A New York law firm that has made a name for itself brokering real estate deals with high-net-worth buyers from Eastern Europe is seeing more interest among its broader clientele in purchasing residential investment properties in the U.S.
Recent spikes in oil prices and the value of the ruble, coupled with the significant slide in real estate prices in the U.S., have created a perfect storm for Edward Mermelstein, a 41-year-old native of Ukraine who is the managing principal of Edward A. Mermelstein & Associates, a 13-year-old multiservice firm that, according to Bloomberg.com, has arranged an estimated 300 real estate deals for buyers from the former Soviet Union since 2007.
In an interview with BUILDER on Thursday, Mermelstein said that about 85% of his affluent clients from such countries as Russia, Ukraine, and Belarus are hunting for commercial and residential bargains mostly in Manhattan, where real estate prices have plummeted by anywhere from 40% to 80% on certain properties. (Mermelstein also runs a development company that owns and manages office buildings and shopping malls in several states.) Another 10% of his customers are looking for buying opportunities in Florida. But while he has escorted clients through properties in Colorado, Boston, and Chicago, “that’s a much harder sell” to Eastern Europeans.
These customers are looking for what Mermelstein calls “trophy assets,” and recent deals his firm has been involved with were priced in the $1 million to $4 million range. The buyers, until recently, were interested primarily in homes they want to live in. But now he’s also seeing interest among some foreign buyers in making “bulk purchases” of condos or rental properties. However, these customers need to get over their expectations about returns on investment, which in their native lands are 20% to 30% “at the low end,” says Mermelstein. “It’s almost impossible to find that right now in the U.S.”
His clients from Eastern Europe have been paying for real estate in the U.S. with cash “because they don’t want to deal with any disclosures, which is a major issue,” he explains. (One of his firm’s services is helping foreign customers bring money into the U.S. without too much of a tax impact.) Lately, though, lending institutions have shown a bit more willingness to deal with borrowers from these countries, and Mermelstein’s firm has worked with banks such as HBSC, Deutschebank, Bank of America, and, on occasion, Chase. The loan-to-value ratio on such lending, though, is typically 50% or more.
Mermelstein, who speaks 11 languages, and whose company has an office in Moscow, has a client base that extends to countries in Western Europe, the Middle East (Israelis, primarily), and Asia (one of his partners is based in Korea). But contrary to recent news reports about busloads of Chinese buyers walking residential subdivisions in Florida with checkbooks in hand, Mermelstein still sees Asians as mostly “window shoppers.” He notes that the Chinese government is strongly encouraging native investors to keep their money in the country to help pay for China’s ambitious infrastructure projects. (A news report on the website Marketwire quotes a senior spokesman for the Chinese Transportation Ministry who recently commented that the Chinese government expects to spend the equivalent of more than US$1 trillion on highway construction alone, which is being funded by a combination of bank loans, foreign investment, and indigenous private capital investment.)
John Caulfield is a senior editor with BUILDER magazine.