Magazine article Commonweal

Misdirected Investment: What New York City's Glut of New Luxury Apartment Buildings Tells Us about the Economy

Magazine article Commonweal

Misdirected Investment: What New York City's Glut of New Luxury Apartment Buildings Tells Us about the Economy

Article excerpt

Over the past decade or so, the New York City skyline has been radically transformed by the erection of Empire State Building--size residential towers. The needle-shaped towers, which top out at about ninety-five stories, each cost more than $1 billion to erect, and incorporate huge individual living spaces that, in their heyday, sold for up to $100 million apiece. Amazingly, many of them are nearly empty.

A 2015 New York Times series disclosed that many of the apartments are owned by murky networks of holding companies that conceal the identity of the real owners. Digging deeply, the Times identified a rogue's gallery of Russian, Chinese, Malaysian, and other far-flung tycoons, people with powerful political connections at home, and extraordinary wealth that is likely the fruit of corruption.

People are divided on the aesthetics of the towers--some of them, even to my jaundiced eye, are beautiful--but as an investment, they represent nearly total waste. Granted they have provided a terrific stimulus for the local construction trades, but that is a one-time thing. The recent downturn in global energy and other commodity prices has cut into the loose change available to emerging-market autocrats and their friends, and some of the apartments in newer towers are having trouble selling for the expected prices. But because of the long lead times required for their construction, one can count a half-dozen or so projects still underway or just starting. (Real-estate developers, as Donald Trump has taught the world, take out their fees from a finished project, while another legal entity undertakes the risk of the actual sales.)

The towers were not built as places for people to live, although, to be fair, some of them have been purchased by American executives who made their pile from doing useful things, like launching software companies. But the high rate of foreign ownership suggests that the apartments' primary function is to serve as a safe asset--a magnet for high-end money laundering. The Chinese billionaires who made their money through party connections need to get it to a place where there is due process of law, so a change in government won't put their fortunes at risk.

The sad truth is that the high-end New York towers--as well as their siblings in London, Singapore, and other major financial centers--are just a particularly egregious example of the warping of the modern investment economy. …

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