LuxuryBlurb

Posted by Leonard Steinberg on April 28th, 2013

With a slew of listings above the $50 million mark cropping up in the Manhattan real estate market, Sellers repeatedly refer back to the $ 88million sale of the penthouse at 15 Central Park West and the elusive Russian/Asian/SouthAmerican billionaire has become the most desired demographic for this type of property. Surely these buyers will pay much more than market rates the Sellers always ask?

The 15 CPW buyer was billionaire Dmitry Rybolovlev, Russia’s 14th-richest person: he and his maybe-not-so-soon-to-be-ex-wife, Elena Rybolovleva, have been fighting for almost 5 years in at least 7 countries over his $9.5 billion fortune. Rybolovleva accused her husband of using a “multitude of third- parties” to create a network of offshore holding companies and trusts to place assets — including about $500 million in art, $36 million in jewelry and an $80 million yacht — beyond her reach. She has brought legal action against Rybolovlev in the British Virgin Islands, England, Wales, the U.S., Cyprus, Singapore and Switzerland, and is seeking $6 billion.

The suits provide a window into the offshore structures and secrecy jurisdictions the world’s richest people use to manage, preserve and conceal their assets. According to Tax Justice Network, a U.K.-based organization that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32 trillion offshore at the end of 2010. Fewer than 100,000 people own $9.8 trillion of offshore assets, according to research compiled by former McKinsey & Co. economist James Henry.

More than 30 percent of the world’s 200 richest people, who have a $2.8 trillion collective net worth, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. These structures often hide assets from tax authorities or provide legal protection from government seizure and lawsuits.

Rybolovlev, who lives in Monaco, made most of his fortune from the sale of two potash fertilizer companies for a combined $8 billion in 2010 and 2011. He held both companies — OAO Uralkali and OAO Silvinit — through Cyprus-based Madura Holding Ltd. Some of his art is now held in Xitrans Finance Ltd., a British Virgin Islands-based company, and stored in Singapore……Rybolovlev bought the 15 Central Park West apartment for $88 million in 2011 using a trust associated with his daughter, Ekaterina. The penthouse was purchased from the wife of former Citigroup Inc. chairman Sandy Weill. In the divorce Rybolovleva said the billionaire moved many of his assets, including jewels, furniture and the yacht, under the control of two trusts, Aries and Virgo, that he established in Cyprus in 2005, a few weeks after she refused to sign a post- nuptial agreement he offered her.

Since the onset of the global financial crisis in 2008, the laws and treaties that created and sustained the offshore tax- dodging industry and allowed for the kinds of maneuvers used by Rybolovlev have been undergoing a shift toward transparency: Liechtenstein, once fabled for its banking secrecy laws, began in 2009 to require its financial institutions to hold details about the beneficial owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein. Singapore, the heart of Asia’s banking and offshore industry, will make laundering of profits from tax evasion a crime under a law taking effect on July 1st. Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015.

Cyprus was bailed out of its financial troubles in March by the European Union, which required the nation to impose a tax on bank deposits of more than 100,000 euros. That month, the country lost $2.4 billion in deposits. The shift toward transparency has led many of the world’s wealthiest to reassess how and where they hold their assets. One has to wonder if all these funds were made legally why would anyone be concerned about their transparency?

A small part of the $15.3 billion fortune controlled by Texas billionaire Elaine T. Marshall, 70, is based in Liechtenstein, where her late husband, E. Pierce Marshall, started a foundation for their grandchildren, according to his will. The Dallas resident controls almost 15 percent of Koch Industries Inc., the second-largest closely held company in the U.S., after inheriting the stake in 2006.

Many of today’s wealthy remain focused on finding places to minimize their taxes and avoid double taxation. Russian billionaires create entities in the British Virgin Islands because they find its legal system, which is based on British law, more attractive than their own. The Cayman Islands are popular among billionaires because they don’t impose any type of income or investment taxes on funds organized in the Caribbean country.

Delaware is the legal home to more than half of the corporate entities in the U.S. The state’s favorable tax laws cuts companies’ tax burdens by an average of 40 percent, according to a 2011 study by Jacob Thornock at the University of Washington Foster School of Business. Delaware also doesn’t require officers and directors to be U.S. citizens, and allows them to remain anonymous, according to its business code.

So why is Monaco real estate so expensive? Monaco is the original tax-free haven and attracts the wealthiest from around the globe. Texas and other states with low or zero state taxes are faring quite well these days too, attracting the wealthy from around the country.

A bigger question is when super wealthy individuals withdraw large sums of money from their country’s economy due to too-high taxation, are those that remain left with a greater share of the tax burden? Surely if those funds remained within those economies the need for excessive taxation would decline…..or would it, knowing how greedy, inefficient and corrupt most governments are when it comes to money? Do we live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don’t want to play by the rules? Tax legislators take note.

So the answer may just be YES:  there may be enough super-wealthy individuals willing to buy real estate at pricing above market rates to park funds they feel their country (or ex-wife) is not entitled to.

Posted by Leonard Steinberg on April 24th, 2013

This is an actual story from a commentator on line that I thought was worth re-printing as it is a story I hear so many times from those at retirement age:

“One way or another, try to buy a place, especially if you expect to stay a long time (at least 5-10 years). My wife and I stretched and got our co-op apartment–a 2-bedroom, 1 bath on the upper west side–in 1989 for about $2000 (mortgage and maintenance combined). 22 years later, we’re still there. Now costs are closer to $2500 (we get to deduct about $700 a month) and the value has gone up over 4 times.

It was hard to do, and I admit that had we found a decent/cheap apartment, we probably would have gone that route, but we kept coming up empty, and at least there were a lot of apartments for sale to look at. In contrast, we know several couples who got great deals like $1500 a month for a rental, but they never moved and now have no equity; and their apartments feel pretty outdated.

That aside, one big advantage to living in New York is that you don’t need a car. I lived in Los Angeles for two years and loved how much cheaper everything (food, rent, going out) was, but car expenses more than made up for that, so in the end I was just as broke.”

The big picture message is that renting is at times cheaper than owning for sure, that buying does take pain (especially now, but it has always been a bit painful in the beginning), but by owning you are building equity over time, taking that tax deduction, capitalizing on low interest rates that come along very rarely, and holding on for a long time pays dividends. And yes, the cost of buying in New York is prohibitive, but add in the cultural amenities and conveniences such as not needing a car, and comparatively the costs are not too far off other large US cities…..and certainly cheaper still than other major world centers. I have met so many older New Yorkers who told me how they sacrificed so much to buy their home, and now by selling it have the bulk of their retirement under the roof that housed them over the years.