Why the Ultra-Rich Are Using Giant Home Loans to Access Cheap Credit
According to a publication by Bloomberg, JPMorgan has issued a $42.5 million loan on a New York penthouse owned by a Russian billionaire’s family.
Analyst, say that the penthouse at 15 Central Park West has everything you’d expect for an $88 million property: 6,744-square-feet of space, a wraparound terrace and killer views of Manhattan.
Since June, the apartment owned by the family of Russian billionaire Dmitry Rybolovlev has an added feature available just for the super rich: a $42.5 million mortgage from JPMorgan Chase & Co. With a 2.9% interest rate, payments are about $177,000 a month.
Though the super-sized mortgage is one of the biggest arranged in recent months, it’s far from the only one. Lenders are increasingly providing credit to their most valuable clients after central banks slashed interest rates to protect the economy from the effects of the Covid-19 pandemic. That’s enabling the ultra-wealthy to borrow to invest in stock markets, cryptocurrencies or real estate, even as protracted unemployment drives serious delinquencies to their highest levels since 2010.
“Rates are low and so clients are looking to take advantage, using some form of debt to be able to access cheap money,” said Casey S. Kriedman, a financial adviser at the Broad Group, a New York-based unit of UBS Global Wealth Management.
It’s also showing up in the data for the merely affluent. After cratering during the early days of the pandemic, the number of jumbo home loans of $766,000 or more increased by more than two-thirds in August from a year earlier, according to the U.S. Mortgage Bankers Association. Helping driving that trend: More people buying larger suburban or rural houses as they seek refuge from cities, homeowners choosing to refinance, as well as a soaring stock market.
“The higher end of the mortgage market is very focused on the returns in financial markets,” said Michael Fratantoni, the association’s chief economist. “That’s providing the resources.”
New York is one of the few major cities to disclose mortgage data publicly. Outdoor advertising mogul Drew Katz obtained a $15 million mortgage in August for a New York penthouse that he bought four years ago for $22 million, filings show. In April, hedge fund founder Dan Och obtained a $50 million mortgage for a home on Manhattan’s Billionaire’s Row that he acquired last year. The following month, a U.S. company controlled by Mexican heiress Karen Virginia Beckmann — part of the family behind Jose Cuervo tequila — received a $19 million mortgage for a condo it bought three years ago in the same area.
220 Central Park South, where Dan Och owns an apartment.
A representative for Och and Beckmann declined to comment, while Katz didn’t respond to a request for comment made through his family’s foundation.
The mega-mortgages happened even as some of New York’s richest residents fled the city amid the coronavirus pandemic and concerns over quality-of-life issues. The exodus added to a glut of luxury apartments on the market in Manhattan, and, should prices soften further, could pose risks for lenders. Unsold listings in Manhattan in the third quarter surged to 9,319, a level not seen since the midst of the global financial crisis 11 years ago.
“Is this going to lead to people leaving higher-density cities?” Fratantoni said. “It certainly seems like that’s happening in New York and San Francisco.”
In addition to New York and San Francisco, real estate brokers and private bankers from Los Angeles to London are also seeing an increase in loans taken by people who don’t necessarily need the cash.
In the English capital, the super-rich have snapped up newly built homes for more than 20 million pounds ($26 million) during the pandemic, often obtaining a discount and sometimes buying more than one unit at once, according to Charles Boulton, chief executive officer of HSBC Holdings Plc’s U.K. private bank. Meantime, sales of U.K. homes costing over 1 million pounds doubled in August, outperforming the rest of the nation’s housing market, with pricey properties outside of London benefiting the most.
“While a number of clients have deleveraged, there has also been a pronounced shift in borrowing appetite from a number of our ultra-high-net worth clients in recent months,” Boulton said. “Debt is the cheapest it has ever been and there are significant investment opportunities for our clients where they are able to move quickly.”
The U.S. mortgage market, meantime, shows a widening gap between winners and losers as affluent borrowers take advantage of long-term interest rates at or below 3% while a rising number of out-of-work homeowners fall behind on payments. The world’s super-rich and merely wealthy, therefore, are likely to emerge with the highest returns from interest rates hitting record lows.
“In reality, the richer you are the more you borrow,” said Remi Frank, head of BNP Paribas wealth management’s key client group. “And the banks are happy to lend to very rich peopl