With Bernie Madoff in the crosshairs of federal prosecutors for his alleged $50 billion Ponzi scheme, real estate insiders are not only speculating about his fate as a free man, but also are buzzing about what’s going to happen to all of his properties and assets.
Madoff was ordered late last year to turn over a detailed list of his personal assets to federal officials. And while the full list has not been made public, it’s no secret that Madoff owns a slew of homes, boats, cars and other luxury items that could soon go on the auction block.
Madoff, a former chairman of Nasdaq, has been under house arrest at his $7 million penthouse at 133 East 64th Street since December. Among his neighbors at the 11-story co-op is “Today” show co-host Matt Lauer, who bought a sixth-floor apartment in 2004 for $5.88 million.
Legal sources say Madoff’s apartment would likely be sold at auction once his case is adjudicated, which could take months, if not years, to resolve. And, late last month, the New York Post reported that several brokers had been asked by lawyers working for a court-appointed trustee to visit the apartment and assess its value. The paper also reported that the apartment is technically owned by Madoff’s wife, Ruth.
Real estate brokers that The Real Deal spoke to were divided about the level of demand for his assets because his reputation is in tatters and because so many charities were fleeced in the alleged scheme.
“It’s like when you see an apartment and find out somebody shot themselves in it,” said Michele Kleier, chairman and president of Gumley Haft Kleier, a boutique brokerage on the Upper East Side. “I don’t know of anyone who would want to live in an apartment with the history of what he’s done.”
That may very well be the case in New York City, but it seems there is less hesitation about scooping up Madoff’s other luxury properties.
Madoff’s homes include a 1.2-acre beachfront property in Montauk, where brokers say inquiries have been fast and furious. “There are people already coming out of the woodwork to see if they can pick it up,” Lynden Restrepo, of Atlantic Beach Realty Group, said.
Published reports have put the value of the property, which Madoff had built in the early 1980s, at $3.3 million, but brokers say they believe it’s worth far more.
In Palm Beach, Fla., where several prominent Jewish families lost hundreds of millions in the alleged scheme, Madoff owned a $9.4 million home on the Intercoastal Waterway. Late last month, a few teenage boys who claimed to have lost their trust funds with Madoff took credit for wrapping the house in toilet paper in a prank officials noted was approved by their parents.
And, Bloomberg News reported last month that Madoff owned a “modest” three-bedroom retreat at Cap d’Antibes, a popular French Riviera celebrity destination between Nice and Cannes. Guillaume Turquois, the broker who sold Madoff the apartment six or seven years ago, told Bloomberg that it was probably worth about $1.6 million. The property is reportedly also listed in Madoff’s wife’s name.
Madoff also reportedly has a vast array of yachts, luxury cars and jewelry. But lawyers say his assets will likely be auctioned off to compensate victims of his alleged scheme.
“The government can do that to pay the cost of your jail time and whatever damages they assess in the criminal prosecution,” said real estate attorney Lisa Breier Urban.
Investigators are still trying to determine whether Madoff hid any additional assets, either in secret accounts or by putting them in family members’ names.
Most initial investor claims will go before an organization called the Securities Investor Protection Corp., a federal agency that provides up to $500,000 for individual investors who are damaged by the insolvency of a failed brokerage. As of early January, more than 8,000 claim forms were mailed out, and additional investors were expected to emerge.
Adding insult to injury, lawyers say that under so-called clawback provisions in the law, investors who redeemed money from Madoff-controlled funds will likely have to return the interest and principal, as administrators try to compensate victims of the alleged scheme.
On top of Madoff’s personal assets and victim compensation, real estate insiders in New York fear the scandal will have a chilling effect on new investment here.
Madoff’s alleged victims included an all-star list of real estate investors. They range from Fred Wilpon’s Sterling Equities, which owns the New York Mets and $3.5 billion in real estate-related funds, to Blumenfeld Development Group principal Ed Blumenfeld, a partner in Forest City Ratner’s East River Plaza.
Eric Anton, senior director at Eastern Consolidated, worries that the real estate industry will have a much harder time raising equity due to the mistrust generated by the scandal.
“The way real estate developers typically put together their equity is through friends and family, or syndications, putting 10 to 20 people together in a deal,” said Anton. “This is going to make people nervous. They may not invest equity in deals because of this lingering noxious feeling.”
Anton said the scandal could further spook new investors from stepping forward with new capital.
And the Madoff affair is already having an impact on residential deals in New York. Jacky Teplitzky, executive vice president at Prudential Douglas Elliman, said several of her clients have backed out of deals after being fleeced by Madoff-controlled funds.
Three days before Madoff turned himself in, she said one of her clients, a young couple, signed a contract to buy a $1 million apartment on the Upper East Side, and their respective parents were scheduled to pay a $500,000 down payment.
However, parents on both sides of the family had invested in Madoff-controlled funds and the deal fell through.
“Everyone is in a state of shock,” Teplitzky said. “My belief is it’s going to impact Manhattan real estate even more than the stock market has.”