The news about New York’s luxury residential market has been grim lately — at least for developers and brokers.
Sales volume is down. Inventory is piling up. And discounts are the norm.
But brokers say there’s one group of buyers who have been eager to pull the trigger on deals: wealthy tech executives. And those buyers have, in some cases, been emboldened after their startups have been bought — and in the wake of a string of initial public offerings this year by companies such as Uber, Lyft, Slack and Pinterest.
“When Uber IPO’ed there were a lot of wealthy people who were looking for properties literally the next day, on Mother’s Day weekend,” said Nest Seekers International’s Ryan Serhant, who worked with some of them but declined to elaborate on any deals.
Despite the ridesharing firm’s disappointing IPO in May, it’s clear that many of the company’s employees made out well: Uber logged $5.2 billion in losses in 2019’s second quarter, which was largely attributed to employees cashing out.
Purchases by tech millionaires (and billionaires) are obviously nothing new. See Michael Dell’s $100.5 million purchase at Gary Barnett’s One57 in 2014. In the last year alone, Amazon’s Jeff Bezos and Uber founder (and now ousted CEO) Travis Kalanick have both made mega-purchases.
While there are no publicly available statistics that break out residential purchases by the industry that the buyers hail from, brokers have anecdotally spotted a slight uptick in acquisitions among a broader swath of tech executives and employees.
And these tech players aren’t just buying because they have cash windfalls; they’re also purchasing property in New York City because their companies have been gobbling up office space here.
In the third quarter alone, Google finalized its 1.3 million-square-foot lease at 550 Washington Street (also known as St. John’s Terminal), the final piece in its Hudson Square campus. Uber inked a 300,000-square-foot deal at 3 World Trade Center.
Meanwhile, Facebook is reportedly in talks with Related Companies to take an additional 500,000 square feet of space at Hudson Yards, a move that would bring its footprint at the development up to 1.5 million square feet. And Apple is looking for somewhere between 200,000 and 500,000 square feet but could take as much as 750,000, sources told TRD recently.
More generally, tech leasing has skyrocketed in Manhattan in the last decade: Tech firms occupied less than 1 million square feet 10 years ago in the borough versus 3.5 million square feet last year. And that’s not including the latest wave of monster leases signed this year.
Tech jobs have risen in tandem. Tech:NYC, a nonprofit that represents the tech industry, cited research showing that the number of jobs in New York’s “tech ecosystem” was at 333,000 last year — up from 250,000 in 2006.
“All of the major players are here,” said Clayton Orrigo, a Compass broker who recently worked with Shutterstock founder and CEO Jon Oringer. (Oringer sold a penthouse at 71 Laight Street for $19.5 million and went into contract on a $27 million penthouse in May at 56 Leonard, according to news reports.)
Rachel King, a broker who works on Serhant’s team at Nest Seekers and splits her time between Palo Alto and Manhattan, said she’s witnessed an uptick in movement from the West to East Coast. “Silicon Valley is where you make your fortune and New York City is where you spend it,” she wrote in an email.
The hoodie crowd
Justin Fichelson, a top-producing broker in San Francisco and founder of the Fichelson Real Estate Group, said that for many tech execs based in Northern California, “New York is top of their list to buy a second place.”
“It’s one of the things you do when you have a lot of money,” he said.
And the tech world is churning out a large number of millionaires.
Globally, about 10 percent of individuals under 50 who have a net worth of at least $30 million come from the industry — second only to banking and finance, according to a September report by research firm Wealth-X. A quarter of those individuals live in the U.S.
Fichelson — a former star of Bravo’s “Million Dollar Listing San Francisco” — said many have who made money in Silicon Valley look to buy more lavish properties outside the Bay Area, mainly in New York and Los Angeles. In New York, he frequently refers clients to Dolly Lenz, who runs an eponymous firm, and Douglas Elliman’s Noble Black.
“The culture [in San Francisco] is very wear a hoodie and bicycle,” said Fichelson, who estimated that about 75 percent of his clients made their money in tech. “A lot of the buyers tend to be very low-key when they’re in San Francisco, and then they’ll buy something very large and sprawling in L.A. or something flashy in New York City.”
He noted that many are looking for city views, given that they are harder to come by in low-rise San Francisco. Lenz — whose website states that she’s sold over $11 billion in residential real estate during her 25-year-career — also noted that these tech buyers usually want “big and bold.”
“I must say thank God for these people because we’re losing the Chinese, we’re losing the Russians,” said Lenz, referring to the recent drop in overseas buyers. “We finally have a good pool of wealthy buyers that we can tap.”
Black wasn’t quite as enthusiastic, but he called the steady interest from tech players “one ray of sunshine.”
Bicoastal or bust
When a major tech player makes a multimillion-dollar purchase in New York, it makes headlines.
And examples of those deals abound.
Kalanick — who resigned from Uber in 2017 after a series of internal company scandals — bought a 6,555-square-foot penthouse at 565 Broome for $36.5 million in August.
Jet.com founder Marc Lore, meanwhile, bought a $43.79 million penthouse at 443 Greenwich Street last year.
And the list goes on.
Matt Cohler — a former Facebook executive who is now a venture capitalist backing tech companies — is believed to have traded his Gramercy Park townhouse last year for a Nolita penthouse asking $35 million at 152 Elizabeth Street. (It’s now on the market again.)
And Sean Parker of Napster and Facebook fame assembled two townhouses to create a mega-mansion on West 10th Street. In 2011, he bought a $20 million townhouse and then five years later shelled out $16.5 million for the property next door.
And those deals all paled in comparison to the $80 million that Bezos dropped on three units at 212 Fifth Avenue this past June.
But beyond those monster transactions, there are a lot of other hoodie-wearing techies with cash to burn.
Warburg Realty’s Catherine Smith has worked with a number of clients who started looking for property after selling their company to Adobe in 2011. She said many of them have built portfolios of residential investment properties over the years — buying up pricier apartments while keeping their existing ones.
For more recent buyers, the New York City properties they’re picking up serve as pieds-à-terre — a halfway point between their primary homes in San Francisco and clients in Europe. They also offer a New York home base when they have meetings here and a place to entertain.
They even help with dating in the city, according to Compass’ Orrigo, who travels to the Bay Area about every other month to network and lived in Palo Alto and San Francisco for about three years starting in 2009.
“It’s a better social scene,” he said. “The dream is always to be bicoastal.”
To delay or not to delay?
Orrigo is not the only broker wooing these buyers. A number of New York City brokers have been proactive about courting Bay Area clients.
Elliman’s Oren and Tal Alexander have made three trips to San Francisco in the past year after noticing an uptick in buyers from there in New York and Miami.
“If you ask them where they want to live, obviously, New York has a lot of offer,” said Oren Alexander. “Most of them are tired of being around a lot of tech people.”
But according to Deniz Kahramaner — a Stanford-trained data scientist who founded his own brokerage, Atlasa — the lag time between when tech executives cash out in the wake of an IPO and when they buy property averages about 18 months.
Kahramaner came to that finding after analyzing San Francisco’s residential market right after Facebook and Twitter’s IPOs in 2012 and 2013, respectively.
He said those delays are partly the result of lockup periods that tech employees have on their stock options — meaning they can’t sell stock during that time — and because it takes time to find a home and get ducks in a row.
Notwithstanding the possible onset of a recession, he expects the beneficiaries from 2019’s batch of IPOs to start buying in spring 2020.
As for those who are already buying in New York, brokers noted that they tend to favor new developments — starchitects are an added bonus. Home offices and properties conducive to entertaining are usually requirements, too.
Oren Alexander said he handled a deal for a well-known tech exec at 432 Park Avenue in which one major draw was that the buyer could turn part of the apartment into a boardroom.
Serhant noted that many of his clients have had designers fly in. “They’re not coming here for a three-bed apartment with, like, good exposures,” said Serhant. “They’ve got cash and they’re willing to spend it.”
Orrigo described his clients, particularly the female founders he’s worked with, as “real arbiters of style,” personally attending auctions for vintage furniture and carefully curating properties.
“They’re nesting with money, and it’s their money,” he said, noting that his tech clients average in age from 27 to 40 years old. “These are not third-generational wealthy people who have family handlers … They are used to doing stuff on their own.”
That said, some issues are more likely to pop up with tech buyers.
Orrigo said he’s become accustomed to fielding questions about the acoustics and special add-ons, often from “male software guys.”
“‘How loud is it at night?’ and ‘Can I put a Jacuzzi on the roof?’ Those are the questions I get all the time,” he said.
But generally, he said: “The tech people I know are very understated and quiet. A lot of these guys like to be super anonymous.”
He recalled how one of his high-net-worth clients jumped on a Citi Bike after dinner together at Lucali in Carroll Gardens rather than taking a car home.
Others, however, go all out when they entertain.
“There are A-list celebrities, pop stars performing and it’s like a Tuesday night. It’s completely insanity,” Serhant said.