Real Estate

Trophy assets drive demand for real estate

By David Bain

When one of France's wealthiest families wanted to buy a new property in Europe, without hesitation they chose London. After a few months they finally settled upon a £30 million townhouse in Kensington with 10 bedrooms and nearly as many reception rooms. Charles McDowell, who runs his own property consultancy putting deals like the above together, says big deals have been little affected by the turmoil of the last few years, and if anything have been stronger than ever in the last few months.

"Very wealthy buyers for super prime properties in central London are still snapping up £30 million-plus houses and apartments," he says. New York has also notched up some pretty impressive property sales in recent months. Top of the list was the $44 million purchase in July of a Fifth Avenue townhouse by the Mexican billionaire Carlos Slim. The very rich look like they've lost little of their appetite for trophy residential property assets in prime real estate hot spots. Indeed, such is the appetite for super-prime properties, that some property experts believe there is not just a two-tier property market, whereby there are prime properties and everything else, but now a wide chasm has opened up between prime properties and what estate agents call super-prime ones.

Knight Frank, a London-based upmarket estate agent, tracks a monthly prime central London index of price movements in residential property worth £2 million-plus. It fell in July, but McDowell argues the index findings bear little resemblance to properties selling for £20 million-plus.

"Price moment for these super-prime property is still upwards," he says.  

Although there is no official definition of when a property becomes a super-prime one, estate agents say properties selling for at least £20 million in the UK, or $20 million elsewhere, can be classified as super-prime.

But not all super prime locations are faring as well as London and New York. Simon Gammon, managing partner at Knight Frank Finance, says demand is less strong in other prime areas such as Paris, the South of France and Tuscany.

"London, in particular, seems to have decoupled from the other super-prime hot spots in the last few years – it appears to be in a place on its own," he says. Gammon, whose business provides finance for purchases of prime property, says he deals with a lot of private banks and family offices when it comes to purchases.
"We often put together some creative finance packages for these buyers," he says. "Wealthy buyers see London as a great place to make real estate investments and they are looking at some interesting financing deals to gain access." More creative deals have involved using racehorses and private jets for collateral, says Gammon.

Super-prime buyers, say estate agents, are mostly coming from Europe, with French and Italian buyers the biggest purchasers.
Despite high oil prices and excluding the recent purchase of Harrods by the Qatari royal family, Middle East buyers have been less conspicuous in the London property market in recent years.  

Gary Dugan, chief investment officer for the private banking division of the Dubai-based bank Emirates NBD, says wealthy Middle East investors have been spooked by property investment in the last few years.

"Many of them lost out on investments in the property market, especially in Dubai, in the last few years and have been hesitant to come back," he says.

Also absent, or at least a lot less obvious, from the prime property hot spots are wealthy financiers, said McDowell. "There is certainly less of the 'Goldman Sachs-type' buyer you would have seen back in 2006 and 2007 around these days," he claims. "They've been replaced with business owners."

Nor are financiers such as hedge fund managers stoking a property boom in Switzerland, which some analysts had earlier predicted as managers decamped to the Alpine nation to escape higher taxes in the UK.

"There certainly was some strong demand coming from buyers like hedge fund managers in Geneva and Zurich in the earlier part of the year," says Robert Ferfecki, head of Henley Estates, a Zurich-based consultancy that finds properties for the wealthy.

"But this has tailed off in recent months." Ferfecki adds that the Swiss prime property market tends to operate differently than other hot spots because of strict ownership rules and supply restrictions.

"The local market rarely overheats like other property markets," he says. Interest in commercial property remains weak overall. Exor, the holding company of Italy's Agnelli dynasty, announced in April that it planned to invest €100 million in Almacantar, a new company specialising in the commercial property market. Founded by two UK-based real estate professionals, Almacantar aims to capitalise on commercial real estate investment and development opportunities, primarily in London and Paris.

However, family offices talked to by Campden FO said they are steering clear of commercial property deals because of concerns over future demand in a market where there tends to be plenty of supply.

"We aren't looking at investing in commercial property," claims one chief investment officer of a prominent Swiss family office. "As far as we are concerned, there isn't much upside potential." The appetite for commercial property hasn't been helped by scandals involving property firms specialising in the sale of the asset class to family offices and very wealthy investors.

Most prominent was the collapse late last year of Strategic Real Estate Advisors, a London-based commercial property specialist for the ultra-high net and run by the former Credit Suisse private banker Pierre Rolin.

But demand for commercial property isn't completely dead. HSBC Private Bank put together a commercial property deal for its wealthiest clients, including a number of family offices earlier this year. The deal involved purchasing a 381,074 sq. ft. office building close to the White House in Washington DC.

Chris Allen, chief executive of HSBC Private Bank's Alternative Investment division, says: "This transaction perfectly demonstrates HSBC Private Bank's ability to 'open doors' for its clients. This club purchase would have been an impossibility for our clients acting individually."

Super-prime properties in super-prime locations. What does $30 million buy you:

Cumberland Terrace: Regent's Park, London
Located in one of London's premier addresses, this eight bedroom 9,300 sq. ft. stucco-fronted house is on the market for £27,500,000. Designed by John Nash, one of London's most famous architects, Knight Frank is marketing the property, which includes a two-bedroom mews house.

Canton of Neuchâtel: Switzerland
A chateau with 12 bedrooms, nine reception rooms and only one-hour drive away from Geneva. With views of Lake Geneva and a vineyard producing 40,000 bottles of wine a year, the Swiss chateau is one of the most beautiful in the region. But Knight Frank, which is marketing the chateau, isn't revealing its price to the public – that detail is only for serious buyers. Expect to pay more than SFr30 million for this exceptional house, which comes with 24 acres of land.

5th Avenue – Upper East Side: New York City
One of the largest and most important townhouses in New York is on the market for an impressive $59 million. That gets the buyer 21,000 sq. ft. on seven floors. The property is being marketed by Sotheby's International Realty, which says there has been plenty of interest from both private and commercial buyers.