The Real Deal New York

Anything but roulette

An inside look at how Russian billionaires wheel and deal for NYC real estate

November 01, 2012
By Adam Piore

Elizabeth Lee Sample has brokered $1.5 billion worth of real estate in her career. But it wasn’t until she began working with high-end Russian buyers several years ago that she found herself leaving the Four Seasons Hotel on East 57th Street one Sunday with a check for $2.5 million burning a hole in her pocket.

“We had shown a couple a penthouse at the Ritz-Carlton,” she recalled. “They really liked the apartment, but they were leaving right away for California. So they left the check for us in the lobby for the escrow deposit.”

Welcome to the world of the superrich Russian condo buyer, a rarified and red-hot segment of the New York real estate market. It’s a world with private planes, cars that cost as much as some houses and entourages of bodyguards, assistants and traveling maids. But perhaps its most notable component is its emphasis on discretion and secrecy — qualities so valued that co-ops are virtually out of the question.

“Normally with buyers in New York, you need to know up front what’s in their bank, in terms of liquid cash, but I would never dream of asking that question,” said Dominique Punnett, a half-Russian broker at Stribling & Associates, of a Russian client who is looking for an ultra-high-end apartment. The buyer has made it clear to Punnett, without explicitly saying so, that “price is not an issue.”

“They come from a very different culture, and you have to understand that,” said Victoria Shtainer, a Russian-born broker with Prudential Douglas Elliman, who began meeting Russian clients through family and friends back in 2004 and has sold them properties at many of the city’s most expensive addresses, including 15 Central Park West and the Time Warner Center.

Russia, she pointed out, is “not the land of opportunity — it’s cutthroat.”

Those who made it to the top and come here to spend the spoils, she added, expect VIP service, don’t suffer fools and “are always on the defensive.”

“They don’t talk about who and what they are,” Shtainer said. “You have to win their trust. You find that information out later rather than sooner.”

 

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Portraits of wealth

Perhaps the most notorious Russian buyer in New York in recent years has been Andrei Vavilov, a former deputy finance minister and hedge-fund magnate.

Vavilov generated worldwide headlines when he sued Plaza Hotel developer Elad Properties in 2008, complaining that two penthouses he’d committed to buy for a cool $53.5 million (and planned to combine) had been ruined by ugly architectural features including narrow windows that “make the space more closely resemble an attic than a luxury penthouse living room,” according to the lawsuit.

Vavilov, who sports wire-rimmed glasses and a salt-and-pepper buzz-cut, illustrates both the spoils in play in modern Russia and the danger one can face in attempting to grab them.

He rose to be deputy finance minister under former President Boris Yeltsin in 1992, helped push through privatizations and other reforms and survived a James Bond–like assassination attempt in 1996, when someone blew up his car in a Kremlin parking lot, according to the New York Times. (Vavilov was not in it at the time.)

He later joined the board of the Russian energy firm Gazprom as a financial counselor, bought a controlling stake in a smaller oil company with a $25 million loan and sold the company just four years later for $600 million in cash, according to the newspaper. But he was dogged by suspicions that he was involved in insider deals and, in the late 1990s, Russian federal prosecutors investigated whether he embezzled $231 million during the sale of MiG fighter jets to India. He denied the accusations, and the case was closed in 2008 after the 10-year statute of limitations expired.

Vavilov, of course, is just one of the many Russian billionaires to buy a lavish New York apartment in the last few years. And that number is only likely to grow. The number of Russians on the Forbes list of the world’s billionaires has gone from zero in 2000 to 96 this year. And every year, new arrivals seem to one-up each other when it comes to buying real estate here.

From left: Dmitry Rybolovlev; the $88 million apartment at 15 CPW Rybolovlev bought for his daughter; the townhouse at 15 East 64th Street that Len Blavatnik purchased in 2007 for $50 million from Seagram Company heir Edgar Bronfman.

One of the highest-profile deals involving a Russian billionaire is, of course, the $88 million pad that Dmitry Rybolovlev bought for his 22-year-old daughter, Ekaterina, at 15 Central Park West. The purchase of the apartment, which was owned by former Citigroup chairman Sandy Weill, was the highest closed sales price ever for a Manhattan apartment.

The purchase came four years after Rybolovlev broke another record, when he shelled out about $100 million for Donald Trump’s 69,000-square-foot Palm Beach estate.

Both of those properties are now at the center of his divorce.

Rybolovlev’s estranged wife, Elena, sued in Manhattan and Florida, alleging that Rybolovlev used trusts linked to their children to shield his assets from her.

Rybolovlev — who’s worth an estimated $8 billion — was one of Russia’s early stockbrokers. He bought shares in state-owned enterprises, founded a bank and made his fortune investing in potash fertilizer during the privatization of those state-owned enterprises.

Like Vavilov, his past is replete with innuendo and spy-novel–type details.

He is said to wear a bulletproof vest, has an art collection worth more than $500 million with works by Monet and Picasso, and owns homes in Dubai, Monaco, Paris and Geneva. According to the New York Times, Rybolovlev has not set foot in either the Florida or New York property since purchasing them.

Russian entertainment mogul Igor Krutoy

Meanwhile, in 2011, Russian impresario Igor Krutoy and his wife, Olga, paid a then-record $48 million for a 6,000-square-foot condo at the Plaza. A composer who owns record labels, music TV stations and produces Russia’s American Idol–esque “Star Factory,” Krutoy is an entertainment icon across the former Soviet Union with a net worth Forbes estimates at upwards of $13 billion.

A few months after breaking the record at the Plaza, he shelled out another $23.85 million for a mansion on tony Gin Lane in Southampton. He reportedly told his brokers he planned to demolish it and build a new one.

Then there’s Russian It girl Anna Anisimova — daughter of metal magnate Vasily Anisimov. She purchased a 3,900-square-foot penthouse at Time Warner Center in 2004 for $9.86 million, soon after enrolling in NYU and diving into the New York social scene, where she earned the sobriquet, the “Russian Paris Hilton.” Anisimova, now in her late 20s, listed the penthouse in April for $50 million.

Just months after buying her penthouse, Anisimova, a former teen model, rented socialite Denise Rich’s Southampton mansion for $550,000 (then the most ever paid for a Hamptons summer rental), and announced plans to host a 700-person charity bash promoted by celebrity PR guru Lizzie Grubman. Now married to film producer Peter Schafer, Anisimova is selling the penthouse because she wants to pursue an acting career in Hollywood.

Other Russian buyers in recent years reportedly include billionaire Len Blavatnik, an oil, gas and metals magnate, who paid Edgar Bronfman, the heir to the Seagram Company, $50 million for his 64th Street townhouse in 2007. That deal came just a couple of years after Blavatnik paid $31.25 million for another townhouse nearby, and a couple of months after he purchased a Fifth Avenue apartment for $27.5 million.

Nets owner Mikhail Prokhorov

Then there’s Oleg Baibakov, president of a Moscow construction management and consulting firm, who purchased a $13.5 million Time Warner Center condo. There are also scores of other high-profile buyers from the former Soviet Union, such as oil magnate Bolat Nazarbayev, brother to the longtime Kazakhstan President, who owns a $20 million Plaza condo. Even Boris Berezovsky, exiled oligarch and Vladimir Putin foe, reportedly owns a $3.2 million Central Park West condo he purchased in 2001.

But perhaps the most well-known Russian oligarch in New York owns a different sort of property — the Brooklyn Nets. Mikhail Prokhorov, who made his fortune in precious metals, shelled out $200 million for the team in 2009 and owns 45 percent of the Barclays Center.

 

Russian It girl Anna Anisimova, daughter of metal magnate Vasily Anisimov, and her Time Warner apartment, which originally listed for $50 million in April

Wining and dining

Working with this cast of characters brings serious financial rewards. Sample and her partner Brenda Powers, who work at Sotheby’s International Realty, were widely reported to have acted as Vavilov’s brokers — both on the ill-fated Plaza deal and in his later purchase of a Time Warner Center penthouse for $37.5 million in 2009. Sample would not discuss those deals, but did speak generally about Russian buyers.

Sample met her first Russian clients, a couple, while selling a penthouse at the Pierre on East 61st in 2006. That led to a chain reaction of referrals among their friends and families, to whom she has since sold more than $125 million worth of real estate.

Most of her clients, Sample said, arrive by private jet (many have several jets). Most also have purchased vehicles that stand ready to pick them up at the airport and ferry them around New York. They include Bentleys and Range Rovers that are fully equipped with satellite TVs and refrigerators, all the way up to cars from Germany luxury manufacturer Maybach, which makes the $1.35 million Landaulets sedan. Sample said the entourages of her Russian clients usually number no more than five, which includes bodyguards, drivers and assistants (though others say their clients sometimes arrive with as many as 10 in tow). In general, she will send ahead a detailed analysis of what’s on the market, complete with square footage, dollar per square foot and desirability of the building.

“It’s not always the price that is the most important, it’s more the prestige of the property,” she said. “Many Russian clients know what the buildings are; they know what the top condominiums are.”

After showings, Sample will often meet her clients for dinner — Cipriani and Per Se are client favorites — or a subsequent breakfast where she can receive her marching orders.

“Honestly, there is no vodka,” she said. “Surprisingly, a lot of them don’t drink at all. These guys and women did not get this money by drinking all night.”

Most of the deals, Sample said, close quickly.

One Russian couple, Sample recalled, lost an apartment at the Time Warner Center and flew back to London “very upset.” When a similar apartment came on the market at 25 Columbus Circle, they engaged in an aggressive bidding war for the apartment “sight unseen,” and eventually won the right to buy the property for around $19 million.

In general, however, even if another broker tells Sample that they have “three bids for $40 million” on a space, Sample said, “we would always bid lower to see if that is the case.

“Because here you have someone who can close and wants the apartment and, like anyone else, does not want to be taken advantage of,” she said. “Everyone expects Russians to come in and overpay. I would say before Lehman, they might just come in and overpay to secure the property. But that is not the case anymore.”

 

Getting money out

To arrange the financial aspects of the deal, most buyers rely on attorneys. Edward Mermelstein, a Ukrainian-born real estate attorney, said he’s handled more than 500 deals for Russians over the years, with 150 in just the last three years.

Though Russians from Moscow first began inquiring about high-end New York real estate as far back as the 1990s, it wasn’t until 2000 or 2001 that the group began buying in great numbers. In the last year and a half, buyers have begun appearing from the outer regions of Russia.

Mermelstein estimated that funds leaving Russia for New York are “significantly north of the $100s of millions” in primarily residential properties.

For him, the process usually begins even before his clients have met brokers. Many of his clients, he said, have already identified the properties they intend to bid on before they come to the U.S.

“The Russians that are coming to New York — especially in the last couple of years — are typically high-profile individuals,” he said. “The types of properties they are looking at reflect that — everything from Time Warner to 15 Central Park West to the Plaza. They jump from one building to the next just because it’s the flavor of the year.”

To avoid road bumps that could delay an apartment closing, Mermelstein goes over the process for getting the money out of Russia carefully with his buyers or their representatives long before they arrive, using flow charts and other graphic aids when necessary.

“It’s never been a problem getting money out of Russia. The problem is typically how the money is made in Russia,” Mermelstein noted.

“In order to move money out of Russia, you need to prove that taxes have been paid on those funds. And it’s not a country where people like to pay taxes,” Mermelstein said, adding that he only deals with clients who actually pay their taxes.

Still, “problems occur when you have made a lot of money in Russia and now you are interested in investing out of Russia because you have to disclose you have made the money and paid taxes on it,” he explained. “It’s a question of whether they want to do that because you are exposing yourself to prying eyes.”

Many are also unfamiliar with the idea of transferring money to an attorney’s escrow account (which is standard procedure here). Mermelstein advises the client on their options: opening a U.S. bank account, using a power of attorney to make the purchase or setting up a corporate LLP with all its attendant tax ramifications.

According to brokers and other industry insiders, efforts to get money out of Russia without paying taxes have become increasingly difficult since Putin resumed the presidency last May, which has delayed some real estate deals in New York.

 

Homegrown tactics

Nonetheless, money is, for the most part, the least challenging component of working with Russian clients.

“Because they are extremely wealthy, sometimes they land here and call you and say, ‘I want to see properties within the hour,’ ” noted Elliman’s Jacky Teplitzky, who said she’s done about 10 deals worth about $50 million with Russian buyers, including several at the Time Warner Center. “You cannot say, ‘No.’ You can’t say, ‘Sorry, I have another appointment,’ or, ‘Sorry, I can’t find the other broker.’  If you do, it’s a problem. They will not wait for you. They will run.”

Shtainer said most of her clients are among the smartest and best-prepared she has dealt with. She recalled taking one client to see an apartment at 15 Union Square West. He knew which days the farmers’ market was out front and how that would affect the view.

“You have to understand who you are,” she said. “You are the gatekeeper and the authority, and you better know your information front and back because they will ask you about every building and every floor plan. They like information and sometimes they will know it before you.”

As many brokers and industry figures have discovered, some of these high-achieving buyers aren’t reticent about importing the same techniques in New York that they used to get ahead back home.

A little less than a year ago, for instance, one of Mermelstein’s clients purchased a new condo for $7 million and asked Mermelstein to use his banking contacts to help him refinance the mortgage on the property. Mermelstein found bankers willing to do so if the client agreed to open an investment relationship with the same bank. The client agreed. Then the day the deal closed, the client called to say that his financial situation had changed and he would not honor the investment relationship.

“These are very savvy individuals that are used to taking advantage of the system from which they are coming,” said Mermelstein. “Unfortunately, whenever they have the opportunity to take advantage of the situation, they take advantage of the situation. And sometimes they take advantage of people.

“The flip side is everyone wants to deal with them because they have the money,” he said.

  • BobbieD7

    Interesting overview but isn’t this story about a year out of date? Also, it was widely reported elsewhere that Ekaterina Rybolovleva bought the 15 CPW penthouse through a trust and her and her other sister acquired the Palm Beach property, so perhaps a fact check update is in order…

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