The Ultra Wealthy Have Their Own Separate World of Real Estate

This episode explores the unique real estate market of the ultra-wealthy, focusing on the dynamics and trends in luxury real estate across global hotspots.

1. The luxury real estate market operates as a "parallel universe," largely unaffected by local economic conditions.
2. Branded properties, such as those associated with luxury cars and fashion brands, are becoming a significant trend, adding a layer of exclusivity and trust.
3. Developers are quickly adapting to cater to this market, focusing on ultra-luxury properties with amenities like private helipads and waterfront access.
4. The global mobility of the ultra-wealthy allows them to influence real estate markets across multiple cities simultaneously.
5. The episode highlights a form of modern "feudalism," where billionaires shape entire local economies through their real estate investments.

1: Market Overview

An introduction to the luxury real estate market's dynamics, with a focus on its global scale and disconnection from local economic conditions. Joe Wiesenthal: "We're talking about a price appreciation of 50 to 75 to more than 100% within a year sometimes."

2: Branded Properties

Discussion on the rise of branded real estate properties and their appeal in adding legitimacy and exclusivity to luxury developments. Tracy Alaway: "Branded properties are becoming more of a thing. What's going on there?"

3: Investment Strategies

Exploration of how billionaires use real estate investments to influence and control economic landscapes beyond mere property ownership. Holly Robinson Peet: "So you can make an investment if you're a billionaire in a particular area and then kind of develop that area and presumably make more money on your investment."

4: Market Implications

A look at how these high-stakes investments affect local economies and the broader implications for cities hosting these properties. Jill Wiesenthal: "What is the effect in local communities or people who just lived in these areas when suddenly a neighborhood or an area becomes the arena for a billionaire schnitzel-sized context?"

1. Consider the broader economic impact when investing in high-value properties.
2. Explore the potential of branded properties for adding value and exclusivity.
3. Stay informed about global trends in luxury real estate to better understand market dynamics.
4. Evaluate the long-term implications of large-scale investments in specific locales.
5. Leverage the connectivity of global markets to diversify real estate investments.

In the past, the most expensive housing in any major city would be connected in some way to the economics of the city itself. If the general market was weak, the high end was also weak. If the general market was strong, then the high end was strong. But increasingly in cities like NYC, Aspen, Dubai, Miami, and elsewhere, the ultra high end exists in a different market, where the rich splash around money at levels which are completely disconnected from the local environment. At these levels, the ultra-wealthy are engaging in a global game of one-upmanship, where a higher price tag, perversely, can make a given property even more tantalizing. On this episode we speak with Hiten Samtani, founder of ten31 Media, which focuses on real estate, about how this market has developed. We talk through the deals, brokers, the buyers, and the general economics of this ultra-premium tier. We also discuss the rise of branded condos -- or those with the Mercedes or Porsche imprimatur -- and how they're reshaping the real estate landscape.

People

Joe Wiesenthal, Tracy Alaway, Holly Robinson Peet, Haten Sumtani

Companies

Bloomberg, 1031 Real Estate Media Company

Books

None

Guest Name(s):

Haten Sumtani

Content Warnings:

None

PJim
What do you see on the horizon? Uncertainty or opportunity? Whatever you see at Pejm, we can help you rise to the challenges of today. Providing outlooks on the market with deep global and local expertise. With over 1400 investment professionals in pursuit of long term returns, our investments shape tomorrow today.

Pursue your tomorrow with PJim, a leading global asset manager. It can be hard to see the challenges that people we work with every day are going through. I'm Holly Robinson Peet. Join us on the visibility Gap, a new podcast presented by Cigna Healthcare. Download it wherever you get your podcasts.

Jill Wiesenthal
Hey there. I'm Jill Wiesenthal. And I'm Tracy Alaway. We wanted to let you know that if you're a fan of the show, there's more to odd lots than just the podcast. That's right.

Holly Robinson Peet
In addition to this, we have a blog, a newsletter, and a discord. Yep, go check them out. You can find the blog and newsletter at Bloomberg, and you can chat with fellow listeners. Twenty four seven at Discord, GG oddlaws.

Bloomberg Audio Studios podcasts Radio News.

Jill Wiesenthal
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Wiesenthal. And I'm Tracy Alaway. Tracy, we did that episode recently on the big potential development in northern Egypt. Yes.

And I'm sort of fascinated as a topic by these huge, gleaming mega cities, many of them being built in the Middle east, tons of money pouring into these sort of just absolutely jaw dropping skyscrapers, luxury buildings, things like that. Yeah, I think we spoke a little bit about it on that episode, but it's sort of the Dubai blueprint that seems to be being copied and multiplied across the Middle east. And the question that always comes up is, well, how big can these markets actually be? Like, how much demand is there for multimillion dollar properties in tax havens? And it seems like the answer is more than you would think.

These cities are kind of weird to me because I never get the impression that, and you lived in Abu Dhabi, so you could correct me if I'm wrong, but it doesn't seem like there's like that much going on. Even when I see, like, photos of people there or like, friends stopping there, like, it always looks a little quiet. Am I wrong? The way I used to describe living in Abu Dhabi? And I should just add a massive caveat here, which is I left in 2018, and my understanding is that since then, Dubai has been booming.

Holly Robinson Peet
In particular, there's been a lot of immigration from Russia, lots of people moving there as part of the tech industry as well but the way I used to describe living in Abu Dhabi was it was kind of like living in the suburbs of Texas in the sense that it's very hot. Everyone drives everywhere. You don't really see people walking around on the streets that much. And you spend a lot of time at the shopping mall or the swimming pool. It doesn't sound so bad.

Tracy Alaway
I'd take it. It's a nice lifestyle, but yes, there isn't a ton going on. Although they have made efforts to change that. They've opened museums and things like that. Yeah, no, but to the point, though, like, when you see the price tags on what a penthouse in one of these buildings are going for, or just how much money is being developed, or to some of these buildings, like, it's absolutely eye popping.

Holly Robinson Peet
You see these headlines, and it's not just like one apartment sold for 100 million, it's like five apartments sold for 100 million. And I think that's the surprising thing. The other thing that's been happening, I don't know if you saw, but in Dubai, they opened that Mercedes Benz Tower. Did you see that? No, I'm trying to.

This is a difficult topic for me because I think my personal taste veers so far away from this direction. I'm not even going to mention the fact that I obviously couldn't afford any of these properties. But it's an interesting one. I don't know, it's kind of gleaming. It's got lots of lights.

If you look at photos of the interior, it's very modern. It's very clean and light, and it has magnificent views of the Dubai skyline. I'm not entirely sure I would want to live there. But again, it's a moot point because there's no way that I would ever. Be able to afford it now.

Jill Wiesenthal
I looked it up, and it definitely looks a lot different than what I imagined, where I've never been. But what I imagine your place out in the middle of nowhere in Connecticut. Looks like probably the polar opposite. Okay. I want to learn more about this sort of.

This world of real estate for the ultra rich around the world. And some of these cities and the business behind these extraordinary gleaming towers, some of them are in nice cone shapes. Some of them look a little bit like Jenga towers of some sort. I'm really excited. We do have the perfect guest.

We're going to be speaking to Haten Sumtani. He is the founder of 1031. It's a new real estate media company. Former editorial director at the real deal and knows real estate really well. And people who know real estate say to read Haten.

So thank you so much for coming on odd lots. My pleasure, guys. Thanks for having me. What's going on? What's the deal with all these big towers?

Tracy Alaway
The way to think about this market is it's not really a local market anymore. I think historically when we think about luxury prices in New York, in Dubai, in Aspen, we sort of compare them locally. So I haven't opened an economics textbook in a long time, but there used to be this concept of local maximums that no longer applies. The markets at the very, very top. I'm not talking about the what the well healed would buy, but what the well heels sort of many, many echelons higher than that would buy has blended.

It's become a global little, I call it the parallel universe of this luxury market. Okay, so give us some examples of the numbers around this particular segment of luxury real estate, because again, we're not talking about like an apartment in New York that maybe costs $2 million, we're. Talking 10 million even. Yeah, we're talking about apartments that cost like 5100 million. What have we seen recently in terms of transactions?

So the Alibaba co founder bought a penthouse at 220 Central park south on billionaires row for 190 million. That was already an apartment that a hedge funder, Daniel Oak, had paid 93 million for just a year and change ago. So there is, you can't really, that's 100% premium on a pad like that. Larry Ellison in Florida had bought a Florida estate for 170 odd million and the previous buyer had paid 94 million. So you're talking about these numbers that are just that defy reality and you can't track it, you can't really map it and say, you know, it's growing 10% a year.

We're talking about a price appreciation of 50 to 75 to more than 100% within a year sometimes. Why is that? So there's been, it's a hard thing to track because there isn't really any great data that exists in this global sphere. But it seems like there's been a new kind of feudalism that's happening, which is global billionaires are now untethered to places like New York and they're looking to portfolio shop. So they're thinking more about their purchases in terms of, okay, I'm a captain of the universe, right, and I want to have my pad in New York where I take my meetings, I want to have my estate in Florida.

I also want my ski chalet in Aspen. And guess what? I'm willing to pay not just a little more than the local king of the hill. I'm willing to pay double. So I don't really have competition in that market.

Holly Robinson Peet
So who's developing these properties? Are there ultra luxury specialists or is it, you know, the existing sort of normal luxury real estate? Developers are just building more specialized apartments. Who's actually doing it? Yeah.

Tracy Alaway
So one thing about developers as sort of a species is they're really, really good at rejigging their portfolios to cater to current demand. So in many cases, developers who, who were building $20 million apartments are saying, why not go for the $50 million apartment? And in some cases there is one sort of a unique class of spec home developer who is saying, okay, there's x amount of billionaires in the world, there's x amount of the kind of product that they want, let me go and build. So there's a guy called Todd Glazier out of Palm beach and he just built, he bought an island. It's called Tarpon island.

It's the only private island in Palm beach. He paid 85 million for the property and then he listed it at 185 million after obviously adding tons of bells and whistles. We're talking about 1300ft of frontage on the water. What are the profit margins like on this kind of property? Because I have to imagine at some point there's a ceiling of how much it would cost to build these things.

Holly Robinson Peet
And so if you're just selling it for more and more money, presumably the margin is getting fatter and fatter and that's part of what would be driving this activity. But again, I don't know, like I'm, I'm happy if my ceiling is falling down. So there, there are probably some very expensive options out there for multimillionaires that can boost the price or the cost of building. But I have to imagine the margins are part of what's driving this. The margins are incredible.

Tracy Alaway
Right. You could make up to 60, $70 million if you do it right. But you have to take into account the incredible risk. You're carrying a spec home, you're hoping that there's a buyer that's out there for it, you're paying a ton of money to buy the property. Then there's spa, you know, carrying costs, financing costs, construction costs, and we have seen some pretty bad flame outs.

Los Angeles is a great example of this where there was a guy called Niall Niami who was trying to sell a home for $500 million and he called it the one and foreclosure upon foreclosure. Upon foreclosure. I think he's lost pretty much all his empire. Tracy, did you ever watch that documentary the queen of Versailles? Yes.

Holly Robinson Peet
That was great. That was at the time America's or the world's most expensive house. Is that right? Yeah. I thought of all the very films and documentaries that were sort of related to the financial crisis, I actually thought that was the best one because it really got into the financing chain behind this guy who was trying to build like a half a billion, billion dollar home in Florida and how like, changing fortunes quickly changes ability.

Jill Wiesenthal
And I went bankrupt. Do you know what happened with that one? I do not. I do not with that one. But I can say that the more success a developer has in a space like this, lenders start to think of it as an asset class.

Tracy Alaway
So if someone like Todd is building a home, making a 40% markup, etcetera, then he might find a conventional lender. He may not need that wildcatting lender anymore. He might be able to find a conventional lender or partners to fund these kinds of deals because he could show that to create an asset class is very difficult. But if you do it and you're the first one or one of few, you can make a lot of money.

PJim
What's on the horizon for financial markets at PGYM? It's a question that over 1400 investment professionals relentlessly research in pursuit of your long term goals. Specialized across asset classes, but united in collaboration, our teams provide global and local expertise. Our investments shape tomorrow today, pursue your tomorrow with PGYM, a leading global asset manager. Hey there, it's Joe Wiesenthal and Tracy Alloway, and we are the co hosts of the Odd Lots podcast.

Jill Wiesenthal
And we want to tell you about a new podcast here at Bloomberg. We're really excited about money stuff, the podcast. That's right, friend of the pod Matt Levine is teaming up with our other friend and Bloomberg TV host, Katie Greifeld, to bring the money stuff newsletter to life. Every Friday, Matt and Katie will dive into all the Wall street finance and other things that make Matt's newsletter such a hit. You can listen to money stuff, the podcast on Apple Podcast, Spotify, or wherever you get your podcasts.

If I think of like, I want to buy a nice condo here in New York City, I like my apartment. You know, it has a decent amount of space, has two bathrooms. That seems it's enough for me. And then I'm, you know, I have friends who have, like, much nicer places, and some of them, like, have a backyard. And, you know, that seems nice, too.

But when we're talking about like the $50 million property, what's in there and what is like, if you want to sell to that market, what does it have to have? Well, size is very important, right? So they're generally, a lot of these homes will be, if you're talking apartments, we're looking at 5000, 7000 indoor space, a couple thousand square feet of exterior space as well. Private elevators are typically a given. And then depending on the market, it can go completely crazy.

Say more. What's the craziest? Just tell us some crazy. Let us live vicarious. Yeah.

Tracy Alaway
Some markets have helipads, for example. Some homes have helipads. Some of them are not operational helipads. But still, a billionaire wants a helipad. Sometimes waterfront living is key.

And what tends to happen with some of these billionaires, and I think this portfolio shopping point is very important. Larry Ellison, Malibu. He made his first purchase back in the, I think in the late nineties or early two thousands. Since then, he's bought 35 parcels. So when you're spending money like that on luxury real estate, you have the ability to not only influence the homes, but the entire landscape of the area.

So he essentially is responsible for changing the retail makeup of Malibu as well. So don't think just about the homes. Think completely about the sort of the, the area as well. That's important. Oh, that's interesting.

Holly Robinson Peet
So you can make an investment if you're a billionaire in a particular area and then kind of develop that area and presumably make more money on your investment. Absolutely. And Ken Griffin, what he's doing in Miami is probably a good example of this. Right? He has been buying up, well, he said it was for his mom, but it's probably for him.

Tracy Alaway
He's been buying up trophy home after trophy home after trophy home. Now pool together that portfolio. The thing about kings of the hill, and you guys know this better than I do, is that you're a king of the hill until the next king of the hill shows up. Right? So Ken Griffin was the alpha citizen of Miami.

Guess who showed up recently? Jeff Bezos. And Jeff Bezos just dropped, I think it was 90 million yesterday. I was telling you, Joe, on an Indian Creek mansion, which is his third purchase in that area from the perspective. Of the billionaire, these kings of the universe, what is the appeal of, like, I could see having a place in Miami and a place in Dubai and a place in London and a place in New York and a place in Malibu and a place in Hawaii why three in Miami?

I think a lot about it as the new feudalism, right? You're trying to build this enormous land bank in some of the world's most coveted markets. There's also, I mean, we can't really deny this. There is some element of schnitzel measuring here as well. Right?

There has to be a little bit of that. I'm sorry. Schnitzel measures, I don't know how censored Bloomberg is. That's what I went with. I think there is an element of one upping the other person here.

If Ken Griffin goes and buys a $60 million home, guess what? You're going to see someone like Bezos come in. I think Dubai is a great example of this. If I could get into one specific, by the way, I grew up there, so plenty of things we could talk about later. Mukesh Ambani, indian tycoon, comes in and he buys a home for, I believe it was $80 million, sets a record.

This is Palm Jumeirah, which is that man made, man made island off the coast. Tracy, I'm sure you've probably been there. So he pays 80 million, smashes the record by a factor of two. Some mystery buyer comes in a few months later and pays 83 million for a home. Also on Palm Jumeirah.

Now, someone like Ambani, that doesn't really sit well with them. And so he comes back a few months later and he pays 163 million for another home on Palm Jumeirah. So that's why I think it's not always investment. It might just be like, hey, I am the guy here. Since you brought up Palm Jumeirah, I mean, this is like the original, almost extreme luxury development that.

Holly Robinson Peet
And what was the one that was shaped like the world? Yeah, it was just called the world. The world that turned into like the ponzi of all ponzi. Yeah. So this, this is exactly what I was going to ask.

So, I mean, palm Jumeirah, there were eye watering prices being paid for those properties, same thing for the world. But then it all kind of collapsed. There was a big bust in those luxury property markets, at least in Dubai, and then it kind of came back. Are these markets still cyclical or have we kind of gone beyond that level? It's very hard to tell.

Tracy Alaway
It's a great question. It's very hard to tell in a market like Miami or in Dubai. Are we just looking at a wildcatting situation or is there something else, one statistic that might give us some context here? Pre 2021, there were four sales of 25 million and up in any given year. In Dubai in 2023, we had 56.

Right. So who are we as snobby New Yorkers to think? Is this a market that has legs or not? I think the Manhattan market was responsible for the bulk of $10 million plus sales for the longest time. It's hard to crunch the numbers because, again, there is no repository of this, but I would imagine that ratio has gone way down.

And to your point, I think in these luxury markets, there is a very strong sense that without rule of law, without some recourse, and Dubai, or the UAE in general, has had pretty spotty sort of issues around credit and debt and all of that, I think the government there, to its credit, has been taking some really strong steps to make sure, hey, this should function like any other market, the courts, and there should be recourse and all of that. So I think with that, there will always be a few scams like the world. But to your point about palm, even though the market collapsed for a while, I'll give you a personal anecdote. An uncle of mine had bought a home on palm for 1.5 million way back, something like that. $1.5 million or one and change.

He recently moved out of his own house to rent a villa somewhere else because the Russian is offering him one third of his purchase price in rent a year. So that kind of gives you a little. That's a great cap rate right there. There you go. But actually, I'm glad you brought up rule of law because this is where I want to go next, which is that, like, look, some places are just really nice, like Aspen.

Jill Wiesenthal
I've never been there, but I'm sure if you like to ski, and I'm sure it's very nice. I like Miami. It's very nice by some measures, New York, obviously the greatest city in the world. But, you know, when you think about extreme wealth, particularly in certain countries that don't have great rule of law, or where perhaps if you're out of favor with the leader, you can risk confiscation, so, you know, maybe ultra rich people in China or ultra rich people in Russia, et cetera, one way that they might want to sort of protect some of their wealth is put money in a foreign bank account. But there are like limits to that, obviously.

And that's not always trivially easy. How much is this about? Or how much are some of these flows? Essentially? I don't know, rule of law arbitrage, where it's like, how much can you get your wealth into a system that more or less has predictable rules.

Tracy Alaway
Real estate has historically been a very lax KYC type market. Right. So to your point, I think capital flight is definitely a big thing. We saw the Dubai property market just absolutely take off once the war in Ukraine happened. A lot of Russians, and I would say the way I think of it, is russian adjacent, Kazakhstan, et cetera.

A lot of that money flowed into Dubai because the UAE took a very hands off approach to judging anyone in this war. So that turned out really well. The earlier example we talked about, which was the Alibaba co founder, if you remember the other guy, he sort of went away for a while. Jack Ma. Yeah, right.

He kind of not disappeared, but he was off, he fell out of.

So I don't, I'm not in Joe Sigh's head, but I'd imagine that part of the reason that he's willing to pay double what was already in crazy price at 220 central Park South. A lot of that is, is predicated on this, Tracy. One thing that makes me wonder is whether the high price itself becomes part of the selling point because the higher the price, the more capacity the market has to take off some of your liquid wealth. Oh, yeah, absolutely. I think that's part of it.

Holly Robinson Peet
And it's funny, this conversation just jogged my memory. Do you guys remember RF NOCV? Oh, absolutely. From Abraj. It's key man.

Yeah. So Abraj used to be one of the world's biggest private equity funds with a specialism in emerging markets based in Dubai. And basically they went bust. And RF, I think, is still being prosecuted for fraud and is being extradited to the US or was at some point. But when all of that was going down, I was in Abu Dhabi and I was writing a lot about this and it turned out that his house in Dubai, ARF's house, was on like the same block as a bunch of like dictators houses.

They had all moved, I can't remember the specific ones, but think african dictators. And they had all bought properties in this one particular neighborhood for the exact, presumably, reasons that we are talking about right now. Former prime minister of Pakistan Pervez Bashar of also had a house there. So. So the other thing I wanted to ask is, you know, in the intro I mentioned that Mercedes Benz Tower in Dubai and this seems to be becoming more of a thing as well, this idea of branded luxury real estate properties.

And I have to say, when I think branded property, the thing I usually think of is the Margaritaville retirement communities in like Florida. But this is a whole other level and it seems to be becoming more of a thing. What's going on there? So there are, I think, just shy of 200 active branded condo projects in the world. 40% of them are in North America, and then they're dispersed in places like Dubai, et cetera.

Tracy Alaway
What happens? I believe it's connected to the initial point I made about this dispersion of global wealth. And so a billionaire who is from New York understands 57th street, they wouldn't understand what Palm Jumeirah is. They might understand what Cavalli is or Mercedes Benz or Bugatti. So there is this, there is this coalescing around brands that are already known and you're piggybacking off a luxury brand to create both legitimacy and exclusivity.

Jill Wiesenthal
That's super interesting. So the Mercedes brand becomes a way, it's like, well, I know Mercedes makes good stuff. They hate, they take care of their brand pretty well. They're probably not going to slap their name on some garbage project. What is the role of the brand though, in the construction of it?

Did they have input? Do they have design? Is it purely a licensing deal? But they probably do a lot of vetting, like talk to us about the business from the brand side. Fair enough.

Tracy Alaway
Uh, I will say it is not a coincidence that a lot of these branded projects are in markets where there is a history of pretty sloppy construction and defects and lawsuits and all of that. Right? So this is kind of the way to say, hey, we're different from the other guys. But so the brand's role, I was talking to a couple of developers about this, and one, open the kimono on how these deals actually work. And he said some brands will get really fastidious about the facade.

They care about what it looks like on camera in the artworks and marketing materials, and they will weigh in. They'll sit with your architect, they'll make you fly to Milan or Stuttgart or wherever, and they'll really weigh in on this stuff. Others are much more obsessed with the interior. So brand by brand, it really depends on that. But in general, the developer is paying between one and a half to three and a half percent, depending on how the deal is structured, to license the brand's likeness for 25 year deals that can be extended.

Uh, and that's how it works. So the developer is running point on everything. The brand can choose how nitpicky it wants to be. And that is all kind of laid out in the agreement too. How do those partnerships actually come into being?

Holly Robinson Peet
Is it the developers approaching the brands or the brands approaching developers, how do they actually meet? So one of the pioneers of this is a guy that I hope we can bring into the studio someday. His name's Gil Desert. He's a Miami developer, and he created this thing called a Porsche design Tower, which is this black obelisk type building, Sunny Isles beach, which is a very russian heavy market in south Florida. And I think he approached Porsche, and they created a partnership.

Tracy Alaway
It worked out really well. And then you just saw a huge wave of these in the US. In other markets, it's unclear whether the brand is trying to plant a flag. And then they find the right developer. I'm not quite sure, but in general, I would imagine it's the developer kind of driving this, and you see everything from brands that make sense.

There's a Dolce and Gabbana tower coming up in Miami. All right, well, when you look at. It, it absolutely makes sense to some that are a little bit more inexplicable. There is a tower in Dubai that's coming up that is designed by a guy called Jacob the Jeweler. Is anyone familiar with Jacob?

Jacob? No. Tell us about Jacob the jeweler. So Jacob the jeweler is sort of a celebrity jeweler that known for those statement pieces. Very flashy, et cetera.

And he's teamed up with a developer in Dubai called bin Ghati, I think is the name. They're also doing the Mercedes Tower, and they're building something together. So some of these, I don't know how they're going to go. How many did you say? There's 200 being built.

They're shy of 200. Just shy of 200. Gabbana. Dolce and Gabbana. Mercedes Benz.

I believe there's a cavali tower. Yeah. And surfside is going to get a Kawali tower made by another huge UAE developer called DmaK. There is. God, I'm sure there's a Fendi tower as well.

Bentley has a tower as well as Aston Martin residences. So amazing. Cipriani, really? Yeah. Bentley Tower.

Jill Wiesenthal
I had no idea about any of this. Casa Cipriani. And then obviously, there's the more conventional Ritz Carlton. All of those. Oh, the Bentley Tower looks like it's gonna be nice.

2026. When I was a kid, I used to vacation with my family over Christmas on sunny Isles, and it looked nothing like this. In fact, the old, like, eighties, like, postcards there is really kind of sad what happens, though. Like, this is like, you know, people talk about gentrification. This is like gentrification on steroids, right?

Like, what is the effect in local communities or people who just lived in these areas when suddenly a neighborhood or an area becomes the arena for a billionaire schnitzel sized context? Well, I think we have a more proximate example, right, what the Hamptons used to be versus what it is today. So there's two ways to look at it. One, life as we know it is completely warped in those markets. If you're in a certain part of Dubai, you are paying double, triple what you used to pay even five years ago.

Tracy Alaway
Undeniable. On the other side, if you were a property owner in some of those places, you probably made a really good amount of money. So, I mean, is it like, are we, what is the cat like? What sort of change are we against? Are we against capitalism?

It's kind of a philosophical question, but yeah, life in a lot of these markets, Miami affordability is at an all time low, right? This is a big thing that's come up over and over. Rent prices have gone up 40 odd percent over the last couple of years. I think there is some softening now, but life for the average Joe, not you, but the average Joe is a lot harder than it used to be.

PJim
What's on the horizon for financial markets at PGYM? It's a question that over 1400 investment professionals relentlessly research in pursuit of your long term goals. Specialized across asset classes but united in collaboration, our teams provide global and local expertise. Our investments shape tomorrow today. View your tomorrow with PJIm, a leading global asset manager.

Joe Wiesenthal
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Holly Robinson Peet
Back to the question that we started with in the intro, which is clearly people are making a lot of money off of the ultra luxury segment and clearly we've seen efforts to replicate the Dubai model, particularly in the Middle east, but some other places are trying it now as well. How big can this market be? Is there room for everyone? Can we have multiple, gleaming, shiny, cavalli branded cities in the Middle east and have enough multimillionaires to fill them all up? That's an incredible question because I think you have to have a baseline level of desirability in a city to make it work.

Tracy Alaway
So somewhere like Jeddah or Al Ula, which is that city in Saudi Arabia they're trying to build, it's going to be a long road before they can try to offer a tower like this. Right. But to your broader point, there are. There's so much money in the world, the rich are just getting a lot richer. Knight Frank had a statistic where they basically, they defined people.

Ultra high net worth is 30 million and up that jump by 4% over the year. There's more than 600,000 such people in the world. And again, they're not tethered to their local markets anymore. So if you think of it as like a billionaire hedge fund titanium, who's tired of sort of schlepping through New York, they have a lot more options in terms of building new cities from scratch. It's really hard.

Dubai has a history of being like a mercantile hub. I think Miami, if anything, is the more interesting example where it went from sort of a backwater for vacationing Americans to becoming this global hub. It's always attracted shady money from Venezuela and Latin America. But we're looking at something very different now. Let's go back to this idea of a real estate market.

Jill Wiesenthal
You talked about going back several years. The most expensive rung of properties in New York would somehow be connected still to the New York City property market. That's the old paradigm that you have this spectrum within New York. Now. The idea is it's global.

And so the very top echelon of New York City properties are the top echelon of Miami. Properties don't necessarily have to be connected, either cyclically or price wise, to the local market, but is just like this. Like this sort of like clear break from how these markets used to work. In the past, I think so I think that this will prove itself out in the data over time. But let's say you went from Manhattan's first.

Tracy Alaway
The record sale that I remember was this fertilizer billionaire paid 88 million at 15 Central Park west. The next record was set by Michael Dell, who paid 100.4 million. So still kind of within the range. The next one was what, Ken Griffin? 238 million.

Right. And that changed everything. So the way I think about it is if a Michael Dell is willing to pay 100 million in New York, and the highest priced home in Boston is 30 million, a developer might be like, or a sponsor, someone who has a great home might be like, you know what? I could probably get Dell to pay 45 for this, right? So it's hard to say, when it changed.

But I think the pandemic was absolutely a catalyst for this. Where you saw numbers just doubling, six months, eight months, a year, you would see that now the depth of the market is the eternal question. Right. There are going to be some developers who price accordingly, who buy land accordingly, who build and finish out apartments and homes to this level, hoping to find that billionaire who then never shows up. It's so weird talking about these numbers because they're so detached from the day to day reality of most people.

Holly Robinson Peet
It's almost like talking about monopoly money or something like that. You mentioned the pandemic just then. What are the risks to this trend or this sort of, like, it almost feels like it's reinforcing. So the wealthy get wealthier. They have more money to spend on these things.

And so we see more of this luxury property being developed. Is the risk something like a pandemic that would curb individual mobility even if you're a billionaire? Or is it something like, I don't know, global tax or local anger in some of the revolution? I don't know. So I don't think mobility has ever been an issue for billionaires.

Tracy Alaway
Right. Even at the height of the pandemic, you had a Barry sternly camping out in Miami beach, and you had people flying all over. So I think this class of people is somewhat insulated from mobility issues now. Absolutely. These countries could come up with some sort of pricing or taxation mechanism that would make this more difficult.

Kycs are another problem. If there is somehow some kind of global consortium saying, we need to know who this is, how much they've paid, and sort of where that money came from. But the odds of that happening are really slim. Markets like South Florida, markets like the UAE, and other countries that want this kind of wealth to sort of insulate themselves from the humdrum of the average folk, it's very unlikely that they're going to collude and come up with like a. I don't know, some sort of international organization of sorts.

Jill Wiesenthal
Out of curiosity, is crypto money big enough that it moves the dial in some of these markets 100%? I think there was a big wave of crypto money coming into absolutely in South Florida, certainly in the Middle east. And the volatility, I think the beyond. And I think about this a lot. How much money do you need to be able to afford a $40 million apartment?

And the answer is, what are the condo fees? What are the fees on that? Well, not even the fees. I don't actually know the fees. Not even the fees.

Tracy Alaway
It's more about how much liquid do you need? And so when you've made your money, when it's easy come, it's easy go. So people who've made their money in the last year, 18 months, they made it through crypto. They're much more willing to pay 40 million, even if they just have 70. Right.

It's that sort of threshold of, yeah, you know what? I made the money. Yolo. I'm guessing they have a whole support network of people who are actually looking after the apartments as well when they're not there, which would seem to be a lot of the time. Yeah, I think the infrastructure around this new market is fascinating.

So you do see brokers who are now on what I call the circuit. So skiing in Aspen, the f one race in Melbourne, et cetera. And this is where the buyers are, right? They're following. They've kind of created this lifestyle, traveling around with these people.

And so they can often shepherd in not only deals in their market, but then connect them with the brokers and the property managers and the wealth managers and all that. So there will be this new class of not billionaires, but millionaires whose sole job is to cater to the international property portfolios off the billionaires. I've never gone to an f one race. I'm not really into f one. But I also feel like I only want to do it if I can be in some, like, billionaire box.

Jill Wiesenthal
I don't just want to be in the stands. I only want to get a really great view. The brokerage community around this, are the legacy brokers building out tiers or divisions, or are there new entrants into the space that are disrupting the traditional industry in some way? It depends on the market. So in Palm Beach, a lot of the, because this kind of real estate is such a high touch business, you often have to take 20 calls a day from the billionaire.

Tracy Alaway
In places like Palm beach, which is traditionally sort of an enclave, but not a dynamic market in the way it's been. I think there's been, what, more than 1028 nine figure sales recently? I don't have the stats in front of me, but in markets like that, it's the old sort of guard that is cleaning up. So there's a guy called Larry Moans, who I believe has brokered pretty much all the $100 million deals in the last few years. Then you have some of the new people, the brokers who've built this infrastructure that combines media and combines globe.

So Ryan Serhant, I believe it sold something for 120 million in Palm beach. So you are getting these upstarts coming into these markets, but oftentimes they are teaming up with the old hand. What's the next leg of this trend? So we talked about going from luxury to ultra luxury. So maybe before you would have a really nice apartment, but now you have a really nice apartment with a helipad, or maybe you had a nice non branded apartment and now you have a Mercedes Benz apartment or whatever.

Holly Robinson Peet
What's the next thing that people are where, I'm trying not to say schnitzel, but what's the next competitive goal or target here? I think there's actually going to be a little bit of a throwback to the roots. And I think rustic luxury is going to be quite a big. Now you're speaking more Tracy's luxury. Yeah, you could live in luxury rust.

Jill Wiesenthal
What does that look like? Are there any examples? Sort of. I haven't seen a listing that sort of falls into this, but a giant sort of an old school treehouse or. Oh, that's not the right answer.

Holly Robinson Peet
No, I don't have a treehouse, but. I'm talking about a log cabin, let's say in a prime market like Aspen, for example, that may have sold for a couple million back then. But now, guess what? Jeff Bezos wants to return to his roots, wants to find some nature. He's willing to pay something like 20 million for it.

Tracy Alaway
Right. So I think the, and I haven't seen many of these homes. I don't really run into them. But if you were, I would think that this sort of return to roots, farmland, et cetera, is going to be. A big part of this is climate change concern.

Holly Robinson Peet
Right. So you see people who have grown up in desert areas who might be interested in buying huge tracts of land in Maine or something like that. Yeah. There is just a fascinating and probably concerning feudalism happening where a lot of these guys are just making incredible land bank purchases. And now some of the biggest developers in New York City are also the biggest landowners in America.

Jill Wiesenthal
Just in terms of acreage. Yeah. Just thousands and thousands of acres across Montana, Wyoming and. Oh, so it's companies that had been developers in New York City are now doing this different play of just land accumulation. Absolutely.

Holly Robinson Peet
And they get tax breaks as well, don't they, if they like, keep it in environmental trust. The other kind of interesting wrinkle. Yeah. There are a lot of taxation gymnastics around buying tracks of land in random spots. Tracy, at some point I want to do an episode.

Jill Wiesenthal
Well, we talked about when we were in Jackson Hole last year. This came up. I know it comes up in, I used to live in Vermont when I was younger and I know that one of the things the rich do is they have tons of land and then they get this big tax break with this commitment to never develop it, which doesn't helps them cut down on taxes. It also causes everyone else to have shorter, be short on housing. So I really don't see, especially in Jackson Hole.

Holly Robinson Peet
Yeah, yeah. So I don't really see how it benefits everyone except them. But, you know, I guess it's good for the, supposedly it's good for the greenery. So last question. This idea is very disconnected, these markets.

Jill Wiesenthal
What happened though, in 2022 when we did see, you know, pretty big fall in the stock market, we saw the crypto crash, we saw a lot of tech money vanish. Like, was there a cyclical effect? Did it slow down any of this activity? When we did have this sort of contraction in other asset values? So the deal volume may have fallen in terms of number of transactions, but the price points did not.

Tracy Alaway
Right. So a lot of these transactions I brought up Larry Ellison paying 170 million. I believe that happened in 22. Mukesh Ambani paying 163 million. That happened in 22.

So I think when you're at that level of the game, you're not as worried about this now as a market in terms of number of transactions. Yes, there may be a slowdown. We're definitely seeing a slowdown now. But I think right before I came to the studio, there was a hundred million dollar deal in Aspen as well. All right.

Jill Wiesenthal
This was a fantastic conversation. Hiten sumtani, thank you so much for coming on. Adelaide. My pleasure, guys. Thank you.

Holly Robinson Peet
Thank you. Hiten. That was great. That was really fun.

Jill Wiesenthal
Tracy, I want to go back to Sunny Isles in Florida, which used to be this very like sort of sleepy area, like north of Miami. And check out the Bentley tower. It looks really nice, sort of. Joe, you do that? No, I haven't spent much time in Miami, so I don't have a good frame of reference.

Holly Robinson Peet
It does. Part of this conversation is kind of depressing in the sense that it feels like the rich get richer. A lot of this wealth feeds off of itself, as we were discussing. So this idea of you build a portfolio of properties, you can basically become a developer yourself, pour money into a particular area, see the market value go up, and then maybe crystallize that gain and buy even more properties. It doesn't seem like there's a circuit breaker for a lot of.

Jill Wiesenthal
Yeah, no, that's exactly right. And it really does seem like, in many respects, the high price is part of the appeal because, a, you have the competitive aspect. So you want to one up the billionaire or, you know, who bought in that neighborhood. It's like, oh, they just paid 100 million, I'm going to pay 125 million. And then, you know, if you do have $5 billion or billions of dollars and you want to get it out of the country and you want to deploy it in real estate, well, like, it's pretty inefficient to go buy like, a thousand different houses in places where if you have a one, you know, $150 billion or, sorry, $150 million apartment that can absorb that capacity.

That could solve your problem of needing to diversify your portfolio in a way that a cheaper, cheaper place just couldn't. No, absolutely. And I do think, like, the taxation and the capital controls and that aspect of it is certainly a driver. And that's one reason why we've seen it really take off in places like Dubai and maybe to some extent Miami. There doesn't seem to be a lot of incentive for tax havens, like maybe Saudi Arabia or the UAE to not want to have this preservation.

Why would you give up on that? Right? Yeah, exactly. Like, you know, the city is basically built on absorbing that kind of global wealth, and they seem to be doing a good job of it. So we also, like, live in an area we don't get in this, where I feel like many of the ultra rich, despite having been successful and things working out for them, feel a certain sense of, like, victimization, a certain level of being aggrieved.

And so if there are cities that sort of built around the premise that you can be really rich and you don't have to apologize for it, and it's okay to even flaunt it, that seems like, I guess I get the appeal. Yeah, you're right. Like, there are a lot of multi billionaires who complain about their tax rate or complain about being shunned by society. Or the people don't retweet them. That's right.

Holly Robinson Peet
Actually, you know, we could solve the global property crisis by, I don't know, retweeting billionaires and satisfying their schnitzel cravings. Let's put it that way. Should we leave it there? Yes. Oh, my God.

Jill Wiesenthal
Okay. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wiesenthal.

You can follow me at the stalwart. Follow our guest, htensamtani. He's at hit Sam Ty. Follow our producers Carmen Rodriguez at Carmen Ehrman, Dashiell Bennett at Dashbot, and Cal Brooks at Cal Brooks. Thank you to our producer, Moses Ondam.

And for more odd lots content, go to bloomberg.com odd lots, where you have transcripts, a blog, and a newsletter, and you can chat about this topic and many others 24/7 in the odd lot. Discord discord gg Odlat maybe we'll get a haten to come in there and do an AMA for people. If he's down for that, he's giving the thumbs up, so we'll have him do that and then you can ask him more questions about the world of ultra luxury real estate. Oh, that'd be fun. All right.

Holly Robinson Peet
And if you enjoy odd lots, if you like it when we look at the ultra luxury property market, if you want Joe to go down to Miami and start reviewing branded buildings, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomer subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is connect your Bloomberg account with Apple Podcasts. Thanks for listening.

Joe Wiesenthal
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