Here’s a stunning fact: 30% of all apartments between 49th and 70th Streets and between Fifth and Park Avenues are vacant at least 10 months of the year, according to a Census Bureau estimate provided to New York Magazine.
And since 2008, around 30% of condo sales in large-scale Manhattan developments have been by buyers with overseas addresses or through secretive LLCs.
Those figures are especially shocking considering New York City residential real estate costs are at an all-time high, affordable housing is still a major issue, and homelessness in New York City is the worst its been since the Great Depression.
So why are all these apartments in midtown and elsewhere — many costing millions of dollars — sitting empty?
In this week’s issue of New York Magazine, Andrew Rice explores the influx of foreign wealth into the New York real estate market and why it’s a great place to stash money while maintaining privacy.
Rice writes (emphasis ours):
… while New York real estate has significant drawbacks as an asset — it’s illiquid and costly to manage — it has a major selling point in its relative opacity. With a little creative corporate structuring, the ownership of a New York property can be made as untraceable as a numbered bank account. And that makes the city an island haven for those who want to stash cash in an increasingly monitored global financial system. “With everything that is going on in Switzerland in terms of transparency, people are being forced to pay taxes on their capital that they used to hold there,” says Rodrigo Nino, the president of the Prodigy Network. “Real estate is a great alternative.”
In short, Manhattan condos are the new Swiss bank accounts. And there’s a lot more that goes into setting them than up than opening a real estate trust and buying through that entity. Rice explains the murky layers that can obfuscate a major purchase:
Behind a New York City deed, there may be a Delaware LLC, which may be managed by a shell company in the British Virgin Islands, which may be owned by a trust in the Isle of Man, which may have a bank account in Liechtenstein managed by the private banker in Geneva. The true owner behind the structure might be known only to the banker.
These layers also make property investment a great way for people to launder or hide their money, whether legally or illegally, Rice writes. After all, real estate is a big value investment that obscures real ownership relatively easily, and allows owners to generate “clean profits” such as rental income or capital gain.
Whether it’s in the name of privacy or something more sinister, buying through a web of corporations is a common move among the global wealthy, Rice writes. For example, 14 of the 25 of closed sales at One57, the new, ultra-luxury skyscraper skyscraper rising 90 stories below Central Park were purchased by entities with unnamed owners.
And such purchases aren’t even illegal: Sending money to offshore bank accounts is an everyday occurrence for the über-wealthy. In Great Britain, there are laws that require the attorneys to disclose suspicious activity, but the U.S. doesn’t have these same regulations. And while there are occasional stories of properties being seized as evidence in cases involving foreign corruption, Rice points out that these are not only hard to prove, but exceptionally rare.
So with such high returns and seeming stability in NYC’s real estate market — especially compared to other luxury markets like Hong Kong, Singapore, or even London — foreign investors will continue to flock to U.S. shores. And unless the laws change, we can expect a lot more anonymous foreign buyers who may never open the door of their luxury penthouses.