- RICHARD FLORIDA The Atlantic Cities
- 8:35 AM ET 04/12/12
London, Hong Kong, and New York rank as the top three cities for the ultra-rich, according to the 2012 Wealth Report released by real estate firm Knight Frank and Citi Private Bank.
The report is based on detailed data on the number, distribution, and preferred locations of high net-worth individuals (defined as households with more than $100 million in assets). This is the globe-straddling capitalist over-class that Cynthia Freeland has dubbed the “new global elite,” or what the report itself labels the global economic “plutonomy” of the “richest 1%.”
There are now 63,000 households worldwide with $100 million or more in assets, up 29 percent since 2006 and projected to rise even higher in the future. The top ten current preferred locations for the ultra-rich are:
- New York
- Hong Kong
The report also asked respondents to predict the most important cities in 10 years. The projected key cities of 2022 include:
- New York
- Hong Kong
- São Paulo
On this list, Beijing and Shanghai move up, displacing Paris (which falls from fourth to seventh) and Miami (which drops off the list completely), along with Hong Kong and Singapore. Sao Paulo, Brazil, moves onto the list in eighth place.
What’s behind these rankings? According to the report, the ultra-rich value cities that offer “personal safety and security” most, followed by “economic openness” and “social stability” which top “luxury housing” and “excellent educational opportunities.” As the report’s authors explain:
The most significant driving force of any city is its people. It is crucial to have a livable environment for increasingly mobile populations, and to attract a significant workforce. More than one-third of the people in New York and London are foreign-born. Despite their astonishing growth, Asian economic powerhouses fail to reach that level of cosmopolitan culture. New York or London will continue to top the indices, but only if they ensure their strong cultural offers are unmatched and maintain open immigration policies.
But the rise of global superstar cities also has a dark side. According to Barron‘s Richard Morais:
Anyone who has recently tried to make their way through the thronged pavements of Piccadilly in London knows there’s another, more important and less politically-correct answer for why certain cities in the West will remain top dogs. The reason is flight capital. The globe’s rich aren’t really moving to London or New York – they are fleeing their home countries and cities.
Any private banker will tell you, that as soon as a centa-millionaire in Moscow, Beijing or São Paolo makes their fortune, the first thing they do is figure out how they can ferret away large chunks of that wealth to countries that guarantee political and personal freedoms, have sound legal systems, a favorable tax environment, good security and good schools for their kids. Those last two items are not to be underestimated. When asked what was the most important factor drawing them to a city, 63% of the globe’s super-rich said “personal security” and 21% said “education.”
The rise of these protected enclaves is creating very real tensions between the very wealthy and more average city residents.
Just one example – high-end apartments and townhouses in London and New York regularly top $50 million, pricing locals out of the market. It’s no coincidence that London boiled over into riots last summer and that the Occupy movement was born on Wall Street.
There is a very real danger that such disruptions are a “feature, not a bug” of global cities. As the Financial Times wrote last summer:
Globalisation has made our great cities incalculably richer but also increasingly divided and unequal. More than youth, ethnicity or even race, London’s riots are about class and the growing divide between the classes. This dynamic is not unique to London but is at work in many of the world’s great capitals. Instead of reducing and flattening economic distinctions, globalisation has made them sharper.
We make a big mistake when we look out across the peaks of privilege from our eyries in London, New York, Tokyo and Mumbai, and tell ourselves that the playing field is level. Our world, and especially its cities, is now spiky and divided.
Commercial Investors Eye Single-Family Homes
Published on: Wednesday, March 07, 2012
Written by: David Bodamer
With the latest data from the Case-Shiller National index showing that housing prices have fallen for the eighth straight month and are now back to January 2003 levels, the housing crisis appears no closer to its end.
But might there be an unlikely savior on the horizon for the single-family sector in the form of commercial real estate investors? On Monday, the Federal Housing Finance Agency (FHFA) announced a pilot program through which it would take bids from investors to buy foreclosed residential properties in bulk for the purpose of turning them into rentals.
The pilot program is the result of an effort launched last summer by the FHFA, along with the Treasury Department and the Department of Housing and Urban Development, to solicit outside input on how the government could deal with its millions of real estate owned (REO) residential assets and help turn the housing market around. The first pool of assets is a group of 2,490 properties, including 2,849 units in some of the hardest-hit residential markets: Atlanta, Chicago, Florida, Las Vegas, Los Angeles and Phoenix. There are 1,743 single-family homes, 527 condos, seven manufactured homes, one co-op, 118 duplexes, 36 three-unit buildings and 58 four-unit buildings.
To date, investors have purchased homes in foreclosure auctions and rented them out. But investors can only buy one or two assets at a time this way. The idea here is to enable investors to buy larger pools of foreclosed homes in order to get them on the market as rentals and deal with the glut of troubled assets more quickly.
“This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties and reduce the supply of REO properties in the marketplace,” FHFA Acting Director Edward J. DeMarco said in a statement.
Investors must fill out a qualifying form on the FHFA’s REO Asset Disposition page, post a security deposit and sign a confidentiality agreement to access detailed information about the properties. According to the FHFA, only investors who qualified through this process will be eligible to bid.
The concept of involving the private sector to help solve the foreclosure problem has some high-profile backers.
Lew Ranieri, who helped pioneer mortgage-backed securities in the 1970s, and Kenneth Rosen, chairman of real estate market research firm Rosen Consulting Group, are the main authors on a policy paper issued this monthlaying out how the private sector’s involvement could help turn around the housing market and deliver attractive returns to investors.
“Without question, this is an opportunistic place to make investments,” Rosen says. “It’s similar to what opportunity funds have done with commercial real estate. There are more than one million units to be auctioned. Instead of having small players buy the assets, this would allow for bulk acquisitions.”
Overall, 453,266 residential units are currently classified as REO. Of those, the federal government holds nearly 50 percent of the inventory through Fannie Mae and Freddie Mac and another 9 percent with the Federal Housing Administration. In addition, private label securities hold 33.3 percent of the REO inventory and banks hold 17.5 percent.
But gaining control of those assets is a time-consuming process. In existing auctions, properties are sold one at a time. Private equity investors have gotten involved in converting vacant homes into rental properties, according to Rosen. But creating bulk programs could increase interest by making it easier for large investors to amass portfolios.
Investors then have several strategies for how to handle the assets. According to the policy paper, “Homes can be purchased for three potential outcomes, depending on a range of factors: the micro-conditions of the home, employment and income of potential tenant/owners and the macro-conditions of the neighborhood and market.” Specifically, investors could choose to offer the units in rent-to-own, rent-to-rent or resale arrangements.
In a rent-to-own scenario, an investor would enter a long-term relationship with a tenant who would offer the renter a right-of-refusal to buy the home. The lease could also be structured to give the tenant a share of any upside in a property’s sale. According to the policy paper, “This share can be structured to be payable regardless of whether or not the tenant purchases the home or be restricted to only if the tenant converts to ownership. This share can be pro-rated down or eliminated if a tenant leaves before the ?ve-year term.”
In a rent-to-rent scenario, the investor operates the asset as a straight rental property. And a resale would simply involve moving the asset to an owner-occupier.
“The private sector has a lot of solutions to the mortgage problem,” Rosen says. “They are engaged and want to be involved. I think this is something that has to be pushed as fast as it can.”
One caveat Rosen notes is that the government needs to ensure that the participants in the program are legitimate players. For example, the policy paper notes, “Programs that we deem to be unscrupulous are requiring tenants to pay a down-payment when signing a lease. We believe ?rst and last month’s rent and/or a security deposit in keeping with state law is acceptable, but do not believe additional advance payments are warranted.”
If all goes well, Rosen thinks the pilot program could be expanded “full scale” within a year with the government offering its inventory in bulk sales as well as banks and private-label securities conducting similar programs.
This article was republished with permission from National Real Estate Investor.
Posted on Wed, Jan. 18, 2012
South Florida’s real estate crisis in one chart
By DOUGLAS HANKS
South Florida’s housing crash may be old news, but recent data offer some valuable perspective.The Federal Housing Finance Agency maintains appreciation indices for metropolitan areas, which are similar to the famous Case-Shiller index but more local. By stacking up Broward and Miami-Dade’s indices to the nation’s, the warning signs are hard to miss.
The chart anchors all three indices to the first quarter of 2000, so the numbers show appreciation since then. Real estate got out of hand across the country, with appreciation peaking nationally at 166 percent in 2007. But in Broward, values soared 272 percent. Miami-Dade did even better, up 283 percent.
It’s easy to see how quickly values collapsed, but the chart also points out something that tends to be overlooked amid the wreckage of real estate. Home values are still ahead of where they were in 2003.
But perhaps more surprising, local property has actually held its value better than the average home in the United States. According to the FHFA, the average U.S. home is worth about 40 percent more than it was at the start of 2000. In Broward, the average home is worth 49 percent more. In Miami-Dade, it’s 56 percent more valuable.
A sign of resiliency, or a hint that South Florida still has some dropping to do? We’ll probably find out this year.
The Miami Herald’s Economic Time Machine charts South Florida’s recovery from the Great Recession by comparing current conditions to levels set before the downturn.
The ETM crunches 60 local indicators to measure the economic activity, then finds when each indicator was at that level before the 2007-2009 recession. At the moment, the current economy most resembles where it was in June 2002. Visit miamiherald.com/economic-time-machine for updates and analysis of the latest economic data.
COUNCIL APPROVES SITE PLAN FOR FORMER SONESTA PROPERTY
Key Biscayne Council members voted unanimously Monday, August 21, to approve developer Consultatio Key Biscayne LLC’s new site plan for the 350 Ocean Drive property. (The former site of The Sonesta Hotel).
As Consultatio Chairman Eduardo Costantini told local leaders, the new site plan significantly downsizes the project the Council approved in 2007 in order to address concerns about mass and impact on neighbors. “If you approve this project, I think it’s going to be a superb project. We’ll look forward to working together as a team,” he said.
Site plan complies
The project’s 646,415 square feet of livable space equals a Floor Area Ratio (FAR) of 1.435; a FAR of 2.0, or 899,863 square feet, is allowed. Maximum lot coverage is 40 percent, or 179,972 square feet; Consultatio’s plan shows 35.7 percent coverage, or a 160,630-square-foot footprint.
The project also eases in below density caps: Projects with this zoning can have 16 residential units per acre, meaning 165 units on the 10.5-acre Sonesta lot; Consultatio proposes 154 units, or 15 per acre.
Elsewhere, the proposed project meets height caps of 150 feet; more importantly, Consultatio vastly exceeds rear setback requirements of 25 feet, meaning the 150-foot buildings are far from neighboring single-family homes. The project’s west rear setback, the one that impacts Holiday Colony (the east rear setback is from the ocean), comes in at 393 feet, 11 inches.
Only 12 freestanding villas would sit within that nearly 394-foot area, Kurlancheek said, and the villas are capped at 35 feet in height, the same as single-family homes. “There’s a 50-foot setback until you get to the villas themselves,” he added.
Consultatio was able to move the bulk of its development further back by eliminating two of the original four towers. The new design features two 14-level towers linked by a shorter structure that features 10 levels worth of condo units atop a three-story high open breezeway.
A key condition states the Village must be in compliance with its Comprehensive Plan standard of 2.5 acres of open space per 1,000 residents before it can issue a Certificate of Occupancy for the 15-story residential tower. Or, the Village and Consultatio can sign a binding contract stating the open space facilities will be completed within a year of the CO being issued.They state Consultatio will grant the Village two 25-foot-wide public beach access paths, one on the north side of the property from Ocean Drive and the other on the south side of the property from East Heather Drive. Both paths will include improvements like paving and landscaping.
Helfman added Consultatio’s plan includes a $7 million voluntary contribution to the Village’s Land Trust, a fund set up for the sole purpose of acquiring public land, plus another $1.5 million toward improvements at the Key Biscayne Community Center or another recreational need.
The sales of single-family homes and condominiums in Miami-Dade County rose by 51 percent in the third quarter, according to a report from the Miami Association of Realtors. It was the 13th consecutive quarter of increasing sales in Miami. The average sales price of single-family homes also rose, jumping 19 percent, and the average sales price of condos jumped by 21 percent. “Strong demand from international buyers is fueling robust sales activity in Miami despite low consumer confidence and high unemployment,” said Jack Levine, chairman of the board of the Miami Association of Realtors. “Local sales are expected to set a record this year that should exceed the height of the boom in 2005.” Total housing inventory in Miami-Dade County fell 38 percent from the same period in 2010, with a 65 percent total drop since August 2008. –Alexander Britell
Casino and resort developer Richard Fields is asking $175 million for his 1,750-acre ranch in Jackson Hole, Wyo. The asking price is believed to be the highest for a ranch in the U.S.
The ranch, called Jackson Land and Cattle, is a valley property with 35 buildable sites. It’s made up of a 450-acre equestrian center bought around 2004, with 52 stalls and an indoor riding arena, plus a 1,300-acre ranch bought around 2006 that belonged to the late Wyoming Gov. Clifford Hansen and his family. There’s a main house and guest house. The hope is that the buyer will be conservation-minded, said listing broker John Pierce of Hall & Hall. Juliet Chung looks at a $175 million ranch listing in Jackson Hole, Wyoming, which may be the most expensive listing in the U.S., as well as a cheaper ranch next door which can be yours for just $100 million.
Mr. Fields is chief executive of Coastal Development, whose projects include the Seminole Hard Rock Casino and Hotel and, through an affiliate, the Suffolk Downs racetrack in Boston. Mr. Fields says he and his family are selling because they don’t get to spend much time there anymore. Mr. Fields is also asking nearly $10 million for his vacation home on 44 acres in Jackson.
A Second Wyoming Ranch Hits the Market for $100 Million
Also in Jackson Hole, a 1,848-acre cattle ranch is on the market for $100 million.
Walton Ranch has three miles of frontage on the Snake River and is under a conservation easement, though some development is possible. There’s a 2,200-square-foot, three-bedroom main house and a manager’s housing complex with two homes, a bunk house, outbuildings, barns and corrals. The seller is the estate of oil geologist Paul Walton and his wife, Betty, who assembled the property over decades.