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The Market for Real Estate Masterpieces

If it’s $100 million, is it art?

Since Citigroup’s former chairman Sandy Weill sold his penthouse at 15 Central Park West late last year for $88 million, or $13,000 a square foot, to a Russian billionaire, sales prices in Manhattan have been flirting with $100 million, and brokers say it’s only a matter of time until the barrier is broken.

Sales at such stratospheric levels in Manhattan, as well as records in certain neighborhoods in Miami, Los Angeles and a few other pockets isolated from the nationwide collapse in real estate prices, have left real estate professionals struggling to explain the surge. Art may be the answer.

“Art is what people are willing to pay for, and an apartment like this is like a piece of art,” the Long Island real estate developer Steven Klar told a colleague of mine at The Times, Alexei Barrionuevo, in late July as he listed his penthouse on West 56th Street for $100 million.

Kathleen Coumou, senior vice president at Christie’s International Real Estate, said that some residential properties could legitimately be marketed and sold as art.

“When we call a property art, it tends to have architectural or historic significance,” she said.

She cited the recent sale of a Manhattan town house designed by the famed 19th-century architect Stanford White, which was listed by Christie’s at what now seems a bargain, $49 million. “But even new construction could be considered art. It’s the equivalent of postwar and contemporary art, which is setting record prices.”

Something is certainly leading to record prices for what brokers describe interchangeably as trophy or art properties. An apartment at One57, a tower under construction across from Carnegie Hall, sold for $90 million and another is in contract for a sum said to be over $90 million (though less than the list price of $115 million.) The casino executive Steve Wynn, who is also a prominent art collector, bought a penthouse at the Ritz-Carlton on Central Park South for $70 million in June. A duplex co-op on Park Avenue sold for $52 million in May.

For high-end real estate sellers and buyers, the art analogy holds obvious appeal, since prices for paintings cracked the $100 million barrier at auction years ago and quickly rebounded from the financial crisis. The record for the most expensive painting is said to be held by Cezanne’s “The Card Players,” sold last year to the royal family of Qatar for a price estimated by Vanity Fair at $250 million. (A few weeks ago, a member of the same family walked away from a deal at One57, opting instead for a $47 million Upper East Side town house.)

To reduce the Cezanne’s 97-by-130-centimeter dimensions to real estate terms, that’s $19,826 per square centimeter. Mr. Klar is asking only $12,500 per square foot, and his apartment comes with swag drapes and a crystal chandelier.

It may be time for a reality check.

David Kusin, a former Metropolitan Museum of Art curator who also worked on Wall Street and now runs Kusin & Company, a consulting firm in Dallas that specializes in the economics of the art market, told me the comparison of real estate to fine art infuriated him.

“There’s absolutely no statistical validity to it,” he said. “It’s like comparing Earth to Saturn. And I’ve been studying these markets for 18 years. I live in a home designed by the dean of Taliesin,” Frank Lloyd Wright’s school of architecture. “The interior designer and landscape architect are at the apex of their fields. There is no comparability at all between the structure I live in and the art that hangs on the walls.”

Among the more obvious differences he and others mentioned is that most art is portable, and thus sells in a global market; most great art is unique and can’t be replicated; art serves no utilitarian function; art values are based on a wide range of scholarship, research and critical evaluations, which may take generations to evolve; and valuing art is much more complicated than valuing real estate.

“When people get crazy over something, they like to rationalize what they do,” Mr. Kusin added. “If a Russian oligarch is going to spend $88 million, then somehow he has to justify it. So he says it’s more than an apartment. It’s art. That’s absolutely ridiculous. At the end of the day, it’s still a piece of real estate. It’s immovable, and it needs to be maintained.”

There are a few real estate properties that even Mr. Kusin would concede qualify as masterpieces, but curiously, they aren’t the ones asking — or getting — anywhere near $100 million. And none of them are in new Manhattan condo buildings. Sotheby’s auctioned the Farnsworth House, a landmark in modernist architecture designed by Ludwig Mies van der Rohe and built in 1951 on 58 acres of prairie southwest of Chicago. The winning bidder was the National Trust for Historic Preservation, which paid $7.5 million.

Frank Lloyd Wright’s landmark Ennis House, set on a hill in the Los Feliz neighborhood of Los Angeles, sold last summer to the billionaire executive Ronald Burkle for less than $4.5 million. It was listed by Christie’s in 2009 at $15 million.

Sotheby’s has several listings for palazzos in Venice, some dating to the 14th century.

“If you’re standing on a terrazzo floor built in the 1300s, that has a lot of value,” Philip White, president of Sotheby’s International Realty, said. “There are early frescoes in some of the walls that are part of the real estate, and the frescoes alone are worth a lot of money.”

Be that as it may, such listings in Venice start at $3.5 million, and Mr. White said none has sold for more than $20 million.

“There are only a few properties of great architectural and historic significance,” Mr. White said. “The Mies Farnsworth house was one of those; some of the Frank Lloyd Wright houses; the Philip Johnson glass house in Connecticut. They transformed architecture the way Picasso transformed the art world. That’s how we at Sotheby’s look at it.

“I don’t think you can put 15 Central Park West in that category, even if an apartment did sell for $88 million. I’m sure it has some nice elements, but it’s a new condominium.”

Paul Provost, deputy chairman of Christie’s, agreed that the analogy could go only so far.

“At some point, it falls apart,” he said. Art and real estate “are very different. The assets are different, the liquidity is different. Still, as the art market has become increasingly global, people are looking at art as an asset because the values have increased so much. People have always considered their home as an asset. If they see it’s worth $50 million, they’re even more likely to consider it an asset. So you can see the markets converging.”

According to Jonathan Miller, president of real estate appraisal firm Miller Samuel, “When people refer to their real estate as art, they’re really trying to say it’s unique, that it can’t be replicated.”

He said he’s seen the phenomenon not just in New York, but also Miami, London, Los Angeles and other markets where investors “are looking for safety in a world of turmoil and uncertainty.”

But, he said, “they’re confusing price with art. You’d think that titans of industry would be very individualistic about their acquisitions, but at the very top, there’s a herd mentality. You get one or two very large transactions that grab headlines and then it’s like a light switch goes off. In New York, this happened in the second half of 2010, and since then it’s been very intense. The size of what’s happening is unprecedented. How long can this go on? You see this kind of behavior and you have to wonder.”

Does any of this tickle down to the broader housing market?

Anything selling for close to $100 million has to be considered a niche, accessible to only a small number of extremely wealthy buyers, Mr. Miller said. The recent high-end sales seem to have preceded an upturn in the broader real estate market, and some real estates experts consider luxury home sales a leading indicator of broader price trends.

This week, the widely followed Standard & Poor’s Case-Shiller Home Price Index reported that average American home prices in June posted their first year-over-year increase in nearly two years.

“This is an isolated market but it does create optimism,” Ms. Coumou, of Christie’s, said of the ultrahigh-end sales. “I see the beginning of a recovery. I hope next year we’ll see better results in areas outside Los Angeles, Manhattan and Miami.”

Whether record prices can keep soaring is another matter. Mr. Weill realized close to a 20 percent annualized rate of return on his apartment at 15 Central Park West, which he bought in 2007 for $43.7 million. To maintain that rate, it would have to sell for over $200 million in just five years.

There’s also the risk of overbuilding at the extreme high end.

Unlike Picasso, who’s dead, several such developments like the kind of real estate now fetching close to $100 million — lofty new Manhattan condos with sweeping Central Park views — are under construction or rumored to be in the offing. A tower being built at 56th and Park Avenue is expected to top One57 by several hundred feet; the Baccarat Hotel and Residences New York, scheduled for completion in 2014, is rising across the street from the Museum of Modern Art and will feature interior touches like Baccarat crystal chandeliers; Vornado Realty Trust has proposed a new ultraluxury tower at 220 Central Park South, offering direct park views, not ones from several blocks away; and another soaring tower is rumored for a site near 57th and Broadway.

“Are there enough billionaires to fill all these spaces?” one broker mused.

Art advisers often caution prospective buyers that they should buy art because they love it, and not just because they expect it to appreciate in value. Perhaps the same could be said about high-end real estate. If living at the top of a new condominium tower delivers unparalleled satisfaction, then perhaps price doesn’t matter.

As for the art analogy, in 2008, a stainless steel rabbit sculpture by the American artist Jeff Koons reportedly sold privately for $80 million, not long after his “Hanging Heart” set a record at auction for a living artist, selling for $23.6 million. But since then, prices for his works have plunged — when they actually sell.

His “Balloon Flower (Blue)” sold for $16.9 million in 2010 and another “Hanging Heart” sold privately this year for a reported $11 million. Several other Koons works put up for auction didn’t sell.

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