Suddenly they’re everywhere.
Not long ago, the superrich were a knowable entity—as New Yorkers, we were on something of a last-name basis with them. There were so few of them that when we saw a Guggenheim or a Rockefeller on, say, a new hospital wing or atop a list of public-library benefactors, we felt a certain familiarity. We had at least a vague sense of who they were, what company they owned, or where their family had made all its money. And that’s as far as it went. Mostly, they stayed out of our way; the superrich were one minuscule subculture in a city that had better things to worry about.
But somewhere along the line, as great torrents of cash came pouring into Manhattan, it stopped being possible to ignore them. Never mind that the average two-bedroom apartment now costs $1.2 million. There’s a whole other stratum of wealth, where numbers have become abstract. Consider that Santiago Calatrava tower proposed last year for lower Manhattan; the entire building will be made up of $35 million apartments—$35 million each! Five years ago, not a single apartment in the city sold for that much. Many restaurants, shops, and service industries have reoriented themselves to this new unreality, like that place that serves $700 sushi and draws a breathless crowd every night.
For most New Yorkers, this is a maddening spectacle: Who are all these people? Where did they come from? When will things return to normal?
The lament that Manhattan has become a playground of the rich is usually uttered with a sneer (or sometimes a hopeless sigh). And yes, the more rich people there are, the tougher it is for everyone else to get by, to afford apartments and live the New York life they dreamed of. How wonderful is Central Park if you live an hour away by train? It’s almost as if the superrich have cordoned off much of Manhattan for their own personal use, distancing themselves from the workaday rich and building a social class all their own.
The effects, however, are not entirely bad. This island at the center of the world is where big money from all over comes to get coddled, buffed, managed, preserved, and deployed, or simply to hang out with other money. And as the superrich have created their own ecosystem, they have also helped forge a sophisticated $488.8 billion economy, driven by highly specialized services and full of opportunity. For a city that was never blessed with great natural resources—there are no oil reserves in Brooklyn, no veins of gold in the Bronx, and the weather sucks—their great wealth may prove to be to New York what oil is to Saudi Arabia: a power source of seemingly inexhaustible supply that provides a huge array of jobs and other benefits for nearly everybody else.
How many of the 2.2 million jobs in Manhattan are dependent on the superrich? There are plenty of obvious ones, like those of chauffeurs idling on Park Avenue in the morning, as well as the bankers who ride in the backseats. There are also the antiques dealers on Madison Avenue and the pedigreed interns at the auction houses, the officers at the major foundations, and, naturally, those hyperkinetic real-estate brokers jabbering into cell phones.
But the downward flow of money carves many indirect routes too. Consider, for example, the sommelier at a four-star restaurant who makes about $90,000, edging into six figures when Wall Street bonuses are up. This sommelier, let’s say, lives in one of those rapidly upscaling Brooklyn neighborhoods, renting a brownstone floor-through that, not so long ago, was inhabited by a $30,000-a-year secretary who feasted on Cup-a-Soup three nights a week. The sommelier’s extra spending gets spread all over the neighborhood—to the butcher who now sells grass-fed lamb from New Zealand, to the dry cleaner who charges a premium for removing the stains from his silk ties, and to the bistros on Smith Street that now have fancy wine lists (and sommeliers) of their own.
The paradox of money in New York is that it is at once the universal topic of conversation and a taboo. Personal spending is the subject of both relentless boast and discretion. As a result, some basic concepts—what it takes to be rich in New York, how many superrich people there are in the city, and precisely how they affect the economy—are shrouded in mystery. But with the help of some reluctant economists, I’ve tried to make some (reasonably) educated guesses.
First, how to define the very rich? Having $1 million in assets as of 2001 placed you in the top 7 percent of families nationwide, according to the Federal Reserve. In New York, it means you own an average co-op in Manhattan outright. “In the old days, a millionaire was someone who had a million dollars. Today, it’s someone who makes a million dollars a year,” says Stuart Becker, an adviser for high-net-worth individuals with J.H. Cohn LLP. And it’s probably what you need to take home—before taxes—each year to be considered rich in Gotham.
Nationwide, in 2001, 1.3 million households had a net worth of more than $5 million. Bill Fuhs, president of the newly formed New York Private Bank and Trust, estimates that in 2001, there were about 27,000 families in the U.S. with a net worth over $30 million. And an awful lot of them live in and around New York, perhaps up to 10 percent. The Forbes 400, which tallies the domiciles of Americans worth more than $750 million, lists 38 members living in New York City. But there are probably more. Industrialist David Koch (No. 43) is listed as living in Wichita, Kansas, though he owns Jackie Kennedy’s former apartment on Fifth Avenue. “I have a personal list which has 1,931 billionaires on it,” says Leslie Mandel, president of the New York–based Rich List Co., which tracks the wealthy. “There are 168 who say they live in New York, but that’s definitely undercounting.” Really rich people tend to be smart enough not to designate high-tax New York as their primary residence, if they can avoid it. Good old Dennis Kozlowski lived in income-tax-free Florida, but installed his $6,000 shower curtain in Manhattan.
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The influence of the superrich on job creation is similarly fuzzy. “Any hard number on that is surely premature and almost surely something like fiction,” says Edward Glaeser, an economist who runs the Taubman Center for State and Local Government at Harvard. But here’s a stab at it. One way is to look at service jobs. Rich people tend to spend tons of money on services—decorators, art dealers, accountants, personal trainers, etc., and New York is just a more highly concentrated version of the U.S. economy, a service economy on steroids.
Ken Goldstein, a labor economist at the Conference Board, notes that, crudely speaking, $200,000 in spending on services creates or sustains a job paying $50,000—the rest is eaten up in overhead, benefits, taxes, and profits. But industries also have what are known as multiplier effects. A law firm that takes in $200,000 in revenues may pay out $50,000 in wages, but will also spend money on other services—meals and couriers, accountants and entertainment. When employees spend their own wages, they also stimulate economic activity. Figures provided by Mark Zandi of Economy.com suggest that in New York, the multiplier for financial-service jobs is 4.1. In other words, $200,000 in spending can effectively create 5.1 jobs.
Let’s say that the number of New Yorkers with more than $500,000 in adjusted gross income has risen to about 30,000, which is surely conservative. If, on average, each of these folks spends $200,000 a year on services locally (remember, the $500,000 is a floor, not an average), then the top 1 percent of earners supports about 153,000 service jobs. One hedge-fund manager who spends $1 million annually on services—a driver and house staff, investment management and real-estate brokers, restaurants and psychotherapists—probably sustains 25 livelihoods.
Even the public sector owes a lot to the superrich. About 1 percent of New York City filers in 2000 paid enough city taxes ($2.338 billion) to support the wages of roughly 50,000 government employees.
Perhaps the most important job sector in Manhattan is financial services, which is both the city’s primary generator of wealth and the biggest beneficiary of the presence of wealth. Wall Street accounts for 9 percent of the jobs in the city and an outsize 25 percent of the wages (31 percent of Manhattan’s). In 2004, to take one example, Goldman Sachs paid $110 million in bonuses to its five most highly compensated executive officers. Below the boldface names are thousands of managing directors, executive vice-presidents, and partners at law firms and private-equity firms who are quietly making tons of money. When UBS recently bought newspaper advertisements listing the 309 new managing directors—mostly bankers in London and New York—it was the only time most of them will ever appear in the Wall Street Journal.
The top 1 percent of earners in New York support about 153,000 service jobs.
The dual concentration of wealthy people and financial institutions makes New York a center of money management, one of the few high-paying sectors in which the U.S. is a successful exporter. According to Mayer and Hoffman Capital Advisors, 20 percent of the $1 trillion invested in hedge funds worldwide is in New York City. That’s $200 billion divided up between 450 or so hedge funds, ranging from giant complexes like Leon Cooperman’s $3.5 billion Omega Advisors to smaller shops like Mayer and Hoffman, an eleven-person “fund of funds” that has raised about $100 million thus far from wealthy individuals. “This is the center of the financial world, so hedge-fund managers who operate out of London, Asia, and South America come to New York to meet with prospective investors,” says partner Sam Kirschner.
Before getting into money management, Kirschner was a clinical psychologist. Which highlights another feature unique to Manhattan’s economy. An entrepreneurial class has arisen to service small numbers of wealthy clients. An art dealer can prosper by holding the hands of a few free-spending clients, and an SAT tutor who has penetrated the high-end market can get away with charging $500 per hour. In the ashes of the dot-com crash, Manhattan has a new start-up craze—in microenterprises that cater to the picayune needs and whims of the super-wealthy, from a $26-an-hour cat-sitting concern to a $2,000-a-day concierge service.
More conventional service professions are prospering, too. A number of jobs that pay middle-class wages in virtually any other region are six figures here. Dick Grasso made headlines again recently when it was revealed that his secretary at the New York Stock Exchange earned $240,000 a year, while his two drivers took home $130,000 each. Those with incomes like Grasso’s were not surprised—they pay their professional and domestic help similar wages. At a big-name hedge fund, the directors recently sent their shoeshine man off to retirement with a $1 million bonus. What was it to them?
The traditional view is that jobs like waiting tables are transitional and therefore pay modest wages. But in that same four-star restaurant where the sommelier makes $90,000, the maître d’ easily cracks six figures, and the bartender and most of the wait staff are not far off. Even the busboy may clear $50,000. Wolfgang Zwiener, a German immigrant, spent 40 years as a waiter at Peter Luger, earning enough to put his sons through the University of Chicago, Columbia, and the Wharton School. And last year, Zwiener, along with his sons, opened Wolfgang’s Steakhouse, a high-end Luger knockoff on Park Avenue and 33rd Street. No doubt the waiters there, and possibly the busboys too, are saving up for places of their own.
Aside from wages, it can be argued that all New Yorkers benefit as consumers from the presence of the extremely rich. Those of us willing to splurge on a single obsession—food, opera, clothes—can choose from the best the world has to offer. For foodies, a semi-annual meal at Peter Luger or Daniel may be a prized ritual, the best reason for not moving to Pittsburgh. But Peter Luger and Daniel—and other fabulous restaurants—can’t get by on these occasional customers alone. They depend on the very wealthy who dine there all the time. The same holds for many of the shops that make New York New York, like Barneys.
This is especially true for the feature that most defines New York’s superiority over other cities: the embarrassment of riches that is our cultural life. “Other cities have one museum. We have two operas, Carnegie Hall, and Lincoln Center,” says Mitchell Moss, an urban-policy professor at New York University. “Unlike Los Angeles, which is intrinsically a culturally deprived area, we’ve had a competitive cultural life.”
The full scope of cultural offerings explains how local wealth contributes to economic development. New York isn’t just a center of finance. It’s home to industries like architecture and design, art and publishing, media and advertising, the businesses that attract what urban theorist Richard Florida calls the “creative classes”—hip, imaginative go-getters whom many cities regard as crucial to future growth. But the creative classes are drawn to places like New York in large part owing to what it has to offer. Consider the architects playing softball in Central Park fields lovingly manicured by the Central Park Conservancy, or the novelists tapping away in the New York Public Library’s glorious reading room. In an era of permanently constrained budgets and gaping deficits, these pleasurable activities are subsidized by friendly local plutocrats. You may be barely able to afford to live here, thanks to the very rich, but thanks to them, you don’t have to stay holed up in your studio apartment.
The rich subsidize our public services, too—and graciously don’t use them much. Mayor Bloomberg may pride himself on riding the subway, but your average hedge-fund managing director is not a connoisseur of mass transit. Part of what it means to be wealthy in New York is to live off the grid, as it were. They have their own transportation systems, including Teterboro Airport, the local holding pen for Gulfstreams, which supports more than 5,000 jobs. NetJets, a company that enables the rich to share private jets, made 25,000 flights in and out of a dozen airports in the New York area last year.
When super-wealthy New Yorkers need certain services, they provide for themselves in ways that produce residual benefits. Former Citigroup boss Sanford Weill pledged $100 million to Cornell’s Medical School in 1998, in part because he wanted to ensure that he would have quality health care in his neighborhood. And what he doesn’t use is there for the rest of us. In this way, the super-wealthy have made New York a world-class center for medicine. Top talent is trained here at well-endowed teaching hospitals and then sticks around for the ample compensation that comes with tending to rich people. Obviously, such excellent care is not evenly distributed, but the concentration of medical expertise means there are specialists here for just about every ailment, no matter how exotic.
The rich subsidize public amenities like the subway—and graciously don’t use them much.
Sometimes, the rich invest in things they have no intention of using at all. Carl Icahn, the Queens-born corporate raider, won’t be sprinting regularly at the new stadium on Randalls Island that bears his name. Set to open on April 23, it’s a fitness palace befitting a Big Ten university. Underneath the stanchions of the hulking Triborough Bridge stands a $6 million, nine-lane Mondo track, so springy it makes you want to take off your jacket and take a few laps. The city kicked in half of the $42 million cost of the facility, which is being built by the Randalls Island Sports Foundation. “Several board members chipped in $150,000, $250,000, or $500,000,” says executive director Aimee Boden. “And then there was Carl’s $10 million topping-off gift.” Since construction started before there was money to build the roof, Icahn’s donation came just in time. For his efforts, the brow of the cantilevered green roof is capped with big letters: ICAHN STADIUM.
It’s quite a fine trophy—and it cost Icahn no more than a decent place on the beach in the Hamptons.
The rich also fund less-glamorous social services to which their names are not always affixed. In 2002, the New York metropolitan area was home to 6,340 of the nation’s 64,843 foundations, according to the Foundation Center. Together, they accounted for 15.5 percent of the nation’s total foundation assets and 17 percent of their giving. Top foundations like Ford, Mellon, Starr, Rockefeller, and Carnegie are all based here. The Leadership Academy, which oversees private training of principals for public schools, raised more than $38 million with the assistance of dozens of executives, few if any of whom have children in public school.
The nonprofit world has become a big business in its own right. The Museum of Modern Art raised $858 million—in the teeth of a recession—for its new building. The New York Times reported that 50 trustees—whose members include David Rockefeller, Ronald Lauder, and out-of-towners Thomas H. Lee and Los Angeles developer Eli Broad—kicked in more than $5 million each. About half the cash was spent on construction, which probably had the downstream effect of at least a couple new swimming pools on Staten Island.
Of course, New Yorkers don’t donate so much just because they can afford to. Giving bestows status. “There are so many wealthy people here that being rich isn’t a distinguishing characteristic; you have to be intelligent and socially useful,” says Mitchell Moss. Whether you approve of his mayoralty or not, Michael Bloomberg is admired not simply because he made several billion dollars in the course of two decades, but because he has given away hundreds of millions of dollars. Compared with him, even the most benevolent centamillionaires are rank underachievers.
Before we get too carried away in enumerating all the great gifts New Yorkers humbly receive from the very rich, let’s admit some limits. The ever-climbing cost of living hits us all. It’s not just the price of apartments; everything from sneakers to a jug of milk costs more here and prices are rising fast. The Consumer Price Index in New York City has been growing at a 30 percent greater clip than the national rate. For the vast majority of people, inflation cuts directly into their standard of living.
As for real estate, if this boom does turn into bubble, the really rich will be bummed, but they’ll disappear for a week to St. Barts and return good as new. People with mortgages they can barely swing—like those three-year, fixed-rate, interest-only “deals”—could be wiped out.
There’s a broader effect on the texture of the city, as well. In many areas, the most economically efficient—frequently the only economically justifiable—use is wildly upscale housing. That’s why the Plaza Hotel, which charged dearly for its cramped, old-fashioned rooms, is being converted into premium condos. The profit potential is too powerful to ignore. Should we care? Well, yes. No matter their exorbitant markup on a cup of tea or a martini, great spaces like the Palm Court and the Oak Bar feel like part of the public domain. Soon they will vanish.
This is no isolated incident. Several years ago, hedge-fund billionaire Bruce Kovner bought the International Center of Photography, a mansion on 94th Street and Fifth Avenue, and is now using it as a residence. A proud constituent of Museum Mile, which used to hold fantastic exhibits, has been turned into a somnolent outpost of Billionaires’ Mile. The Town Club, a homey place on East 86th Street that made its facilities available to neighbors for parties, Brises, and other events, was likewise sold to a Wall Street honcho who plans to use it as a house. The Lycée Français has sold off its impressive collection of Upper East Side buildings for residential use.
As space is monopolized by part-time residents, it sucks the life out of these neighborhoods—and further raises the barriers to the sorts of amenities that make Manhattan a distinctive, interesting place: museums and parks, schools, clubs, hotels, office buildings. If the trend continues, ever larger swaths of Manhattan will come to resemble a limestone and brownstone Buckhead, comatose bedroom communities that have no more civic bustle than the suburbs many city dwellers came here to avoid.
The omnipresence of the superrich also has psychic costs. For many New Yorkers, being around people for whom no price is ever an object inspires envy and sometimes rage. Not being rich here means, at some level, being excluded from playing in all the great games the city stages. And whatever professional triumphs lower-compensated and less-endowed people achieve—a Pulitzer Prize, a MacArthur “genius award,” tenure at Columbia, a partnership in an architecture firm—many distinguished professionals will simply never be able to carve out the Manhattan life to which they think their status entitles them. A writer who clears $500,000 a year is a star; on the trading floor at Morgan Stanley, that sum makes you a disposable nobody. Such disequilibrium can make even committed professionals question the value of their life choices. “It certainly resonates with me,” says Dr. Kathryn Faughey, an Upper East Side psychologist. “As a therapist, you can be treating somebody who just had a bonus of $750,000, and then they hand you a check for the fee and there’s quite a discrepancy.”
The magnetism of the very wealthy does limit options for the merely affluent. There are fewer apartments and schools to choose from, fewer lawyers seeking to write wills, and fewer brokers eager to manage money. Everybody knows a bodega’s margins are narrower than Whole Foods’; that’s why they’re all closing. Given the wealth here, it makes sense for businesses to zero in on the high end. One of the newest banks to open, the aforementioned New York Private Bank and Trust, wants to do the basics: accept deposits, lend, provide advice, and act as a trustee. It will also offer concierge services, like if you need to be medevaced out of Chile. “There are some very solid things that any private bank can do for somebody with $5 million to $10 million that are mutually beneficial,” says president Bill Fuhs. But New York Private Bank is primarily seeking depositors with assets of more than $50 million.
And that’s another troubling consequence of having so many very wealthy people around: It has the effect of defining affluence up. Think it’s hard to find a two-bedroom apartment in Manhattan for less than $1 million? Try getting meaningful financial advice for the $50,000 you’ve saved up. From a private bankers’ perspective, $5 million is the bare minimum it will take to make your phone call worth returning.
Manhattan is a sort of tableau vivant in which the plutocrats occasionally cross paths with the bohemians. We grow to be blasé about them, the way people in Los Angeles are inured to encountering movie stars at Starbucks. Look, that’s David Rockefeller strolling unrecognized through Rockefeller Center!
For literally centuries, New Yorkers have complained about the effects of extreme wealth on the city. Many would, of course, prefer an egalitarian paradise where the working man has a window on Central Park, too. But such utopian notions obscure what is, in fact, a very successful aspect of New York. The historical record clearly shows that when the very rich lose interest in living in a city, the dominoes tumble. Look at Philadelphia or Cleveland.
Part of what sustained New York through the crisis of the seventies was that Fifth Avenue never stopped being Fifth Avenue—apartment prices surely dipped and Central Park did get a bit woolly, but no landlords ever started torching those buildings and running away, as they did in the Bronx. The fancy sections of New York endured to an extent that many solid middle-class neighborhoods did not. “The majority of cities in America would die to have this problem,” says Edward Glaeser of Harvard. “If a city is doing well, then people are willing to pay a lot to be there.” Some are also willing to pay a lot to rule over the city, like our mayor and State Attorney General Eliot Spitzer.
The phenomenon whereby people with six-figure incomes think they can’t make it in Manhattan is simply an extension of what middle- and working-class New Yorkers have been subjected to for decades. If you want to improve your quality of life, you’ve got to move out. That may feel like a hardship, but the net effect is that the urban values that are disappearing from Manhattan are being exported and reinforced in Brooklyn and leafy towns in New Jersey, Westchester, and Fairfield County, Connecticut.
So love them or hate them—we’d better learn to live with the rich. They’re not going away. If 9/11 couldn’t scare them off, one has to wonder what will. The very rich may be carving out more space for themselves. But in this highly uncertain economy, that’s something of a blessing, not an unmitigated curse. The ultimate definition of a city’s health is the ability to attract people, companies, and industries that can choose to be anywhere in the world. “You can argue about the dangers of having an economy at the beck and call of the very rich,” says economist Ken Goldstein. “But it basically comes down to this: It’s better than the alternative.”
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