Amid subprime woes, today's ultra-wealthy continue to build enormous trophy homes as testaments to their success
In 1998, industrialist Ira Rennert decided to build a 29-bedroom mansion on 110,000 square feet of Long Island waterfront and ended up in the middle of a lawsuit.
A compound of this proportion was surely meant to be a hotel or a religious retreat, which would create traffic, destroy the environment, and block the ocean view, Rennert's neighbors alleged. The neighbors sued the town of Southampton to stop the construction, but the lawsuit failed. The mansion—which is today the largest occupied residential compound in America—was judged to be a home, after all. A very, very big home.
It's no secret that billionaires—especially the self-made variety—like to enjoy and flaunt the fruits of their labor in the form of a sumptuous residence that may include dozens of spare bedrooms and tens of thousands of square feet of space. Such extreme displays of wealth often inspire outrage and jealousy, but they have nevertheless become increasingly common in recent years.
"We are seeing more and more properties coming to market in those [$10 million and over] price ranges," says Rick Goodwin, publisher of Unique Homes magazine. "There's an incredible amount of wealth right now. How can they express that success? Housing is one of the ways they often do it."
The Height of Luxury
As the rest of the housing market struggles, the very high end is thriving. The Dallas-based Institute for Luxury Home Marketing estimates that home sales at the $5 million-plus price range rose 11% in 2006, compared to a 8.4% decline in overall housing market sales. Between 1999 and 2005, the institute says, sales of homes for more than $1 million skyrocketed over 500%. Today, there are seven homes on the market priced at $100 million or more. In 2005, there was just one.
In the near future, there may even be a billion-dollar home. Almost a decade after the Rennert estate debate, Indian billionaire Mukesh Ambani is causing a stir in Mumbai, where he is building a 60-story, vertical palace that will include three floors of Babylon-inspired hanging gardens and three rooftop helipads. Ambani will reportedly spend $1 billion on the project, which is scheduled for completion in 2008. That's $1 for almost every citizen of his native India.
In Defense of Excess
Popular Indian newspaper columnist Praful Bidwai believes Ambani's tower just draws more attention to the stark contrast between India's haves and the have-nots. "Mr. Ambani is building an edifice to his own ego," he said. "It will not go down well with the public and there is a growing tide of anger about such absurd spending."
According to the Central Statistical Organization in Delhi, India's gross domestic product grew by 9.4% in the year ended Mar. 31, 2007, the fastest pace in 18 years. But 27.5% of the population lives below the poverty line, according to government estimates. Between 600,000 and 1 million people live in slum conditions in the Dharavi section of Mumbai.
But some believe Ambani's desire to express his success as chairman of Reliance Industries (RELI) with a 500-foot-tall home may be justifiable—and not just because he needs the room for his 168 cars and 600 servants.
"When you think about it, these people are spending far less on a percentage basis than the average person," says Goodwin. "Most people buying half-a-million dollar homes are lucky if their net worth is half a million dollars."
Does Ambani really need 48,000 square feet of space for his six-person family? Of course not. But like a lot of people who have worked hard for their money, he wants it. "These are trophy properties," says Goodwin. "They've won the game now, and this is their prize."
A Home, a Statement, a Trophy
Self-made millionaires and billionaires in particular are notorious for building or buying over-the-top homes. "It makes them more willing to make a statement," Goodwin says. "Old money tends not to like to show off as much." These trophy homes are usually "very large, very interesting, and not necessarily resellable," in Goodwin's words. But he wouldn't call them tasteless. "We always joke about new money being garish, but I think that's more of the old money being jealous that they can't let go like that," he says.
Not all self-made billionaires live in a mansion like Rennert's or a tower like Ambani's. Although he has grown a fortune investing through holding company Berkshire Hathaway (BRKA), Warren Buffet still lives in the same Omaha, Neb., house that he bought in 1958 for $31,500. On the flip side, many who have inherited wealth continue to live lavishly.
"Paris Hilton is third-generation wealthy, yet she is in that same category that Donald Trump is," says Laurie Moore-Moore, president of the Institute for Luxury Home Marketing. "It's really less about old money and new money, because most of the wealthy are new money."
There are six categories of wealth, Moore-Moore explains. About 15% of the world's wealthy (defined as those with more than $1 million in investable assets) fall into a category she refers to as the "flamboyantly wealthy." She adds, "Those are the people that really want to make a statement. They're looking for something exclusive that leaves no question in the minds of others that they're wealthy."
The Nouveau Nouveau Riche
As Ambani's tower home proves, more and more newly superrich foreigners are finding themselves in the "flamboyantly wealthy" class. In 2004, Ambani's fellow countryman, Arcelor Mittal (MT) Chief Executive Lakshmi Mittal, spent more than $100 million on a mansion on London's exclusive Kensington Place. Sheikh Hamad of Qatar recently took nearly $200 million of his petrodollars to London and bought a 20,000-square-foot penthouse overlooking Hyde Park. Canning Fok, managing director of Hong Kong-based holding company Hutchison Whampoa (HUWHY), recently handed over $44 million for "Hong Kong's Chateau de Versailles." And in the English countryside, Russian oligarch Roman Abramovich owns a modest $34 million, 450-acre property.
Today's big-spending billionaires may have their pick of ultra-luxury properties, including Donald Trump's $125 million Palm Beach property, a Versailles-inspired $125 million Los Angeles mansion, and a Turkish entrepreneur's $99 million London creation.
Who might be the next to snatch up one of these modern palaces—or build an even bigger one of their own? Moore-Moore offers her prediction: "One thing I would say is the Russians are coming, the Russians are coming!" she says. Will they be criticized for their extravagance and poor taste? Probably. But they likely won't mind.
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