They landed with a boom, scooping up trophy properties in some of Manhattan’s priciest locations. Now the Russians appear to be leaving with a whisper. Several have inquired with brokers in recent days about selling multimillion-dollar Manhattan properties as they try to liquidate assets before they are caught in a web of US sanctions. Most are doing so through discreet “whisper” listings with trusted brokers, as opposed to public sales, in order to minimise publicity. But not all: the Upper East Side mansion owned by Alexey Kuzmichev, co-founder of Alfa-Bank, which was hit by US sanctions, was recently listed for $41mn, $1mn less than he paid for it in 2016. “All of them are only talking about selling,” said Dolly Lenz, one of New York’s foremost luxury property brokers. The big question, according to Lenz, is on what terms they will get out, and how big of a hit they will have to take in order to close deals quickly. “When buyers think you’re potentially distressed — and your whisper-listing is a sign of that distress — that’s a problem,” Lenz said, noting that she was already being “inundated” with inquiries from investors hoping to pick up Russian-owned properties on the cheap. Many Russian buyers are far removed — both in wealth and political connections — from the infamous oligarchs who have captured public attention, and are unlikely to ever find their names on a sanctions list. Yet the concern is that they may also be motivated to sell because of a suddenly hostile climate and a fear of what Lenz called “guilt by association”. They may also need to raise cash to cope with financial pressures elsewhere in their portfolio brought on by western sanctions. Garrett Derderian, research director at Serhant, a luxury property broker, predicted that New York, Miami and other markets would remain buoyant after posting a post-pandemic recovery last year. The number of Manhattan sales completed in the fourth quarter, for example, was up 77 per cent from the previous year. Those Russians looking to sell, Derderian said, were “a very small subset of individuals” compared with a larger pool of wealthy Russians still seeking the safety of US real estate. “Global markets like New York and Miami have become the destination of choice for the rich. As of now, there is no fire sale of Russian-owned real estate in New York,” he said.
Russian oligarchs became less visible in the US market after Moscow’s 2014 Crimea annexation soured relations with the west, according to brokers and property executives. As big-ticket Manhattan buyers, they were overtaken by the Chinese, who have since been curbed by capital controls imposed by Beijing. Still, no one seems to know just how much property Russians actually own in the US. That is because many have operated through shell companies that conceal their identity. Congress passed legislation in 2020 requiring limited liability companies and other entities to disclose their beneficial owners. But the Treasury is still crafting the rules. In the meantime, Douglas Kellner, a New York lawyer who specialises in real estate, predicted authorities would struggle to identify owners placed under sanctions. “It’s difficult,” Kellner said. “The Department of Justice has people who are good at doing asset-tracing. But it’s complex, time-consuming work and often requires co-operation from foreign governments.” Jamal El-Hindi, former deputy director of the Treasury’s financial crimes enforcement network, agreed. “There are ways they can piece things together but it’s hard,” he said. El-Hindi, now a counsel at Clifford Chance, recalled that financial institutions themselves were surprised to discover how much Libyan money they were holding after the US imposed sanctions in 2011, to punish Muammer Gaddafi and his regime. In addition to individual apartments, some Russian investors may have also channelled money into development projects, according to Michael Romer, of Romer Debbas, a New York law firm that specialises in property. “I think this is a dangerous onion. If you keep peeling, it can get very complicated,” Romer said.
As an investment, New York property’s appeal to wealthy Russians is the same as it has been for other foreign buyers: it holds its value and can be easily traded. Russians, say brokers, favour condominiums in new buildings, like the former Time Warner Center, avoiding the intrusive reviews conducted by the co-operative boards in older buildings. “A lot of money went into the high-end, new development market because, to be honest, it was an easy place to park cash,” Romer explained. “The heyday was about 10 years ago, but those units still exist.” The jaw-dropping scale of Russian wealth became visible in 2007 when Andrei Vavilov, a financier, agreed to pay $53.5mn for two penthouses at the Plaza Hotel. Vavilov later backed out of the deal and sued the developer, complaining that the finished apartment resembled “glorified attic space”. Vavilov was soon outdone by Roman Abramovich, the billionaire owner of Chelsea Football Club, who bought three adjacent town houses on East 75th Street to create a single mansion. He transferred the property, and two others nearby, totalling $92mn to his ex-wife, Dasha Zhukova, in 2018 as part of their divorce settlement. Abramovich has been placed under sanctions by the EU and UK in recent days. Russian buyers were so appealing that developer Harry Macklowe sent a sales team to Moscow in 2013 to drum up interest in 432 Park, his supertall tower. Yet they also prompted concern that Russians were buying properties merely to store suspicious wealth — as opposed to actually occupying them. In 2016, the Treasury responded by launching a temporary initiative requiring title companies to report the owners of shell companies buying real estate in all-cash transactions in certain neighbourhoods. New York’s then-mayor Bill de Blasio complained to BuzzFeed in 2017: “I see Russian oligarchs as a problem. It manifests here as a lot of people with ill-gotten gains buying a lot of property and I don’t like it one bit.” South Florida also became a magnet for Russian money. Dmitry Rybolovlev, a fertiliser magnate, bought a Palm Beach mansion from Donald Trump for a then-record $95mn in 2008. Rybolovlev then tore down the mansion and sold the property in three lots. The area is generally regarded as a haven for affluent, but not outrageously wealthy, Russians. Sunny Isles Beach, for example, an enclave known as “Little Moscow”, features oceanfront condos in the $3mn to $5mn range — often in branded buildings, such as the Porsche Design Tower or the Trump Towers. “It’s extremely Russian but not the same group,” Lenz explained — not the “big fish”.
Even if the broader luxury market holds up, sanctions — or the threat of sanctions — pose awkward questions. If an apartment is effectively frozen in a luxury building because of sanctions, for example, could that affect the value of others? If the unit was not purchased outright, would the lender take a hit? Meanwhile, residents could be saddled with higher common charges to make up for the lost contribution from the owner under restrictions. It may also be risky to buy property if it could be tied up in legal proceedings. “The calls that we’re getting are: What does this mean for me? Will this impact the value of my property?” Romer said. “Right now, if you’re a wealthy Russian resident in the US, looking to buy or sell anything, all eyes are on you.”