Valuing Greenland: 'Great potential in an up and coming area'

The naming of Greenland was part of  a real estate marketing scam by a 10^th Century Viking adorned with note-worthy hair and several brushes with medieval law enforcement.

So, as a property developer and ‘dealmaker’, Donald Trump’s fascination with the vast, mineral-rich territory is understandable on several fronts.

Erik the Red, the first to conduct a survey of the island, persuaded fellow Icelanders to move 900 miles across the sea to a land supposedly perfect for grazing animals. ‘Greenland’ was always going to be an easier sell for a huge rocky island covered in ice than ‘Rockland’. ‘Iceland’ was already taken. And to be fair, you can actually see the grass on some parts in summer.

How might a modern real estate professional set about valuing an island the size of the mainland United States? Usually, an estate agent compares a property to similar land or assets in the area. Unfortunately, given its unique geography and no recent history of massive, mineral-filled, strategically placed islands coming to market, that’s probably not an option.

Presidential property magnates

The president may be inspired by some of his predecessors who showed they were not ‘losers’ when it came to spotting large properties going for a song. The Russians virtually begged the Americans to take Alaska off their hands for the bargain price of $7.2 million in 1867. Some 31 years later Spain ‘sold’ sovereignty over the Philippines and Puerto Rico to the United States – but it’s fair to say that was a buyer’s market. After all, the ‘seller’ had just lost a war with the ‘buyer’ and the deal was part of the Treaty of Paris which ended the conflict.

And with the European colonial powers involved in a fight to the death at home, Denmark’s sale of the ‘Danish West Indies’ (now the U.S. Virgin Islands) for $25 million in 1916 happened when the market was again a little skewed.

I would expect my ‘real estate valuation and appraisal’ students to suggest we use the ‘Income Capitalisation Method’. This involves capitalising a future income stream from Greenland, by assuming the identified income continues into perpetuity. Land – or a development site – generally fetches a price that assumes the owner will be able to put it to its most profitable use, including future development opportunities.

That’s why land with planning permission for – to pluck an example out of the air – rare minerals mining, is more expensive than a pristine site in a national park.

Just as with valuing bonds and shares, the basis of valuation is the present value of future income streams in perpetuity. We’d ask: ‘How much would a contemporary buyer be willing to pay for those future income streams?’

A comprehensive survey needed -  by the current owner

But that’s where we hit a stumbling block. What income streams are on offer here? It’s probably not the territory’s current GDP - around £3 billion, including a subsidy from Denmark. President Trump and his advisers, we can assume, are probably not interested in the fishing industry that is its top earner right now. So, any wise owner even considering selling would instead need to get a valuation on all those precious minerals under the ice and within the rocks.

The buyer would also need to feel comfortable that they could stand the political  heat of exploiting those minerals in a territory that hosts the world’s largest national park that is a haven for arctic wildlife. It’s thought the prospective American buyer has shown his hand in this case – and that politics and the image question won’t be a problem.

But older readers who remember the granddaddy of British television’s property porn programmes - Location, Location, Location - will have spotted something else. Greenland’s strategic location means it carries a big location premium. America’s global rivals, Russia and China, have been seen checking out the neighbourhood. That may allow Denmark and/or the Greenlanders themselves to add a zero or two to any sale price.

My island is bigger than yours

And as with tropical islands and golf courses, so with strategically-placed, mineral rich mega-territories. It’s a trophy asset. Acquiring it would make a statement that the USA is BACK!

However, we’re talking about the market here - as we are when valuing an agreeable semi-detached family home near good schools and a range of independent cafes. In the end, it’s worth what someone is willing to pay for it – assuming there’s a willing seller.

Oh - that could be a hitch! Absent a cash-strapped colonial power (Denmark in 1916) or defeating the current owner in a war spanning two continents, the president will be left looking wistfully at pictures of the dream ice palace he just wanted to call (another) home.