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The Ultimate Unique Asset

A few weeks ago, on the way back from our oldest son's wedding, my wife and I stopped at the Biltmore Estate, in western North Carolina. We had driven past many times but never driven in. The largest single-family residence in the United States, the Biltmore house was finished in 1895 for its owner, George Vanderbilt, a grandson of the Vanderbilt who began the shipping and railroad empire. Constructed over six years by 1,000 men, the French chateau-style house has 250 rooms, including some 40 bedrooms. The interior of the house covers nearly five acres.  As for the exterior, in 1895 the house was the centerpiece of a mountain estate totaling 146,000 acres. To ride the perimeter on horse (no cars yet, remember) would have taken a week. For George Vanderbilt, the Biltmore was the ultimate unique asset. So it remains for his descendants who own and operate it today.

What is a unique asset?

By "unique asset" we mean an illiquid asset other than cash or securities - things like interests in a private business, investment real estate, vacation property, a personal residence, life insurance, oil and gas rights, artwork, collectibles, intellectual property rights, and private debt. These kinds of assets are unique not just because they are illiquid. They are unique because there literally is nothing else like them. They have singular value - not just to their owners, but to the markets for these assets.

You don't have to be a Vanderbilt to own a unique asset.

If you own a stake in a family business, or a stake in a family vacation place, or a collection of three special cars, you are a unique asset owner.

Remarkably, or maybe inevitably, within five years of moving into the Biltmore, George Vanderbilt began running out of money. He opted not to finish certain rooms. He instructed his landscape architect (who also designed New York City's Central Park) to pull back. He cut the house's operating budget by two-thirds. Most remarkably, when George Vanderbilt died prematurely in 1914, his total personal estate was, in dollars, as little as one-sixth, and no more than one-third, of what he spent to construct the Biltmore. He died with far less money than what he had spent on the house. Faced with this cash crunch, his wife ran a fire sale to unload acreage, closed many of the rooms, and lived in just a small part of the house with the Vanderbilts' one child. In 1930, she opened it to the public to generate revenue.

The Biltmore Estate is a beautiful place.  The gardens are fantastic. The views from the veranda belong in a magazine - and, in fact, Southern Living has featured the property many times. Yet the visitor wonders: what can other unique asset owners learn from the case of George Vanderbilt?

Unique assets, like many other things in life, raise the basic question: what do you want, and why do you want it? 

When George Vanderbilt started on the Biltmore, he was 26 years old, not yet married and with no children. He had a clear vision for how the property should look and what it should do. He hired the best architect and the best landscape designer. He acquired gobs of furniture to fill the house. On just one trip to Europe, he bought 300 rugs. But why he wanted the property he was less clear. What need the property filled for him is hazy.  

You can deplete even the largest estate by overspending on unique assets.

When not properly projected and budgeted for, unique assets requiring upkeep can be an enormous drag on a person's freedom.  Ross Perot's famous reference to "a giant sucking sound" could apply easily to the cost of keeping up real estate that generates no cash flow.  George Vanderbilt inherited the equivalent, in today's money, of an estate in the hundreds of millions of dollars.  Yet even he ran into cash flow pressures.

Wanting to buy a unique asset is one thing. Knowing what you'll do with it is something else.

Most unmarried 26 year olds do not build 40-bedroom houses. George Vanderbilt wanted to develop a large, self-sustaining farm and entertain guests in the mountains. So he did during his lifetime. He had a vision for the Biltmore while he lived there. But he does not seem to have had a clear plan for what would become of the place after his death. He died unexpectedly at age 51. Yes, he lived at the Biltmore for 19 years. But acquiring a truly unique asset calls for a mindset that runs longer than two decades. 

Knowing where you'll go with a unique asset after your death is something else still.

Styles in architecture come and go. Tastes change. The market for unique assets always is in flux. Perhaps the most prominent example today is wood furniture. Years ago, finely crafted wood antiques were still expensive. Today, few people want them, and antique dealers are going out of business. Owners of unique assets need a mindset that corresponds to what they own. And this mindset needs to address what you will do with the asset. Who will own it?  What will it be used for? When will it be used? Is its use subject to restrictions or limitations? What is the asset expected to worth in the future?

Ignoring decision-making about unique assets ignores reality.

Unique assets come down to ownership. Who owns the asset now? Who will own it in the future? Should a trust, an LLC, or some other entity own it? Who should be the trustee or manager? What relationship do you want between the trustee and the people who will use the asset? What can be done to create the strongest possible relationship?

When George Vanderbilt created the Biltmore, in effect he created a family enterprise. He may not have known that's what he was doing, but that is in fact what he did. The current generation of Vanderbilts runs the Biltmore just that way - a family business that brings forward the legacy of George Vanderbilt, probably better than he himself could have done. This happened only because his descendants got serious about a solid decision-making framework for their ultimate unique asset.

So when dealing with unique assets, remember above all: ownership drives the bus.