Foreign Investors and the Hamptons

Along the eastern section of Long Island is the preferred second home of most New Yorkers. Southamptom, East Hamptom, Westhamptom, Bridgehamptom, Sag Harbor and Hamptoms Bays all make up what is commonly referred to as The Hamptoms, and which contain some of the most luxurious real estate in the country.

This section of property is so attractive that it is actually getting constant interest from foreign buyers from Asia and both Eastern and Western Europe, including England and Wales.

What is it that attracts such global attention? Is it simply the miles of beaches and mansion-sized homes that litter them?

“Along with a higher international demand for luxury properties in all the well known, desirable locations worldwide, there is continuing strong interest in New York, especially Manhattan, and also in the Hamptons,” says Laura Bennett, Managing Director of the Southamptom office of Engel & Volkers, a worldwide leader in high-end real estate. She continues, “Above all, it's the global economy and high-performance of investment bankers and Wall Street traders, coupled with a strong Euro and British Pound Sterling, that are providing attractive opportunities for people looking for sound real estate investments.”

The increasing demand has met with a short supply of homes and offices in these prime locations. In the village of East Hampton, for example, house prices increased last year by one third, on average, to $3.4 million. Ron Baron, founder of the investment company
bearing his name, paid $103 million for a 40-acre parcel in East Hampton. Baron's purchase price was more than double the former Hampton's record of $45 million for Burnt Point, the mansion on Georgia Pond purchased in 2005 by Stewart Rahr.

In Sagaponack the average price of a home increased by more than 40% to $5.5 million last year. “We assume that we will see a significant number of sales above the $10 million mark this summer in the best locations in the Hamptons,” says Bennett.

The past ten years has seen a huge increase in the price of real estate in virtually every area of the country, there’s no doubt about that. The sudden real estate market boom led to a high demand that many builders and developers simply could not keep up with.

But the high-end real estate market especially has seen an increase in demand – and therefore price – unlike any other, and foreign investors and buyers play a huge part in this scenario. While the U.S. economy has seen something of a cool down overall, foreign markets are on the rise. The numerous jobs being outsourced to places such as India and China means that there is a sudden spike in the middle and upper classes as these places have never before seen.

And a spike in wealth always brings a spike in demand for luxury living.

In Westhampton, the average price of a single family home increased from $274,000 in 1997 to more than $600,000 today. In Hampton Bays, over the same period average house prices increased from $129,000 to over $500,000 – again, much of it due to foreign demand.

No doubt this spike in Hamptons real estate is due to the demand for office space in New York, specifically Manhattan.

While London remains the top global city for cross-border real estate investment, New York regains the number two spot, rising from third place in 2005, and fourth place in both 2004 and 2003. Washington, DC, which has held the number one or number two spot globally since 2002, falls into fourth place. Paris climbs from fourth place to third, and Tokyo maintains the fifth spot. All of this is according to the 15th annual survey conducted by the Association of Foreign Investors in Real Estate (AFIRE), which studies trends in real estate investments globally.

While a housing slump that has reached across the U.S. has in some ways affected virtually every area of the country, this area of Long Island still offers investors an enticing vehicle in which to park their money – luxury living.

For example, consider Frank and Roy Dalene, who are in the midst of launching the Hamptons Real Estate Fund LP.

The Dalenes are principals of Hamptons Luxury Homes, a company engaged in housing construction and maintenance services. About 75% of its business is done with Wall Street clients, who include top moneymakers at Goldman Sachs and Bank of America Securities.

Money raised by the fund will be used to acquire prime older properties, as well as land, in the estate sections of Southampton and East Hampton, primarily properties with water views. The existing houses will then be torn down and rebuilt to customer specifications (no spec houses will be constructed) at price tags that will likely range between $15 million and $60 million. The average price is expected to end up somewhere between $20 million and $30 million.

This type of luxury is one that buyers are willing to pay a price for. Even the Dalenes acknowledge this; “There are no ‘For Sale' signs in the upper market,” Roy Dalene said.

And there may be one additional reason why foreign investors are often so keen on setting up camp in the Hamptons – sentiment. Many of the American elite, the rich and famous, have vacationed and still frequently vacation in the Hamptons on a regular basis. Wanting to rub elbows with movie stars and politicians at the same time really cannot be achieved in other place except New York’s fine slice of beachfront paradise. Take for example one such Hamptons piece of property, up for sale at $30 million – and yet, the owners were asking only $26.5 million less than a year ago. The difference? The new owner is former supermodel Christie Brinkley.

So there are of course many reasons why anyone would want to invest in the Hamptons, and reasons why such property would appeal to foreign markets and buyers. As the world continues to shrink, there will be more from Asia and Europe that will be buying into areas of Manhattan and other business meccas, but the desire to own a small piece of land that is specifically Americana, that’s a dream for many that can only be fulfilled in the Hamptons.

Contents

• How Much Mortgage Can You Afford?
• Buying a Good Vacation Home
• Buying a Home for Resale Purposes
• Claremont is the Top Earner – and Most Expensive
• Commercial Real Estate Still a Safe Bet
• Determining Your Offer Price
• Empty Homes for Sale
• Exercise Caution When Flipping
• Expensive and Alternative Homes
• Figuring Property Taxes for the High-End Real Estate
• Florida’s High-End Real Estate Goes Limp
• Foreign Investors and the Hamptons
• German Investment in U.S. Real Estate Creates a Bidding War
• Getting Wealthy From Real Estate Investing
• Going Green
• High-End Goes High-Tech
• High-End Investors – Why Immune to the Real Estate Crunch?
• High-End Real Estate Feels the Crunch?

• High End Property Site Map