 |
| Image Source: nytimes.com |
Who doesn’t enjoy a good yarn about Russian oligarchs who throw their fortunes at New York real estate? Take the Russian fertilizer king Dmitry Rybolovlev, who is linked to a record-breaking $88 million sale at 15 Central Park West, or the composer Igor Krutoy, who bought three apartments at the Plaza Hotel. Yet these tales of excess could soon fade into memory.
Moscow may be 4,500 miles from Manhattan, but with tensions intensifying over the annexation of Crimea, an Arctic Russian blast could chill the high-flying luxury real estate market here.
Rich Russians have long been a force in the city, headlining some of its flashiest apartment sales, but now many are fearful that buying a New York apartment could have political ramifications at home. And even if they were willing to risk President Vladimir V. Putin’s ire, economic sanctions and visa restrictions might soon make such purchases impossible.
There are no official figures, but anecdotally, about 40 percent of the condominium and townhouse buyers in Manhattan are foreigners, and more than half of buyers in new developments come from overseas, according to Jonathan J. Miller, the president of the appraisal firm Miller Samuel. It is unclear what percentage of that total is Russian, but Russian buyers have dominated the news in recent years, along with buyers from China and Brazil.
The prospect of Russian cold feet couldn’t come at a worse time, as condominium prices at the high end of the market are surpassing levels reached during the peak of the last real estate boom, and developers are buying up sites at a frenzied pace. New projects, planned with billionaire foreign buyers in mind, are altering the landscape of the city. Perhaps most notable is the spate of super-tall, narrow towers in the works along West 57th Street, their long shapes casting a shadow on Central Park.
Victoria Shtainer, an associate broker at Douglas Elliman Real Estate, has felt the chill firsthand. She had been working with a Russian buyer, a legislator, since December. With a budget of $25 million to $52 million, he had been considering listings at the Plaza Hotel and the Marquand, a new development at 11 East 68th Street. He was coming to New York for a visit this month when Russian forces invaded Crimea. Soon afterward, Ms. Shtainer learned via an email that “due to relations with the U.S., he was canceling his trip,” she said. “It said he wanted to wait until things quieted down.” Another of Ms. Shtainer’s Russian clients, who had been looking for an apartment in the $4 million to $5 million range, also canceled a visit. “She told me she was afraid to get a visa, that they were just going to wait it out,” Ms. Shtainer said.
“Putin has drawn a red line — he has made it clear that ‘you are either with us or against us,’ ” said Mark Reznik, a broker at A & I Broadway Realty, which has many clients from the former Soviet Union. “There is so much propaganda in Russia, people are scared to do business here.”
Elliot Bogod, the president of A & I Broadway Realty, also has several clients who are pausing to regroup. “I have a client who almost signed a contract in Battery Park City but now wants to wait,” he said. The buyers, a couple who live in central Kiev, are concerned that the Ukrainian government will forbid citizens to remove their money. “They are worried that they won’t be able to transfer funds or pay the common charges,” Mr. Bogod said.
But real estate brokers naturally love to spin the news positively, and they argue that the freeze is just temporary. The wealthy in Moscow now see the writing on the wall, the argument goes, and so they will soon start strategizing on ways to relocate their money, and even themselves, to New York.
“It is the whole idea of flight to safety,” said Edward A. Mermelstein, a real estate lawyer who does a lot of business in Russia, and who says he is fielding more calls now from clients in the region. “Anytime there is uncertainty overseas, it is a good time to bring money to the U.S.”
For anyone looking to move assets stateside, real estate can be an excellent option — particularly for anyone wanting to avoid intense scrutiny. A transaction in a new development, for example, involves buying directly from the sponsor, or developer, who demands little in the way of personal information. “If you open a bank account,” said Jacky Teplitzky, a broker at Douglas Elliman, “you have to answer a lot of questions, or with stocks there is a lot of oversight. In new construction, there is no board, no application, nothing. You just write a check and buy an apartment.”
Ms. Teplitzky is representing several Russians who are looking to buy in New York and Miami. She says that although it is true Russians fear reprisals internally if they move assets overseas, and are concerned about the prospect of economic sanctions, “they are trying to think of their worst- or best-case scenario, and they have to take a chance either way; it isn’t like they can do nothing.”
Some Russians who are moving ahead with purchases hope to fly under the radar; thus, rather than buy a high-profile penthouse, they are choosing smaller apartments. “Because they don’t want their names in the paper,” Ms. Teplitzky said, “they are using a different strategy that is less visible. Nobody writes about the $2 million deals, right? They all want to cover the big expensive purchases.”
The Russians who might begin looking to buy in the States could also be of a different ilk than before. “I think the freeze is going to be temporary,” said Mr. Reznick, “and then, over the next three years as the sanctions get tougher, we will see a new kind of buyer, not an investor, but someone who is looking to emigrate. Russians will realize they want to buy a place here not just for investment, or not just for their kids while they are in college, but a place for the whole family, a large family home.”
And real estate players can take some solace in knowing that even if Russian buyers dwindle, there are other rich foreigners who would gladly take their place. New York’s profile is rapidly gaining favor among the global elite. According to the most recent Knight Frank Global Cities Survey, which tracks the cities of most importance to the world’s wealthiest people, New York is in second place this year, behind London. And by 2024, the survey is predicting that New York will top the list. That could bring a welcome sigh of relief to all those New York luxury developers quaking under their hard hats in fear of a Russian exodus.
Esplanade Capital is known for intelligent investing in the real estate industry. Follow this Twitter page to know more about the company.
