A new master?

Photographer: Timothy A. Clary/AFP/Getty Images

Invest in a Painting, Not a Condo

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for Curbed.com. He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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A couple of weeks ago, Laurence Fink, the chief executive officer of BlackRock Inc., observed that "the two greatest stores of wealth internationally today is contemporary art … and apartments in Manhattan, apartments in Vancouver, in London.” 

Ever since the start of the financial crisis, wealthy investors around the world have sought out a variety of assets in a risk-averse, low-interest-rate environment. Collectibles such as art and vintage cars, as well as gold, have been particular favorites. Lavish new condos in tall towers and large single-family residences have also have been the beneficiaries of investor efforts to find a secure place to stash money. 

And how have they done in these attempts to not just protect their cash, but make it grow? According to the Knight Frank Investment Index, which tracks high-end collectible assets, vintage cars have been the standout, followed by art and gold. And luxury Manhattan real estate? Except for a brief period in the midst of the financial crisis, not so much. Only the Dow Jones Industrial Average did worse.

Maybe this shouldn't be a surprise, since returns on housing as a long-term investment have tended to lag behind other types of investments.

Although the residential real-estate industry has long framed the appeal of buying a home as both a dwelling and a long-term investment, the messaging has changed at the high end. Luxury real estate now is pitched as an alternative to other collectible assets rather than something people actually live in.

Developers of high-end properties make this link very directly.  Take, for example, Harry Macklowe, the legendary New York developer, and how he referred to his latest Manhattan luxury condo development known as 432 Park Avenue: “It’s almost like the Mona Lisa.” Um, no, it's not like the Mona Lisa -- it's a condo project, a very tall, fantastically expensive one, but still just a condo. 

I expect wealthy investors to continue seeking out luxury real estate as an investment amid worldwide economic weakness. But here's something for buyers to consider -- they probably shouldn't expect real estate to appreciate like real art, much less an antique Ferrari.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at jmiller@millersamuel.com

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net