February 11, 2015

Central Park, New York

Central Park, New York

Source: Shutterstock

The real estate market is back in the news, although, not surprisingly, it’s now the mirror image of last decade’s excesses. Ten years ago the prices of exurban tract homes in the sand states of California, Arizona, Nevada, and Florida reached absurd heights, but everybody figured that these hot potatoes could safely be handed off to even more poor immigrants.

It turned out, however, that nobody wanted to pay the big bucks to live next door to poor immigrants, so rising prices couldn”€™t bail out their liar loans.

Therefore, this go-around, the excitement isn”€™t over poor immigrants taking out zero down mortgages for houses in the sticks; it’s over rich immigrants paying cash for Central Park penthouses and West Los Angeles teardowns.

But now a lot of people are kvetching over having to live next to”€”or, especially, beneath”€”rich immigrants. And it’s more politically correct to complain about immigrants who are rich, or”€”as the New York Times calls them in its investigative series doxing who is buying all those new 8-figure apartments near Central Park, such as in the Time Warner Center“€””€œforeigners:”€

At the Time Warner Center, 37 percent of the condominiums are owned by foreigners.

About half of them are owned by shell corporations that intentionally make it hard to figure out who owns them from public records. This is a fairly recent development in American life, which previously had a tradition going back to Thomas Jefferson of the government facilitating a law-abiding, property-owning, middle-class society, in part by providing simple public records of who owns what real estate:

“€œThere’s a whole Jeffersonian rhetoric about land ownership,”€ said Hendrik Hartog, a professor of the history of American law at Princeton. “€œThere was a goal to make land transparent, and it was justified by civic values and a whole range of moral judgments like not hiding ownership.”€

Americans traditionally aspired to live in freestanding houses surrounded by lawns, houses whose size and worth were readily apparent to both the neighbors and the taxman: visual synecdoches for those Jeffersonian ideals.

“Many of the complaints about New York’s new overlords center on their tendency to leave their penthouses empty much of the year while they are back home looting their countrymen while the getting is still good.”

In the older parts of the world, however, prudent patriarchs built opaque structures that presented only a blank wall and a door directly onto the street, leaving the poverty or luxury behind them a secret known only to those allowed in.

Part of the rise of shell companies as nominal owners of New York City luxury apartments is a not wholly unreasonable response to the fact that on December 8, 1980, practically everybody in America knew that John Lennon lived in The Dakota. But on December 9, 1980, he didn”€™t.

For example, the NYT divulged the charmingly unironic name for quarterback Tom Brady’s shell company that bought the apartment he and model Gisele Bündchen live in when they are in New York: “€œCourage Under Fire.”€

But a lot of the shell companies buying up NYC apartments hide money-laundering foreign kleptocrats and/or their facilitators. The Times reports on the Time Warner Center:

At least 16 foreigners who have owned in the building have been the subject of government inquiries, either personally or as heads of companies.

A more politically correct term than “€œforeigners”€ for these individuals might be “€œpre-refugees.”€

For example, do you remember when Obama was giving a press conference with the prime minister of Malaysia, Najib Razak, and our president felt obligated to deliver a sermon on the burning topic of Donald Sterling? Okay, well, the Malaysian PM has a stepson who knows a guy from his school years in England, a party animal named Jho Low (think Randall Park as the North Korean dictator in The Interview), who drops $160,000 at a nightclub. It’s the usual Southeast Asian combination of a native Muslim politician and a Chinese business brain.

Jho Low seems to file paperwork in his name for a lot of shell companies that buy New York apartments and Beverly Hills houses (and finance movies like The Wolf of Wall Street.) And then at some later point ownership of a holding company might be transferred from the front man to the Malaysian first lady’s son without any need to change any paperwork down at the county registrar of deeds.

This level of abstraction makes things difficult for the press back home in Malaysia to uncover. And it’s even harder for them to explain it to readers without boring them.

Jho Low appears to have done so well for himself that he’s now buying on his own account in an even murkier market: art for billionaires. It turns out he was the guy who spent the $48.8 million for Jean-Michel Basquiat’s Ralph Steadman-like painting Dustheads that I complained about a couple of years ago.

Increasingly, modern art and new Central Park overlook condos function as chips for billionaires to buy and sell to each other. (The new high-rises don”€™t come with old-fashioned nosy Park Avenue co-op boards having a say in who their new neighbors will be, so they are more liquid.) Billionaires enjoy buying and selling; trying to outsmart their peers at a mutual game is an amusing challenge.

The rich once owned immense amounts of land. Some British aristocrats, despite a century of punitive death duties, still do. For example, in 2010 the Duke of Westminster was reported as owning 133,100 acres, including much of Mayfair and Belgravia in the best parts of London.

New York kleptocrats, however, take up surprisingly little land. Still, they imperialize the sky. The World Trade Center attacks and the 2008 financial collapse discouraged skyscraper building for some time, but there are now three 1,400-foot apartment buildings under construction, with more in the planning pipeline. Height seems to have a psychological impact on others, who often resent being, literally, looked down upon.

Many of the complaints about New York’s new overlords center on their tendency to leave their penthouses empty much of the year while they are back home looting their countrymen while the getting is still good.

Objectively, the fact that Jho Low’s clients only occasional occupy their boltholes in the sky would seem to be a good thing for other New Yorkers. They aren”€™t clogging the streets with their limos and hired muscle, and they don”€™t seem like the kind of people you”€™d want to avoid eye contact with in the elevators.

But the fact that the new construction isn”€™t doing much to boost supply for current New Yorkers undermines the logic of the weird political economy of New York tax subsidies for new construction.

For example, the new 1000-foot-tall One57 building has a penthouse with a 25-foot-tall north-facing window. That unit is getting a property tax break of 95 percent, or $360,000, this year in return for the developer creating some “€œaffordable housing”€ that the city government hands out in lotteries to certain extremely lucky lower income individuals. For example, under NYC’s 421-a tax exemption for developers, the city in effect pays $7,000 per month for each of the 12,748 units of “€œaffordable housing”€ it gives to the fortunate few.


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