Categories Narrative

Week 2–Most Expensive Condos in the World and Who Owns Them

Normally, I am focused on office space, employment numbers, trends and wild-looking buildings and spaces. This week I’m looking at something a little different, but still following the major themes. Below is a long but fascinating article about the most expensive condos in the world and who owns them. Written as an investigative piece by Vanity Fair, the article looks not only into the development but the developers and likely owners (most hide behind offshore shell companies).  

One, Hyde Park in the City of London, has sold condos for as much as $214 million EACH. Are you kidding me? Who has that kind of wealth you ask? It seems mostly people who want to buy hard assets NOT in their country for the purposes of getting wealth out of their country. Most of these are empty all the time.  

So how do they do it? Let’s say you want to get some money out of your country. First you would set up an off shore company in a tax free country like Bermuda or the Cayman islands. With this company, you can buy and sell in the City of London, tax free. This law has been around for centuries.    

If you are intrigued, read below. If not, get to work so you can buy one.

Craig
602.954.3762
ccoppola@leearizona.com

 

A Tale of Two Londons
Who really lives at One Hyde Park, called the world’s most expensive residential building? It’s mostly absentee owners, hiding behind offshore corporations based in tax havens, provide a portrait of the new global super-wealthy.

Vanity Fair
By: Nicholas Shaxson
April 2013
 
London_1 2
Photograph by Dylan Thomas
MODERN LIVING One Hyde Park’s towers, designed by Richard Rogers, are a shock amid the Victorian surroundings.

Up until the 18th century, Knightsbridge, which borders genteel Kensington, was a lawless zone roamed by predatory monks and assorted cutthroats. It didn’t come of age until the Victorian building boom, which left a charming legacy of mostly large and beautiful Victorian houses, with their trademark white or cream paint, black iron railings, high ceilings, and short, elegant stone steps up to the front door.

This will not be the impression a visitor now gets as he emerges from the Knightsbridge subway station’s south exit. He will be met by four hulking joined-up towers of glass, metal, and concrete, sandwiched between the Victorian splendors of the Mandarin Oriental Hotel, to the east, and a pretty five-story residential block, to the west. This is One Hyde Park, which its developers insist is the world’s most exclusive address and the most expensive residential development ever built anywhere on earth. With apartments selling for up to $214 million, the building began to smash world per-square-foot price records when sales opened, in 2007. After quickly shrugging off the global financial crisis the complex has come to embody the central-London real-estate market, where, as high-end property consultant Charles McDowell put it, “prices have gone bonkers.”

From the Hyde Park side, One Hyde Park protrudes aggressively into the skyline like a visiting spaceship, a head above its red-brick and gray-stone Victorian surroundings. Inside, on the ground floor, a large, glassy lobby offers what you’d expect from any luxury intercontinental hotel: gleaming steel statues, thick gray carpets, gray marble, and extravagant chandeliers with radiant sprays of glass. Not that the building’s inhabitants need venture into any of these public spaces: they can drive their Maybachs into a glass-and-steel elevator that takes them down to the basement garage, from which they can zip up to their apartments.

The largest of the original 86 apartments (following some mergers, there are now around 80) are pierced by 213-foot-long mirrored corridors of glass, anodized aluminum, and padded silk. The living spaces feature dark European-oak floors, Wenge furniture, bronze and steel statues, ebony, and plenty more marble. For added privacy, slanted vertical slats on the windows prevent outsiders from peering into the apartments.

In fact, the emphasis everywhere is on secrecy and security, provided by advanced-technology panic rooms, bulletproof glass, and bowler-hatted guards trained by British Special Forces. Inhabitants’ mail is X-rayed before being delivered.

The secrecy extends to the media, many of whose members, including myself and the London Sunday Times’ and Vanity Fair’s A. A. Gill, have tried but failed to gain entry to the building. “The vibe is junior Arab dictator,” says Peter York, co-author of The Official Sloane Ranger Handbook, the riotous 1982 style guide documenting the shopping and mating rituals of a certain striving class of Brits, who claimed Knightsbridge’s high-end shopping area, which stretches from Harrods to Sloane Square, as their urban heartland.

One Hyde Park was built by two British brothers, Nick and Christian Candy, together with Waterknights, the international property-development company owned by Qatar’s prime minister, Sheikh Hamad bin Jassim al-Thani. Christian, 38, a lanky former commodities trader, is the duo’s discreet number cruncher, while his stockier, tousled-haired brother, Nick, 40, is its flashy, name-dropping, celebrity-loving public face. The Candys don’t go in for small gestures. In October, Nick married the Australian actress Holly Valance in Beverly Hills, after she had announced their engagement by tweeting a photo of Nick down on one knee proposing on a beach in the Maldives. In flaming torches behind the happy couple, will you marry me was written, without the usual question mark.

Designed by the architect Lord Richard Rogers, who also designed London’s iconic Lloyd’s building, One Hyde Park has divided Britain. Gary Hersham, managing director of the high-end real-estate agency Beauchamp Estates, says it is “the finest building in England, whether you like the style or you don’t,” while investment banker David Charters, who works in Mayfair, says, “One Hyde Park is a symbol of the times, a symbol of the disconnect. There is almost a sense of ‘the Martians have landed.’ Who are they? Where are they from? What are they doing?” Professor Gavin Stamp, of Cambridge University, an architectural historian, called it “a vulgar symbol of the hegemony of excessive wealth, an over-sized gated community for people with more money than sense, arrogantly plonked down in the heart of London.”

The really curious aspect of One Hyde Park can be appreciated only at night. Walk past the complex then and you notice nearly every window is dark. As John Arlidge wrote in The Sunday Times, “It’s dark. Not just a bit dark—darker, say, than the surrounding buildings—but black dark. Only the odd light is on. . . . Seems like nobody’s home.”

That’s not because the apartments haven’t sold. London land-registry records say that 76 had been by January 2013 for a total of $2.7 billion—but, of these, only 12 were registered in the names of warm-blooded humans, including Christian Candy, in a sixth-floor penthouse. The remaining 64 are held in the names of unfamiliar corporations: three based in London; one, called One Unique L.L.C., in California; and one, Smooth E Co., in Thailand. The other 59—with such names as Giant Bloom International Limited, Rose of Sharon 7 Limited, and Stag Holdings Limited—belong to corporations registered in well-known offshore tax havens, such as the Cayman Islands, the British Virgin Islands, Liechtenstein, and the Isle of Man.

From this we can conclude at least two things with certainty about the tenants of One Hyde Park: they are extremely wealthy, and most of them don’t want you to know who they are and how they got their money.

London calling

Trevor Abrahmsohn, a U.K. real-estate agent, remembers London before the modern property boom began.

London was as Paris is today: an interesting, quirky souvenir town. We had the Tower of London, the Queen, the palace, and the Changing of the Guard,” he says, adding Scotch whisky as an afterthought. “That is what we stood for. London was not a tax haven.”

Starting in the 1960s, new buyers began to fire up the market: crises of the Greek monarchy brought a significant influx of Greeks, pockets of which endure today. Next came the first wave of Americans, a trickle of bankers lured by London’s unregulated Euro-markets, and West Coast buyers, often from Hollywood. “They swarmed in,” remembers veteran London real-estate agent Andrew Langton, of Aylesford International. “They turned Chester Square into Little L.A. and tidied up all these properties, at enormous expense, with American kitchens, bathrooms, and showers.”

The OPEC oil crisis, of the 1970s, lit the big fire under this market. Arab money surged into the so-called golden triangle of Knightsbridge, Belgravia, and nearby Mayfair, to buy high-end properties. Real-estate agents remember it as a tidal wave: “They came as a force,” says Hersham. “When they wanted to buy, there were no hysterics or reticence.” The fall of the Shah of Iran brought a surge of Iranian money, followed by buyers from the biggest African ex-colony, newly oil-rich Nigeria.

The market paused for breath in the 1980s, with Britain’s economy in the doldrums and as sagging world oil prices sapped wealthy foreign buyers’ demand. But Margaret Thatcher’s financial reforms, notably her “Big Bang” of Wild West financial deregulation, in 1986, caused the stream of bankers to turn into a river, then a deluge. “We would wait for those e-mails ending in ‘gs.com’ to come rolling in,” remembers Jeremy Davidson, a Belgravia-based property consultant. “Goldman [Sachs] partners, Morgan [Stanley] partners: they were the top of the market, and we had lots of them.”

The fall of the Soviet Union, in 1989, and the vast, corrupt post-Soviet privatizations, brought the biggest, most reckless wave of foreign buyers London had ever seen, with often questionable money sluicing in via the secretive British-linked stepping-stone tax havens of Cyprus and Gibraltar. “There is no real accountability of these guys coming in—the cops don’t really investigate them,” says Mark Hollingsworth, co-author of Londongrad, a 2009 book about the Russian invasion. “They see the capital as the most secure, fairest, most honest place to park their cash, and the judges here would never extradite them.”

Nick Candy himself summarized the attractions neatly: “This is the top city in the world, and the best tax haven in the world for some.”

It seems to be that every big trading disaster happens in London,” U.S. congresswoman Carolyn Maloney observed last June. “And I would like to know why.” The disasters she was referring to were the ones that bankrupted Lehman Brothers and nearly bankrupted some other American firms, such as A.I.G. and MF Global, as well as causing JPMorgan Chase’s $6 billion loss at the hands of the trader popularly known as “the London Whale”—all of these happened to a high degree in the London branches of those firms and have cost the American taxpayer billions of dollars.

To answer her question and to understand why so much of the world’s money goes to London in the first place, you need to go back hundreds of years, to the emergence of what must be the most peculiar, the oldest, the least understood, and perhaps one of the most important institutions in the menagerie of global finance: the City of London Corporation. It is the local authority for “the Square Mile,” the pocket of prime financial real estate centered on the Bank of England and located about three miles to the east of Knightsbridge, along the Thames River. But the corporation is also much more, its identity embedded in—and slightly apart from—the British nation-state. The corporation has its own constitution, “rooted in the ancient rights and privileges enjoyed by citizens before the Norman Conquest, in 1066,” and its own lord mayor of London—not to be confused with the mayor of London, who runs the Greater London metropolis, with its eight million inhabitants. One sign of the City of London’s distinct identity is the fact that the Queen, on official visits there, will stop at the boundary of the Square Mile, where she is met by the lord mayor, who engages her in a short, colorful ritual, before she may proceed. Most Brits see this merely as a relic from a bygone age, a show for the tourists. They are wrong.

The lord mayor’s principal official role, his Web site says, is to be “ambassador for all UK-based financial and professional services.” He lobbies far afield, with offices in Brussels, China, and India, among other places, the better to “expound the values of liberalization” far and wide. The City Corporation and closely linked think tanks issue streams of publications explaining why finance should be less tethered by taxes and regulation. The corporation also has its own official lobbyist, with the delightfully medieval-sounding name of The Remembrancer (currently one Paul Double), lodged permanently in Britain’s Parliament. Local elections in the City are unlike any other in Britain: multi-national corporations vote alongside and vastly outnumber the tiny borough’s 7,400 human residents.

Over the centuries the City has thrived, thanks to a simple advantage: it has had money to lend when governments or monarchs needed it. So the City has been granted special privileges, allowing it to remain a political fortress withstanding the tides of history that have transformed the rest of the British nation-state. It has nurtured a British tradition of welcoming foreign money, with few questions asked, and so has for centuries attracted the world’s wealthiest citizens. “There the Jew, the Mahometan, and the Christian transact together,” Voltaire wrote in 1733, “as though they all professed the same religion, and give the name of infidel to none but bankrupts.”

When the British Empire crumbled in the mid-1950s, London replaced the cozy embrace of gunboats and imperial trading preferences with a new model: tempting the world’s hot money through lax regulation and lax enforcement. There was always a subtle balance, involving dependable British legal bedrock fiercely upholding U.K. domestic rules and laws while turning a blind eye to foreign law-breaking. It was a classic offshore-tax-haven offering that tells foreign financiers, “We won’t steal your money, but we won’t make a fuss if you steal other people’s.”

The term “tax haven” is something of a misnomer, because tax havens offer escape routes not just from taxes but potentially from any of the rules, laws, and responsibilities of other jurisdictions—whether those be taxes, criminal laws, disclosure rules, or financial regulation. Tax havens are usually about parking your money “elsewhere,” in jurisdictions such as the Cayman Islands, beyond the reach of your home country’s regulators and taxmen. Or you park it in London: which is why some investment bankers have called it the Guantánamo Bay of finance. “The British think they do finance well,” says Lee Sheppard, a tax and banking specialist at the U.S. trade publication TaxAnalysts. “No. They do the legal stuff well. Most of the big investment banks there are branches of foreign operations. . . . They go there because there is no regulation whatsoever.”

James Henry, a former McKinsey chief economist, watched at close quarters the recycling of petrodollar wealth into Third World loans via London’s unregulated Euro-markets, which among other things enabled Wall Street to avoid New Deal-era banking regulations. Henry saw a global private-banking network emerge, following the money, “helping Third World elites abscond with hundreds of billions in diverted loans, illicit commissions, and corrupt privatizations, and park it in London and other tax havens.”

The number beside each location provides its ranking on the Financial Secrecy Index, which is calculated based on an analysis of the area’s role in global financial markets and a scoring of its laws and regulations that facilitate criminal activities carried out not within that area but elsewhere.

It comes as a surprise to most people that the most important player in the global offshore system of tax havens is not Switzerland or the Cayman Islands, but Britain, sitting at the center of a web of British-linked tax havens, the last remnants of empire. An inner ring consists of the British Crown Dependencies—Jersey, Guernsey, and the Isle of Man. Farther afield are Britain’s 14 Overseas Territories, half of them tax havens, including such offshore giants as the Caymans, the British Virgin Islands (B.V.I.), and Bermuda. Still further out, numerous British Commonwealth countries and former colonies such as Hong Kong, with deep and old links to London, continue to feed vast financial flows—clean, questionable, and dirty—into the City. The half-in, half-out relationship provides the reassuring British legal bedrock while providing enough distance to let the U.K. say “There is nothing we can do” when scandal hits.

Data is scarce, but in the second quarter of 2009 the three Crown dependencies alone provided $332.5 billion in net financing to the City of London, much of it from tax-evading foreign money. Matters are so out of hand that in 2001 Britain’s own tax authorities sold off 600 buildings to a company, Mapeley Steps Ltd., registered in the tax haven of Bermuda to avoid tax.

Britain could close down this tax-haven secrecy overnight if it wanted, but the City of London won’t let it. “We have, to put it provocatively, a second British empire, which is at the very core of global financial markets today,” explains Ronen Palan, professor of international political economy at City University in London. “And Britain is very good at not advertising its position.”

Despite the British passion for historic preservation, the recent huge influx of foreign money is changing the capital, both physically and socially. “Our Georgian and Victorian stock is so inflexible, frozen in time,” said Ademir Volic, of Volume 3 Architects. “We’re selling this city as a forward-looking metropolis, yet we can’t change a single window in a conservation area. Everything has to be hidden underground.”

That’s just what the plutocrats are doing: digging down. Maggie Smith, of the London Basement company, which carries out basement renovations, dates the craze to the early to mid-1990s, when she noticed increasing numbers of people wanting to renovate their musty old basements. “It started quite small, with people doing 30 to 40 square meters, generally under the front of a standard Victorian London house,” she says. “Then they began digging out under parts of gardens, then entire gardens, installing light wells and glass bridges to bring in natural light.”

Soon they built underground recreation centers, golf-simulation rooms, squash courts, bowling alleys, hair salons, ballrooms, and car elevators to the underground garages for their vintage Bentleys. The more adventurous installed climbing walls and indoor waterfalls.

They would dig deep, have a media room and a funny sort of spring-loaded garage or a swimming pool,” says Peter York. “And they would disturb the water table. You can imagine what old-fashioned British toffs thought of that.” One Knightsbridge resident—and tension is such that he declines to identify himself or his street—says that on his short street of 15 or 20 properties he has recently suffered through nine simultaneous renovations.

Cable-TV mogul David Graham outraged his neighbors, near Lennox Gardens Mews, south of One Hyde Park, by seeking planning permission to excavate deeper than the height of neighboring homes, extending all the way under his house and garden. The Duchess of St. Albans, a neighbor, calls the plans “absolutely monstrous and unnecessary.” So far, permission has not been granted.

As the renovations grew, so did the conflicts. “It may look village-y, but we live like sardines in tins,” says Terence Bendixson, of the Chelsea Society, a residents’ association. “A lot of people have been here quite a long time, who aren’t rich, who aren’t bankers, who are solid middle-class and upper-class people.” Stroll through Knightsbridge today (or check Google Street View) and you will see so many conveyor belts bringing up soil from under houses that you can be forgiven for thinking that a new mining boom is under way.

Economically, culturally, and socially, London has now left Britain behind, blasting off from the rest of the nation like some vast U.F.O.,” says Neil O’Brien, director of the think tank Policy Exchange. “The politicians, civil servants, and journalists who make up Britain’s governing class run one country, but effectively live in another.” As Abrahmsohn sees it, London could “easily declare independence. A lot of these wealthy people don’t even know these outlying regions exist. They don’t care.”

In fact, the chasm is sharpest inside London itself: a report for the British government in January 2010 estimated that the richest 10 percent of Londoners own well over 270 times the wealth of the poorest 10 percent.

Knightsbridge is an un-English activity,” says York. “The former gratin [upper crust], a combination of old toffs, Knightsbridge Americans who wanted to be old toffs, plutocrats who wanted to know The Form, people who weren’t here for funny-money reasons: all those things have been completely obliterated by a mad kind of very, very gauche overseas money. It’s absentee money: the kind of money that has bodyguards. It is the world of Maybachs and absurd-looking Ferraris in absurd colors, and kids who buy them straight out of the shop window. These people have no substantive relationship with anything British at all. It’s everywhere: I can’t emphasize enough how everywhere-ish it is.”

Many in London are uncomfortable not just with the flagrant display of super-wealth but also with the rising number of absentee residents who are based in foreign countries. “Those people who do buy these houses, particularly the bigger ones, in many cases don’t buy them to live in permanently: they are part of a portfolio,” said Bendixson. “That doesn’t add much jollity to your street: houses with the shutters down and nobody there.” Edward Davies-Gilbert, of the Knightsbridge Association, sees the area gaining the flavor of “a ghost town, peopled by ghost blocks.”

Thus One Hyde Park, where only 17 apartments of the 76 sold are registered as primary residences, has become a totem for the gaping chasm between the powerful rootless plutocrats in London and the rest.

the candy men can

Nick and Christian Candy, the two British brothers who put together the One Hyde Park project, built their fortunes on the post-Soviet privatization real-estate boom in London. They started out with a $9,300 loan from their grandmother, buying a one-bedroom apartment in semi-fashionable Earl’s Court for $190,000 in 1995, then renovating and selling it for a profit the following year. They repeated the trick and soon discovered a new niche at the very top of the market, above traditional luxury. In 1999 they set up Candy & Candy, an interior-design company, honing their skills on yachts, private aircraft, and private members’ clubs, with walls in hand-painted silk and cushions that cost $3,200 a piece.

Thanks to an aggressive, hyperactive business strategy (not to mention a soaring market), the brothers climbed very high, very fast. “The Candy brothers are two young zealots who were quite fearless as to how they approached people and where they found money,” says Andrew Langton. “They realized that the bling was what was wanted, whether it’s a yacht or plane or an expensive apartment. There is a culture of decoration, a culture of security, of privacy, that they had understood.”

Shabby English chic was out, and luxury concierge services, eel skin walls, and bulletproof glass were in. It is a hard market to get right, and Abrahmsohn notes the huge diversity in taste it encompasses. “The Greeks are the most understated of all the buyers, including the British,” he says. “The Nigerians are very flamboyant. They like lots of very bright colors, glitz and glitter. They are not shy. The Russians are fairly easygoing, but they do like their glitz.” Indians decorate their houses in super-lavish style, he continues. “Lots of detail, lots of colors, extremely ornate, a lot of gilt: Louis XIV would be far too understated for them.”

Somehow, the Candys found their way through this maze, and in 2001 they sold a $6.2 million apartment in Belgrave Square to the Russian oligarch Boris Berezovsky, who had fled to the refuge of London after being accused of fraud and embezzlement. As described in Londongrad, it had “bullet-proof CCTV cameras, a fingerprint entry system that can remember 100 fingerprints, remote-controlled cinema and television screens in the bathroom walls, laser-beam alarms, and smoke bombs. An electronic system recognized the residents’ favorite music and TV programs and followed him or her from one room to another.”

The Russians are creatures of habit,” explains Hollingsworth. “When Berezovsky bought in Belgrave Square, [Russian oligarch Roman] Abramovich bought around the corner in Lowndes Square, next to Harvey Nichols, and then Chester Square. They are like heads of gangs in a schoolyard and love to show off: ‘My house is bigger than yours.’ ” In the wake of the Berezovsky sale, an aura developed around the brothers as Russian newcomers demanded to buy Candy & Candy properties.

In 2004, Christian Candy set up the CPC Group, registered in the tax haven of Guernsey, to tackle bigger projects, including, eventually, One Hyde Park. In a fast-rising market, as more and more buyers from more and more parts of the world crammed in, the Candys knew they could ask for the moon and get it. When they launched sales of apartments for One Hyde Park, in 2007, typical London prime prices were $2,900 per square foot, with peaks at $4,500. In One Hyde Park’s first year, the rate was $8,800, and $10,900 the following year, ultimately rising last year to almost $12,000. Prices in New York have occasionally matched these levels: recently a Russian oligarch bought Sanford I. Weill’s penthouse at 15 Central Park West for just over $13,000 per square foot—but that was considered an anomaly. According to Susan Greenfield, senior V.P. at the real-estate brokers Brown Harris Stevens in New York, sales in that building in 2012 have averaged $6,100 per square foot. “One Hyde Park changed the map,” says property consultant Davidson. “The prices were off the scale—I was astonished. It created a market of its own.”

Living in an elite bubble, the brothers appear to have a tin ear for the public mood. In late 2010, amid national austerity, tax protests erupted in more than 50 towns and cities across Britain, led by a movement called Uncut. They were protesting against tax avoidance by large corporations and by prominent figures such as the British retail billionaire Philip Green. In December of that year, the Candy brothers played a game of the British version of Monopoly with a Financial Times reporter in Christian’s apartment in One Hyde Park. Christian landed on the “super tax” square. “What!” he reportedly cried. “I don’t pay tax. I am a tax exile.” (A spokesperson for the Candys denied that Christian, who is a resident of Monaco and Guernsey, said this.)

Subsequent revelations by the London Sunday Times and others about the extent of offshore ownership of the apartments in One Hyde Park stoked new outrage in Britain, and the government came under intense pressure to crack down. Chancellor George Osborne, noting that the zero-tax treatment on the sale of properties owned through offshore companies “rouses the anger of many of our citizens,” introduced new legislative proposals, now coming into effect, to, among other things, levy a sales-transaction tax of up to 15 percent on properties bought through offshore companies and levy an annual charge of up to $221,000 on expensive properties owned offshore. Many austerity-parched Britons welcomed the moves. An outraged Nick Candy called them “absolutely disgraceful.”…

For the entire article, please click here: http://www.vanityfair.com/society/2013/04/mysterious-residents-one-hyde-park-london

Categories Narrative

First We Send You $100 Million Homes, Now Apartments–A 3-Week Report

I got some really interesting replies from my narrative about $100 million dollar homes. I knew there was a bigger market for homes worth less than that, but the amount of condos selling for $50 million or more is amazing – Condos – No yard. Below is some of the craziness going on now in New York. $11,000 per SF?? Given the zoning issues and height (FAA approval is required), these projects take 10 years or longer to develop. The cycles can change, as we all found out over the past six years. Big risk—Big return.

Not only will I look at the actual construction, location and amenities, but the “why” as well. OK, the “why” is easy: ego. And as it turns out, most of the drive is from foreign investors getting money out of their country. Real Estate is one way to do it. Not sure why they would not buy an income-producing asset, other than they believe the prices are low.

If you look at the timeline in the first article below, you can see the rise of the top drawer condo. This seems to me to be a “too good to be true” over-hyped phenomena. We shall see, but for now the race to pay the most is on. You too can have:
–views
–private everything
–11.5 foot barrel vaulted brick ceilings
–a 60 foot outdoor pool 1,000 feet into the sky
–a lava stone counter…
…You get the picture.

AND this is just New York…..not even the most expensive in the world. For that you will have to wait until next week.

An interesting note: In most of these projects, as well as across the world, the majority of buyers seem to be foreign. Given the hell we have all paid over the Great Recession, we are still the place where wealthy people want to invest their money. This shows you two things: how unstable the rest of the world is AND even in our darkest days, the United States of America is still the best country in the world to live and work. A note of gratitude to our founders.

Craig
602.954.3762
ccoppola@leearizona.com

 

New York’s First $100 Million Apartment Is Coming Soon
In a city consumed by luxury condominiums, no price is too high to pay. Michael Gross reports on the race to a nine-figure sale.

Departures

By: Michael Gross 
January/February 2014

NY Apts 1
56 Leonard
The Midtown Manhattan skyline, as seen from 56 Leonard, a 60-story condo by Herzog & de Meuron in New York’s TriBeCa.

Forget the gated motor court, the private courtyard or the waterfall in the lobby and check out the dizzying view from atop 50 United Nations Plaza. Manhattan’s Rocky Mountains—the skyscraper tops of the Empire State, the Chrysler, Rockefeller Center and MetLife—all seem close enough to touch. You can see the network of bridges connecting the city to the rest of the world; the East and Hudson rivers; the Statue of Liberty; the new One World Trade Center. In the distance, airplanes take off from Kennedy and LaGuardia. And straight down below sit Louis Kahn’s Franklin D. Roosevelt Four Freedoms Park and the UN itself.

The Foster+Partners–designed condominium tower is still under construction; its triplex penthouse (complete with a 50-foot-long heated outdoor pool and a Foster-created, one-piece stainless-steel staircase—both hoisted up to the aerie by crane) doesn’t even have walls yet. But since they will be walls of glass, the views won’t change once they’re installed.

What has changed? The asking price.

When 50 UN was topped out in July 2013, two separate apartments—a $55 million duplex and a $45 million full-floor penthouse below it—were the most expensive units. But in October, developers Arthur and William Lie Zeckendorf (whose grandfather sold the UN its site) and Israeli billionaire Eyal Ofer’s Global Holdings upped the ante. The day before departures’ visit, they sent out word: The two could be purchased together as a triplex. Its $100 million price, if achieved, would set a new record for a New York City apartment.

Crazy? Hardly. A senior advisor to a Middle Eastern ruler toured 50 UN a day after our visit. And you would want it, too, if you had the dough. As the bar for entry into the heights of New York’s real estate market rises ever higher, potential buyers haven’t blinked. A nine-figure sale no longer seems like a dream. Instead, it appears inevitable. By the time you read this, it may already have happened. “The psychological barrier has been broken,” says Arthur Zeckendorf, sounding a little stunned himself. “It’s like a snowball. Everybody wants in on the action, and it gets bigger and bigger. Obviously, an apartment like that is a trophy, but it’s also proven to be a sound investment.”

The American tycoon already owns a Manhattan penthouse condo—not to mention several companies and a professional sports team. But when his broker tells him about a newer, better apartment he has to see, he agrees, of course. As he walks around it, he starts hyperventilating. “It’s breathtaking, the most beautiful thing I’ve seen,” he gasps, but in an instant, he looks stricken. What’s the problem? “Oh my God,” says the billionaire. “Do not show this to my wife. If you show her, I’ll have to buy it.”

The roots of today’s price spike are shallow. As recently as ten years ago, the highest-priced apartments were cooperatives, still the predominant form of home ownership in New York City today. But because co-ops generally require intrusive financial disclosures while limiting purchasers’ ability to alter and use their apartments, foreigners, investors and the secretive rich long disdained them. Luxury condominiums are a relatively recent phenomenon; the first, Olympic Tower, opened its doors in 1976. In 2003 a condo in Columbus Circle’s Time Warner Center took the most-costly crown for the first time when a Mexican financier bought two apartments for $45 million and then scooped up a third for a total sum of $54.8 million. No co-op has held the city’s apartment price record since.

In December 2011, former Citigroup chairman Sandy Weill set the current sales record when he unloaded a penthouse at 15 Central Park West to the then-22-year-old daughter of Russian potash oligarch Dmitry Rybolovlev for $88 million. A frenzy of “can you top this” listings soon followed; the flag had dropped on the race to nine figures. The following May, Gary Barnett, founder of condo developer Extell, leaked word of a signed contract for a $90 million–plus penthouse atop his One57, a 1,004-foot-tall, Christian de Portzamparc–designed hotel-condo tower a few blocks from the 15 Central Park West property. Then Steven Klar, also a developer, offered his penthouse at CitySpire—a West 56th Street condo tower by Helmut Jahn—for $100 million despite its awkward layout (three rings of rooms arrayed like a race track around the building’s core) and the fact that One57 now partly blocks its once expansive view of Central Park. The price attracted so much attention, the listing crashed his broker’s website.

In One57’s wake, what once might have been deal-breakers became mere bumps in the road; neither its construction crane, famously felled in Hurricane Sandy, nor the sneers of architecture critics (“tall and clunky, preening yet graceless”) slowed its juggernaut. In May 2013 it emerged that an investment group led by hedge fund runner Bill Ackman had signed a contract for another penthouse, at $94 million, which will set a new city record once One57 is finished and the deal closes. Casino magnate Steve Wynn’s subsequent purchase of a $70 million penthouse in the Ritz Carlton, a condo-hotel on Central Park South, and David Geffen’s $54 million deal for a 12,000-square-foot Fifth Avenue penthouse (setting the current co-op record) seem comparatively chintzy.

One57’s moment in the sun was eclipsed by developers CIM Group and Harry Macklowe, who have inked a $95 million contract for the penthouse at their Rafael Viñoly–designed 432 Park Avenue, a slender, poured-concrete tower just south of East 57th Street. Not only did it set a higher presumptive price record, but when complete at 1,396 feet, 432 Park will stand 392 feet taller than One57, too. Having seen his sales record fall to Macklowe, Extell’s Barnett is aiming higher. His next planned tower, a block west of One57 and a few blocks south of 15 Central Park West, will rise between 1,400 and 1,550 feet. To date, no one has yet sought to exceed its height. But in the hottest, highest real estate market in memory, many are asking, Why not me?

“On July 4, the fireworks are right up here with us,” says developer Steven Klar, standing on one of the three circular terraces of the sky-high midtown triplex penthouse he is selling for $100 million. “Everything looks nice from up here.” So who’s looking? “The Russians are coming. Asians. I showed it three weeks ago to a Middle Eastern woman who has 19 homes. I can’t imagine that. It’s a different stratosphere.”

Most recently, a triplex penthouse atop the Hotel Pierre was listed for $125 million (the unit set a record when Wall Street’s Martin Zweig bought it for $20 million in 1999). Weeks later the besieged hedge fund runner Steven A. Cohen listed a Charles Gwathmey–designed duplex in Beacon Court on East 58th Street for $115 million. And River House, a Depression-era co-op known as a bastion of secrecy, listed a private club on its premises as a “mansion within a co-op” for a staggering $130 million for the raw space alone. Presumably, serious buyers will consider decorating costs a rounding error.

Obviously, few can afford a $100 million apartment. “It’s not a large universe,” admits Michael Stern, founder of JDS and one of the developers behind Walker Tower, a 1929 Art Deco structure named for its architect, Ralph Thomas Walker. Until the building’s top floor went into contract for the asking price of $55 million in October (a record-setting number for a downtown apartment), the developers hoped it might be combined with the $47.5 million penthouse beneath into a $102.5 million, 12,000-square-foot palace. Because the inventory of ultimate trophy condos is even smaller than the buying pool, their prices, mind-blowing though they may be, are “driven by massive scarcity,” says Elliott Joseph, a principal of Property Markets Group, Walker Tower’s co-developer.

Traditionally, uptown trophy buyers came from finance and the corporate sphere; downtown attracted creative and media types. Now the twain have met at the crest of a rising tide of wealth. “The haves have more and more,” says Hall F. Wilkie, president of the carriage trade brokerage house Brown Harris Stevens. And “upsetting everything,” adds Stern, “are the very wealthy foreign buyers.” Take Russian oligarch Roman Abramovich, who reportedly agreed to spend $75 million on several apartments in a Fifth Avenue mansion-turned-cooperative and is said to be hungry to swallow the rest of the building. Edward Mermelstein, a lawyer who predominantly represents foreign investors from the former Soviet Union, says the needs of clients like his are simple: “Is this the best? they ask. The best location? The best security? The most prestige? The most exclusivity?”

How about two penthouses? A wealthy, elegant Briton, who’d already bought one at Walker Tower, showed up there not long ago with his decorator. Learning that the $55 million full-floor penthouse had just been released for sale, he asked to see it. One look and he wanted it. Badly. But the price seemed insane, and even though he could afford the whole building, he hesitated—until someone else came to the table. The competition sharpened his thoughts. The solution was obvious: He’d give the smaller unit to his kid. And come to think of it, buy a one-bedroom as a staff apartment, too. But before he could pounce, the prized penthouse went into contract—at a record price in Manhattan.

Foreign wealth “transformed the marketplace,” adds Frederick Warburg Peters of Warburg Realty, and now locals are beginning to follow. Fifteen Central Park West created this new template, as rich New Yorkers who once would have aspired to live in co-ops instead joined the Europeans, Russians, Asians, South Americans, Arabs and Israelis who turned that building into a new sort of club, where the only qualification for entry is almost-unfathomable wealth. “People with more money than they know what to do with are driving this market,” admits a condo developer. Ego is a factor, too. Says another: “Some idiot Russian will want to be the one who pays the highest number.”

He’ll get a lot for his money. Co-ops offered exclusivity, and the best were fabulous homes with lavish spaces and river or park views. The condos that have conquered what was once a co-op city are all that and far more: liquid assets that seem to appreciate at warp speed.

“Real estate has become currency” for the new new money says Izak Senbahar, the Istanbul-born developer of Richard Meier’s 165 Charles Street on the West Side Highway and Herzog & de Meuron’s under-construction 56 Leonard, which will be the glossiest condo tower in TriBeCa. “New York has become a safe piggy bank” in a lawless world. “And it’s sexy. You can only look at gold, but you can enjoy real estate.”

“To be thought of as the best, you have to be different,” says Pamela Liebman, president of the Corcoran Group. Typical amenities like a basement lap pool and health club, climate-controlled wine cellars and private restaurants and screening rooms are all no longer enough. In the past, the wealthy hired architects and decorators to customize their homes and prove they had taste atop wealth. Nowadays they want all that prepackaged.

Where once trophy apartment finishes such as doors, cabinets, hardware and appliances were just adequate, now developers “have to provide impeccable custom touches,” says Related Companies vice president Michael Iannacone, who is selling One Madison, a new tower at the bottom of Madison Avenue. Its $50 million triplex penthouse boasts a double-height great room with a curving glass-and-nickel staircase, a wraparound terrace and a private elevator. At Walker Tower, radiant-heated floors, a Smallbone kitchen (think expensive, then double that) and a museum-quality zoned humidification system for art protection are among each unit’s defining features. “It all sets us apart,” says Walker’s Stern, who realizes he must be student as well as teacher. “We have to know, What will people ask for next?”

Jared Kushner, a second-generation developer and the son-in-law of Donald Trump, thinks he knows. His pride over the six penthouses he is building atop the landmark Puck Building in SoHo is tangible. Despite the deep-downtown location, he says, his ideal buyer “is not an artist in a loft” but an art collector, someone who “wants every luxury imaginable,” including 11.5-foot barrel-vaulted brick ceilings; mahogany-framed windows with UV-tinted glass to protect art; a shower built for three; and a kitchen with a terrazzo and mother-of-pearl floor, a lava-stone counter, a La Cornue five-burner restaurant range, a SubZero double-wide fridge and an espresso machine built into the wall.

So you should buy now, as the future looks to be even higher priced. Like 15 Central Park West and the nearby 220 Central Park South, the Zeckendorfs’ newest, “just-announced” residential tower will be designed by Robert A.M. Stern, on East 60th Street off Park Avenue—one block north of Extell’s second 57th Street structure. The limestone façade will hold 31 apartments, seven 8,800-square-foot duplexes and a 13,000-square-foot triplex with “one giant terrace looking north, east and south,” Arthur promises. “When it’s offered for sale, it will probably be the most expensive apartment in New York.” Next stop, $100 million!

On a small lot next to the landmarked Steinway Hall on West 57th Street, JDS and PMG are planning a needlelike 1,350-foot tower by SHoP Architects with about 100 park- and city-view units inside. Will the highest hit nine figures? “Yes,” says Michael Stern, “but I’m not saying it outright. It’s not through due diligence yet.” And a few blocks southeast, the developer Hines is putting up a Jean Nouvel–designed edifice next door to the Museum of Modern Art. It’s sure to command stratospheric prices, too.

While we wait for those, a broker whispers, unsolicited “astronomical” offers for existing trophy apartments that aren’t even for sale have become increasingly common. The owners of a Time Warner spread, for instance, have spurned $150 million. So how high is up? Way high, says someone very close to Bill Ackman, the buyer of One57’s $94 million penthouse: “He’s waiting for the phone to ring. He has no plans to sell—until someone offers him a billion.”

Countdown to $100M

An annotated history of notable apartment sales in New York City.

1883: $31,680

Units sold at 34 Gramercy Park East (the city’s oldest surviving co-op) usher in the age of apartment living.

1926: $185,000

666 Park Avenue, a palatial maisonette within the marginally less glamorous 660 Park, sells at a record price to Mrs. William Kissam Vanderbilt II. She never moves in.

1931: $275,000

Decades before its private club is listed for $130 million, River House’s tower triplex sells as the ultra-exclusive property’s crown jewel.

1940: $25,000

After the Depression, a record low is set when the Beresford (211 Central Park West) and its neighbor, the San Remo (145–146 Central Park West), sell for pennies on the dollar (above existing mortgages).

1976: $650,000

The high-rise condo era begins with a sale at the Aristotle Onassis–developed Olympic Tower (641 Fifth Avenue). Past is prologue: Almost 80 percent of its buyers are foreign.

1988: $10,000,000

The first eight-figure sale occurs, at 820 Fifth Avenue, a notoriously prickly co-op. To wit: A later buyer can’t gain entrée despite a phone call to the board from Mayor Bloomberg.

2000: $30,000,000

At 740 Park Avenue (home to the highest concentration of billionaires in the country), financier Stephen Schwarzman shells out for the most expensive co-op in history—for now.

2011: $88,000,000

Young money! Twenty-two-year-old Ekaterina Rybolovleva shatters the city’s most-expensive record by purchasing a penthouse pied-à-terre at 15 Central Park West.

2012: $90,000,000

A 90th-floor penthouse contract at One57 (157 W. 57th St.) sets the new presumptive record. Months later, a second penthouse breaks it, going into contract for $94 million.

2013: $95,000,000

A contract for the penthouse at Harry Macklowe’s 432 Park inches ever closer to the $100 million mark. The race to the top is on.

NY Apts 2

50 UN Plaza

The glass-walled living room overlooks the East River in the Foster+Partners–designed triplex penthouse at 50 UN Plaza.

NY Apts 3

56 Leonard

The view from a penthouse at TriBeCa’s 56 Leonard.

NY Apts 4

One Madison

One Madison’s $50 million triplex includes a glass-and-nickel staircase.

NY Apts 5

56 Leonard

Herzog & de Meuron’s cantilevered 56 Leonard.

NY Apts 6

One Madison

From the outside looking into One Madison.

NY Apts 7

Puck Building

A sitting room in one of the Puck Building’s six new units.

NY Apts 8

One57

West 57th Street’s One57 (left) and 1,350-foot tower by SHoP Architects (right) will define the city’s new skyline.

NY Apts 9

Walker Tower

Walker Tower, site of a recent $55 million, record-setting sale.

Stratospheric Views, and Prices
NY Times

By: Julie Creswell
November 3, 2013

To see video:http://www.nytimes.com/2013/11/04/business/stratospheric-views-and-prices.html?pagewanted=1&_r=0&nl=todaysheadlines&emc=edit_th_20131104

Walking slowly to the windows facing the meadow of green that is Central Park, Gary Barnett slips into salesman mode as he spreads his arms wide, embracing the sweeping bird’s-eye view he has from the 87th floor of his shimmering skyscraper in Midtown Manhattan.

Noting a visitor’s gasp at the stunning vista, he smiles. “That’s what we want. We want the ‘Oh, wow,’ ” he says.

That ‘oh wow’ factor is part of a 6,250-square-foot, full-floor apartment in his soaring skyscraper, One57, complete with a soon-to-arrive master bedroom tub carved from a single piece of Italian marble. The apartment comes with a hefty price tag of $67 million. Or, put another way, nearly $11,000 per square foot. That’s Per. Square. Foot.

Too rich? Well, there is another, similar apartment a few floors lower that has a number of potential buyers circling it that’s “only $55 million,” Mr. Barnett says before pausing. “I didn’t really say, only $55 million?” He laughs. “It’s all relative.”

And relatively speaking, it is practically a bargain. From the perspective of the overseas buyer, it may very well be. Even as the prices of some of the city’s newest and hottest buildings like One57 stretch into the stratosphere, luxury apartments in Manhattan remain relatively cheap compared to other cosmopolitan cities around the world. That fact is attracting more global buyers to New York.

Last year, an apartment in Monaco’s curvaceous Tour Ode`on sold for $8,850 a square foot. A well-off buyer paid slightly less, $8,779 a square foot, for an apartment in the sleek Frank Gehry-designed Opus Hong Kong.

And in West London, the average price for the 86 apartments in One Hyde Park has been more than $9,500 a square foot, according to research from the British property consulting firm Knight Frank.

At One57, the activist hedge fund king William A. Ackman is reportedly part of an investment group that is paying more than $90 million, or about $6,666 per square foot, for the 13,500-square-foot duplex on the 75th and 76th floor, referred to as the “Winter Garden,” because of its 2,500-square foot-glass-enclosed space that can house either a garden or a swimming pool. One57 is practically a steal at an average price of more than $6,000 a square foot. Another soaring tower on the east side of Midtown, 432 Park Avenue, is asking for $6,894 a square foot, based on its latest offering plan.

This new crop of super-luxurious New York high rises — skyscrapers so tall they needed approval from the Federal Aviation Administration — are attracting Wall Street moneymen, company executives and foreigners alike. Analysts estimate the percentage of foreign buyers in Manhattan real estate has jumped to about 30 or 40 percent of total sales, or double long-running averages.

At new developments like One57, foreigners make up about half the buyers. Among the purchasers are the Canadian businessman Lawrence S. Stroll and Silas F.K. Chou, a native of Hong Kong, business partners who took the fashion label Michael Kors public last year. Buyers from China have bought about 15 percent of the building, including one corporation that bought four apartments.

Manhattan has always attracted a number of well-to-do globe-trotters who would happily spend a couple of million, maybe even $10 million, for a snazzy pied-à-terre on the Upper East Side. But as increased numbers of global billionaires have set their sights on Manhattan, there has been an absolute explosion in prices for top-of-the-market luxury apartments.

One reason for that is simply a low supply of sleek apartments available for the rich and famous. There is not a lot of suitable, empty space in Manhattan for those sorts of developments, which can easily require more than a decade of planning and construction.

With the continued economic malaise across Europe and heightened political unrest in hot spots around the world, foreign and American billionaires alike are seeking safer places to park their assets. New York, say analysts, looks like a pretty safe bet these days.

“We’re building the equivalent of bank safe deposit boxes in the sky that buyers can put all their valuables in and rarely visit,” said Jonathan J. Miller of the real estate appraisal firm Miller Samuel.

Not that long ago, $30 million got you a pretty nice trophy property in Manhattan. At least, that is what people thought in 2000 when Stephen A. Schwarzman, the co-founder of the Blackstone Group, the private equity giant, paid that record-breaking amount for the sprawling 34-room penthouse at 740 Park Avenue, where John D. Rockefeller Jr. once lived.

This being Manhattan, eye-popping purchases both mirror and amplify the era of real estate excess. As in other major metropolitan cities, New York’s luxury market — defined as the top 10 percent of sales — peaked in early 2009 at an average price of $2,612 a square foot, according to data from Miller Samuel. After dipping to a low of $1,655 later that year, it has rebounded to an average of $2,055 in the third quarter of this year.

New York has always had its share of hot “it” buildings, the exclusive white-glove residences that command megabucks well above market trends — 820 Fifth Ave. or 15 Central Park West, often known as the “hedge fund building.”

In 2008, the former Citigroup chairman Sanford I. Weill paid $44 million for the four-bedroom penthouse in 15 Central Park West.

Four years later, as a wave of buyers from Russia made big splashes in New York trophy apartments, Mr. Weill turned around and sold the apartment for a record-breaking $88 million to a trust set up by the Russian tycoon Dmitry Rybolovlev for his daughter Ekaterina and her heirs. While that deal still holds the record for the highest price per square foot paid in New York — $13,049 a square foot — it will most likely be broken next year as sales under contract in the new developments start closing.

For luxury apartments, New York is the new hot market for global buyers. “We are just swamped,” says Elizabeth L. Sample, a senior global real-estate adviser and associate broker for Sotheby’s International Realty. “Normally, we’re in the Hamptons in the summer. But all of August, we were here with foreign buyers. We’re working with 10 different foreign buyers right now.”

When asked where they were coming from, Ms. Sample rattled off a mile-long list that started with an “influx of people from London,” along with buyers from Brazil and Israel. “The Chinese are back and so are the Japanese. They’ve been in and out of the market and they’re more prominent now,” she notes. There are also “many princes and kings” from the Middle East looking to buy and, she says with a flourish, “We still have the Russians.”

Manhattan has always attracted its fair share of foreign buyers. In the 1980s, for instance, Japanese investors snapped up small studios and one-bedroom apartments, seeking the steady income from renters.

But today’s rich globe-trotters, say analysts, are looking for something else. First, many want for a safe place to park their assets. They want an investment that, over time, is not likely to lose its value and may, in fact, become more valuable. At 432 Park Avenue, a mystery buyer paid a reported $95 million for an 8,255-square-foot apartment. At more than $11,500 a square foot, the apartment does not include a large storage unit in the basement (an additional $190,000) or one of the 76-square-foot wine cellars also available to buyers ($320,000).

Designed by Rafael Viñoly, 432 Park will be the tallest residential building in the Western Hemisphere when it is completed, soaring nearly 1,400 feet above Midtown. Sales started this year and so far, about 50 percent of the building is in contract. One-third of the buyers have come from overseas, primarily Britain, South America, China, the Middle East and Russia.

In TriBeCa, where 56 Leonard Street is slowly rising and will eventually ascend 60 stories, only about 10 percent of the 145 apartments that have been sold went to foreign buyers, said one of the building’s developers, Izak Senbahar.

“I think that the international people didn’t have the time,” to buy into the building, Mr. Senbahar said, adding that it was 92 percent sold in just seven months. But it was not for lack of trying. “I remember one French person really buying on the phone because he thought it was going to be too late to get the unit he wanted,” Mr. Senbahar said.

Nicknamed the “Jenga building” for its jagged steel-and-glass design that resembles the wooden tower game, 56 Leonard has a penthouse on the 60th floor that went to what has only been described as a “New York-based hedge fund manager” for $47 million. That stood as a record price for downtown until just recently, when a full-floor penthouse apartment in the Walker Tower, a condominium in Chelsea, went into contract for $50 million.
For more than a decade, Gary Barnett, a former diamond trader who, as the head of Extell Development, built the W Hotel in Times Square, had carefully assembled his site on West 57th near Carnegie Hall. He bought various buildings and began acquiring the corresponding air rights, all with an eye toward building one of the city’s tallest luxury residential towers.

He shifted on his feet as he stood in the living room of a finished model apartment on the 41st floor of One57 that costs $18.75 million, or less than $6,000 a square foot. (“As these things go, it’s a great price,” he says.)

One57, which is scheduled to open in December, is now more than 70 percent sold. Standing 1,004 feet, One57 will be the highest residential tower in the city until 432 Park is finished.

Like most other high-end skyscrapers, One57 is selling the lifestyle of the globe-trotting chief executive or hedge fund manager. World-famous architect? Check — Christian de Portzamparc. High-end Miele appliances? Check. Private yoga studio and performance room? Check and check. Unfortunately, the world’s billionaires will have to swim laps in the building’s 75-foot indoor swimming pool with the tourists staying at the Park Hyatt hotel, which will occupy the first 30 floors of the building when it opens the middle of next year.

“There aren’t going to be many buildings like this that even can be built. Because how many spots can you find that will deliver this kind of view?” Mr. Barnett asked, as he nodded to the New York City vistas.

Well, actually, just down the street, on 57th and Broadway. That is where Mr. Barnett is already at work on his next project: a luxury tower that, if he sticks with preliminary plans, could be the tallest in the city, soaring more than 1,400 feet into the sky.

This article has been revised to reflect the following correction:

Correction: November 11, 2013
An article last Monday about record sales prices for luxury apartments in New York City misidentified the property that holds the record price for downtown. It is a full-floor penthouse apartment in the Walker Tower in Chelsea that recently sold for $50 million — not a penthouse on the 60th floor of 56 Leonard, which was the previous record-holder when it sold for $47 million. The error was repeated in an accompanying picture caption and in a chart. The article also described incorrectly the purchase of a penthouse at 15 Central Park West in 2012. It was bought by a trust set up by the Russian tycoon Dmitry Rybolovlev for his daughter Ekaterina and her heirs; it was not bought by Mr. Rybolovlev.

    

Categories Design, Narrative

Floating Office for Startups? Let’s Get Outside of the Box Today

I love entrepreneurs. I have no idea if this will work, but I saw this company and looked over the website and thought what a creative mind. AND of course, what creative office space. Blueseed (http://blueseed.co/) is a group trying to raise money to build a ship that will sit 12 miles off the coast of California to house startup companies and their visionaries. For a couple grand a month, you can have a room and a place to work. No financial services are permitted (can you say, “tax evasion?”). This was announced in 2012 and it looks like there are no major investors today.

Plans call for:
–1,000 startup companies
–With a H-1B visa (mandatory), you can visit the U.S. 180 days per year
–“Enhancers” like accountants, attorneys and other consultants will be on board
–Blueseed will take an equity position in the startup companies in addition to the rent

I have pulled a number of the renderings from the website, take a look along with a summary article highlighted for ease of perusal. I just thought I would get you outside the box for a few minutes this week.

Craig
602.954.3762
ccoppola@leearizona.comBlueseed_1 3

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Blueseed Builds Floating Office For Tech Startups
Blueseed plans to turn a cruise ship into a floating office park anchored in international waters 12 miles from Silicon Valley, providing a home for technology startups and other entrepreneurs who can’t qualify for U.S. work visas.

Government Information Week

By: Kevin Casey
June 6, 2012

Blueseed Modern Hull
At quick glance, it’s the stuff of real estate gold: 360-degree ocean views! Amazing amenities! Catered meals! A 30-minute commute to the heart of Silicon Valley! The location isn’t quite ready for occupancy, but it has a select group of residents in mind: High-growth entrepreneurs who want to be close to the technology capital of the world–and the financial capital that funds it.

The address? That’s a bit trickier. It’s a boat anchored 12 miles off the California coast. Blueseed, the startup behind this marine utopia, hopes to build a community there comprised of the boldest and brightest entrepreneurs from around the globe. But why would the next generation of bright technology minds choose the Pacific Ocean over a, well, normal address?

“There is no work visa for entrepreneurs,” said Max Marty, Blueseed’s CEO, in an interview. “There is no way for someone who wants to come [to the U.S.] and start their own company to do so legally.” H-1B visas must be sponsored by an established U.S. employer; there is no equivalent for a non-U.S. citizen who wants to found the next Google or Intel on American shores. “We’re sort of in this ridiculous situation where people want to come here to create companies and technologies and [jobs], but we’re not allowing them to do this,” Marty said, himself the son of Cuban immigrants.

Blueseed believes it has a solution: A commercial and residential compound that floats just beyond the invisible line that marks international waters, a dozen miles from the harbor in Half Moon Bay, Calif. “Things like visa regulations do not apply to individuals who are out there,” Marty said. “You can legally work on [starting] a company, you can earn a paycheck, you can do all of those wonderful things as long as you are at least 12 miles from shore.”

This is no free-for-all–among the basic prerequisites for any prospective tenant is a valid B-1 business visa. This allows its holder to spend up to 180 days a year in the United States. While it prohibits employment, it does allow entrepreneurs to meet with potential investors, go to networking events, and conduct other types of business in a perfectly legal manner. A 30-minute ship-to-shore ferry commute will put Blueseed’s residents on the road to places like Palo Alto, Mountain View, and San Francisco.

If all goes to plan, though, Marty and his fellow executives believe the real action will occur on board. The flagship has room for some 1,000 entrepreneurs, plus crew members and a host of “enhancers” such as accountants, intellectual-property attorneys, and other consultancies–much like a land-based business incubator might offer. The ship will feature just about every service and amenity you can imagine: Onboard medical services, a concierge, 24-7 security, full-service gym, dining, shopping, and a variety of entertainment options. A certain number of rooms will be set aside as a hotel of sorts for overnight visits from investors, media, musicians and other artists, and similar guests.

Marty envisions Blueseed’s own, oceanic version of the famed Google Talks series. He has also met with administrators at UC Berkeley’s Haas School of Business to discuss opening a satellite campus on board. In its ideal incarnation, Blueseed will become its own micro-version of Silicon Valley itself, flush with intellectual and financial capital. “The environment on board will be such that people won’t want to leave,” Marty said.

Blueseed’s first critical challenge in achieving that ideal: Like any community, the boat’s success will depend on the quality of its resident businesses. Blueseed will have a direct interest in who comes aboard; it’s not simply a landlord, but an angel investor at sea. In addition to collecting roughly $1,600 average monthly rent per person–not bad for an oceanfront apartment in the Bay Area–the company will get an equity stake in each of the startups on board.

“It’s up to us to help these companies succeed and create an environment that’s actually fostering their growth,” Marty said. “It makes us want them to grow to the point where, at some later stage in the future, they can have a liquidity event.” As a result, the application process will be competitive and may require a referral from a reputable venture capitalist or other investor. Roughly 260 startups have expressed an interest in moving onto the Blueseed boat, which plans to drop anchor in late 2013 or early 2014.

Some types of businesses need not apply–they’re not necessarily bad ideas, but they clash with Blueseed’s second fundamental challenge, what Marty calls the “managing the entire political apparatus” that comes with their venture.

Blueseed Map
Blueseed’s principals are well aware that the concept of a boat that drops anchor 12 miles offshore so its residents remain exempt from certain laws could ruffle the wrong feathers. Just the word “offshore” generates all sorts of thorny political, economic, and legal connotations.

As a result, transparency is tantamount to Blueseed’s success. The company has already turned away some potential tenants simply based on what they do. Anything in the broad industry bucket of “financial services,” for example, is a no-go; the mere whiff of tax evasion or other improprieties sends the Blueseed team sprinting in the opposite direction.

“It’s very important for us to have a proactive stance in talking to constituencies, policymakers, and everyone who will be affected, so that everybody is very clear about what we’re doing,” Marty said. “This is for entrepreneurs. This is not for existing companies to go and outsource their employees.”

Marty added that Blueseed will be a stopping point rather than an end point. The goal, he said, is to foster the startups until they’re large enough that U.S. Citizen and Immigration Services “takes them seriously” and an organization is better equipped to go through the process of becoming a land-based employer. “That is our goal and it’s very important to be open and upfront about that because it’s such a novel project,” Marty said, adding that the early feedback from lawmakers and their staffers has been generally positive.

Marty’s right: It’s a novel idea, but not one without precedent. The gaming industry took to water, too, from casinos on major cruise lines, to local party boats, to riverboats that don’t actually ever leave the dock. All share a common trait: They’re able to operate gambling businesses just beyond the jurisdiction of local and federal law. The parallel’s not lost on Marty, though he notes many of those businesses do their best to operate in relative secrecy because blackjack and dice, simply put, have an image problem. Blueseed has no interest in a similar PR strategy.

“Because we’re doing something that’s so novel and in-your-face, we need to be as clean and as free of issues and problems in every other sphere as possible,” Marty said. Blueseed is steering clear of anything and everything that might put it in murky legal waters or otherwise raise a regulator’s eyebrow. (Prospective tenants should certainly not expect a casino among the onboard attractions.)

Blueseed’s stated mission taps into the collective hair-pulling over the American economy. It cites, for example, a variety of stats on how startups create millions of jobs–a smart strategy as the U.S. continues to fret over high unemployment and its place in the world of technology and innovation. On its website, Blueseed points out that the boat itself will become its own economic engine: “We’ll create an entirely new supply chain, which will result in new jobs in the area around Blueseed’s supply lines and ferry port (Half Moon Bay, California). All these goods are going to come from [the] mainland, not from abroad.” The company notes, too, that residents will frequent Bay Area businesses and pay California sales taxes while on land.

And, like any viable startup, Blueseed seeks to fill a market need: Lots of entrepreneurs want to hang their shingle in Silicon Valley but can’t simply because of their passport. To be sure, there are plenty of other technology and startup hotbeds, around the U.S. and worldwide. None have quite the same allure.

“Silicon Valley is known as the most fertile ground in which to plant the seeds of a startup,” Marty said. “Perhaps not the only one, but certainly the best.”

Categories Narrative

The Top 12 Ingredients in Site Selection You Need to Know

Recently, I attended an interesting event on site selection at the Greater Phoenix Economic Council’s (GPEC) office downtown. They hosted a panel of corporate site selectors from New York, Texas, California, Ohio and Colorado who discussed their criteria when choosing a city and project. These types of events are exclusive to members of the GPEC Ambassador Council.

GPEC Site Selector Program 4

Here are my top 12 takeaways:

12) Every company starts off asking about economic incentives. Good site selectors encourage them to look at incentives last. Incentives are temporary and often have little effect in the long run.

11) Speed to market is paramount. If an owner can deliver a site 60-90 days faster to a high revenue company than another site with better incentives, the speed benefits will dwarf the economic incentives. If any key infrastructure is not in place, businesses will perceive an eternity before approvals make it through the city.

10) Skilled labor helps eliminate site cities fast. Technology, Energy and Healthcare are the three big sectors growing now. If a city can prove it has enough talented engineers (especially software) and tech force, that city will stay in the hunt for America’s most impactful businesses.

9) On-shoring or Next-shoring is happening. This is where companies bring some of their oversees divisions back to the US. Businesses are not bringing back all jobs from Asia, but they are bringing back the more creative, high-paying jobs. An average engineer costs $25k/yr in India, $65k/yr in Ireland and $85k/yr in the US. More companies are dissatisfied with quality overseas and are willing to pay for higher skills back in the US.

8) Companies looking at new development sites will expect the infrastructure (power, water, sewer) costs to the site to be paid by the local municipality.

7) Once site selection is 75% complete, the process becomes more art than science.

6) The lowest cost site rarely wins.

5) Educational infrastructure and retail support are becoming increasingly important.

4) To have a real shot, you must get the decision-makers on a plane and establish a connection with them to the city; their preference trumps the real estate committee every time.

3) To close a large company, you must get top local business leaders involved, sharing stories how their business have succeeded in the community. Talk about high level social proof.

2) I asked each site selector what percent of their clients end up in existing buildings vs. new development sites. Four out of five said that overwhelmingly their clients end up in existing buildings. Only one said that he sees more new development sites win out.

1) For office users, they all agreed that Class A, high parked buildings with great signage are getting gobbled up.    All of the site selectors agreed Phoenix has the ingredients for “The Next Great Hub”. Here’s to a great 2014 in Phoenix and competing for America’s best employers.

Andrew
602.954.3769
acheney@leearizona.com