Ultra-Rich Collateralize Fancy Artwork And Penthouses To “Access Cheap Money” 

Mortgage lenders have set aside billions of dollars for future defaults as millions of homeowners are in forbearance. This year, lenders have quickly tightened standards for average Americans, only dishing out loans to the ultra-rich. 

JPMorgan is one bank that has temporarily stopped accepting new home equity lines of credit, or HELOC, applications due to a surge in delinquencies. 

With ordinary folks unable to access cheap credit, even though rates are historically low, the ultra-rich, this year, have been collateralizing everything from artwork to New York penthouses to obtain cheap loans. 

We first highlighted this phenomenon back in March, during the dark days of the virus pandemic, days after global equities crashed and credit markets locked up. We noted, “ultra-wealthy are increasingly requesting financing against fine art as a way to build liquidity.” 

So maybe, just maybe, over the past decade, the ultra-rich became massive asset gathers, using money that cost basically nothing, to purchase fancy artwork, million-dollar Ferraris, rare wine, and overpriced penthouses in top metro areas. That is, because, when shit hits the fan, these folks can leverage these assets to tap into cheap credit; and since these assets don’t trade on major exchanges and price on a daily basis, aren’t subjected to wild volatility swings. 

Bloomberg is out with a report that JPM has issued a massive $42.5 million loan on an NYC penthouse owned by a Russian billionaire’s family. The penthouse, at 15 Central Park West, is worth an estimated $88 million. Russian billionaire Dmitry Rybolovlev tried to sell the property but failed at finding a buyer, has decided to leverage the asset to tap into cheap credit, with an interest rate bearing 2.9%. 

“The family tried to sell it a few years later as prices for ultra-expensive properties in the city had started to slip. Instead, they choose to leverage the asset,” Bloomberg noted.

Bloomberg provides several other examples of wealthy people taking out mortgages on their penthouse. 

“Outdoor advertising mogul Drew Katz obtained a $15 million mortgage in August for a New York penthouse that he bought four years ago for $22 million, filings show. In April, hedge fund founder Dan Och obtained a $50 million mortgage for a home on Manhattan’s Billionaire’s Row that he acquired last year. The following month, a U.S. company controlled by Mexican heiress Karen Virginia Beckmann — part of the family behind Jose Cuervo tequila — received a $19 million mortgage for a condo it bought three years ago in the same area.”

This signifies that banks are willing to lend to the wealthiest clients, enabling them to weather the virus pandemic better than average folks who have primarily had their credit lines reduced or entirely cut off. 

 “Rates are low and so clients are looking to take advantage, using some form of debt to be able to access cheap money,” said Casey S. Kriedman, a financial adviser at the Broad Group, a New York-based unit of UBS Global Wealth Management.

Remi Frank, head of BNP Paribas wealth management’s key client group, said, “banks are happy to lend to very rich people, the richer you are the more you borrow.” 

And we’ve seen how that has turned out with billionaire Ronald Perelman’s leveraged empire as it recently collapsed in a deluge of fire sales. 

More or less, the virus pandemic is exacerbating the wealth inequality gap as the rich survive on cheap credit. Simultaneously, working-poor households have experienced job loss, food insecurity, and depletion of emergency savings.