using its mast.
The T-Mobile Center
Another one is the T-Mobile Center, previously the Sprint Center, owned by Kansas City, Missouri. This multi-purpose arena opened in 2007 with an Elton John concert as its debut.
Costing around $276 million, it was meant to host a major sports team. The city talked with NBA and NHL teams, but as of 2020, none have moved in.
The Ryugyong Hotel
Then there's the Ryugyong Hotel, planned with five revolving restaurants and over 3,000 rooms, standing 105 stories tall as a pyramid in Pyongyang, North Korea.
Construction started in 1987 as North Korea's tallest building, but halted in 1992 due to funding issues. Work picked up in 2008, aiming for a 2012 opening to mark Kim Il-Sung's centenary. As of 2020, it's still unfinished, dubbed the 'hotel of doom' and known as the world's tallest unfinished building.
Key Takeaways
- A white elephant is a burdensome asset, property, or investment whose upkeep costs don't align with its usefulness or value.
- The term comes from the Thai custom of gifting rare, costly white elephants to the monarch.
- It's often linked to unprofitable real estate today.
- These assets are usually illiquid, so owners can't sell them easily without a big loss.
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