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Wall Street’s New Bonus Structures Affecting Real Estate

Wall Street’s New Bonus Structures Affecting Real Estate
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500 days have passed since Stanley Cheslock listed his 26,000 square-foot home on the real estate market for $17,950,000.  The real estate, which was custom built by Cheslock in 2003, includes a movie theater and over 3,700 bottle wine cellar.  The price has been reduced to $15.95 million.  The current price has been reduced over 50 percent since he tried to sell the estate 5 years ago and says Cheslock “It’s a steal – it’s way underpriced”.

Home priced at $10 million plus are accumulating on the markets all over the US , but especially in Greenwich, which is about 30 miles north of Manhattan.   The average time frame for this area is around 4 years to sell – the largest backlog since 2004.  The reason?  Greenwich is known for it’s US hedge fund capital and with Wall Street’s greater emphasis on deferred compensation, which requires portions of bonuses to be paid in the future rather then all at once, the money is no longer there.

Fifty-two houses in the above $10,000,000 price range are listed for sale as of today according to Mark Pruner, an agent with Prudential Connecticut Realty.  At it’s current pace, it would take 52 months to sell the inventory as is.

According to Pruner “Previously, if you got a $10 million bonus, buying a $5 million house wasn’t that big of a deal”.  That is now in the past.  Pruner estimates that about half of all homebuyers in Greenwich work in the financial industry.  Today, bonuses are paid out in a deferred structure so for example a bonus of say $10 million could be paid out in $2 million cash then $8 million spread out over several years.  “If you get $20 million — $3 million in cash and $17 in deferred compensation – are you going to borrow another $2 million in cash to buy a house?  I don’t think so,” Pruner says.

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About James Pattric

James writes for the Residential category (along with Josh Johnson) and also heads up the Resources category.

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