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Subject: Why Palm Beach, Florida Is The 'New Greenwich' For Wall Streeters
BUSINESS
INSIDER
FINANCE
Why Palm Beach, Florida Is The
'New Greenwich' For Wall Streeters
R
JACQUELINE DETWILER, DUJOUR
JAN. 21, 2014, 1:18 F"
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Neilson Barnard/Getty Images
The Palm Beach finance crowd can paddleboard whenever they please.
Behind a semicircular brick drive and a lawn as manicured as a putting
green sits a 30,000-square-foot masterpiece of Italian Renaissance
architecture called Casa Nana.
John Porter, a real estate associate for Corcoran who oversees some of the
largest sales in Palm Beach County, Florida, points out the spiral staircase,
built by famed 19205 architect Addison Mizner for the founder of the
National Tea Company. "This home went for $30.2 million in 2003; today
that sum wouldn't be in the top 25 highest prices" of houses for sale in this
area, Porter says. "Palm Beach real estate has gone from nothing going on to
nothing left to sell."
Porter is giving me a tour of the so-called Billionaire's Row, a stretch of
South Ocean Boulevard on the island of Palm Beach that is bordered by
some of the highest hedges I've ever seen. Through gaps in the greenery
appear stone fountains, elephant statues, pools the size of tennis complexes
(next to actual tennis complexes), and more clay roofs than one could count.
It's a monumental display of wealth, and it is rapidly expanding, not just
here but in Delray Beach, Jupiter, Palm Beach Gardens and Boca Raton, as
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money pours out of the Northeast (and in some cases, from as far as London
and Singapore) and into this already wealthy section of southeast Florida.
Approximately 70 hedge and private equity funds are now headquartered
here, many of which have set up shop in the last two years, jacking up home
prices and spurring a countywide initiative to become, as some have said,
"the new Greenwich."
For hedge fund managers who might normally be inclined toward
Westchester or Connecticut, the allure of South Florida is as plain as grits
on toast. The homes are sprawling; the Intracoastal Waterway is a yachter's
paradise. It has a glittering social scene. During high season—October
through March—there might be several fundraisers on any given night.
Perhaps the key factor, however: In Florida, there are no individual income
taxes, no estate taxes and no capital gains taxes. A hedge fund manager
reporting $1 million in income can expect to pay only the federal
government, whereas his counterpart living in Connecticut pays that plus an
extra $67,000. And if the poor schmuck were still in New York City? He'd
better be ready to fork over $104,300.
As for why all of this is happening now, when Florida has long been a sunny
tax haven, so to speak, financiers point to the upcoming application of
Section 457A of the Internal Revenue Code. Before 457A was enacted,
certain fees and related earnings could grow tax deferred in offshore
accounts for up to ten years. But now, according to the section, hedge fund
managers will need to funnel all of the fees that were deferred before 2009
and their related earnings back into the U.S. by 2017. If a manager lives in
Florida when this happens, he's much less likely to pay exorbitant state
taxes on the whole amount. If he still lived in New York City?
Fuggedaboudit.
It's the job of Kelly Smallridge, president and CEO of the Palm Beach
Business Development Board, to ensure that hedge fund and private equity
managers are informed of these benefits, in the hopes that they, and their
firms, will become Palm Beach County's newest residents. She's developed a
red-carpet tour that goes beyond looking at office space and real estate to
include meeting headmasters at private schools, the school-district
superintendent and the mayor and speaking with the governor's staff and
CEOs who have moved their operations here. Plus, of course, a few nights
on the town.
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In the winter, when the well-to-do from all over the Northeast visit Florida
for charity balls, the board hosts dinners and parties for prospective
relocators and local captains of industry. Last year, Smallridge and
company sponsored a soiree aboard a $70 million yacht that featured Veuve
Clicquot, caviar and live jazz. Guests—who included the CEOs of a national
IT company, a major finance company and a land developer, venture
capitalists, hedge fund managers and the creator of Goldman Sachs' prime
brokerage division—took private tours with the captain of the yacht.
Smallridge is also working with former hedge fund CIO Dr. Rainford Knight
to develop a club for local investment managers called SocialAlpha that
encourages bankers in Palm Beach County's ritzy social scene to get to know
each other. Even Florida governor Rick Scott has gotten involved, sending
personal letters to friends and prospects from the Northeast (the governor is
a former Greenwich resident and businessman) to convince them of
Florida's merits.
Smallridge and Governor Scott are hoping to induce a snowball effect, and
so far, it seems to be working. Every financier who moves south chips away
at the primary reason to remain near New York City—the fact that everyone
else is there. That's not to say it's been easy. Florida is still Florida, and
popular opinion has not been kind. Even Palm Beach, which has for the
most part dodged the insults hurled at the rest of the state, is known for its
residents' apocalyptically bad driving and worse Hawaiian shirts.
"There was a fair amount of trepidation," says Al Rabil III, managing
partner and CEO of Kayne Anderson Real Estate Advisors, who made the
move from Armonk, New York, with 20 coworkers this summer. "But once
everybody got past the stereotypes and actually came and looked, that
changed." He says most of his employees weren't looking for bottle service
and models anyway. The majority of those who have reached the upper
echelons of financial management are married with children, and the appeal
of a semi-tropical paradise with luxury restaurants, year-round recreation,
and sophisticated socializing in a community far more tight-knit than
Manhattan (yes, that'sDonald Trump over there) is not lost on them.
Porter's tour of Billionaire's Row was part of a modified version of one of
the Business Development Board's red-carpet tours that I took as part of
researching this story. I ate breakfast at the clubby Top of the Point
restaurant with some of the area's prominent financiers. A waiter in a
captain's outfit served lobster rolls while a CPA, a lawyer and the executive
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director of the Palm Beach County Education Commission touted the area's
benefits. I surveyed real estate and office space surrounded by miles of
water without once having my foot stepped on by a tourist. You can see how
all this might sway someone who's on the fence.
Exploring the sugary beaches of South Florida, one starts to wonder why
Wall Streeters would be on the fence at all. Between the smiling locals and
the shopping on Worth Avenue, the Hiaasen-esque stereotypes recede.
What remains are the facts: Take-home pay is higher, commutes are
shorter, and it's just as fabulous as Manhattan, at least for four months of
the year. Meanwhile, no one in Florida even owns an ice scraper. With the
Internet allowing more and more money managers to perform their work
from nearly anywhere, there are few reasons not to make the move.
"Initially, it was a way to play golf and keep the wife and kids happy," says
Brett Langbert, managing director and head of sales at I.A. Englander & Co.
"But once we moved down, it became a quality-of-life issue. There are
unlimited things the kids can do outside. I have to tell you, my wife and I
are so happy we haven't had to go to one of those indoor bouncy-castle
places since we got here."
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