Let’s have some fun today. I have been fortunate to have valued some of the most unique assets in the world, including the Brooklyn Bridge, Atlanta Airport, the Aleyaskan Pipeline, and the State of
In this video, I will walk you through my thought process of how I approach valuations of unique assets – when there are no market comps or databases you can refer to.
Most of us think that the only time one needs a valuation is for a deal or a transaction, but valuations can be needed for accounting, taxes, and insurance.
I will lift the veil on my thought process of how I approach such valuations. The asset I selected to value today is the most iconic landmark of Europe. The Eiffel Tower of Paris.
Let’s get the basics of the monument down first. Built in 1889, it is a 1000 foot tall monument in the heart of Paris, which now attracts 7 million tourists annually, and is used for broadcasting communications. It is made of lattice-shaped wrought iron with 20,000 lights.
The Eiffel Tower was built for $1.5M in 1889. If we inflation adjusts this original cost using CPI, we get $44M.
According to a 2012 study by the Chamber of Commerce of Monza and Brianza in northern Italy, it is worth $510 billion.
In 2011, the TV show Pricing the Priceless on the National Geographic Channel speculated that it would cost US$480 million to rebuild it.
So which is it? $44M, or $480M, or $510B, or something else?
Before I answer that, we first need to compare apples to apples and understand exactly what we are valuing here.
An asset like the Eiffel Tower would never be purchased or sold.
The only real reason anyone would need to value the Eiffel Tower is the cost to rebuild it, in case it were to get damaged or destroyed in an accident or an act of God.
Hence, the two traditional methods of valuation, income and market approach are not suitable.
If the French Government would have to rebuild this iconic monument, they would only need to consider the cost of replacing it with a monument with similar features and functions.
The land on which it is situated, probably one of the most valuable land parcels in Europe which alone could be worth billions is irrelevant since even in an accident no real damage would be done to the land.
Hence, if the French had to rebuild Europe’s most iconic monument – they would first need to plan and design the structure, prep the land, acquire the materials, organize the labor and equipment, and execute seamlessly again how they did in 1887.
Assuming this is doable, now let’s go back and consider the three data points we have of its worth.
- $44M – the inflation-adjusted number – that is too low. I think it would cost them that much just to get permits and design.
- $510B – this number is the overall economic benefit value of the monument to Paris and the French economy. It would even include things like the incremental revenue a hotel or restaurant could charge for an Eiffel Tower view suite or table. That is not the task at hand here.
- $480M – the 2011 pricing claim is 10 years dated. And I am not quite sure what exactly is included in that number.
If the construction of the Eiffel Tower was taken on as a project today, I would estimate it to cost between $2-$2.5 billion to rebuild. Not including the cost of land.
This cost is broken down per the following components –
- Design, Planning, and Permits – $50M
- Sitework and Foundation – $100M
- Materials – $600M
- Labor – $700M
- Equipment and Transport – $200M
- Insurance and Administration – $150M
- Miscellaneous and Incidentals – $200M
Winston Churchill once said – we shape our buildings; thereafter they shape us.
If I asked you, to imagine, what comes to mind when you think of New York? Does the image of the Statue of Liberty come to mind?
Or when I say Sydney? Does the image of the Sydney Opera House come to mind?
Or when I say London? Does the image of Big Ben come to mind?
Monuments like the Eiffel Tower, are made of steel, labor, and ingenuity. But once we the people who live and breathe around accept them as part of the landscape, that is when such monuments start to shape our lives and become legendary.