Institutional Investor's Alpha Magazine - February 2009 - (Page 40)

Greenwich ment on December 31, 2007, has since shrunk by tens of billions of dollars, as the hedge fund industry has been battered by a wave of losses and investor redemptions. A hundred additional hedge funds operate in and around Greenwich. Among them is fund of funds Fairfield Greenwich Group, one of the biggest potential losers in the Bernard Madoff scandal (see “What Were They Thinking?” on page 32). Fairﬁeld, founded by Walter Noel Jr., a prominent Greenwich citizen who has a house in its Round Hill neighborhood, reported investing — and presumably losing — $7.5 billion with Madoff. The tide has turned hard against hedge funds, which streamrolled along for many years as the town’s biggest “We see a lot more transactions with the buyers backing out.” — NANCY MACDONALD, REGIONAL SENIOR VICE PRESIDENT, COLDWELL BANKER and fastest-growing industry. One way to see into the turmoil is through the commercial real estate market, about 85 percent of which is hedge fund–related. John Goodkind, managing principal of Newmark Knight Frank, a New York–headquartered real estate advisory ﬁrm, predicts that lease rates will drop by as much as 25 percent this quarter, from $57.75 per square foot in the third quarter of 2008 (rates in nearby Stamford, by comparison, were a relative bargain at $36.60 per square foot). “There continues to be an almost daily ﬂow of hedge funds that have taken space recently and in the past ﬁve years and are putting space on the market, either all or a portion of their occupancy holdings,” Goodkind reports. The residential market also offers big clues. RealtyTrac, a real estate data service based in Irvine, California, reported ten Greenwich residential foreclosures from January through November 2008; there was just one in all of 2007. RealtyTrac says defaults are on the rise too, with more — 145 — through the ﬁrst three quarters of 2008 than in all of 2007 (135). This, in fact, is the town’s ﬁrst buyer’s market in a decade, and commitment is hard to come by. “We see a lot more transactions with the buyers backing out,” says Nancy MacDonald, a regional senior vice president with Coldwell Banker, who cites a lack of conﬁdence in the economy among buyers in the higher end of the market and difﬁculty organizing ﬁnancing for those at the lower end. Though the Coldwell Banker annual home price comparison index has ranked Greenwich the secondmost-expensive real estate market in the U.S. (after La 40 • INSTITUTIONAL INVESTOR’S ALPHA • FEBRUARY 2009 Jolla, California) for two years running — the average price of a hypothetical four-bedroom, 2,200-square-foot house was $1.787 million in 2008 — average days on the market through October had increased by almost 25 percent over 2007, to 210 from 169. Total sales were down as well: In 2008, 397 deals closed; that was 232 fewer than in 2007. Prices, as a result, have dropped. The Helmsley estate, one of the few remaining old estates on the market, was listed last April for $125 million. In October its price was cut to $95 million, but the 40-acre spread, which includes a 22,000-square-foot mansion built in 1918, still hadn’t sold as the new year began. “It’s a humbling time for all,” Goodkind says. Greenwich, population 62,000, is vulnerable to humbling because, despite its stature as one of the biggest ﬁnance centers in the world, its economy lacks diversiﬁcation, even if it has an absurd amount of wealth. It is home to some of the most well-heeled hedge fund personalities, including O. Andreas Halvorsen of Viking Global Investors, who made $520 million to rank tenth last year on Alpha’s list of the 50 best-paid hedge fund managers. Other residents include Stephen Mandel Jr. of Lone Pine Capital, who made $710 million (eighth on the list) and Steven Cohen of SAC Capital Advisors, who was No. 6 with $900 million (SAC is in nearby Stamford, but Cohen lives in Greenwich). The original big Greenwich hedge fund manager, Paul Tudor Jones II, who — like Cohen — is an Alpha Hedge Fund Hall-of-Famer, made a mere $300 million (31st in the ranking). Greenwich is shaped in part by hedge fund largesse — in pay, in houses, in car collections and in lifestyle. And it feels the pain when hedge funds suffer. City hall, for example, is having sudden difficulties — a $10.5 million budget shortfall for the 2009–2010 ﬁscal year, partly because of a drop in tax revenue from the sale of real estate. The town has almost always been well off. In the mid1800s it was a resort for rich New Yorkers, and by the turn of the century, it had become an estate community of mansions replete with servants’ quarters, tennis courts, stables — the many accoutrements of the moneyed classes. Jones arrived in 1994 and bought one of those old houses perched above the harbor on three acres of land. He paid $11 million for the place, but four years later razed it and built a bigger house. Tudor Investment is housed today in a mansionlike building on King Street, surrounded by rolling lawns and stone walls and operating beneath the radar, as many hedge funds here do, working in quiet ofﬁce complexes or quarters that look more like fancy houses than hubs of trade and ﬁnance. Other funds followed Tudor to Greenwich. What once was a morning run of commuters into New York began to go the other way. Rush-hour trafﬁc jams into Greenwich became a staple of life, and hedge funds took up quarters everywhere, many in anonymous ofﬁce buildings identiﬁed only by address — Two Greenwich Plaza, 55 Railroad Avenue, 200 Greenwich Avenue — or discreet brass plaques MARTIN PARR/MAGNUM PHOTOS

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2009

Institutional Investor's Alpha Magazine - February 2009 Contents Letter From the Editor Longs & Shorts Digging Out A Call to Mentor Dicey Detroit The Constant Skeptic Cover Story: The Undaunted What Were They Thinking? Dark Days in Greenwich True Stories from the Commodities Files Return of the Native The Quest for Cover Moving On from Madoff

Institutional Investor's Alpha Magazine - February 2009

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