News / Economy

Russian Investors Seek Safety in US Real Estate

One57, a new luxury skyscraper apartment building under construction on New York City's West 57th street, April 24, 2014.
One57, a new luxury skyscraper apartment building under construction on New York City's West 57th street, April 24, 2014.
Anyone familiar with the New York or Miami real estate markets knows the buying power of Russia’s moneyed class – from the super-rich to the merely well-off.
 
But two alarming trends in the Russian Federation – the steady build-up of jingoistic rhetoric from President Vladimir Putin and a sharp downturn in the economy – are significantly altering the investment decisions of Russia’s wary elite.

And with tensions over Ukraine on the rise, Russian investors are changing their strategies within the American market. That's according to U.S.-based real estate agents and lawyers who cater to clients from the former Soviet Union.
 
“The high times are over,” said Edward Mermelstein, a New York lawyer who represents foreign investors in the U.S., including many Russians.

In 2011, a trust linked to the eldest daughter of potash fertilizer magnate Dmitry Rybolovlev paid $88 million for a four-bedroom penthouse at 15 Central Park West – the most expensive New York City apartment purchase ever.

The same year, composer Igor Krutoy also broke records when he bought a $48 million condo at the Plaza Hotel – one of three units he owns in the building.
 
In Miami, while Latin Americans – especially Brazilians – have driven the recovery of the city’s once-battered real estate market, Russian millionaires made headlines with their taste for giant waterfront mansions.

“The Russians have elevated the Miami market quite a bit,” said Jill Eber, a local real estate broker whose agency caters to “high-end residential properties and the finest communities.”

But the last few months have brought a significant change, according to Mermelstein. "It's now mainly a flight to safety in American markets,” he said.
 
Investors on edge
 
In an inflammatory speech to Russia’s parliament last month, Putin referred to “a fifth column” – a “disparate group of national traitors” – creating turmoil inside the country.

The March 18 speech took place two days after the Crimean referendum, and, for many observers, signaled a new campaign against those not on board with Russia’s new expansionism.
 
“We already have people who, in the past, would ask to find apartments for their child studying at [New York University], now requesting bigger places – maybe the wife will come with a second kid, maybe the whole family,” said Mark Reznik, a broker at Broadway Realty in New York.
 
“Smart people see the writing on the wall with all the populist propaganda on Russian television,” he said. “They understand we are just in the first stages. They have begun looking to emigrate.”
 
Reznik said he expects a new wave of clients from Russia who will “try to leave as quietly as possible” since it is now “unpopular to have anything to do with America over there.”
 
Safe haven
 
The oligarchs who acquired massive wealth during the privatization of Russian state industries in the 1990s, and from high oil prices thereafter, have long sought safe investments in the West.
 
That trend has accelerated as Russia’s $2 trillion economy is now in virtual free fall.
 
The rating agency Standard & Poor’s Friday cut Russia’s sovereign debt rating to just one step above “junk” status, citing the destabilizing effects of capital outflows from Russia, which it said had reached nearly $51 billion in the first three months of 2014.

The ruble is down 9.1 percent against the dollar this year and the stock market has plunged.
 
On top of that, the U.S. and European Union may widen economic sanctions to include key financial and energy sectors in Russia, which they blame for stoking unrest in eastern Ukraine, a charge Moscow denies.
 
Reznik acknowledged the Ukraine crisis has resulted in “a few deals being postponed,” but he and other sources described the current situation as a temporary pause rather than a slowdown in U.S. investments.
 
“Unfortunately, our business increases when there is instability in other places,” Mermelstein said.
 
During a two-year period ending in February 2014, his office transacted over $2 billion in condominium purchases by foreign buyers, 25 percent of which, or $500 million, originated from Russian investors.

Mermelstein said all of these were cash deals and that, in the wake of the Ukraine crisis, virtually every one of his transactions has been financed by money already moved out of Russia to offshore banks.
 
“We’ve definitely felt a big impact from the instability of the Russian [financial] markets since [Russian buyers] are such a big part of the high-end [real estate] market in New York – especially Manhattan – and Miami,” he said.
 
Decorative artwork stands in front of the 55-foot long swimming pool at the Versace mansion in Miami Beach, Fl., July 23, 2013.Decorative artwork stands in front of the 55-foot long swimming pool at the Versace mansion in Miami Beach, Fl., July 23, 2013.
x
Decorative artwork stands in front of the 55-foot long swimming pool at the Versace mansion in Miami Beach, Fl., July 23, 2013.
Decorative artwork stands in front of the 55-foot long swimming pool at the Versace mansion in Miami Beach, Fl., July 23, 2013.

For the last six months, his firm, Rheem Bell & Mermelstein, has seen a noticeable shift from ultra-luxury ($20 million and up) residential purchases for personal use to less expensive ($3-4 million), more easily disposable investments designed to generate rental income, he said.
 
That trend was confirmed by Gennady Perepada, a colorful New York broker who prefers the term international real estate consultant.
 
“Six months ago, eighty percent of my clients were purchasing luxury condos. Now, [that same majority] are buying cheaper properties for income generation,” he said in Russian-accented English.
 
Perepada described his client base as 75 percent from the former Soviet Union. He called them “normal rich people, regular millionaires, not oligarchs.”
 
But the shift incorporates more than Russia’s “normal rich.”

According to Mermelstein, it includes a flight to safety by “highly exposed clients” who are now lying low. “If you’re in Russia, you don’t want to announce large, visible purchases in a country you are virtually at war with,” he said, referring to the U.S.
 
Uncertain future
 
In the wake of President Putin’s annexation of Crimea and continued threats over eastern Ukraine, Russia’s business class is nervous.
 
Many worry the country will be cut off from the global financial system or that more banks will close. Visa and MasterCard have already stopped processing a limited number of Russian transactions in response to U.S. sanctions.
 
“Putin is going to find [himself] in stark contrast to the mass of the elite, which is on the whole integrated into the world economy,” Mark Galeotti, a professor at New York University, told Radio Free Europe last month.
 
All this leads many a wealthy Russian to seek out deals in, say, New York, a city they regard as relatively cheap compared to other global capitals, and where brokers like Perepada know what his clients are looking for:  high ceilings, good location, full service amenities and no frills transactions.
 
Properties in Manhattan, Long Island and The Hamptons make up the majority of his business, with the rest in high-rent Miami districts like Fisher Island – a small, highly exclusive islet accessible only by private ferry where security guards check photo IDs against a guest list.
 
“I love my job,” Perepada said.

Mark Snowiss

Mark Snowiss is a Washington D.C.-based multimedia reporter.  He has written and edited for various media outlets including Pacifica and NPR affiliates in Los Angeles. Follow him on Twitter @msnowiss and on Google Plus

You May Like

Turkey's Erdogan: Women Not Equal to Men

Speaking at conference in Istanbul, President Erdogan says Islam has defined a position for women: motherhood More

Ahead of SAARC Summit, Subdued Expectations

Some regional analysts say distrust between Pakistani, Indian officials has slowed SAARC's progress over the year More

Philippines Leery of Development on Reef Reclamation in S. China Sea

Chinese land reclamation projects in area have been ongoing for years, but new satellite imagery reportedly shows China’s massive construction project More

This forum has been closed.
Comment Sorting
Comments
     
by: Caucasian wolf
April 26, 2014 10:20 PM
deport them back to russia and confiscate all their property

In Response

by: Timucin from: Miami
May 02, 2014 12:13 AM
@Caucasian wolf - You meant steal their properties like a thief.
You have no idea on what kind of help they provide on recovery, and feed how many families..

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Changei
X
November 24, 2014 10:09 PM
Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8058
JPY
USD
118.30
GBP
USD
0.6378
CAD
USD
1.1249
INR
USD
61.909

Rates may not be current.