DEFINITION of 'White Elephant'
A white elephant is an investment whose cost of upkeep is not in line with how useful or valuable the item is. From an investment perspective, it refers to an unprofitable investment, property or business that is so expensive to operate and maintain that it is extremely difficult to actually make a profit.
BREAKING DOWN 'White Elephant'
The white elephant is an icon with roots in Siam or present day Thailand. Due to the rarity of these animals, they were automatically gifted to the reigning monarch, which is why the white elephant is on the red field of the national flag of Siam. The monarch would give the white elephant as a gift of either good or bad fortune. If he liked the recipient, he would gift land along with the elephant to help pay for the cost of the elephant. If he did not like you, he would not include land, turning the gift into a money pit.
Derived from Asia, the term white elephant is used to describe any investment, especially real estate, that is expensive to maintain, unprofitable and impossible to sell. It is used to describe an undesirable investment. Here's an example of how the phrase is used in context: The woman did not know the apartment building would be such a white elephant when she bought it.
Notable examples of white elephants include the Empire State Building, the Sprint Center and the Ryugyong Hotel.
The Empire State Building did not become profitable until the 1950s, more than 20 years after it was completed. Built against the backdrop of the Depression, it has never truly been an office building, the original plan for the building. In 2006, the rent was just $37 per square foot, which was below midtown New York’s average rental rate of $48 per square foot. Still, vacancy rates were at 18%.
Another more recent example is the Sprint Center owned by Kansas City. The Sprint Center opened in 2007 without a National Basketball Association or National Hockey League team. After five years, no major sports anchor team had signed on. The center cost $309 million.
Finally, there’s the Ryugyong Hotel. Originally intended to hold five revolving restaurants and over 3,000 hotel rooms, the Ryugyong Hotel stands 105 stories tall as a pyramid-shaped skyscraper in Pyongyang, North Korea. It is the tallest structure in North Korea. Developers began construction in 1987, but plans were halted in 1992 due to a lack of funds. Construction resumed in 2008. The grand opening was planned for 2012, the centenary of Kim Il-Sung's birth, but the hotel remains unfinished.