Biggest Wall St bears go long Manhattan apartments
Wall Street's biggest bears are buying a piece of the Big Apple.
January 19, 2011 / 14:47 IST
Wall Street's biggest bears are buying a piece of the Big Apple.
Nouriel Roubini and John R Taylor, better known as the "Dr. Dooms" of the financial industry, and John Paulson, the hedge fund manager who made massively successful bets on when the housing bubble would burst, are among the Wall Street crowd who have recently purchased New York City houses. It is perhaps the most positive sign for Manhattan property since the financial crisis hit in 2008."I bought an apartment in Manhattan, which seems insane," Taylor, who runs the world's largest hedge fund at FX Concepts, told Reuters last month.Roubini, the New York University economist best known for predicting the world banking collapse and who warned in 2006 the "United States was likely to face a once-in-a-lifetime housing bust," also bought a USD 5.5 million condominium in Manhattan.Paulson purchased a condo on ritzy Fifth Avenue for USD 2.85 million.Roubini and Paulson declined to comment, but the deals were confirmed by public records, which showed they bought in the final two months of last year.Real estate agents for Manhattan's elite say they have seen a surge in interest from the securities industry, which accounts for almost 35% of all salaries and wages in the city, as it recovers from the meltdown following Lehman Brothers collapse in September 2008.Multimillion-dollar holiday home sales in the Hamptons -- the area of Long Island beaches known as Wall Street's playground -- have also started to pick up, they said.New York City's fortunes are closely tied to the financial industry. Everything from Manhattan real estate prices to high-end restaurants and private car services came under severe pressure in 2008 and 2009 when highly paid investment bankers and traders faced job losses and smaller bonuses."Bonuses are supposed to be good and the stock market has perked up," said Michele Kleier, president of high-end real estate agency Gumley Haft Kleier. "It's not 2007, but it's so much better than in 2009."The bonus pool for 2010 performance is widely expected to top the 2009 payout of USD 20.3 billion. Many bankers and brokers earn a base salary of USD 200,000- USD 500,000, and can at least double that with bonuses, which are typically paid out in January and February.The biggest players on Wall Street, many of whom travel extensively in Europe and Asia, can also be forgiven for thinking that Manhattan apartments are at bargain basement prices compared with some of the big financial centers elsewhere.A 3,000 square foot luxury apartment in London would cost on average around USD 7.5 million, while in Hong Kong it could be USD 5.1 million. By comparison, a new New York apartment of that size would set you back USD 4.5 million, according to a comparison conducted by Jones Lang LaSalle.Kleier has been showing buyers around an 8,360-square feet USD 27.5 million apartment across from the Metropolitan Museum of Art on Manhattan's Upper East Side. Two of her clients, both from Wall Street, have expressed interest in the 13-room, 9 bathroom apartment with views of Central Park.Apart from a maid's room, library, and a billiards room, the full-floor apartment also includes a sitting room just off the master bedroom for the Wall Street executive who needs to take calls from Asia and Europe at all hours without waking the family.Even six months ago, things were different, said Barbara Fox, president of the boutique real estate firm Fox Residential Group. An apartment she was selling for around USD 20 million on Fifth Avenue this summer drew interest from Chinese and Latin American country nationals, but not from the Wall Street set."Now it seems they are back and looking in that over USD10 million price range," she said.Fox is in the process of selling a USD 4.25 million apartment on the Upper East Side, as the banker who previously owned it is trading up to a USD 7 million apartment."Wall Street is the main driver of the city's economy, and also tends to drive the local real estate market," said Jason Bram, senior economist at the Federal Reserve Bank of New York. "High end may be picking up, in terms of volume, but that doesn't necessarily mean that prices are going up, it just means there is more transacting.Up until the Lehman bankruptcy, New York City seemed immune to the real estate woes plaguing the rest of the country. But the demise of Lehman and the disappearance of Bear Stearns Cos. and Merrill Lynch & Co. through distressed sales transformed Wall Street.The atmosphere on Wall Street has changed since. The potent combination of unconventional monetary easing by the Federal Reserve and stimulative fiscal policy from the U.S. government has helped the banking system to heal.Roubini, taylor do not disappointBut while Roubini and Taylor are buying homes in Manhattan, their outlook on the overall US housing market remains gloomy.Taylor, the chief investment officer at FX, who helps oversee USD 8.5 billion, said he believes the US is headed for a new recession this year. He says his Manhattan apartment purchase in June is not based on optimism as much as on needing a place to live and spreading his risk."I needed a place to live as I have been renting for a few years. Also diversifying my assets does make some sense - I could be wrong!" he said in a follow-up interview on Monday.Roubini told the New York Times' DealBook in December that the United States "real estate market, for sure, is double dipping," though he didn't refer specifically to Manhattan.Still, while New York City can't completely ignore national trends it does tend to work off a different cycle.According to the Corcoran Group, New York City's biggest residential real estate brokerages, more Manhattan homebuyers bought larger, pricier apartments in the fourth quarter, driving the median price higher.The Corcoran Group put the median price at USD 825,000, up 3% from the year before, while Brown Harris Stevens put it at USD 840,000, up 5%.Hedge-fund manager Paulson, who earned USD 15 billion for his firm in one year by successfully anticipating just when the housing bubble would burst, is very positive on residential real estate.Last May, Paulson said on a conference call with investors that it was time to buy a home."If you already own one, now's the time to buy another one. If you already own two, it's time to help your children buy a home," Paulson said, according to two investors on the call. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
