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

Lesotho Faces New Round of Violence, Political Crisis

Brutal killing of military officer has sent former leaders back into S. Africa where they're watching anxiously as regional officials head in to try to restore peace More

Video US Diplomat Expects Adoption of Bosnian Massacre Anniversary Resolution

Samantha Power says there's broad consensus about killings in Bosnia's war, but Russia calls resolution 'divisive,' backs UN countermeasure More

UN Report Exposes Widespread Boko Haram Atrocities

Damning report graphically details pattern of vicious, widespread atrocities committed by Islamist militants 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.
Olympics Construction Scars Sacred Korean Mountaini
X
July 02, 2015 4:10 AM
Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Olympics Construction Scars Sacred Korean Mountain

Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Xenophobia Victims in South Africa Flee Violence, Then Return

Many Malawians fled South Africa early this year after xenophobic attacks on African immigrants. But many quickly found life was no better at home and have returned to South Africa – often illegally and without jobs, and facing the tough task of having to start over. Lameck Masina and Anita Powell file from Johannesburg.
Video

Video Family of American Marine Calls for Release From Iranian Prison

As the crowd of journalists covering the Iran talks swells, so too do the opportunities for media coverage.  Hoping to catch the attention of high-level diplomats, the family of American-Iranian marine Amir Hekmati is in Vienna, pleading for his release from an Iranian prison after nearly 4 years.  VOA’s Heather Murdock reports from Vienna.
Video

Video UK Holds Terror Drill as MPs Mull Tunisia Response

After pledging a tough response to last Friday’s terror attack in Tunisia, which came just days before the 10th anniversary of the bomb attacks on London’s transport network, British security services are shifting their focus to overseas counter-terror operations. VOA's Henry Ridgwell has more.
Video

Video Obama on Cuba: This is What Change Looks Like

President Barack Obama says the United States will soon reopen its embassy in Cuba for the first time since 1961, ending a half-century of isolation. VOA White House correspondent Luis Ramirez reports.
Video

Video Hate Groups Spread Influence Via Internet

Hate groups of various kinds are using the Internet for propaganda and recruitment, and a Jewish human rights organization that monitors these groups, the Simon Wiesenthal Center, says their influence is growing. The messages are different, but the calls to hatred or violence are similar. VOA's Mike O’Sullivan reports.
Video

Video US Silica Sand Mining Surge Worries Illinois Residents, Businesses

Increased domestic U.S. oil and gas production, thanks to advances known as “fracking,” has created a boom for other industries supporting that extraction. Demand for silica sand, used in fracking, could triple over the next five years. In the Midwest state of Illinois, people living near the mines are worried about how increased silica sand mining will affect their businesses and their health. VOA’s Kane Farabaugh has more in this first of a series of reports.
Video

Video Blind Somali Journalist Defies Odds in Mogadishu

Despite improving security in the last few years, Somalia remains one of the most dangerous countries to be a journalist – even more so for someone who cannot see. Abdulaziz Billow has the story of journalist Abdifatah Hassan Kalgacal, who has been reporting from the Somali capital for the last decade despite being blind.
Video

Video Texas Defies Same-Sex Marriage Ruling

Texas state officials have criticized the US Supreme Court decision giving same-sex couples the right to marry nationwide. The attorney general of Texas says last week's decision did not overrule constitutional "rights of religious liberty," and therefore officials performing wedding services can refuse to perform them for same-sex couples if it is against their religious beliefs. Zlatica Hoke reports on the controversy.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.
Video

Video Saudi Leaks Expose ‘Checkbook Diplomacy’ In Battle With Iran

Saudi Arabia’s willingness to wield its oil money on the global diplomatic stage appears to have been laid bare, after the website WikiLeaks published tens of thousands of leaked cables from Riyadh’s Ministry of Foreign Affairs. VOA's Henry Ridgwell reports.
Video

Video In Kenya, Police Said to Shoot First, Ask Questions Later

An organization that documents torture and extrajudicial killings says Kenyan police were responsible for 1,252 shooting deaths in five cities, including Nairobi, between 2009 and 2014, representing 67 percent of all gun deaths in the areas reviewed. Gabe Joselow has more from Nairobi.

VOA Blogs

World Currencies

EUR
USD
0.9009
JPY
USD
123.09
GBP
USD
0.6387
CAD
USD
1.2524
INR
USD
63.605

Rates may not be current.