House of Outrageous Fortune: Fifteen Central Park West, the World’s Most Powerful Address
Page 24
Though he refers to this as “the flocking effect,” Rothenberg doesn’t think the early buyers were birds of a feather. Instead, they were birds of the purse. “Where was the wealth?” he asks. “The Goldman Sachs IPO. Hedge funds. It was financial. Where does world-class philanthropy come from? Finance. Who had money and wanted to stay in the city? Finance. They’re the ones that could afford it.”
“Major wealth was created by those people” between the dot-com crash of 2000 and the opening of the 15CPW sales office, says Arthur Zeckendorf, and it was sitting around waiting to be spent. “You can say negative things about [Wall Street people],” he continues, “but they’re brilliant people; they’re computers. Manhattan attracts the smartest people in the world. You can’t be here and not make money. It took a big brain to pay those prices in advance. But the smart people, by definition, knew they’d get a great product and make money.”
The calculation was actually quite simple, says former Whitehall executive Ralph Rosenberg. “The combination of efficiently laid-out, modern apartments in prewar style with tremendous unobstructed views and amenities?” he asks rhetorically. “Those are big things, particularly when you also want privacy. The generation of wealth created between 1995 and 2005 doesn’t care where Rockefeller lived. They value the best living space available.”
The first penthouse buyer outside the partnership group didn’t go through the sales office, and his purchase remained a secret for two years, but he was another Goldman Sachs alumnus who’d become one of the financial world’s best-known and most-admired figures. Daniel Saul Och, who’d gone on to head his own hedge fund, Och-Ziff, was the bellwether leading the finance flock to Fifteen. He’d heard about it through friends at Goldman, of course, and immediately asked them if he could buy the top floor of the tower. They made it happen for him. “Dan wanted it, so I said, ‘My mistake, I should have taken the one below originally,’ ” says Eyal Ofer, who agreed to abandon his reserved forty-third-floor aerie and take the penthouse beneath it with the King of the World terrace, instead. “As far as I’m concerned, I’m better off.”
Och (pronounced Ock) is the middle child of a doctor and his wife, a founder of the Solomon Schechter Day School of New Jersey. Daniel was in its first-ever kindergarten class, then studied Jewish culture and history there, alongside a traditional curriculum before going on to Wharton. Choosing trading over graduate school, he started his career at twenty-one in 1982 as an analyst at Goldman, where he asked to be assigned to the mergers-arbitrage unit run by the future Clinton administration secretary of the treasury Robert Rubin, then one of the more challenging and profitable departments at Goldman. Its specialty was juggling the stocks of merging companies.
Och stayed at Goldman almost a dozen years, and though he never made partner or managing director, he rose to cohead of its US equities trading before leaving in 1994 to form Och-Ziff Capital Management with the Ziff brothers, third-generation heirs to Ziff Davis Media, the publisher of enthusiast magazines such as Popular Aviation and Stereo Review. He’d met Dirk Ziff when the slightly younger heir worked as an intern at Goldman. In 1994, Dirk and his brothers inherited $1.4 billion from their father after he sold the business and retired on learning his boys did not want to succeed him. Instead, they formed a family investment partnership to manage their money and asked Och to run it for them.
Seeded with $100 million, Och-Ziff grew steadily, produced returns characterized as “spectacular” by Pensions & Investments, a newspaper covering money management, and began taking in other investors after a five-year exclusive with the Ziffs expired. According to Forbes, Och became a billionaire in 2007 when Och-Ziff went public in an initial public offering run by Goldman Sachs and Lehman Brothers. A year later, Forbes estimated his fortune at $3.6 billion when he first made its list of the world’s billionaires. Och still owns the majority of the business, and the Ziffs retain a 10 percent stake. In 2012, it managed almost $29 billion (down from a peak of $33.8 billion in 2008) out of its headquarters on Fifty-Seventh Street, a short walk from 15CPW. Proximity to the boss as well as the office likely explains why Och-Ziff’s CFO, Joel Frank, also bought a sprawling $9.5 million D-line apartment in the house with treetop views of Central Park early in 2007.
Tall and fit, with tousled brown hair, piercing eyes, and a ready smile, Och is described as driven and disciplined, steely-eyed, but he has an eye for art as well as money. Once he moved into his oversize penthouse designed by Anthony Ingrao, he decorated it with, among other pieces, oversize works by such blue-chip modern masters as Cy Twombly, Mark Rothko, and Henry Moore. “There are at least six of them,” says a visitor, “and they’re huge.” Although surely not as big as his bank balance.
Och and his wife, Jane, are both philanthropists who favor Jewish and Israeli causes, such as the American Jewish Committee and the UJA-Federation. Och has served on both the boards of trustees and governors of the former and chairs the latter’s Investment Management Division. In the Westchester suburb of Scarsdale, where the Ochs and their three children still occupy a large house, Jane ran its local women’s philanthropy group. Och is also the chairman of the board of the Birthright Israel Foundation, which subsidizes trips to Israel for Jewish young adults; vice chairman of the hedge-fund-heavy Robin Hood Foundation, which, among its many initiatives, sponsored the 12-12-12 concert benefiting victims of Hurricane Sandy; and a trustee of New York Hospital, Lincoln Center, and the University of Pennsylvania.
Och may have the loftiest apartment at 15CPW, but he is a relative shrinking violet. He did have a birthday party before his apartment was finished, filling it with flowers and setting up a stage on his huge terrace where Five For Fighting, the piano-based pop act, played. “You could see it in New Jersey,” says a member of the building staff. But visible as it may have been, that party didn’t make the newspapers, as the notorious birthday parties of the last generation of financial highfliers such as 740 Park’s Saul Steinberg and Steve Schwarzman did. “Och is very nice,” says the staffer, “and his wife is down-to-earth.” “Page Six” material, they’re not.
Och’s home in the clouds reflects his standing in the new hierarchy of finance and the super–global elite. The heads of hedge and alternative investment funds emerged from the great bull market of the late twentieth century as the new apotheoses of wealth, the Rockefellers and Morgans of the early twenty-first century. Hedgies, as they’re known on Wall Street, occupy a new upper echelon of wealth far less lonely than the one the industrial plutocrats did a century earlier.
The first hedge fund was created in 1949 by Alfred Winslow Jones. The polar opposite of the buttoned-up money managers of the time, Jones, the son of a General Electric executive, followed a traditional education at Harvard with less usual jobs such as the purser on a tramp steamer, an export buyer, and a statistician, before joining the State Department and serving in Germany as the Nazis were beginning their rise to political power. After meeting and falling for a socialite socialist, Jones quit the diplomatic corps and turned sharp left. He attended a Marxist school in Berlin and worked for something called the Leninist Organization. Then, after a divorce, he returned to America, enrolled in a PhD program in sociology at Columbia, remarried, and honeymooned in Spain during its Civil War.
Returning to America, Jones grew interested in finance and joined the staff of the young Fortune magazine as a writer. In 1948, Fortune published an article he’d written that “anticipated many of the hedge funds that came after him,” wrote Sebastian Mallaby in More Money Than God, a history of the industry. Mallaby summed up Jones’s conclusions succinctly: money was a medium, he wrote, “through which greed and fear and jealousy expressed themselves; it was a barometer of crowd psychology.”
Before the article was even published, Jones left Fortune to launch what he called a “hedged” fund. Its main characteristics still define how the industry operates. Jones took 20 percent of the profits off the top, structured his fund to avoid regulatory oversight, hedged his
bets through short-selling (borrowing stocks he thought would decline in value and selling them before buying them back at a lower price and returning them) to reduce his exposure to market swings, and used borrowed money as well as his fund’s capital to increase potential profits. For the next twenty years, he operated in the shadows, raking in previously unheard-of returns. In years to come, those returns would come to be referred to as Alpha, a measure of the return delivered by an investment manager above and beyond the expected, the average, the benchmark that an index investor might receive.
In the late 1960s, defectors from Jones’s fund began setting up copycats, and by 1969, Mallaby writes, there were hundreds of them, by then known collectively as hedge funds. Jones thought the truncated term “a grammatical barbarity,” John Brooks wrote in his book on finance in that decade, The Go-Go Years. It would be another forty years before hedgies were themselves considered barbarians. By then, though, they’d also become Mallaby’s “unofficial kings of capitalism.”
Hedge funds, mostly run by alpha males in a relentless pursuit of Alpha, attracted new investors with big profits and an aura of exclusivity. Brooks compared them to the pools of the 1920s in which the wealthy came together to manipulate public markets. Many a then-new Park Avenue co-op was purchased with gains derived from swimming in pools. After the stock market crash, their worst excesses were curbed, but the rich will always find ways to get together to gain and exploit their edge. “Like the pools of ill repute a generation earlier, the hedge funds of the sixties were the rich man’s stock market blood sport,” Brooks wrote. They were also “a highly desirable club” that “certified one’s affluence while attesting to one’s astuteness. . . . Wall Street’s last bastions of secrecy, mystery, exclusivity and privilege.”
Though they still cultivate an aura of secrecy, hedge funds came out of the closet in 1968 when New York magazine ran a cover story on them. At the time, it said, hedge funds managed about $2 billion. Thirty-five years and many market bumps and jumps later, they were no longer strictly hedged funds; they employed a vast array of strategies from the prosaic to the impenetrable, including arbitrage, futures, options, derivatives, commodities, bonds, credit securities, currency speculation, event-driven trading, and quantitative analysis, as well as focused investments in specific market sectors such as health care, real estate, and technology, often in multistrategy stews. But despite bad publicity (in 1992, George Soros’s Quantum investment fund famously bet against the British pound, “broke” the Bank of England, and cost that nation about $6 billion) and the odd disaster (Long-Term Capital Management lost most of its equity in two nightmarish days in 1998), they flourish like mushrooms after a rain. By 2003, the top hundred hedge funds managed $500 billion. Despite the imposition of some regulatory oversight in 2004, the three years that followed saw that sum double, with the money coming mostly from institutional investors such as pension funds, sovereign wealth funds, endowments, and foundations, but also from wealthy individuals and families, and from other money managers who act as feeders to the hedgies.
The lowest-earning hedgie on a list of the top twenty-five published in 2006 made $240 million. Several made more than $1 billion. In comparison, Lloyd Blankfein’s take-home pay from Goldman Sachs that year was a chintzy $54 million. That summer, the New York Times made it official, noting that “the balance of power is shifting,” when it observed hedge fund and private equity moguls suddenly elbowing their way onto the guest list at Allen & Co.’s exclusive annual roundup of business leaders in Sun Valley, Idaho.
By the time of the ground-raising party in September 2005, that dog whistle was blowing, and the hungry pack was circling and baying. Before long, word got out about 15CPW, but at first the ban on leaking buyers’ names held. Then Braden Keil at the New York Post heard a story that would reshape the marketing plan for 15CPW. It began as an attempt to derail the development.
In the mid-oughts, Keil’s Gimme Shelter column in the real estate section of the Post was the best “get” there was for property publicity-seekers. Some brokers worked with Keil, feeding him scoops in exchange for prominent column plugs. People in Manhattan real estate circles muttered that one particularly aggressive and publicity-savvy broker had Keil in her pocket. Certainly, she appeared often in his column, and she and the Zeckendorfs had a long history of bad blood between them. “It goes back twenty years,” says an intimate of theirs, adding that they believe the broker heard about their conversations with Carl Icahn—and leaked the story that he’d walked away from an apartment, both to give him a measure of revenge and to taint the building.
“She sold no apartments at Fifteen, she was furious, apoplectic,” says a Brown Harris Stevens executive, echoing sentiments also heard within Zeckendorf Development. “It was all from her.” But regardless of who planted the Icahn item, it backfired. It created a hunger that inspired the 15CPW PR team to turn the sales process into a news peg on steroids, a gift that kept on giving to them, to the newspapers that raced after the stories, and to buyers as well, or at least those whose egos fed on exposure or proximity to the white-hot center of things.
The New York Times would eventually discover the rewards of printing celebrity real estate gossip, even if some there still hold their noses at the scent of it. But at the time, the Times seemed to have missed the boat, burying David Dunlap’s scoop on the building, and then treating 15CPW like a one-night stand. The third paper in town, the Daily News, is considered a working-and middle-class paper, not a place to promote luxury real estate, so the PR team’s gaze fell on the Post, which treated the buying and selling of ritzy real estate as a sport. “It’s got the market: us,” says a participant in the process. “It’s geared to high-net-worth New Yorkers.” Nobody’s saying exactly how the Post started getting story after story about who was buying at Fifteen, but the newspaper turned its edge into a mini-industry, stirring up interest right in the market’s sweet spot, the nexus of power, money, information, and consumption.
Will Zeckendorf submits that it was all obvious. “These guys all came to the ground-raising, which is a public event,” he says, and reporters were there. “It wouldn’t have been very hard for a reporter to figure out who’s buying an apartment. Jeff Gordon’s not there by accident.”
But reporters sometimes miss things. Though Keil ran a story on Dan Loeb’s purchase a month after the contract was signed, it would be nine long months before Keil reported that Gordon was a 15CPW buyer. Keil’s earlier Carl Icahn item, which said that other billionaires who’d reserved 15CPW apartments were also having second thoughts, was correct. Initially, a surprising number of issued contracts—between a third and half of them—never came back. One went out to Richard Fuld, then the chairman and CEO of Lehman Brothers, the venerable investment bank founded in 1850, which would infamously collapse in 2008. But Fuld backed out. Another was issued to, and never signed by, a top mortgage broker. Some “people concocted wild excuses” instead of signing, says Will Zeckendorf. One said the apartments were too expensive. Another’s check was stopped after it was delivered. “There were a lot of naysayers,” Arthur says. “A lot of people didn’t have faith.” But Keil either didn’t know or didn’t show the whole picture. In fact, apartments had been selling at a steady clip since they were first made available, and those bound by contracts that were not signed were quickly sold again, often for more money.
Och got there first and proved a vital draw, but the Zeckendorfs credit Loeb with stoking the burning desire among the wealthiest for apartments at Fifteen. Loeb isn’t the richest hedge fund runner in the world, nor even the richest at Fifteen—Och-Ziff and London’s Brevan Howard Asset Management, run by Alan Howard, who bought a 15CPW apartment just a day after Loeb, are both ranked among the top ten hedge funds in the world on Alpha’s annual list—but Loeb (whose fund, Third Point LLC, ranked number 53 on the 2012 list) is as visible as the species gets. With his legendary sharp tongue, mighty pen, and $8.6 billion behind him, he’s hard to ignore.
The young Loeb he loved surfing (Third Point is named for a surf break off the beach at Malibu), skateboarding (he started a skateboard company), and investing. He was so enamored of Milo Minderbinder, the wheeling, dealing, black-marketeering soldier in Joseph Heller’s World War II novel, Catch-22, that one of his teachers pinned the nickname on him. As a teen, he was already putting his money where his mouth was: he hired a junior high classmate, Robert Schwartz, for twenty-five cents a day to be his bodyguard against bullies. “Dan’s mouth would get him into trouble,” Schwartz told Bloomberg Markets.
Loeb spent two years at the University of California–Berkeley and then transferred to Columbia, where he traded his way to a $120,000 bankroll by his senior year in 1983. Already cocky, he took a plunge on a company that made medical respirators. After several people using its products died, Loeb lost his small fortune plus more money he’d borrowed to buy the stock on margin. It took him a decade to pay it back.
He started doing that at Warburg Pincus, thanks to a little old-fashioned nepotism: his father knew a top executive and a godfather helped him engineer his first trading coup, a $20 million score. In 1987, though, he fled Wall Street, hiring on as a financial adviser to Chris Blackwell, the founder of Island Records, home of Bob Marley and U2; he helped sell the company to the Dutch recording giant PolyGram two years later for £272 million and dallied in the nascent East Village music-art fusion scene. He lived in the heart of it on Avenue D.