The globe’s superwealthy — the 1 percent — are driving alternative investments into a new frenzy of hard cash deals.
This reallocation of capital into rare art, multimillion-dollar condos, personal luxury purchases, bitcoin and other alternative investments are sending prices to stratospheric highs, according to analysts.
The price surges, on the weirdest fundamentals in years, have some analysts baffled.
‘What I am saying is, the rich have gotten richer, the poor have gotten poorer, and the middle class is gone.’
And these deals are turning heads: Japanese e-commerce billionaire Yusaku Maezawa recently snapped up a Jean-Michel Basquiat painting for $110.5 million, the highest price ever paid at auction for a piece by an American artist. Duplexes with stunning city views and gold-plated crown molding are retailing at anywhere from $10 million to $100 million in prime locations. Digital currency bitcoin has established new records, soaring by more than 245 percent since the beginning of 2017. And, after a lull, the global personal luxury goods market is finally expected to explode, and is forecast to grow by 2 percent to 4 percent this year, according to Bain & Co.
But if you think that augurs well for the overall economy, think again.
“We are living through abnormal market times,” said Dan Shaffer, president and CEO of Greenwich, Conn.-based Shaffer Asset Management, singling out today’s historically low “riskless” rate of return on US treasuries and other interest-rate sensitive products.
That’s bad news for retirees on fixed incomes seeking safety, and for middle-class investors seeking more yield.
But it opens up the spigots for super-rich investors seeking yield but savvy in managing money on lower borrowing costs. And they’re investing in hard assets rather than in more liquid interest-rate products.
“What I am saying is, the rich have gotten richer, the poor have gotten poorer, and the middle class is gone,” Shaffer said. “Everything [asset] is so mismarked and value is moving in [abnormal] directions. Look at bitcoin. It reminds me of the craze for Dutch tulips back in the 1600s. This cycle is similar to the 1920s,” referencing the Roaring ’20s, which ended with the Great Depression.
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Shaffer, a well-respected money man, is talking from experience. Even his tony Greenwich community is in danger of turning into a financial rust belt.
With more multimillionaires likely leveraged to the hilt per square foot than many other affluent towns in America, Shaffer said all is not well.
“I live up here in Greenwich, and the market for houses above $2 million is not selling,” he said. “There are houses for sale all over the place.”
According to Shaffer and other analysts, it is the tech billionaires and others with cash to burn who are today’s buyers of big properties and hard assets.
“The tycoons of the world are driving up prices,” said real estate expert Ken Weissenberg, a partner at EisnerAmper. “You would never call someone spending $7,500 a square foot today a bargain-hunter.”
Darren Sukenik, a real estate broker at Douglas Elliman in Manhattan, said most of his high-end clients are paying cash for luxury homes and condos, properties on the market for $3 million to $15 million each.
Sales of homes globally valued at $100 million-plus struck a record last year, a total of 10 fetching a combined $1.4 billion, according to Christie’s International Real Estate.
The realtor notes that real estate was catching up with surging values elsewhere, from yachts worth more than $200 million to expensive art.