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It’s February. Snow covers the polo fields. The nightclubs are quiet. Traffic flows through hamlet centers. Icy winds are blasting sand against boarded-up beach clubs. Summer in the Hamptons is about the furthest thing from the mind. Except for one thing: It’s bonus season on Wall Street.
This month, the bank accounts of a lot of the Street’s denizens will receive deposits that are remarkable for the number of zeroes they contain. Much has been made in the last week or so about the biggest big shots at the biggest of stock trading firms, Goldman Sachs, getting eight-figure bonuses in deferred stock options this year (as a symbolic nod to the criticism of such bonuses even being awarded at all) by a company that had begged money from the taxpaying proletariat a year ago. Oh, woe is they, the hamstrung multimillionaires.
Hundreds of their officers and foot soldiers, on the other hand, will still be getting big fat checks—actually, big fat electronic deposits—as compensation for their contribution to the company money-making machine. And some companies have not put any restrictions on their annual bonus festival following a stunningly profitable turnaround on Wall Street, after a couple of down quarters amid the worst recession in a half century.
The bottom line: Happy Wall Streeters means happy Hamptonites.
For the last couple of decades, Wall Street’s most successful soldiers have driven the East End real estate bus. The breathtaking generosity of the profit-sharing bonuses their bosses hand out just after each New Year has typically been seen as the spark that ignites the home-buying fervor.
“It’s like they take the A-train straight out east with the check in their hands,” said Judi Desiderio, chief executive officer and president of Town & Country Real Estate in East Hampton. “They follow a pattern. The 20-somethings usually come out and rent something huge and flashy the first year—they don’t buy big. The 30-somethings, they have established the flair for making money, and they spend it. The older guys, they trade up.”
As the profits of the real estate boom in the 1990s and—after the slightest hiccup over the dot-com boom and bust—the early 2000s climbed into the stratosphere, Wall Street bonuses did the same. The sleepy East End winter became a hard-working, money-making season for real estate agents, as young brokers, flush with cash, rushed here to scoop up the biggest and most glamorous houses for the upcoming summer.
There was a formula. Those who were sure of their places on the totem pole, and had a good idea of the size of their impending bonuses, would start sniffing around in December, visiting brokerages, getting a peek at what was available in their price range. By early January, as the first profit reports went public, the buyers were out and house hunting. The confident ones were making bids before the bonuses appeared on their bank statements. By late February, the money, and ink, were flowing. Prices went up and up and up, and as long as the bonuses did too, everything was fine.
“If you made $5 million in a year, you lived that lifestyle,” said Dennis Suskind, a former Goldman Sachs executive and Southampton Town Board member, who lives in Bridgehampton. “When I was there, it wasn’t $30 million, $40 million bonuses—it’s gone from houses to planes now. Big boys have big toys.”
But the days of wine and roses came to an end as the economy took a nosedive, according to Ms. Desiderio. “Then, 2008 happened,” she said with no shortage of drama.
Indeed, from a real estate point of view, the collapse of Bear Stearns and Lehman Brothers, long two of the Street’s powerhouses, put tens of thousands of prospective home buyers out of work entirely. The speed and severity with which the American economy went from swing to swoon was terrifying for many of those in the financial industry and seems to have reset the paradigm for how big earners will spend their big bucks in the years to come.
A year ago, the portfolios were gone, the bonuses were gone, and for many the paychecks themselves were gone—and nobody was buying anything. But at least those on the top of the earnings pile are back, say the real estate watchers.
“Everyone here roots for those guys to do well,” said Andrew Saunders, owner of upstart Saunders & Associates in Bridgehampton, which opened last year amid the brief real estate ice age. “There is a link between the bonuses they receive and their inclination to buy homes. And there is no doubt the bonuses are impacting our market this year in a productive way. But there is definitely a sense that doing something really over the top is just not appropriate. There’s a sensitivity to the situation.”
Other brokers also reported that despite the heft of the bonuses being doled out by the big Wall Street firms again this year, the prospective buyers have turned down the volume of their fervor a notch.
“Right now, there is a big sentiment that less is more,” Ms. Desiderio said. “There’s a shift that fewer people need a 8,000- or 10,000-square-foot house, and they are happy with a 4,000 or 5,000. Maybe that’s people wrapping their minds around needs versus wants. You can see they are concerned about how much to spend, when to spend it. They’re even sensitive to the outcry about their bonuses. There’s a lot of ‘Do we have to have that right now? No. Let’s get someplace more manageable for now.’”
The jitteriness and uncertainty that still underlie almost all predictions about the market and the future of the economy as a whole are showing even in the trembling hands of those who are already holding the pen to sign on the dotted line.
“I have a customer who is looking at a house that he really, really likes, and there is an offer on,” said Vicky Reynolds, head of Norma Reynolds Realty in Westhampton Beach. “But he has to wait and see what his bonus comes in at ... Three or four years ago, I don’t think that would happen. He’d make the offer.”
But in uncertain times, the nearly ethereal numbers represented in the bonuses of some Wall Street success stories, particularly the new ones, may be the best catalyst. A big check has to go somewhere, and the last 18 months have dampened the lust for investment on paper. Sticks and bricks at least won’t vanish before one’s very eyes.
“Buying [a house] gives them some flexibility in their portfolio,” Ms. Desiderio said. “The Bear [Stearns] guys, they lost everything. They lost money and their stock and their savings. One of them said to me, ‘Thank God you convinced me to buy, Judi, or I’d have nothing.’”
So, hooray for the financial sector, says the real estate community unabashedly. Up with bonuses. Long live the hedge funds.
If the biggest industry on the East End is going to get back into gear—and bring with it the dozens of sub-industries it feeds—it’s going to be the beneficiaries of those big bonus checks who are going to be shoveling the coal into the firebox, according to Saunders & Associates Senior Vice President Barbara Feldman.
“They have the capital, they’re able to put their hands on the money faster,” she said. “I think 80 or 90 percent of my customers this year are in the financial industry. They’re the ones willing to step up to the plate.”
on Feb 8, 2010