http://www.nytimes.com/2015/02/10/bu...-pad.html?_r=0
The Logic of an Empty $100 Million Pad
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By DAVID GELLES
FEB. 9, 2015
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For most investors, a diversified portfolio means a prudent mix of stocks and bonds. For the global elite, diversification increasingly means splurging on New York apartments that can cost tens of millions of dollars, or more.
Across Manhattan, real estate developers are scrambling to meet surging demand from buyers around the world who are prepared to pay record-setting prices for new developments with opulent finishes and extraordinary views.
These buyers — some of whom obscure their identities through webs of shell companies— are not all rushing to call the Big Apple home. Instead, many of them are paying record prices with the expectation that their investments will appreciate, even as they sit empty for most of the year.
Last month, the buying frenzy reached new extremes, with one apartment changing hands for more than $100 million.
.....Head-scratching prices aside, New York real estate has proved to be a durable, even lucrative long-term investment. Residential property in Manhattan appreciated 26 percent over the last five years, according to data from the Corcoran Group.
That’s not bad. But compared to stocks, which have rebounded sharply since the financial crisis, it is subpar. The Standard & Poor’s 500-stock index is up more than 75 percent over the same period.
Among certain New York properties, though, the appreciation was more striking. New development, which accounts for many of the priciest sales in the city, is up 52 percent over the last five years, Corcoran says. And at the highest end of the market, returns outperformed almost all other asset classes. In 2013, properties that changed hands for more than $9.5 million gave their sellers an average 32 percent profit, according to StreetEasy.
“When you study the values of New York real estate, whether it’s five or 10 or 20 years, the story says buy,” said Pamela Liebman, chief executive of the Corcoran Group.
A major factor feeding the sudden buying binge is a flood of new properties that cater to the top tier of global buyers.
Half a dozen residential skyscrapers are sprouting in Midtown Manhattan, each promising views, amenities and materials fit for kings and queens.
One57, the first completed, has sold most of its units, including the city’s first $100 million apartment. Further east, the gridlike facade of 432 Park Avenue already looms over Midtown, its perfectly square windows making it the city’s newest architectural statement. Both buildings offer full-floor palaces high in the sky.
“Years ago we didn’t have these kinds of properties,” Ms. Liebman said. “But savvy developers realized that if you build it, they will come.”
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Even more new residential skyscrapers will soon cast long shadows over the city. The skinniest of the bunch will be erected above the Steinway piano building on West 57th Street, in what has become known as Billionaires’ Row.
Nearby, a tower next to the Museum of Modern Art, designed by the French architect Jean Nouvel, is on the road to construction. So is 220 Central Park South, a limestone spire designed by Robert A. M. Stern. Around the city, other projects will compete for attention and dollars.
It’s not that the city lacked inventory. It has the most expensive real estate market in the country, with thousands of multimillion-dollar apartments, townhouses and mansions changing hands regularly.
But as tastes changed, apartments that once appeared palatial now seem pedestrian. Today’s new construction includes floor-to-ceiling windows, full-floor residences, opulent finishes and amenities like room service from Michelin-starred chefs.
“For the superwealthy who are used to five- or six-star hotel services around the world, it’s a really great way to not just travel now, but to live,” Ms. Liebman said.
Putting a price on such trophy properties is no science. “Art is a closer analogy than stocks or bonds,” said Christopher J. Mayer, a real estate professor at Columbia University. “What matters is the amount of this stuff available and the number of people looking at it.”
And to explain why buyers will pay such soaring prices, brokers often resort to metaphors, not mathematics.
“How else do you explain $10,000 a square foot?” said Mr. Henckels at Stribling & Associates. “It’s the same thing with the price for carats of a pink diamond or square inches of a Warhol.”
At least one buyer appears to believe that his new residence is an actual work of art. William A. Ackman, the hedge fund manager who bought a penthouse at One57 as an investment that he plans to keep empty save for the occasional event, called his $90 million party pad “the Mona Lisa of apartments.”
.....For now, however, demand is not ebbing. Foreign buyers continue to view New York real estate as a safe place to park money, keeping inventory tight and demand high.
“We have the greatest influx of foreign buyers that we’ve ever seen,” Ms. Liebman said. “The Chinese have made a huge impact on New York real estate along with Latin, European, Russian buyers. The past year has brought us a lot of Middle Eastern buyers.”
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For these buyers — oligarchs, international corporate chieftains and foreign royalty — who make up an estimated 30 to 50 percent of high-end buyers, there are various allures to Manhattan property.
“It’s a repository of money, it’s in the dollar currency, and it’s in New York City,” said Gary Barnett, president of Extell Development Company, whose projects include One57.
.....Believers in the ever-rising tide of property values point to a notable resale at One57. Last May, a Chicago-based investor bought a three-bedroom apartment for $30.6 million. In October, the unit was sold to a hedge fund manager for $34 million. That quick profit — an appreciation of 11 percent in less than half a year — made it one of the better investments of 2014. “The perception is that if you’re getting in on Day 1, you’re almost guaranteed to see price increases,” Ms. Liebman said.
.....Of course, this is not the first time that speculators have bet on Manhattan property or that critics have grumbled about a bubble. In the years before the financial crisis, two marquee properties hit the market and broke records. New construction at 15 Central Park West attracted prominent buyers looking for pristine new construction. And condominium conversions at the Plaza Hotel overlooking Central Park proved alluring to moneyed buyers looking for a piece of old New York.
At the time, critics thought buyers were overpaying and prices would never go higher. But over the last eight years, prices in those buildings have continued to rise. “Look at the profits people have made there,” Mr. Henckels said.
At a certain point, however, logic fails to explain what are ultimately emotional decisions, and real estate experts again turn to the art world for explanations. “These guys will buy a $50 million to $100 million painting and put it on their wall,” Mr. Barnett said. “Or you can buy a $50- to $100-million piece of real estate that is probably more unique, and no one can steal it from you. Some people actually think that way.”
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