“Just hearing that it’s going to be scrutinized by the United States government is going to give people pause on certain high-end purchases,” said Keith Pattiz, head of the real estate group at New York law firm McDermott Will & Emery, who has helped overseas buyers acquire property in some of Manhattan’s glitziest new condo developments. “People just don’t want everyone to know that they’re buying a $50 million apartment.”
Wealthy and foreign buyers might choose to keep their names hidden because of concerns about their personal security or a desire for privacy, said Leonard Steinberg, president of New York brokerage Compass.
‘Crazy Paparazzi’
“I challenge them to walk one day in the shoes of a really famous person to know what it feels like to be hounded like an animal,” Steinberg said of the government. “I’ve seen crazy paparazzi driving the wrong way down a one-way street just to get one stupid picture. Famous and rich people have children, too, and there’s a level of protection that should be provided for these people.”
The New York Times last year examined the increasing use of anonymous shell companies by global buyers seeking havens for cash. Among the findings were that 64 percent of condos at Manhattan’s Time Warner Center were owned by shell companies, and that at least 16 foreigners who have owned in the building have been targeted by government investigations. Secret buyers included former Russian senators, a Greek businessman who was arrested as part of a corruption sweep in his home country and a financier linked to the prime minister of Malaysia, according to the paper. Nationwide, almost half of the most-expensive homes are bought through shell companies, the Times reported.
The disclosure rules will take effect on March 1 and expire on Aug. 27, according to the statement from FinCen, the part of the Treasury Department that collects and analyzes data to safeguard the financial system from illicit use and combat money laundering.
Developer Scrutiny
The scrutiny may not be able to go beyond what some developers already apply to their buyers, said Kevin Maloney, principal and founder of Property Markets Group, which builds condos in both New York and Miami. As many as 60 percent of his firm’s sales are to buyers making their deals through LLCs, he said.
“For us, we meet and we talk and we get to know at some level the face of the LLC,” said Maloney, whose projects include a 1,400-foot (427-meter) tower under construction on Manhattan’s West 57th Street and the 190-unit Echo Aventura outside of Miami.
“We have turned away people who we think have unsavory pasts, so we do as much due diligence as possible.” Maloney said. “But if you want to put a guy up front and have him be the financial face of the LLC, there’s not much you can do.”