Finance

Four Trends and a Warning: Wealth Expert Robert Frank Divines the Fate of the Luxury Real Estate Market

By Allison Geller

Robert Frank 2013Robert Frank, CNBC reporter, author of two books on the über-rich and former Wall Street Journal Wealth Reporter and overseas correspondent, is a wealth of knowledge on the world’s most moneyed buyers. We asked him to read the signs of today’s ultra-high-end real estate market.

1. The Markets Are Globalizing

Frank predicts a “grand convergence” of prices in the luxury spaces of the major global markets: New York, London, Hong Kong and Los Angeles.

“They won’t be the same,” he clarifies. “But they will be more closely correlated than they are now because the wealthy buyers in London, New York, and Hong Kong have more in common with each other than they do with their own countries.”

Those cities will join to become a super luxury market on their own, Frank says— not powered by the steam of local economies, but “driven by the dynamics of the world’s wealthy.”

“People aren’t buying second or third homes anymore. They’re building real estate portfolios,” he adds, defining that as “an investment-focused, diversified basket of properties” that encompasses the full breadth of these markets.

 

2.  The Mythical “Overseas Buyer” Is Dying

Gone are the days of building a luxury condo and targeting the faceless “overseas buyer.”

Today’s realtors have to be fluent in the cultural language of each market, from Russian oligarchs looking for high-status Central Park penthouses to Chinese buyers in Seattle seeking top-notch educations for their kids. “Each of those different groups has very different priorities,” Frank says, which realtors must effectively cater to.

 

3. The Fine Art Market Is Real Estate’s Mirror

The world’s wealthy have overflowing bank accounts, Frank notes, and a limited number of places where they can smartly invest their surfeit dollars (or rubles, or yuan). Once they’ve invested in properties, the ultra rich are seeking out chattel they can take with them.Lynn Tilton and Robert Frank in helicopter

“Art is like real estate: it’s secure, it’s a short- and long- term asset, so you can trade it, but it’s also a long-term appreciating asset,” Frank says. “But unlike real estate, art is very portable.”

And like real estate, only the teetering top of the art market is experiencing a boom. Once you go below the “penthouse level”— “below the Rothkos, the Bacons, the Picassos, the Basquiats”— the market is sluggish, even declining.

 

4. The Super Rich Are Getting Super Richer

Frank observes the rise of a new kind of rich that is only getting richer: a “billionaire class” that is accruing fortunes “faster and at a scale like never before.”

Compare the people who buy the trophy properties, the $142 million Francis Bacon paintings and the $38 million Ferraris to the start-up entrepreneur or “plodding Wall Streeter”— the “merely wealthy,” as Frank puts it— and the division is clear.

“The highest ground in real estate is where all the growth is,” Frank says.

 

5. Is the Bubble Due For a Pop?Robert Frank and realtor Senada Adzem

Developers with dollar signs in their eyes are enthusiastically accommodating the nouveau, global rich. But will there be enough demand in a year or two to justify the $5 million luxury condos cropping up by the hundreds in Miami and New York?

That depends on the future of the mysterious “overseas market.” Right now there is a scramble in Russia and China to get money offshore— but it’s anyone’s guess how long that will last.

That makes for a huge degree of volatility at the top of these markets, from penthouses to Picassos. People with “paper fortunes” can simply shut off their spending if they lose confidence in the economy, sending luxury industries tanking.

“And it happens really quickly,” says Frank.

 

 

The 3 most relevant policies for mortgage protection

HarryIn an era of large home purchases and jumbo mortgages, how does a buyer ensure his home is properly protected from future disasters? We must first evaluate and determine the types of disasters that can befall a home owner. Once these are determined, the owner should then decide which risks they are willing to accept and which risks they would prefer to have insured.

This article will deal with the risk of death or disability of the primary income earner homeowner. In every circumstance, working with the right advisor is the first critical decision in determining insurance requirements. The advisor should do a complete financial evaluation prior to determining a plan of action. Once the owners are comfortable they have the right advisor, they should then think about the effects the death or disability of the primary income earner would have on the rest of the family.

For example, an investment banker earning $2 million per year could require a different plan than the owner of a software development company earning the same income but with equity in the company and a properly funded buy-sell agreement with his partners. In either case, the risk of loss of income is the most important criteria relating to home mortgage protection. In many cases, the risk of disability is much greater than the risk of death, but both need to be effectively addressed. Disability insurance can be acquired to replace a complete income stream for virtually any level of income if the advisor is using the right market resources.
Life insurance comes in many varieties. In this article we will only address the 3 most relevant policies for mortgage protection.
Term Life Insurance- This type of policy pays a death benefit only during the term that the buyer determines at policy acquisition. The term can be one, five, ten, fifteen, twenty or thirty years. The premiums are fixed for the entire time period, but at the end of the period there is no value left and the insurance is gone. For those who are just concerned with income replacement, this is the cheapest for of insurance.
Guaranteed Universal Life Insurance- This type of policy is used to provide permanent protection while keeping the costs as low as possible. These policies are best used to deal with large estate planning needs as well as long term mortgage protection for clients whose age may impact the ability to use term insurance for the full term of the debt.
Whole Life Insurance- This type of policy provides clients with many benefits beyond the pure death benefit. These include tax free cash build up, modest but steady rates of return, and in many states creditor protection. For these reasons the premiums are significantly higher, however the value the insured and their family receives more than adequately compensates for the cost. Whole life has been the savior of many families for nearly 200 years. The policies have performed very well throughout every major financial crisis this country has endured. When used properly as part of an overall financial plan, whole life insurance is a valuable asset class that should not be overlooked.

In addition to using insurance for protection, having the proper documentation is crucial. The proper use of trusts and other planning vehicles can provide significant risk mitigation without the need for insurance. Proper planning requires the use of knowledgeable professionals to help create the right structure for each situation. This is not the time for do-it-yourself planning. Use the resources available to you to keep your assets and family protected.

Visit Harry Armon

What Can Your Title Company Do for You?

Q: Real Estate Professionals, is your title company helping you grow your business?

Photo by Alan Cleaver

Photo by Alan Cleaver

A: If you have a long existing Title relationship, it goes without saying that you are most likely getting decent service.  The Fall season is a time when most businesses take inventory on their marketing tactics, the performance of their staff, goals and initiatives for the upcoming year, etc.  At this point you should be asking yourself whether or not your title company is doing anything to help grow your business.

What do I mean by that?  Time and time again, colleagues and business associates pull me aside to ask me for the inside scoop. They’ll ask, “Rafe, what makes you successful in the title industry?” In turn I reply, “I never talk about title.”  I leave that up to our dedicated staff and in-house counsel.  Instead, I focus on finding ways to help grow each client’s book of business.

There are a few key tactics I incorporate into my business approach to make this happen. These include: networking, matchmaking and introductions, marketing, and philanthropy.  In many industries, networking is a common practice, a means to an end.  But in title insurance, it tends to be overlooked and underutilized.  It’s more than showing up and shaking hands; it’s about being proactive, creating an environment to allow for one-on-one, long-term connections.

Photo By Nicolas Goulet

Photo By Nicolas Goulet

By introductions, I don’t mean acquainting you with just anyone, but instead introducing you to key players that will have an immediate, direct impact on your business.  I introduce attorneys to bankers and vice versa, real estate brokers to home buyers, etc., and through these introductions, relationships are built that will generate business for all parties involved.

I host professional networking events, spotlight our clients at various functions, mixers, happy hours, and act as a “matchmaker.”  Helping to connect the people that I currently work with or hope to work with is the key to organically growing my business. I know that real estate brokers are a crucial part of my business, so therefore I help them get listings, promote the listings they already have, assist them with their marketing initiatives and open houses, and much more.

Getting involved and giving back.

Sometimes it’s not just about transactional business.  I try to get involved with as many worthy causes as I can.  Yes, it feels great to put in the work and make a connection for a client that will eventually translate into more title deals, but an even more rewarding feeling is to give back and help out a worthy cause, using my vast network of connections. One such cause that I am 100% behind is PinkTie.org | Real Estate Professionals Networking for a Cure.  Mike Cave, the CEO of my company, 1st Equity, founded it.

At last year’s PinkTie Event, we raised over $65K for the FACT (Find A Cure Today) Breast Cancer Foundation, a local 501c3 charity organization that donates 100% of the proceeds to local hospitals and research facilities.  We look for organizations that have a direct impact in the communities where we work.   In addition to founding PinkTie.org, Mike has committed to donating a portion of all title proceeds to this cause.  Being able to network and give back is a win-win for all of us.

You can see how each key tactic that I mentioned (networking, matchmaking, marketing, and philanthropy) synergize with one another to help grow other peoples’ businesses, which in-turn will help grow yours as well.