Inside Wealth with Robert Frank Archives

Tag: <span>Inside Wealth with Robert Frank</span>

Family offices are the most bullish they’ve been in…

20 September 2024
by admin

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.

Family offices are the most bullish they’ve been in years, putting their cash to work in stocks and alternatives as the Fed starts to cut interest rates, according to a new survey.

Nearly all family offices, 97%, expect positive returns this year, and nearly half expect double-digit gains, according to Citi Private Bank’s 2024 Global Family Office Survey.

“This is the most optimistic outlook we’ve seen,” said Hannes Hofmann, head of the family office group at Citi Private Bank, which has been conducting the survey for five years. “What we’re clearly seeing is an increase in risk appetite.”

Get Inside Wealth directly to your inbox

The survey is the latest sign that family offices — the private investment arms of wealthy families — are emerging from two years of hoarding cash and bracing for recession to start making more aggressive bets on market and valuation growth.

They especially like private equity. Nearly half, 47%, of family offices surveyed say they plan to increase their allocation to direct private equity in the next 12 months, the largest share for any investment category. Only 11% plan to reduce their PE holdings. Private equity funds ranked second, with 41% planning to increase their allocation.

With interest rates heading down, family offices are also regaining their appetite for stocks. More than a third, 39%, of family offices plan to increase their allocation to developed-market equities, mainly the U.S., while only 9% plan to trim their equity exposure. That comes after 43% of family offices increased their exposure to public stocks last year.

Public equities remain their largest holding by major asset class, with stocks making up 28% of their typical portfolio — up from 22% last year, according to the survey.

“Family offices are taking money out of cash, and they’ve put money into public equities, private equity, direct investments and also fixed income,” Hofmann said. “But primarily it’s going into risk-on investing. That is a very significant development.”

Fixed income has become another favorite of family offices, as rates start to decline. Half of family offices surveyed added to their fixed-income exposure last year — the largest of any category — and a third plan to add even more to their fixed-income holdings this year.

With the S&P 500 up nearly 20% so far this year, family offices are looking for 2024 to end with strong returns. Nearly half, 43%, expect returns of more than 10% this year. More than 1 in 10 large family offices — those with over $500 million in assets — are banking on returns of more than 15% this year.

There are risks to their optimism, of course. When asked about their near-term worries about the economy and financial markets, more than half cited the path of interest rates. Relations between the U.S. and China ranked as their second-biggest worry, and market overvaluation ranked third. The survey marked the first time since 2021 that inflation wasn’t the top worry for the family offices surveyed, according to Citi.

One of the big differences that sets family offices apart from other individual investors is their appetite for alternatives. Private equity, venture capital, real estate and hedge funds now account for 40% of the portfolios of the family offices surveyed. That number is likely to keep growing, especially as more family offices make direct investments in private companies.

“It’s a significant allocation that shows family offices are asset allocators who are long-term investors, highly sophisticated and taking a long-term view,” Hofmann said.

One of the biggest themes for their private investments is artificial intelligence. The family offices of Jeff Bezos and Bernard Arnault have both made investments in AI startups, and repeated surveys show AI is the No. 1 investment theme for family offices this year. More than half of family offices surveyed by Citi have exposure to AI in their portfolios through public equities, private equity funds or direct private equity. Another 26% of family offices are considering adding to their AI investments.

Hoffman said AI has already proven to be different from previous investment innovations such as crypto, and environmental, social and governance, or ESG. Only 17% of family offices are invested in digital assets, while a vast majority say they’re not interested.

“AI is a theme that people are interested in and they’re putting real money into it,” Hofmann said. “With crypto people were interested in it, but at best, they put some play money into it. With ESG, we’re finding a lot of people are saying they’re interested in it, but a much smaller percentage of family offices are actually really putting money into it.”

Science & Environment

Harris’ rise in polls sparks wave of wealth transfers…

13 September 2024
by admin

Dimensions | E+ | Getty Images

The tightening presidential race has touched off a wave of tax planning by ultra-wealthy investors, especially given fears of a higher estate tax, according to advisors and tax attorneys.

The scheduled “sunset” of a generous provision in the estate tax next year has taken on new urgency as the odds of a divided government or Democratic president have increased, tax experts say. Under current law, individuals can transfer up to $13.61 million (and couples can send up to $27.22 million) to family members or beneficiaries without owing estate or gift taxes.

The benefit is scheduled to expire at the end of 2025 along with the other individual provisions of the 2017 Tax Cuts and Jobs Act. If it expires, the estate and gift tax exemption will fall by about half. Individuals will only be able to gift about $6 million to $7 million, and that rises to $12 million to $14 million for couples. Any assets transferred above those amounts will be subject to the 40% transfer tax.

Wealth advisors and tax attorneys said expectations of a Republican sweep in the first half of the year led many wealthy Americans to take a wait-and-see approach, since former President Donald Trump wants to extend the 2017 tax cuts for individuals.

Vice President Kamala Harris has advocated higher taxes for those those making more than $400,000.

With Harris and Trump essentially tied in the polls, the odds have increased that the estate tax benefits will expire — either through gridlock or tax hikes.

“There is a little increased urgency now,” said Pam Lucina, chief fiduciary officer for Northern Trust and head of its trust and advisory practice. “Some people have been holding off until now.”

The sunset of the exemption, and the response by the wealthy, has broad ripple effects on inheritances and the trillions of dollars set to pass from older to younger generations in the coming years. More than $84 trillion is expected to be transferred to younger generations in the coming decades, and the estate tax “cliff” is set to accelerate many of those gifts this year and next.

The biggest question facing wealthy families is how much to give, and when, in advance of any estate tax change. If they do nothing, and the estate exemption drops, they risk owing taxes on estates over $14 million if they die. On the other hand, if they give away the maximum now, and the estate tax provisions are extended, they may wind up with “givers’ remorse” — which comes when donors gave away money unnecessarily due to fears of tax changes that never happened.

“With givers’ remorse, we want to make sure clients look at the different scenarios,” Lucina said. “Will they need a lifestyle change? If it’s an irrevocable gift, can they afford it?”

Advisors say clients should make sure their gift decisions are driven as much by family dynamics and personalities as they are by taxes. While giving the maximum of $27.22 million may make sense today from a tax perspective, it may not always make sense from a family perspective.

“The first thing we do is separate out those individuals who were going to make the gift anyway from those who have never done it and are only motivated to do it now because of the sunset,” said Mark Parthemer, chief wealth strategist and regional director of Florida for Glenmede. “While it may be a once-in-a-lifetime opportunity as it relates to the exemption, it’s not the only thing. We want individuals to have peace of mind regardless of how it plays out.”

Parthemer said today’s wealthy parents and grandparents need to make sure they are psychologically comfortable making large gifts.

“They’re asking ‘What if I live so long I outlive my money,'” Parthemer said. “We can do the math and figure out what makes sense. But there is also a psychological component to that. As people age, a lot of us become more concerned about our financial independence, regardless of whether the math tells us we’re independent or not.”

Get Inside Wealth directly to your inbox

Some families may also fear their kids aren’t ready for such large amounts. Wealthy families who planned to make big gifts years from now are feeling pressure from the tax change to go ahead with it now.

“Especially with families with younger children, a primary concern is having donors’ remorse,” said Ann Bjerke, head of the advanced planning group at UBS.

Advisors say families can structure their gifts to be flexible — gifting to a spouse first, for instance, before it goes to the kids. Or setting up trusts that trickle out the money over time and reduce the changes of “sudden wealth syndrome” for kids.

For families that plan to take advantage of the estate tax window, however, the time is now. It can take months to draft and file transfers. During a similar tax cliff in 2010, so many families rushed to process gifts and set up trusts that attorneys became overwhelmed and many clients were left stranded. Advisors say today’s gifters face the same risk if they wait until after the election.

“We’re already seeing some attorneys start to turn away new clients,” Lucina said.

Another risk with rushing is trouble with the IRS. Parthemer said the IRS recently unwound a strategy used by one couple, where the husband used his exemption to gift his kids money and gave his wife funds to regift using her own exemption.

“Both gifts were attributed to the wealthy spouse, triggering a gift tax,” he said. “You need to have time to measure twice and cut once, as they say.”

While advisors and tax attorneys said their wealthy clients are also calling them about other tax proposals in the campaign — from higher capital gains and corporate taxes to taxing unrealized gains — the estate tax sunset is far and away the most pressing and likely change.

“In the past month, inquiries have accelerated over the [estate exemption],” Bjerke said. “A lot of people were sitting on the sidelines waiting to implement their wealth-planning strategies. Now, more people are executing.”

Don’t miss these insights from CNBC PRO

Science & Environment

Top 10 people most likely to reach trillionaire status

6 September 2024
by admin

Combination showing Elon Musk (L), Gautam Adani (C), and Jensen Huang (R)

Reuters

On Sept. 29, 1916, newspapers across the country announced a wealth milestone once thought to be unreachable: the world’s first billionaire.

“Standard (Oil) at $2,014 makes its head a billionaire,” blared The New York Times headline, adding that Standard Oil’s soaring share price “makes John D. Rockefeller, founder and largest shareholder, almost certainly a billionaire.”

More than a century after the first U.S. billionaire (in measurable dollar terms), the question of who will be first to reach the trillionaire mark continues to fascinate. At least a half-dozen companies have done it, most recently Berkshire Hathaway, which topped $1 trillion just before Warren Buffett’s 94th birthday. Nvidia is now at $2.6 trillion, having hit the 13-figure club last year.

And what about individuals? According to a new report from Informa Connect Academy, which predicts trillionaire status based on average annual growth rate in wealth, Tesla CEO Elon Musk will likely be the first trillionaire.

Musk is currently the world’s richest person, with $251 billion, according to the Bloomberg Billionaires Index. Connect Academy forecasts Musk will become a trillionaire sometime in 2027, assuming that his wealth continues to grow at an annual average rate of 110%.

The second to reach trillionaire status, according to the report, will be India’s Gautam Adani, founder of the Adani Group conglomerate. If Adani maintains his recent annual growth rate of 123%, the report says he will be a trillionaire in 2028.

Jensen Huang, CEO of Nvidia, who has seen his wealth skyrocket from $3 billion to more than $90 billion in five years, would become a trillionaire by 2028, according to the report. His wealth would have to continue growing at an average annual rate of 112%. Nvidia’s stock is already up about 115% this year, after more than tripling last year.

Get Inside Wealth directly to your inbox

Fourth on the list is Indonesia’s Prajogo Pangestu, founder of the Indonesian energy and mining conglomerate Barito Pacific. The report predicts Pangestu could reach trillionaire status by 2028.

Rounding out the top five would be LVMH CEO Bernard Arnault, who is currently the world’s third-richest person, with just under $200 billion. The report has the luxury king becoming a trillionaire sometime in 2030, along with Meta CEO Mark Zuckerberg.

Some top billionaires who seem like strong candidates to quickly reach the four-comma club don’t make the top 10. Jeff Bezos, currently the world’s second-richest person, with $200 billion, according to Bloomberg, is listed at No. 12, and wouldn’t become a trillionaire until 2036. Larry Page and Sergey Brin, the Google founders, are also slated to wait 12 years to become trillionaires — although artificial intelligence may accelerate their rise.

Granted, wealth-watchers have been predicting the first trillionaire for years. And the stocks of Tesla, Nvidia and LVMH may not go up as fast in the next five years as they did in the past five.

Yet more than 100 years after the first billionaire, the first trillionaire could well be crowned in the next decade.

Don’t miss these insights from CNBC PRO

Science & Environment

Classic car sales stall in Monterey auctions as new…

23 August 2024
by admin

Auction sales during Monterey Car Week fell 3% from last year, as a shift from older to newer cars left a pileup of unsold classics from the 1950s and 1960s.

Total sales at this year’s five car auctioneers in Monterey — RM Sotheby’s, Broad Arrow, Gooding & Company, Mecum and Bonhams — fell to $391.6 million this year from $403 million in 2023, according to Hagerty, the classic-car insurance company. That followed a decline of 14% last year compared with the peak of 2022.

Of the 1,143 cars up for sale, only 821 sold — marking a 72% sell-through rate, according to Hagerty. The average sale price was $476,965, down slightly from last year’s average of $477,866.

Experts say wealthy collectors still have plenty of money to spend and are feeling confident given the recent rise in the stock market, but the types of cars they want are changing. There were simply too many similar cars at too many auctions to generate strong prices and sales.

“It’s saturation,” said Simon Kidston, the founder of Kidston and a leading advisor to wealthy car collectors. “When I walked around the auctions and saw so much similar ‘product,’ I asked myself if any of them had thought about what they or their rivals already had consigned, and if the cars were vying for the same buyers. Add to that the fact that many entries had already been in dealer windows for months or years which always feels like sloppy seconds.”

At the same time, a new generation of collectors driving the market — mainly Gen Xers and millennials — prefer cars from the 1980s, 1990s and 2000s. The 1950s and 1960s classic cars that powered the market for decades and are popular with baby boomers are pouring onto the market and failing to find buyers.

The sell-through rate in Monterey (or the percentage of cars that actually sold on the auction block) was an anemic 52% for pre-1981 cars priced at $1 million or more, according to Hagerty. The sell-through rate for cars less than 4 years old was a much stronger 73% — proving that young collectors are now in the driver’s seat.

Hagerty’s Supercar Index of sports cars from the 1980s through the 2000s is up over 60% from 2019, while the Blue Chip Index of 1950s and 1960s Corvettes, Ferraris, Jaguars and other storied classics is down 3%.

The 1938 Alfa Romeo 8C 2900B Lungo Spider

Credit: Gooding & Company

Granted, a small number of rare, true masterpieces will still fetch high prices. The top car of the week was a 1960 Ferrari 250 GT SWB California Spider that sold at RM Sotheby’s for $17 million and the runner-up was a 1938 Alfa Romeo 8C 2900B Lungo Spider that’s one of only five in existence.

Yet the broader changing of the guard in classic cars, especially as many older collectors start selling off or downsizing their collections, is likely to weigh on prices for older cars for years.

Get Inside Wealth directly to your inbox

“From an auction perspective, the market continues to take a breath while we transition from what was hot, think Enzo-era Ferraris, the so-called full classics as well as ’50s and ’60s sports racers, to the ascendant modern supercar class,” said McKeel Hagerty, CEO of Hagerty. “The divergence between older and newer cars has accelerated.”

Some say high interest rates are also putting pressure on the classic-car market. At the lower end of the market, many buyers had been using financing to buy cars and build their collections. At the high end, rising rates raised the opportunity cost of buying a classic car.

“People think, ‘Instead of that million-dollar car, I could be earning 5% maybe 10%’ if you’ve got a great manager,” Kidston said. “That, more than anything else, makes people think twice. A collector car is partially investment. There’s no other single reason for the increase in the value of collector cars over the last 40 years than the investment angle.”

Here are the top 10 most expensive cars sold during Monterey Car Week

1960 Ferrari 250 GT SWB California Spider – $17,055,000 (RM Sotheby’s)
1938 Alfa Romeo 8C 2900B Lungo Spider – $14,030,000 (Gooding & Company)
1955 Ferrari 410 Sport Spider – $12,985,000 (RM Sotheby’s)
1969 Ford GT40 Lightweight – $7,865,000 (Mecum)
1997 Porsche 911 GT1 Rennversion Coupe – $7,045,000 (Broad Arrow Auctions)
1959 Ferrari 250 GT LWB California Spider – $5,615,000 (RM Sotheby’s)
1995 Ferrari F50 Coupe – $5,505,000 (RM Sotheby’s)
1955 Ferrari 857 S Spider – $5,350,000 (Gooding & Company)
1967 Ferrari 275 GTB/4 Alloy Coupe – $5,285,000 (RM Sotheby’s)
1958 Ferrari 250 GT TdF Coupe – $5,200,000 (Gooding & Company)

Science & Environment

Private jet flights are down 15% in two years…

16 August 2024
by admin

A Gulfstream G-IV private jet flies past clouds at sunset on approach to Washington’s Reagan National Airport on June 12, 2024, in Arlington, Virginia.

J. David Ake | Getty Images

Private jet flights fell 15% in the first half of the year compared with their peak in 2022, as the industry grapples with waning demand and a new competitive landscape for high-end travel.

Despite a short boost from the Summer Olympics, with a record 713 private jet flights to Paris the last week of July, the private jet industry continues to lose altitude this travel season. Private jet charter flights dropped to 610,000 in the first half of the year, down from 645,000 last year and 716,000 in 2022, according to data from Argus International.

The two-year decline highlights the ongoing correction in the world of private aviation, as the surge of new jet card members and charter fliers who started traveling private for the first time during Covid pulls back. Even ultra-wealthy travelers are showing signs of spending fatigue.

“During the peak, everyone was saying, ‘People who fly private for the first time will never go back to commercial,'” said Rob Wiesenthal, CEO of Blade Air Mobility, the air charter and helicopter company. “Well guess what? Many went back. And they’re still going back.”

The industry is still ahead of 2019 levels, and experts say if you take out the aberrational spike in 2021 and 2022, business has been rising along its usual growth path. Yet the boom times of the post-Covid era created a wave of euphoria in the industry, ushering in a burst of IPOs and startups, and a mad scramble for jets and pilots. Now, many say, all that expansion is setting the stage for a shakeout.

Get Inside Wealth directly to your inbox

Wheels Up, which went public in 2021 through a SPAC, saw its stock plummet more than 90% before Delta Air Lines stepped in to help rescue the company with an investment and partnership. Wheels Up has never made a quarterly profit and last week reported a second-quarter net loss of $97 million and a 29% year-over-year decline in members.

The company’s CEO, George Mattson, said Wheels Up is making solid progress and that, “Our work this quarter further solidified our position at the forefront of delivering integrated global aviation solutions that seamlessly combine the previously separate ecosystems of private and commercial travel.”

Jet It, a large U.S. private jet operator, shut down last year after grounding its fleet of Phenom 300s, Gulfstream G150s and HondaJets. VistaJet has faced repeated concerns and media reports about its debt load, though founder and Chairman Thomas Flohr told CNBC in May that “all documents and data was always available to our equity and debt-holders.”

Industry experts say some of the smaller charter operators may soon face tough decisions, as fleets sit idle and demand falls.

“The smaller operators with three, four or five jets, they’re the ones hurting,” said Doug Gollan, founder and editor of Private Jet Card Comparisons.

The recent challenges and fleeting success in private aviation trace back to Covid. In 2020, as airports and airlines shut down, private jets offered an escape and safer way to fly. Wealthy travelers who had rarely, if ever, flown private due to the cost and energy consumption, could now justify isolating at 40,000 feet.

“There was this whole section of the population that could afford to fly private, but they were always reluctant because they didn’t like the optics,” said Jay Duckson, founder and president of consulting firm Central Business Jets. “With Covid, they had a reason to fly private. You had a massive uptick in demand.”

The flood of liquidity from government spending, stimulus, low interest rates and a booming stock market also created record amounts of wealth to pay the soaring costs of flying private. Companies rushed to buy planes, hire pilots and sign up new members. Before 2019, there were only a few months where private jet charters topped 100,000. In 2021, almost every month exceeded 100,000, with July 2021 topping 300,000 flights.

The demand overwhelmed the industry. Private jet passengers who paid six figures for flights started facing delays and cancellations as operators couldn’t buy or lease planes fast enough. Shortages of pilots and parts also grounded fleets.

In 2023, demand started to slide even as more planes and pilots started to come online. Some wealthy fliers felt they could no longer use Covid as an excuse — to themselves or to others — to fly private. For others, the soaring prices of flying private simply got out of hand.

“Prices are about 20% higher than they were in 2019,” Private Jet Card Comparisons’ Gollan said. “A lot of people are saying, ‘I spent $300,000 or $350,000 on flights last year, I’m not going to spend $400,000 or $450,000 this year.’ Even if they have the money, they have a dollar figure in their head they don’t want to go over.”

Along with reducing flights, some fliers simply started flying commercial for easy city-to-city trips, mixing both commercial and private throughout the year. In his latest survey of private jet fliers, Gollan found 87% “switch between airlines and private, depending on where they’re flying.”

With demand lower, unsold planes are piling up again and prices are softening. The number of used business jets for sale jumped 17% in July compared with a year ago, according to a report from Jefferies. Prices fell 7%, according to the report. While orders for new jets remain strong, the wait times have fallen from as much as three or four years to about two years for many models, according to jet brokers.

Many industry executives welcome the drop in demand, saying the industry is returning to a more balanced equilibrium, with profitable routes, available planes and happier customers.

“The industry is on a more sustainable long-term path,” said Travis Kuhn, senior vice president of software at Argus. “It’s not a bad thing that it’s cooled down a bit.”

Gollan said that while some of occasional fliers may have drifted out of private aviation, the “heavy users” are still flying. His survey showed that 95% of those surveyed who started flying private during Covid are still flying privately, with 77% in a membership, jet card or fractional program.

Industry giant NetJets, owned by Berkshire Hathaway, has also benefited, as more people switched from charter to fractional ownership due to better reliability and quality. The number of fractional flights actually increased 12% in the first half of 2024, to 308,000, according to Argus.

“Some of these new fliers looked around and assessed the market, and they like the fractional model,” Kuhn said. “It’s a set number of hours and a bigger fleet.”

Don’t miss these insights from CNBC PRO

Disclosure: CNBC parent NBCUniversal owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder to all Summer and Winter Games through 2032.

Science & Environment

Jeff Bezos’ family office is making big investments in…

2 August 2024
by admin

Jeff Bezos at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, on July 10, 2024.

David Grogan | CNBC

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high net worth investor and consumer. Sign up to receive future editions, straight to your inbox.

Jeff Bezos has been making headlines for his big-ticket purchases — from a $165 million estate in Los Angeles and a $177 million property on Miami’s Indian Creek to his $500 million yacht.

Yet, Bezos’ biggest recent buying binge may be in artificial intelligence, through his family office.

All of the investments made this year by Bezos’ family office — called Bezos Expeditions — have been in artificial intelligence, according to exclusive data provided to CNBC by FINTRX, a private wealth intelligence platform. While the amounts he invested are not disclosed, Bezos Expeditions participated in funding rounds totaling more than $1 billion.

In January, the Amazon founder and executive chairman invested in the $73.6 million Series B round of Perplexity AI, an AI-powered search engine company. He also invested in a $63 million follow-on round in April. The value of Bezos Expeditions’ January investment likely doubled by April, since the company says its valuation soared to between $2.5 billion and $3 billion.

In February, Bezos Expeditions invested in Figure AI, the humanoid-robot company that also counts Nvidia and Microsoft as investors. The venture round totaled $675 million.

In July, he invested in a $300 million Series A round of Skild AI, which is focused on making AI systems for machines and robotics devices.

Get Inside Wealth directly to your inbox

Bezos Expeditions has always tilted heavily toward tech. Fully 70% of his family office investments are in technology, according to FINTRX. The next-biggest category is consumer goods, at 16%, followed by financial services and manufacturing, both at 13%. But now, his primary focus seems to be AI.

In a podcast interview in January, Bezos said AI tools are “not inventions, but discoveries” that will have profound effects on technology and change. “These powerful tools are much more likely to help us and save us even than they are to unbalance, hurt us and destroy us,” he said.

Bezos has plenty of company among family offices. According to the UBS Global Family Office Report, AI is now the favorite investment category for family offices. More than three-quarters, or 78%, of family offices surveyed plan to invest in AI in the next two to three years — the most for any category.

Amazon has also been ploughing money into AI. The company plans to invest more than $100 billion in data centers over the next decade and invested $4 billion in Anthropic, the AI safety and research firm.

Bezos recently filed a stock-sale plan to unload another $5 billion worth of Amazon shares this year, after selling $8 billion worth earlier this year. With more than $13 billion in cash, Bezos will now have even more money to bet on the AI boom.

Don’t miss these insights from CNBC PRO

Science & Environment

Sales of $100 million homes set to double this…

26 July 2024
by admin

A view of the Central Park Tower at 217 West 57th St. in New York City.

Source: Cody Boone, SERHANT Studios

Sales of $100 million homes are on track to double this year, as surging financial markets and hopes for rate cuts fuel a recovery in the ultra-luxury real estate market, according to new reports.

As of July 15, six homes in the U.S. have sold for more than $100 million, according to data from Miller Samuel and Douglas Elliman. If the sales pace continues, it would more than double last year’s total and likely eclipse the record of nine homes sold for over $100 million in 2021.

Granted, the nine-figure club is a tiny group. But sales of homes priced at $50 million, $20 million and even $10 million are all signaling a strong rebound for the ultra-luxury real estate market after its decline in 2023. The comeback marks a stark contrast with the national housing market, which is still feeling the pressure of high mortgage rates and a lack of supply.

“It’s a substantial uptick it the pace of sales, something we’re not seeing at all in the broader housing market,” said Jonathan Miller, CEO of Miller Samuel, the appraisal and research firm.

Manhattan saw two blockbuster deals in roughly the past month. A penthouse at Central Park Tower — the tallest residential building in the world — closed for $115 million to an unknown buyer. And the penthouse of the Aman New York sold for a reported $135 million to Russian-born billionaire Vladislav Doronin, who founded the development company that built the building — effectively buying it from his own company.

Palm Beach, Florida’s only private island, Tarpon Island, sold for $150 million in May, and Oakley founder James Jannard just sold his Malibu mansion for $210 million, making it the most expensive home ever sold in California.

Tarpon Isle, a private island in Palm Beach, Florida, is on sale for $218 million.

CNBC

Even San Francisco is getting in on the ultra-lux boom. Laurene Powell Jobs, the billionaire widow of Steve Jobs, just bought the most expensive home ever sold in San Francisco. She paid $70 million for a 17,000-square-foot manse in Pacific Heights, wedged between neighbor Larry Ellison on one side and Apple design guru Jony Ive on the other.

Signs of strength are also showing up further down the luxury ladder. According to Redfin, sales of homes priced at $5 million or more through June topped 4,000, up 13% compared with the same period last year.

“It was a much stronger and more robust start to the year than anyone expected,” said Mike Golden, co-founder of Chicago-based @properties and of Christie’s International Real Estate.

Get Inside Wealth directly to your inbox

According to the 2024 Mid-Year Luxury Outlook from Christie’s, high-end markets around the country are seeing strong demand. In Naples, Florida, home sales over $10 million jumped 14% in the first quarter, according to the report. In Montana, sales over $4 million surged 50% through early May, according to PureWest Christie’s International Real Estate.

The artificial intelligence boom has sparked a resurgence in sales in the San Francisco Bay area.

“My biggest surprise thus far in 2024 has been just how many qualified buyers have the capacity and willingness to pay premium prices for ultra-elite properties, which speaks to the tremendous liquidity at the highest ends of the market,” said Nathalie de Saint Andrieu, a broker in the Bay Area.

The diverging paths of ultra-luxury and the broader housing market highlight the vastly different forces driving the high-end economy from the rest of the country. The national real estate market rises and falls with mortgage rates, with affordability at all-time lows and many Americans locked in their homes with low-rate mortgages. The ultra-wealthy can use cash to buy their homes, especially when rates are high. In Manhattan, two-thirds of deals this spring were in cash, with the share even higher for the luxury segment, according to Miller Samuel.

What’s more, the confidence (and cash) of wealthy homebuyers is largely driven by the stock market, which continues to shatter records this summer. With trillions of dollars in stock wealth being created, the ultra-wealthy are now looking to buy.

“The ultra-luxury segment is almost entirely disconnected from the typical housing market,” Miller said. “It’s a more global than local market. And it’s more of a barometer for the health of global financial markets.”

Luxury real estate sees the biggest increase in three years

The surge in inheritances from the $80 trillion Great Wealth Transfer is also helping sales. Daniel de la Vega, president of One Sotheby’s International Realty, said he’s seeing a big surge in South Florida of millennial and Gen Z buyers who are purchasing condos with family trusts.

“They want new development, and some of them are coming in and buying sight unseen,” he said. “They especially like branded residences.”

De la Vega said another trend driving up ultra-luxury sales is demand for ever-larger homes. After Covid, he said, wealthy buyers want all their favorite lifestyle amenities in their homes — from gyms and spas to offices, entertainment spaces, and displays for their art and car collections.

The price per square foot for luxury condos in South Florida is up 33% this year, to $3,451. Per-square-foot prices for single-family homes are up 11% to $2,485.

“It used to be that price per square foot went down as the property got bigger,” de la Vega said. “Now it’s the opposite. We’ve never seen numbers like this. It’s astronomical.”

Typically, the high-end real estate market takes a pause before presidential elections, as buyers wait for more certainty. So far, strong financial markets are outweighing any election concerns. Yet that’s far from a done deal in the second half.

“At least by the actions we’re seeing this year, the election doesn’t seem to be weighing heavy on the super-luxury landscape,” Miller said.

Don’t miss these insights from CNBC PRO

Sign up to receive future editions of Inside Wealth to your inbox.

Science & Environment

Women are set to inherit trillions of dollars in…

12 July 2024
by admin

Charday Penn | E+ | Getty Images

Up to $9 trillion is expected to be passed along to spouses and partners in the coming years as part of what’s being called “the horizontal wealth transfer,” according to a new report.

Over the next 20 to 30 years, aging baby boomers and older generations are expected to pass down $84 trillion in wealth to charity and family members. Younger generations, including Generation X, millennials and Generation Z are expected get the bulk of the inheritances.

Yet because surviving spouses and partners typically get the initial inheritances, and because women typically outlive men, bequests in the coming years will largely go to women, according to the UBS Global Wealth Report.

An estimated $9 trillion will be transferred “intra-generationally,” meaning from one spouse to another, according to the report.

“Life expectancy varies between men and women, and quite frequently couples have an age gap, therefore the inheriting spouse will typically own and hold onto this wealth for an average of four years before passing it on,” the report said.

UBS calls it the “horizontal wealth transfer,” since the wealth is moving intra-generationally rather than intergenerationally. And while little noticed, the horizontal transfers have the potential to reshape the wealth management, investing and luxury spending landscape, which has largely been dominated by men.

“Most people have a rather feudal idea of wealth going down through generations,” said Paul Donovan, chief economist of UBS Global Wealth Management. “But about 10% is likely to go sideways, to spouses or partners and not yet giving it to children, although it will shift over time.”

According to the report, the largest horizontal wealth transfers will be in the Americas. There are over 43 million people in that region over the age of 75, with over $50 trillion in combined transferrable wealth. The average age of the individuals passing down wealth is over 85, the report said.

While some families may pass fortunes directly to next generations, inheritances can often be a two-step process — first going to the surviving spouse and then handed down by that spouse to the next generation. (Estate law typically allows the surviving spouse to inherit property of unlimited value without being subject to estate tax).

The report estimates that after $9 trillion is passed to spouses, they will pass down over $8.4 trillion to next generations, making them key decision makers in the great wealth transfer.

Those transfers, along with other broader forces in the economy, are adding to the so-called “feminization of wealth.” With women’s incomes and wealth rising, combined with inheritances for both older and younger inheritors, analysts expect women will make up a growing share of high net-worth investors and consumers.

Women now make up over 11% of the world’s millionaires, nearly double the share in 2016, according to Julius Baer.

Get Inside Wealth directly to your inbox

The biggest impact will be on wealth management. Donovan said 45% of UBS’s wealth clients are now women.

“It’s important when it comes to wealth management,” he said. Wealth management clients, he said, will likely be “different people, with different ideas and different things they want to do with their wealth.”

A McKinsey report estimated that women are expected to control most of the $30 trillion in baby boomer wealth by 2030. While the wealth management industry has been traditionally dominated by male clients and male advisors (accounting for 85% of the latter group), McKinsey said that’s changing fast.

“After years of playing second fiddle to men,” the report said, “women are poised to take center stage.”

McKinsey said that compared with five years ago, 30% more married women are making financial and investment decisions, and more women than ever are the family breadwinners, “spurring growth in their investible assets.”

Luxury brands traditionally geared toward men are also adapting. In the luxury watch market, women’s watches are one of the fastest growing segments. Jean-Christophe Babin, the CEO of Bulgari, told me earlier this year that “the trend is toward more and more feminine and more unisex watches. Women have increasing power, in terms of independence, autonomy and purchasing power. We think that will continue.”

Philanthropy could also benefit from the horizontal wealth transfer. Giving to groups focused on women and girls grew 9% in 2020, the latest year measured, to over $8 billion, according to the Women’s Philanthropy Institute at the Lilly Family School of Philanthropy.

Melinda French Gates just pledged $1 billion to women’s and girls’ causes, and MacKenzie Scott has given away over $17 billion of her fortune since 2019, including large grants to Girl Scouts of the USA.

“We will see a dramatic shift in ownership of wealth,” Donovan said. “It is going to be quite significant in looking at who controls the resources that finance the global economy.”