Russian rich are secretly trying to get rid of real estate in New York

They arrived in New York with a bang, acquiring the best seats in the expensive parts of Manhattan. At present, the Russians have become quieter than water. Several rich Russians, trying to close a deal to sell multi-million dollar real estate in Manhattan, fall into the trap of US sanctions. Some trust dealers and do not make public transactions to limit publicity, reports IN1.

But not all: the Upper East Side mansion owned by Alexei Kuzmichev, one of the Alfa-Bank representatives hit by US sanctions, is listed for $41 million, $1 million less than the owner paid for it in 2016.

"They're all just waiting to be sold," said Dolly Lenz, one of New York's first real estate brokers. The central question, as Lenz pointed out, is what terms they will exit on and how big a hit they need to take to close trades quickly.

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Many buyers are far away - both in wealth and in political connections - from the scandalous oligarchs who stand out enough to be noticed and are probably never going to put their names on the list of endorsements. However, the concern is that they may also be rushing to sell due to an out of nowhere threatening environment and a sense of fear towards what Lenz called the "responsibility of belonging." They may also need to raise money to adjust to monetary tensions from Western sanctions.

Garrett Derderian, head of research at real estate intermediary Serhant, says New York, Miami and various business sectors will stay afloat after recovering from last year's pandemic. For example, the number of deals completed in Manhattan in the last quarter increased by 77% compared to last year.

According to Derderian, those Russians who hoped to sell were "a tiny fraction of the people," and the large pool of wealthy Russians was indeed looking for safety on US soil. “Global business sectors such as New York and Miami have become a prime target for the wealthy. At the moment, there is not a single urgent real estate offer related to Russia in New York,” he said.

Russian oligarchs have been less visible in the US market since Moscow's 2014 annexation of Crimea soured relations with the West, real estate officials and executives pointed out. As prime buyers in Manhattan, they were overwhelmed by the Chinese, who have since been under capital controls imposed by Beijing.

To this day, no one seems to know exactly how much property the Russians actually own in the US. This is due to the fact that many worked through front organizations that hide their identity. Congress passed a regulation in 2020 requiring limited liability entities and various elements to disclose their true owners.

Meanwhile, Douglas Kellner, a New York lawyer with some experience in land matters, expected the specialists to fight to distinguish sanctioned owners. "It's annoying," Kellner said. “There are people in the Justice Department who are good at keeping track of resources. Either way, it's a staggering, tedious job that regularly requires cooperative activity from unfamiliar governments."

Jamal el-Hindi, a previous spokesman for the Treasury Department's oversight agency charged with monetary violations, agreed. “There are ways they can sort things out, but it's difficult,” he said. El-Hindi, currently running Clifford Chance, considered that the monetary organizations were themselves startled to discover the amount of Libyan cash they held after the US imposed sanctions in 2011 to topple Muammer Gaddafi and his regime.

In addition to individual condominiums, several Russian financial backers may also have diverted cash to improvement projects, according to Michael Romer of Romer Debbas law firm in New York, who has hands-on real estate experience.

In 2007, Andrey Vavilov agreed to pay $53,5 million for two penthouses at the Plaza Hotel before pulling out of the deal © Ruth Fremson/New York Times/Redux/eyeevine.

As an investment, the appeal of New York real estate to wealthy Russians is equivalent to what it was to other unfamiliar buyers: it has its own value and can be easily exchanged. Russians, officials say, are favoring townhouses in new builds, like the previous Time Warner Center, eschewing prying polls driven by joint loads in more established buildings.

“Part of the cash went to a very good, new improvement market on the grounds that, truth be told, it was an easy place to stop the cash,” Romer realized.

The staggering amount of Russian wealth became apparent in 2007 when agent Andrei Vavilov agreed to pay $53,5 million for two penthouses at the Plaza Hotel. Vavilov later backed out of the deal and sued the engineer, grumbling that the completed apartment looked like "the famous warehouse."

Vavilov was soon eclipsed by Roman Abramovich, the tycoon owner of the Chelsea Football Club, who purchased three adjoining apartments on East 75th Street to make a secluded mansion. In 2018, he transferred the property and two neighbors for a total of $92 million to his ex-girlfriend Dasha Zhukova as compensation in a divorce. Abramovich has come under EU and UK sanctions in recent days.

Russian buyers were so interesting that designer Harry Macklow sent an account team to Moscow in 2013 to raise interest in 432 Park, his super high tower.

However, they added to the concern that the Russians were only buying property to hold dubious funds - instead of actually owning it. In 2016, the Treasury Department responded by issuing a brief request requiring titular entities to notify front entity owners buying property on all cash exchanges in specific areas.

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The then Mayor of New York Bill de Blazio stated in BuzzFeed in 2017: “I see Russian oligarchs as a problem. There are so many of them here, they buy real estate, but I would rather not have anything to do with them.

South Florida has also become a magnet for Russian money. Dmitry Rybolovlev bought a mansion on Palm Beach from Donald Trump in 2008 for a record $95 million at the time. Rybolovlev then demolished the mansion and sold the plot for three lots.

The region is mainly seen as a haven for wealthy Russians. Radiant Isles Beach, for example, an area known as "Little Moscow," highlights beachfront townhouses in areas ranging from $3 million to $5 million—often in high-profile structures like the Porsche Design Tower or Trump Towers. "It's an incredibly Russian place," Lenz said.

Even if the larger market for extravagance holds, the sanctions - or the danger of permits - suggest that the conversations will start from scratch. Suppose an apartment is really frozen in an extravagant building due to permits, for example, could this affect the value of others? Can a loan officer survive the financial blow if he is not bought out?

Similarly, the purchase of property may be unsafe, with the possibility that it may well be restricted in the course of legal proceedings.