By Allison Geller
Robert 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.
“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.
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.