Hedge Funds Swarm Into Palm Beach
Business Development Board of Palm Beach County / October 14, 2016
The City of Palm Beach and neighboring West Palm Beach are becoming ever more attractive to alternative asset managers. Some firms that have long been based in money management strongholds like New York, Boston and Greenwich are picking up stakes and moving to the Sunshine State.
“We definitely could become a little Greenwich, Connecticut,” said Jeff Greene, a billionaire real estate investor and developer living in Palm Beach. He said he’s friendly with several hedge fund chiefs who’ve opened offices in the area in recent years.
South Florida as a whole — including Palm Beach, Broward and Miami-Dade counties — is home to at least 60 hedge funds, 19 private equity firms and more than 200 family offices, according to Miami consulting firm Newlink Group.
Many of them are new to the neighborhood. Kelly Smallridge, president of the Palm Beach County Business Development Board, estimates that 60 to 70 asset management firms, including hedge funds, have opened offices in the county over the past four years, largely in the cities of West Palm Beach and Palm Beach.
Wexford Capital is among the many money management firms that have recently moved to the area. The private equity and hedge fund firm also maintains an office in Greenwich. President and co-founder Joseph Jacobs, a friend of Greene’s, said he was attracted to the region for personal reasons. His wife’s family owned a house in Palm Beach, and the wife of his co-founder, Charles Davidson, belongs to the horse-riding circuit in nearby Wellington.
“Technology has really aided us. Internet video makes it easy to function,” said Jacobs. “What difference does it make whether I’m in Connecticut?”
Age and lifestyle choices persuaded the 63-year-old and his wife to start spending seven months a year in Palm Beach, after years of making short winter trips to the area. Florida’s lack of a personal income tax “clearly was a benefit,” he said, “but it wasn’t the main motivation for moving.”
But Smallridge thinks the tax benefit of a Florida address is a primary driver for the influx of money managers. She said that New York City Mayor Bill de Blasio has been “taxing the wealthy, while we were welcoming the wealthy with no personal, capital gains or estate taxes, and low corporate taxes.”
Office market scramble
When it comes to setting up shop, alternative asset managers are typically looking for 5,000 to 10,000 square feet of space in Class A properties, preferably with ocean views, in either Palm Beach or West Palm Beach, local real estate professionals say.
Those putting down stakes in the area include a veritable who’s who list of money managers. Among them are Sean Healey, Paul Tudor Jones and Anthony Scaramucci, who have all inked Palm Beach County leases in recent years.
Jacobs’ firm, Wexford Capital, signed a lease in March 2014 for a 7,400-square-foot space in the Phillips Point office building, located at 777 South Flagler Drive in West Palm Beach.
Healey’s firm, Affiliated Managers Group, has expanded to occupy the entire top floor in the 13-story office tower, where it has nearly 20,000 square feet, up from an initial 7,000-square-foot space.
Tudor Investment, led by Jones, signed a lease for 10,860 square feet at 109 Royal Palm Way in Palm Beach in March 2015.
Scaramucci’s SkyBridge Capital has a 2,600-square-foot office at 3601 PGA Boulevard in Palm Beach Gardens, which is located a few miles north of West Palm Beach.
Smallridge and her colleagues at the Business Development Board have been working to attract asset managers who already own homes in Palm Beach County to open an office here. They dubbed the effort “Behind the Gates,” referring to the gates of the executives’ homes.
She said their group helped convince the leaders of several firms to move here, including Wexford, SkyBridge and SandPointe, an alternative asset management firm led by Dennis Hammond, which has also set up shop in Phillips Point. “None of the firms locating here needed concessions,” Smallridge said.
The increase in alternative asset managers is helping to drive commercial rent increases in the area, real estate experts say. Rent for the top four Class A office buildings in downtown West Palm Beach — including Phillips Point — rose 9.8 percent, to $53.74 per square foot, in the 12 months ending in March 2016, according to JLL.
Real estate and other business professionals have started complaining about a shortage of Class A office space in the area. The occupancy rate for West Palm Beach’s four trophy office buildings totaled 93.5 percent in the first quarter, up from 91.1 percent a year earlier, according to JLL.
If more hedge funds arrive, as many experts expect, “that will only drive prices higher, especially on the island, where there’s not much space,” said Peter Applefield, the founding principal of Aurum Property Partners, a commercial real estate firm in West Palm Beach. He was speaking about the Town of Palm Beach, which is locally referred to as “the island” because the Intracoastal Waterway separates it from West Palm Beach.
Experts say the southern migration of so many money moguls is lifting local luxury home prices as well. For instance, Tudor Investment’s Jones bought a $71 million mansion at 1300 South Ocean Boulevard in Palm Beach in 2015. “I’ve heard that his colleagues are grabbing up houses, too,” West Palm Beach developer Jonathan Gladstone said.
Jacobs said his Realtor friends are seeing heavy demand from money managers for Palm Beach homes. “Island housing prices are higher than in Greenwich,” Jacobs said. The average single-family-home sales price in Palm Beach was $6.22 million in the second quarter of 2016, up from $5.04 million a year earlier, according to the Evans Report, which collects residential data for the Town of Palm Beach.
“There’s a hedge fund guy who wants to buy a house belonging to one of my clients, and the amount of money is obscene,” said Richard Rampell, head of the accounting firm MBAF’s Palm Beach office. “I know of more than one situation like that.”
He said that some hedge fund managers will buy an oceanfront property and then decide they want the land to the south, north and west as well. “Money doesn’t mean that much to these guys,” said Rampell.
For example, Citadel founder Ken Griffin, who has an estimated net worth of $7.5 billion, has spent about $145 million assembling adjacent beachfront lots in Palm Beach. Several local real estate and investment pros said they thought he would ultimately set up a satellite office for Citadel in Palm Beach or West Palm Beach; however, a Citadel spokesperson said the firm had “no plans to open an office there.”
Luxury condo developers are also jumping on the bandwagon. Experts say the trend has benefited The Bristol, a waterfront condominium project rising up in West Palm Beach with units selling from $10 million to $20 million.
“The Bristol was definitely supported by hedge fund money,” said David Goodboy, founder of the Palm Beach Hedge Fund Association. And now the building can help bring more money managers to the area, he said, making it a “self-feeding cycle.”
Money managers could have a significant impact on the economy by simply opening their wallets. The median annual household income in Palm Beach County is $56,000, said Smallridge, adding that “for this industry, it’s $1 million.”
Lifestyle and tax benefits notwithstanding, she said the key concern that many money managers expressed before deciding to relocate was about the quality of the schools. She has put executives in touch with the top private and public schools in the area, even helping to arrange entrance tests in the middle of the school year.
Greene concurs. He plans to open a school for gifted children in West Palm Beach, theorizing that money managers relocating from the Northeast will want to send their children to schools similar to what’s available to them in the cities where they currently reside.
But Greene warned locals not to build their expectations too high.
“Not everyone wants to leave New York,” the billionaire said. “This is just another choice.”
The Real Deal
By Dan Weil