Think of the skylines of two of the world’s great cities; New York’s iconic skyscrapers and London’s unique architectural horizon. Now consider: who owns these trophy landmark properties? In the past it may have been governments, institutions, hedge funds and sovereign wealth funds.
Increasingly, it is the world’s super-rich.
Whether residential or commercial, large-scale new developments or Grade-II bricks and mortar, billionaires are raising their asset allocation to real estate – especially in safe haven cities like London and New York. According to figures from ultra high net worth (UHNW) intelligence provider Wealth-X, the world’s billionaires now have 2.6 percent of their assets in property versus 1.9 percent in the pre-credit crunch days of 2007: a massive rise of nearly 37 percent.
“The first signs of a real estate pick up almost anywhere are seen in demand for trophy properties from ultra high net worth individuals,” said Yolande Barnes, director of residential research at Savills, the international real estate agency.
Two common factors link this renewed appetite. Usually these properties are good value for money and likely to yield an attractive return. Frequently properties are picked for their ability to act as a safe wealth haven, said David Friedman, president of Wealth-X.
“In the wake of the recession we are seeing a growing trend of single family offices investing directly into undervalued commercial or residential real estate for yield, combined with the larger macro picture that they are still in retreat-mode, turning to asset classes that they can understand versus complex structured products,” Friedman commented.
The total real estate holdings of the world’s billionaires is estimated at US$169 billion, or an average of US$78 million per billionaire, according to Wealth-X data. Billionaires own an average of four homes with each one worth nearly US$20 million.
London in particular holds perennial cachet with the world’s ultra wealthy, say agents, and its skyline is becoming crowded by buildings backed by rich foreigners. For the first time in a decade, the Duke of Westminster is no longer the capital’s biggest property owner, according to a survey conducted by property magazine the Estates Gazette. The sixth-generation Duke has assets of US$10.7 billion, of which US$6 billion or 56 percent is made up of his stake in Grosvenor Estates, according to Wealth-X. This comprises property in Mayfair and Belgravia and the Liverpool One Shopping Centre. He was, this year, surpassed by China’s Wang Jianlin of the Dalian Wanda Group. Although worth slightly less at US$10.2 billion, Wang has over 97 percent of his assets invested in his business. This year he paid US$1.1 billion to acquire the One Nine Elms project in Wandsworth, part of the city’s South Bank regeneration campaign. Wang plans to create a mixed-use iconic development with a 62-story luxury five-star hotel as well as 436 private homes.
Another top London property magnate is Hong Kong-based Henry Cheng Kar-Shun, chairman of New World Development, and his family. Last June Cheng signed a deal to regenerate a huge area surrounding the O2 in London, and invested in a luxury Knightsbridge development. Like Wang he is very illiquid. The vast majority – 85 percent – of his US$3.6-billion fortune is invested in his business. Joseph Lau, another Hong Konger with US$7.3 billion in assets according to Wealth-X, runs Chinese Estates Group. Two years ago, he bought US investment bank Goldman Sach’s London headquarters, for £280 million.
“The market in London is still very hot for large-scale residential and commercial investment,” said Charlie Ellingworth, of London buying agent Property Vision. He said that supply is tight on the commercial side and pointed to two recent retail purchases in Bond Street at just over two percent yields, both bought by Chinese trophy-hunters. Price was not an issue. “They were keen to make their mark by buying the best of the best in London retail space, even though it was extremely expensive.”
Residential supply is more plentiful in London with dozens of new developments coming up over the next year or two, said Ellingworth. “These vary from the huge – like the Battersea Power Station – to former office blocks been converted all over London and will make prime targets for yield-hungry billionaires property bulls.”
Meanwhile in New York, developer and landlord Richard LeFrak is officially the city’s biggest real estate mogul, with an estimated personal fortune of US$4.9 billion, according to Wealth-X. He owns the 5,000-unit apartment complex LeFrak City in Queens and more than 16 million square feet of commercial, residential, and retail properties in Newport, New Jersey. Another major player is Leonard Stern, chairman and CEO of privately-owned Hartz Group, has an estimated net worth of US$4.1 billion. The company currently owns more than 38 million square feet of commercial and residential property in New York, New Jersey and Chicago. Billionaires Sheldon Solow, Donald Trump and Steven Roth are also all behind trophy real estate development in the city.
Harry Macklowe – the New York-based ultra wealthy developer behind Metropolitan Tower, Worldwide Plaza, the General Motors Building and the flagship Apple Store in Fifth Avenue – last month unveiled his new project in conjunction with the CIM Group. The 96-story 432 Park Avenue will be the tallest residential building in the Western hemisphere, and is designed by world-renowned architect Rafael Viñoly. Although the development will not be complete until 2015, half of the 104 units are under contract, totaling US$1 billion. The ten penthouses are priced from US$72.5 million. One has already sold.
Joseph Aquino of Douglas Ellison in New York said that when it comes to the Big Apple, developers of trophy properties tend to be locals, but the buyer demographic is changing. “We see the same local players developing, but what is coming down the pipe to New York is investment from China. It is a matter of time before we see the fruits of their labour.”
Time will tell whether this craze for trophies will be a passing fad amongst the world’s billionaires. Challenges abound, like the UK’s new capital gains tax rules. Liam Bailey, head of Knight Frank Global Research, said that he doesn’t expect the removal of the CGT exemption for non-UK residents to affect demand at this level of wealth. “Tax is not the primary driver for the majority of international buyers of residential property in London,” said Bailey.
New York also faces hurdles. Aquino added that building very high towers has plenty of restrictions. “You almost need an area to be rezoned to get higher towers since assemblages are fewer.”
Barnes at Savills believes we will see what she calls “the Champagne Tower affect”. She said: “UHNW buying has begun to slow down, but what started in the centre at the very top is now flowing down the market and outward. This bodes well for the prime real estate markets in the world’s major cities.”