January 16th 2015
The New York Times
It is Wall Street bonus season, the time of year when Porsche dealerships are known to polish their inventory and private clubs stock up on Krug Champagne and bouncers.
The last several years have been lackluster, as the extravagant compensation lavished on financiers during the boom years failed to materialize following the recession. But this year signs are emerging that bountiful bonuses are back, at least for some, and those who sell high-end real estate are seeing buyers return to the marketplace with more confidence and thicker wallets.
Cindy Scholz, a real estate agent at Urban Compass, has been working with a couple, both of whom are at hedge funds, for several months as they searched for two-bedrooms in the $2 million range. When their bonuses came in at figures almost equal to their pay, they decided to set their sights higher. “They took off for the holidays and came back and said their budget was $4 million to $5 million,” Ms. Scholz said.
Adam Lynch, an associate broker at Town Residential, had a similar experience. He had buyers looking to purchase something in the low-$2 million range, but their bonuses “far exceeded their expectations, and since it was somewhat unexpected, it is almost like found money,” Mr. Lynch said, adding that the clients “have upped their budget to well into the $3 million range.”
Compensation experts say that bonuses this year will be a mixed bag. Most employers began revealing their plans late last year and into the beginning of 2015, and will be distributing their bonus checks over the next several weeks. This is just in time for spring, when the weather warms and the real estate market emerges from its winter hibernation.
Some hedge funds have done relatively well of late, and their owners, in particular, who earn fees for money under management, should be flush with cash. Investment bankers who work in mergers and acquisitions should also do well, but traders and those in fixed income will have less lucrative payouts.
“Investment bankers could see an increase in their bonuses of 8 to 10 percent, but bonuses are going to be down for fixed income and traders,” said Michael Karp, the chief executive of the Options Group, an executive search firm.
Lawyers at the city’s white-shoe firms, particularly those in mergers and acquisitions, should also do well, Mr. Karp added. Another group receiving a cash infusion are the Wall Street employees who were given deferred compensation during the dark days of the down market. Employers doled out both cash and stock options that did not vest for several years, resulting in much grumbling from the rank and file. Many of these options finally vest this month, and the results are likely to be better than expected, said Alan Johnson, a managing director at Johnson Associates, a compensation consulting firm.
“In 2011, 2012 and 2013 they were getting shares that didn’t vest for three or four years,” Mr. Johnson said. Speaking hypothetically, he added, “But they were paid at $40 a share, and now the stock is worth $80 a share, so they are able to get a large lump sum.”
Further buoying this buying trend is the news that some banks, like Morgan Stanley, would revert this year to the precrisis practice of relying more on upfront cash bonuses than deferred compensation.
And even some Wall Street employees who won’t be seeing a big increase in bonuses this year may still be better off financially. Many of them have spent the last several years shoring up their personal balance sheets. “In the years after the crisis, many bankers were in bad shape, but they have spent the past few years digging themselves out of the hole they were in,” Mr. Johnson said. “Even though their pay is not up significantly since the recession, their net worth is.”
Lisa Larson, an associate broker at Warburg Realty, says that several of her more reluctant clients are now ready to jump into the buyers’ pool. “A couple of my clients, even just a year ago, were sitting on the sidelines and didn’t want to get involved in bidding wars,” she said. “But now there has been a perfect storm of conditions that are making them more optimistic and ready to buy.”
Her clients, and others like them, have a general feeling that they have weathered the recession and are now more confident about holding onto their jobs. Many are also looking to take advantage of low interest rates, amid speculation that rates may rise toward the end of the year.
A number of properties have also been sitting on the market unsold and represent a good value. “There are co-ops on Fifth Avenue and Park Avenue that aren’t renovated and aren’t selling, so a year or two ago, my clients didn’t want to take the risk,” Ms. Larson said, “but now that they are more flush with cash, they have the stomach to take on an apartment that needs renovation.”
As professionals in finance, many bonus-rich buyers put a premium on making sound investments. “It is the old saying that cash flows never grow old, and covering your expenses never grows old,” said Daniela Sassoun, an associate broker at Douglas Elliman Real Estate. “A lot of my clients are in private banking or private equity, and I think the bonuses create a sense of financial security, like, ‘I have more liquidity to spend,’ but of course it is very well thought out. These are bankers so they run their numbers.”
Some of Ms. Sassoun’s clients are searching for investment properties in areas like Aspen, Colo., and the Hamptons. “They can buy a huge house in Aspen, use it a few weeks a year, but since they have several houses, they can put it out to rent and it generates income plus appreciation,” she said. “After 2007, people are either going to buy premium properties and be very smart about it, or buy second or third homes that produce a cash flow.”
Mike Schulte, a salesman at Citi Habitats, is working with a group of hedge fund colleagues who would like to invest in a small residential building in the $5 million to $10 million range south of 96th Street. “They are looking in areas where they feel there may be some upside, but they want something fully leased, and the problem is inventory,” he said. “There are no deals out there.”
Real estate developers undoubtedly are also welcoming Wall Street buyers, especially with growing concern that there may be a slowdown at the high end of the market, with a rising number of luxury units saturating a relatively small buyer pool.
At the Marquand at 11 East 68th Street, for example, a penthouse has been on the market for $46.5 million since November, but interest has picked up in recent weeks. The triplex unit, which is priced at $6,588 a square foot and has five bedrooms and six full and two half baths, received one bid that was rejected as too low. It now has three more “serious contenders,” including Wall Street types, said Madeline Hult Elghanayan, a Douglas Elliman agent marketing the building.
Ziel Feldman, the founder of the HFZ Capital Group, which is developing the Marquand, a century-old Beaux-Arts Revival building, said, “We have seen a big surge after a lull during the summer months.” In the past five weeks, three units have gone into contract at full price — likely driven by the bonus bump.