Thanksgiving Is The Time For Deal Making!

Thanksgiving Is The Time For Deal Making!

This Thanksgiving (which is tomorrow as of this writing), when you find yourself leaning back from the table after having consumed a bountiful turkey repast, it’s only natural for your thoughts to turn to a historical event that kicked off one of the greatest real estate booms in American history. I’m referring of course to Peter Minuit and The Dutch West India Company’s purchase of Manhattan Island in 1626 from the Canarsie Indians for 60 guilders worth of trinkets. As you enjoy the sensation of your stomach noisily grinding through the savory remnants of your meal, you will probably start to wonder just which side got the better of that deal.  Just for fun, let’s try to figure it out.

First we need to estimate just how much 60 guilders was in today’s dollars. According to Wikipedia, in 1846 New York historian John Romeyn Brodhead determined the value to be US$23.  Somehow that number became stuck at $24, the amount that we all learned in school.  Matt Soniak at mentalfloss.com used data from the International Institute of Social History at the Royal Netherlands Academy of Arts and Sciences to determine that 60 guilders in 1626 was more accurately equivalent to 735 euros in 2011, which converts to $951 based on the exchange rate in September 2012.  I could not find any better source (especially as I’m currently in the middle of stuffing my family’s turkey), so we’ll just go with that.

Now what about the value of Manhattan’s land (not counting all the buildings) today? On pfadvice.com, Jeffrey Strain reports having found a source in 2005 stating that “the land in Central Park (843 acres) was worth $528,783,552,000. Manhattan is approximately 20 square miles in size. 1 square mile = 640 acres, so 20 square miles = 12,800 acres.  Central Park therefore makes up approximately 6.586% of all Manhattan. This means 93.414% of the value of Manhattan is unaccounted for.”  He goes on to assume that the value of the land throughout the rest of Manhattan is the same as that of Central Park (which averages to about $627 million per acre).  The total comes to $8,029,049,453,000.  Although the source of this data is unknown (except to Strain), I’ve finished the stuffing and am now working on the gravy so I don’t have time to search further.

But we’re not there yet. The land value we calculated above is from 2005.  How much is it worth in 2015?  To figure that out we’ll use the Case-Schiller New York Home Price Index, which tells us that from September 2005 to September 2015, housing prices in New York fell by 11.22%.  (Aren’t you glad you live in the Bay Area?)  Applying that, the current value of Manhattan Island land is $7,128,190,104,000.

At this point we’re ready to calculate the rate of return Peter Minuit would have gotten on his investment (assuming he had been around after 389 years to collect). Using my trusty HP 12c calculator, the answer comes out to 6.02% compounded annually.

Hmm. He certainly could have gotten a better return investing in stocks (assuming there had been a stock market at the time).  Or possibly starting up a beaver farm for the pelts.  And there’s something else they didn’t teach us in school.  Strain argues that the Canarsie Indians, who lived on Long Island, actually had no right to sell Manhattan Island in the first place.  So putting aside the financial analysis, it sounds like that the Indians came out way ahead if only by selling property that wasn’t theirs.

History does not record what happened to the trinkets given to the Indians, but I suppose if they do turn up somewhere, they’ll be worth an awful lot more than $24 (or even $951).

I’m finished preparing the turkey.  Time for a nap.  Happy Thanksgiving everyone!

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