Deeds and Don’ts Hamptons
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The Hamptons Cottages & Gardens 2008 Idea House.
THE STATE OF
HC&G’s founding publisher and former owner, Richard Ekstract, and intrepid “Deeds and Don’ts” reporter Scoop Drummond reflect on the Hamptons housing market—and the shape of things to come.
When we launched HC&G nearly a decade ago, a favorite topic at cocktail and dinner parties was real estate. Why? For the previous 25 years, Hamptons real estate (with minor hiccups) kept going up. Just about everyone who dabbled in real estate—or dreamed of dabbling in it—wanted credible insights. That’s how this column came to be. Today, after a rough couple of years, the crystal ball doesn’t seem as clear as it once was. Is a rosier future within sight? Only time, it seems, will tell.
The Hamptons Cottages & Gardens 2007 Idea House.
To the casual observer, Hamptons real estate appears to be in recovery mode. Sales volume has increased, though higher prices have yet to follow suit. No doubt it’s been a hellish combat, recovering from the economic maelstrom that felled an otherwise impervious Hamptons real estate market from late fall 2007 to now. What’s different this time from other down markets is that the low end of the spectrum—houses selling for less than $1 million—has fared much better than the high end, where prices touch the stratosphere.
Still, these contradictions didn’t stop either The New York Times or The Wall Street Journal from proclaiming earlier this year that it is time to buy again. Also chiming in was the New York Post, declaring not only that the recovery was in full swing, but that the market “was hot,” as though every potential buyer luxuriating in newly minted money madness was lunging to make a move. The paper went so far as to cite John Paulson’s $41.3 million buy, which actually occurred in 2009, to depict a “current” trend. Apparently the Post will say anything to sell papers.
Real estate is indeed in better shape than the darkest days of 2008 and 2009, but it’s hardly giddy or resurgent. The East End market is moving along nicely enough without making waves. The rental market, on the other hand, is brisk with activity, but lease rates, like sales figures, have not surged to new highs.
What’s perplexing is that the market remains lackluster when prognostications of a rosy future are upon us: With the Dow a lot healthier lately and Wall Street players flush with bonuses and deal-making money again, the Hamptons has not reacted as it usually does when downtown capital returns to the stuff of dreams.
Richard Ekstract, who’s no slouch when it comes to timely investing and understanding market trends, predicts that the worst is over, claiming that inflation is looming and “hard assets, like second homes in highly desirable areas like the Hamptons, are a great inflation hedge.”
There’s something almost sinister about what’s not happening. There are positive trends on Wall Street, which affects New York area real estate, so why haven’t these encouraging events translated into real estate closings? It’s the players who’ve changed. The new buyers are 10 to 20 years younger than their predecessors from the 1970s to the mid-2000s, before the world of hedge-fund manipulators overtook investment banking as the moving force that drove Hamptons real estate.
The new crowd doesn’t use the Hamptons as a year-round escape. They have their palatial New York apartments, where they can gaze at their art collections, their ski lodges in Aspen and various other Xanadus; the need for a seaside getaway during the off season is for ordinary millionaires and not the recently ascendant. The fact that the Hamptons are quiet and even serene after the season doesn’t seem to matter. They like the grunt and grind of the summer crowds.
Also, the new buying set is not yet as firmly established as the older generation of Goldman Sachs nabobs and other Wall Street pros who initially made the Hamptons into a playground for the rich. Hedge-fund money comes and goes. Deals resulting in big fees on Wall Street are running high, bonuses are big and incomes are stratospheric. All the preaching and prancing from government for reforms are more bluster than code of belief, as though the financial markets are one big Madoff-style Ponzi scheme.
With the formula right for great gobs of cash to start rolling down Route 27 again, why hasn’t it done so? A very simple reason: The players responsible for the jigsaw puzzle of derivatives that nearly toppled an entire world of financial markets are at it again. Deep down they know that their newly mined fortunes can disappear in an instant if they continue to stoke potential conflagrations. It’s far better to keep a close eye on one’s load of gold hidden under the mattress than to sink it into the aging potato fields of the Hamptons.