Stream of Foreign Wealth Flows to Elite New York Real Estate
By LOUISE STORY and STEPHANIE SAUL
FEB. 7, 2015
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On the 74th floor of the Time Warner Center, Condominium 74B was purchased in 2010 for $15.65 million by a secretive entity called 25CC ST74B L.L.C. It traces to the family of Vitaly Malkin, a former Russian senator and banker who was barred from entering Canada because of suspected connections to organized crime.
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Last fall, another shell company bought a condo down the hall for $21.4 million from a Greek businessman named Dimitrios Contominas, who was arrested a year ago as part of a corruption sweep in Greece.
A few floors down are three condos owned by another shell company, Columbus Skyline L.L.C., which belongs to the family of a Chinese businessman and contractor named Wang Wenliang. His construction company was found housing workers in New Jersey in hazardous, unsanitary conditions.
Behind the dark glass towers of the Time Warner Center looming over Central Park, a majority of owners have taken steps to keep their identities hidden, registering condos in trusts, limited liability corporations or other entities that shield their names. By piercing the secrecy of more than 200 shell companies, The New York Times documented a decade of ownership in this iconic Manhattan way station for global money transforming the city’s real estate market.
Many of the owners represent a cross-section of American wealth: chief executives and celebrities, doctors and lawyers, technology entrepreneurs and Wall Street traders.
But The Times also found a growing proportion of wealthy foreigners, at least 16 of whom have been the subject of government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud. Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities.
The foreign owners have included government officials and close associates of officials from Russia, Colombia, Malaysia, China, Kazakhstan and Mexico.
FORMER RUSSIAN SENATOR
VITALY MALKIN
Official who battled the Canadian authorities over entering their country.
They have been able to make these multimillion-dollar purchases with few questions asked because of United States laws that foster the movement of largely untraceable money through shell companies.
Vast sums are flowing unchecked around the world as never before — whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets.
Alighting in places like London, Singapore and other financial centers, this flood of capital has created colonies of the foreign super-rich, with the attendant resentments and controversies about class inequality made tangible in the glass and steel towers reordering urban landscapes.
Where it made landfall in New York, in the wake of the Sept. 11 attacks, was the Time Warner Center. More than a decade on, even as a row of sky-piercing palaces rises on the southern rim of Central Park, the Time Warner Center remains the New York archetype of the global phenomenon, reflecting intertwined trends — the increasing sums of foreign money in high-end real estate and the growing use of shell companies.
About $8 billion is spent each year for New York City residences that cost more than $5 million each, more than triple the amount of a decade ago, according to the website PropertyShark. Just over half of those sales last year were to shell companies.
The Times examination reveals the workings of an opaque economy for this global wealth.
Lacking incentive or legal obligation to identify the sources of money, an entire chain of people involved in high-end real estate sales — lawyers, accountants, title brokers, escrow agents, real estate agents, condo boards and building workers — often operate with blinders on. As Rudy Tauscher, a former manager of the condos at Time Warner, said: “The building doesn’t know where the money is coming from. We’re not interested.”
As an indication of how well-cloaked shell company ownership is, it took The Times more than a year to unravel the ownership of shell companies with condos in the Time Warner Center, by searching business and court records from more than 20 countries, interviewing dozens of people with close knowledge of the complex, examining hundreds of property records and connecting the dots from lawyers or relatives named on deeds to the actual buyers.
COURAGE UNDER FIRE
TOM BRADY
The New England Patriots quarterback who bought his 74th-floor condo in 2006 through a trust, Courage Under Fire.
Yet in some cases it is nearly impossible to establish with certainty the source of money behind shell companies. Purchasers can register shell companies in the names of accountants, lawyers or relatives.
Purchases are often made not just by individuals but on behalf of groups of investors or numerous family members, further obscuring the origin of the funds. What is more, ownership of shell companies can be shifted at any time, with no indication in property records.
The high-end real estate market has become less and less transparent — and more alluring for those abroad with assets they wish to keep anonymous — even as the United States pushes other nations to help stanch the flow of American money leaving the country to avoid taxes. Yet for all the concerns of law enforcement officials that shell companies can hide illicit gains, regulatory efforts to require more openness from these companies have failed.
“We like the money,” said Raymond Baker, the president of Global Financial Integrity, a Washington nonprofit that tracks the illicit flow of money. “It’s that simple. We like the money that comes into our accounts, and we are not nearly as judgmental about it as we should be.”
In some ways, officials are clamoring for the foreign wealthy. In New York, tax breaks for condominium developments benefit owners looking for a second, or third, residence in one of Manhattan’s premier buildings. Mayor Michael R. Bloomberg said on his weekly radio program in 2013, shortly before leaving office: “If we could get every billionaire around the world to move here, it would be a godsend.”
Among the Time Warner Center owners identified by The Times are at least 17 billionaires on Forbes magazine’s annual list of the world’s richest people. Five of the world’s leading art collectors own units, as do eight people who have been chief executives of major companies. And it has been home to numerous celebrities, including the singers Jimmy Buffett and Ricky Martin, the New England Patriots quarterback Tom Brady and the talk show host Kelly Ripa.
A look behind some doors revealed more complicated tales.
Units 72B and 51E are owned by the Amantea Corporation, which The Times traced to a mining magnate named Anil Agarwal. His company was fined for polluting a major river near a copper mine in Zambia, which sickened nearby residents. And judicial committees in his native India determined that his company had violated the land rights of an indigenous tribe near a proposed mine.
When Anna Ai Fang purchased Condominium 58E in 2004 for $2.1 million, the forwarding address on the deed was a decidedly more modest location: her dorm, Ruggles Hall, at Columbia University. At the time, her father, Fang Fenglei, had ended a long career running state-affiliated banks in China and would soon begin working for Goldman Sachs.
Unit 62CE belongs to Prime International Management Group, which in turn is controlled by Alexander Varshavsky, who runs auto dealerships in Russia.
Few, if any, questions were raised by those involved in the deal when Mr. Varshavsky paid cash for the 4,300-square-foot apartment. But his condo shopping did not go unnoticed.
“Agents observed defendant Varshavsky enter several buildings in the Central Park area with a real estate agent, including 25 Columbus Circle, New York, New York,” according to a criminal complaint filed in federal court in Newark, recounting surveillance by federal agents at the Time Warner Center. “In June 2011 defendant Varshavsky purchased an apartment located at that address for approximately $20.5 million in cash.”
In December 2013, Mr. Varshavsky, who is now a United States citizen, was charged with failing to report the existence of a foreign bank account. A lawyer for Mr. Varshavsky disputed the allegations and said he expected the complaint to be dropped.
Meanwhile the case is pending, and Mr. Varshavsky posted bail — his Time Warner condo.
Ownership Becomes Opaque
It was not all that long ago that Columbus Circle was the makeshift residence of dozens of homeless people squatting at the site of the abandoned New York Coliseum, the Robert Moses-era convention center.
The demolition of the coliseum and the creation of the Time Warner Center — two residential towers with a retail atrium, corporate offices and the Mandarin Oriental Hotel — transformed the area into a vibrant shopping and dining destination in the aftermath of the Sept. 11 attacks. The condos also sparked development of a billionaires row of residential towers overlooking Central Park.
By marketing the condos to wealthy foreigners, Time Warner’s developer was at the forefront of luring cash from overseas to New York real estate. Twenty-six percent of the original sales were to people from other countries, a proportion that has grown to more than half among recent buyers. The complex’s dark glass exterior offers a sheen of both exclusivity and secrecy.
It is no more transparent inside. There are no door buzzers or mail slots with residents’ names. You are unlikely to bump into neighbors wandering the halls because only about a third of the owners live there at any one time, according to people familiar with their comings and goings. The building’s annual holiday party is a lonely affair, they say.
“It’s a really closely guarded secret who is in that building,” said Al D’Elia, an architect who has worked there. “It’s just the way they treat you, what you have to do to get in the building.”
The hallways are spare, but many apartments are loaded with the sort of amenities that have become standard in luxury real estate: panoramic views, stone bathtubs and custom everything — sound systems, millwork, lighting fixtures.
Even the numbering of the floors was a bit of upwardly mobile sleight of hand, calibrated to enhance the perception of what the developer, the Related Companies, marketed as “Five Star Living.” So, the 80th-floor penthouses are actually on 53.
The building’s layout and protocols facilitate anonymity. There are multiple entrances to its 192 condos — not just through the two towers’ main doors, but also through an adjacent parking garage and through the Time Warner Center shops. And while the building has a book listing the names of people associated with units, the owners do not have to be listed for them to get access to the building. They could walk in alongside someone whose name is in the book. Or, if they are cleared to visit, they could enter the complex through the shops or the hotel, and then take the secure elevators to the condos.
“An owner could be obscured from our view,” said David Spector, who helped manage the condos until 2011.
Over the decade since the Time Warner condos came on the market, high-end real estate sales in general have become increasingly opaque. In 2003, one-third of the units sold in Time Warner were purchased by shell companies. By 2014, that figure was over 80 percent.
Across the United States in recent years, nearly half the residential purchases of over $5 million were made by shell companies rather than named people, according to data from First American Data Tree analyzed by The Times.
Public records, dating back to at least the 1800s in New York, set real estate apart as more transparent than bank accounts or stock portfolios. “There’s a whole Jeffersonian rhetoric about land ownership,” said Hendrik Hartog, a professor of the history of American law at Princeton. “There was a goal to make land transparent, and it was justified by civic values and a whole range of moral judgments like not hiding ownership.”
One type of corporate structure now commonly used in real estate transactions, limited liability corporations, or L.L.C.s, did not even exist in the United States before the late 1970s. At first, they were primarily used by oil and gas traders in Wyoming to shield individual owners from liability — if, say, a well worker was hurt — and to avoid taxation of both the corporation and the investor.
Nothing in the genesis of limited liability corporations suggested they would be used to purchase personal real estate, said Susan Pace Hamill, a University of Alabama professor who worked on L.L.C. policy while at the Internal Revenue Service in the 1990s. However, L.L.C.s are now commonly used in real estate for privacy, wealth transfer or shared ownership.
What becomes clear combing real estate records is that many Time Warner buyers have taken even greater steps, beyond using L.L.C.s, to keep their names out of sight. On many deeds, the line for the buyer’s signature is left blank, is illegible or is signed by a lawyer or other representative. Phone numbers are registered under lawyers’ names; the owner’s line on renovation permits is signed by Time Warner staff members; tax statements are addressed to the L.L.C.s.
And because most of the sales are in cash, there are few mortgage statements, another public document that might identify an owner or trigger scrutiny.
A spokeswoman for the Related Companies, Joanna Rose, said the developer had followed all federal and local laws in its sales at the Time Warner Center, adding, “With all of our sales, we know the identity of the purchasers.”
However, documents and interviews with a half-dozen people involved in the sales show that in many cases, the company did not know the actual source of the money behind the sales.
David J. Wine, the former vice chairman of the Related Companies, spoke bluntly of the lack of concern with buyers’ identities. “You pretty much go by financial capacity,” Mr. Wine said. “Can they afford it? They sign the contract, they put their money down with no contingency and they close.
They have to show the money, and that is it. I don’t think you will find a single new developer where it’s different.”
Real estate agents say commitment to anonymity is essential. “One thing of being a high-end broker is we have to protect the privacy of our clients,” said Hall F. Willkie, president of Brown Harris Stevens. “If we didn’t, we wouldn’t have them as clients. We’re very much like private bankers in that sense.”
The shift to secrecy also reflects a fundamental change in the ownership structure of luxury real estate in New York. Many of Manhattan’s finest addresses were traditionally organized as co-ops in which residents were joint owners of the building. Co-op boards generally prefer full-time residents and often subject would-be buyers to excruciating scrutiny.
“Those co-ops wouldn’t accept billionaires, especially foreigners,” said Raphael De Niro, a broker at Douglas Elliman.
By contrast, Time Warner and most new luxury buildings are condos; residents own individual units and boards have less power to screen prospective buyers. In addition, at the Time Warner Center and many other buildings, if a condo board rejects a buyer, building rules say all the residents have to chip in to buy the unit, creating a disincentive for the board to be too picky.
“That’s the joy of the condos,” said Julie Maxey-Allison, an agent for Brown Harris Stevens. “That’s why the L.L.C.s buy them. It’s a way foreigners can do whatever they want here.”
In fact, interviews show, condo boards are not always aware of the individuals behind the shell companies.
Seamus McMahon, a former Time Warner owner, said he had no idea units were sold to members of the Saudi royal family while he was on the board in 2006, including one connected to Princess Haifa bint Faisal, the daughter of a former Saudi king, and her husband, Prince Bandar bin Sultan, the former ambassador to the United States. A few years earlier, Princess Haifa had been in the news because of reports that some of her money had gone to a figure who aided the Sept. 11 hijackers. (The United States commission that investigated the attacks found no evidence that the money assisted the hijackers, either directly or indirectly.)
Mr. McMahon said the Related Companies did not usually share details about buyers with board members and did not inform them of the Saudi sale. “They probably asked to keep it quiet,” he said, referring to the Saudis. “Related would have kept it quiet.”
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