File 033157
Business Insider Article: Palm Beach as New Financial Hub for Wall Street (File 033157)
Business Insider article discussing Palm Beach, Florida's emergence as a major financial center attracting hedge fund and private equity managers from the Northeast due to tax advantages and lifestyle benefits.
Summary
This article examines Palm Beach's rapid transformation into a financial hub rivaling Greenwich, Connecticut, driven by approximately 70 hedge and private equity funds relocating to the area. The migration is attributed to Florida's lack of individual income, estate, and capital gains taxes, combined with favorable real estate, recreational amenities, and a sophisticated social scene. The article features interviews with local real estate professionals, business development officials, and newly relocated fund managers discussing the region's appeal and efforts to attract more financial industry professionals.
From:Sent: 1/21/2014 10:51:27 PMTo: jeeyacation@gmail.comSubject: Fwd: Why Palm Beach, Florida Is The 'New Greenwich' For Wall StreetersAttachments: Business_Insider.jpg; dujour.jpg; padddleboard-florida-beach-2.jpgImportance: High-----Original Message-----From: BRYAN SUBOTNICKTo: ; Subotnick Stuart ; Prosperi PaulSent: Tue, Jan 21, 2014 4:35 pmSubject: Why Palm Beach, Florida Is The 'New Greenwich' For Wall StreetersBUSINESSINSIDERFINANCEWhy Palm Beach, Florida Is The'New Greenwich' For Wall StreetersRJACQUELINE DETWILER, DUJOURJAN. 21, 2014, 1:18 F"HOUSE OVERSIGHT 033157Neilson Barnard/Getty ImagesThe Palm Beach finance crowd can paddleboard whenever they please.Behind a semicircular brick drive and a lawn as manicured as a puttinggreen sits a 30,000-square-foot masterpiece of Italian Renaissancearchitecture called Casa Nana.John Porter, a real estate associate for Corcoran who oversees some of thelargest sales in Palm Beach County, Florida, points out the spiral staircase,built by famed 19205 architect Addison Mizner for the founder of theNational Tea Company. "This home went for $30.2 million in 2003; todaythat sum wouldn't be in the top 25 highest prices" of houses for sale in thisarea, Porter says. "Palm Beach real estate has gone from nothing going on tonothing left to sell."Porter is giving me a tour of the so-called Billionaire's Row, a stretch ofSouth Ocean Boulevard on the island of Palm Beach that is bordered bysome of the highest hedges I've ever seen. Through gaps in the greeneryappear 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 justhere but in Delray Beach, Jupiter, Palm Beach Gardens and Boca Raton, asHOUSE OVERSIGHT 033158money pours out of the Northeast (and in some cases, from as far as Londonand Singapore) and into this already wealthy section of southeast Florida.Approximately 70 hedge and private equity funds are now headquarteredhere, many of which have set up shop in the last two years, jacking up homeprices and spurring a countywide initiative to become, as some have said,"the new Greenwich."For hedge fund managers who might normally be inclined towardWestchester or Connecticut, the allure of South Florida is as plain as gritson toast. The homes are sprawling; the Intracoastal Waterway is a yachter'sparadise. It has a glittering social scene. During high season—Octoberthrough March—there might be several fundraisers on any given night.Perhaps the key factor, however: In Florida, there are no individual incometaxes, no estate taxes and no capital gains taxes. A hedge fund managerreporting $1 million in income can expect to pay only the federalgovernment, whereas his counterpart living in Connecticut pays that plus anextra $67,000. And if the poor schmuck were still in New York City? He'dbetter be ready to fork over $104,300.As for why all of this is happening now, when Florida has long been a sunnytax haven, so to speak, financiers point to the upcoming application ofSection 457A of the Internal Revenue Code. Before 457A was enacted,certain fees and related earnings could grow tax deferred in offshoreaccounts for up to ten years. But now, according to the section, hedge fundmanagers will need to funnel all of the fees that were deferred before 2009and their related earnings back into the U.S. by 2017. If a manager lives inFlorida when this happens, he's much less likely to pay exorbitant statetaxes 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 BeachBusiness Development Board, to ensure that hedge fund and private equitymanagers are informed of these benefits, in the hopes that they, and theirfirms, will become Palm Beach County's newest residents. She's developed ared-carpet tour that goes beyond looking at office space and real estate toinclude meeting headmasters at private schools, the school-districtsuperintendent and the mayor and speaking with the governor's staff andCEOs who have moved their operations here. Plus, of course, a few nightson the town.HOUSE OVERSIGHT 033159In the winter, when the well-to-do from all over the Northeast visit Floridafor charity balls, the board hosts dinners and parties for prospectiverelocators and local captains of industry. Last year, Smallridge andcompany sponsored a soiree aboard a $70 million yacht that featured VeuveClicquot, caviar and live jazz. Guests—who included the CEOs of a nationalIT company, a major finance company and a land developer, venturecapitalists, hedge fund managers and the creator of Goldman Sachs' primebrokerage division—took private tours with the captain of the yacht.Smallridge is also working with former hedge fund CIO Dr. Rainford Knightto develop a club for local investment managers called SocialAlpha thatencourages bankers in Palm Beach County's ritzy social scene to get to knoweach other. Even Florida governor Rick Scott has gotten involved, sendingpersonal letters to friends and prospects from the Northeast (the governor isa former Greenwich resident and businessman) to convince them ofFlorida's merits.Smallridge and Governor Scott are hoping to induce a snowball effect, andso far, it seems to be working. Every financier who moves south chips awayat the primary reason to remain near New York City—the fact that everyoneelse is there. That's not to say it's been easy. Florida is still Florida, andpopular opinion has not been kind. Even Palm Beach, which has for themost part dodged the insults hurled at the rest of the state, is known for itsresidents' apocalyptically bad driving and worse Hawaiian shirts."There was a fair amount of trepidation," says Al Rabil III, managingpartner and CEO of Kayne Anderson Real Estate Advisors, who made themove from Armonk, New York, with 20 coworkers this summer. "But onceeverybody got past the stereotypes and actually came and looked, thatchanged." He says most of his employees weren't looking for bottle serviceand models anyway. The majority of those who have reached the upperechelons of financial management are married with children, and the appealof a semi-tropical paradise with luxury restaurants, year-round recreation,and sophisticated socializing in a community far more tight-knit thanManhattan (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 ofthe Business Development Board's red-carpet tours that I took as part ofresearching this story. I ate breakfast at the clubby Top of the Pointrestaurant with some of the area's prominent financiers. A waiter in acaptain's outfit served lobster rolls while a CPA, a lawyer and the executiveHOUSE OVERSIGHT 033160director of the Palm Beach County Education Commission touted the area'sbenefits. I surveyed real estate and office space surrounded by miles ofwater without once having my foot stepped on by a tourist. You can see howall this might sway someone who's on the fence.Exploring the sugary beaches of South Florida, one starts to wonder whyWall Streeters would be on the fence at all. Between the smiling locals andthe shopping on Worth Avenue, the Hiaasen-esque stereotypes recede.What remains are the facts: Take-home pay is higher, commutes areshorter, and it's just as fabulous as Manhattan, at least for four months ofthe year. Meanwhile, no one in Florida even owns an ice scraper. With theInternet allowing more and more money managers to perform their workfrom 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," saysBrett 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 areunlimited things the kids can do outside. I have to tell you, my wife and Iare so happy we haven't had to go to one of those indoor bouncy-castleplaces since we got here."HOUSE OVERSIGHT 033161