Funny money

Stuart Elliott
Stuart Elliott

In New York City real estate, it’s a time of record-setting deals, low inventory and apartments getting snapped up at lightning speed.

But at the tippy top of the luxury market, even with all the positive signs, one could make the argument that it’s not necessarily good economic fundamentals that are driving activity today.

For example, hedge funder Steve Cohen, who is the subject of a profile in this issue, is making some of the biggest moves in New York real estate right now, but the economy likely has little to do with his decision-making.

Cohen, who is at the center of one of the biggest insider-trading cases in history, recently made the priciest Hamptons purchase since 2008, paying $60 million for a home in East Hampton. And he spent another $60-plus million on two homes in Greenwich Village. The embattled founder of SAC Capital Advisors is also seeking to sell his Manhattan apartment in Midtown for what would be a record price at $115 million.

Instead of a bellwether of a hot market, Cohen’s high-flying real estate activity may simply be an attempt to shield his assets from the federal government. Last month, after a years-long investigation, the SEC filed civil charges against Cohen that accuse him of failing to prevent insider trading at his firm. (Check out our story on his recent activity here.)

But it’s not just Cohen. The current record holder for a Manhattan apartment sale is Russian businessman Dmitry Rybolovlev, who bought an $88 million penthouse at 15 Central Park West last year. His ex-wife has claimed in court documents that the deal was an attempt to shield assets from her during their nasty divorce battle.

And what will likely be a new record holder for New York (it hasn’t closed yet), the $90-plus million sale of a penthouse at One57, also doesn’t speak to the kind of fundamentals that support the long-term health of the market. A partnership of Pershing Square Capital’s William Ackman and a group of real estate investors paid big bucks for the massive 13,000-square-foot condo overlooking Central Park as a speculative investment — not as a place to live.

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Foreign buyers, speculators and those running from the law … I thought the market was supposed to be on surer footing since the last crash? It almost makes you nostalgic for the mid-2000s boom, when the high-water mark was private equity investor J. Christopher Flowers buying the Harkness Mansion on the Upper East Side for $53 million. (Flowers reportedly sunk $4 million into renovations, then sold it in 2011 for a steep discount at $36 million to art world powerhouse Larry Gagosian.)

Of course, high-priced sales are inherently outliers, even if they do help set the pace for the rest of the market. And the market is clearly going gangbusters right now. The Manhattan apartment market had its most active spring since 2007 this past quarter, and inventory is supertight, with the number of available units at a 13-year low. Buyers are grabbing everything that isn’t nailed down. But it is worth noting where the money at the highest end is coming from, especially since — not to be alarmist — everyone missed the warning signs last time around.

In a spread this month, we look in more detail at these and other factors that could serve as red flags to counter the current real estate market euphoria.

Some see the New York market as being driven by artificial factors, such as the Fed’s policy of buying bonds to shore up the economy. Also, private equity investors, in particular, are highly levered, and with rising interest rates, things could get messy. And unemployment — at the end of the day, more important to the city’s economic health than foreign buyers, of course — remains high, at 8.4 percent versus 5.1 percent right before the financial crisis.

Less ominously, elsewhere in this issue we take a look at the best commercial brokerages to work for, rank Manhattan’s biggest residential management companies, and survey the condo buildings with the lowest common charges.

Enjoy the rest of summer and enjoy the issue.