Keeping Your Toys
Daniel Fisher with Steven Bertoni and Devon Pendleton, 04.22.09, 06:00 PM EDT
Forbes Magazine dated May 11, 2009
With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. –Adam Smith
Shroud them or show them off–just don’t give up your indulgences. Spending is your patriotic duty.
Billionaire John Paul DeJoria encountered a bit of turbulence recently when he tried, as he usually does for short flights, to charter a low-end Lear ( LEA – news – people ) or West Wind. Not so easy. Because cash-strapped owners are mothballing their Gulfstreams and demurely switching to puddle-jumpers, DeJoria had to have a small jet flown in from Houston in order for him to take off from Austin. Before the crash, “most billionaires would take their big G4s and G5s anywhere,” says DeJoria, who made his money with Paul Mitchell hair products and Patrón tequila. “Now business for these small planes is suddenly through the roof.”
The flip side is that big jets are available at bargain prices. Grocery-chain owner John Catsimatidis says he was recently offered a Gulfstream once worth $40 million or so for $15 million. “Why? I was told it belonged to one of the people who accepted tarp money,” Catsimatidis says, referring to the U.S. Treasury program to infuse financial institutions with tax dollars. “They don’t want to anger Washington.”
If you have cash, there are deals in the used airplane market. “A couple sold at numbers we’d never thought we’d see,” says Kevin O’Leary, president of Jet Advisors in Broomfield, Colo.
It appears that the überaffluent are not trimming their domestic retinues, although of course the recession provides a good smoke screen for disposing of a servant you don’t like anyway. “People with real money need to maintain staff,” says Mary Louise Starkey, president and founder of Starkey International Institute in Denver, which trains butlers, nannies, maids, chefs and sommeliers. “I see the people who have $100 million to $750 million maybe scaling back.” Such riffraff may even be attempting to do their own domestic chores, as Martha Stewart’s Homekeeping Handbook (Random House, 2006) chillingly seems to suggest. The book contains useful advice on the care and feeding of mansions, but, sniffs Starkey, “She’s wrong about how long it takes to iron a shirt.”
Sales of diamonds, $300,000 cars and really expensive fashion are off. But somebody keeps buying luxury goods, especially online–and anonymously. Sales at Web retailer Net-a-Porter.com climbed 45% for the fiscal year ended Jan. 31 to $120 million. Recent offerings include a Balmain embroidered minidress ($12,355); a Bottega Veneta crocodile bag ($19,500); and Halston peep-toe ankle boots ($2,325). Shipped from London in a black box tied with grosgrain ribbon, your little gewgaws arrive in unbranded, recycled brown paper bags.
It’s a good time to go shopping for something that floats. “You can pick up anything in the small-boat category very easily at a very good price,” says Norma Trease, journalist and consultant in the superyacht business. By “small” she means less than 100 feet. Several builders, including Feretti and Couach, have gone broke. Rodriguez Group, a French manufacturer that once surged on sales of its $1 million-plus motor yachts, lately reported big losses as it’s written down the value of boats it took as trade-ins. Now it’s slashing prices.
Large one-of-a-kind yachts tend to hold up even through recessions, says Lisa Verbit, national marine executive at U.S. Trust. Banks like U.S. Trust will finance multimillion-dollar yachts at a little above 30-day Libor. Lay off the crew and mothball the boat (as the Forbes family did with the Highlander), and the cost of holding a $20 million yacht until times get better is as little as 5%, or $1 million a year. “A good number of the guys living on these huge yachts are living off their liquidity–they sold the stock in a business they owned and they don’t want to sell assets right now at a loss to support their lifestyle,” says Verbit. “They’re scaling back and waiting it out.”
And yet beyond the gaze of tax collectors and congressional aides, life as few of us will ever know it goes on. This year’s St. Bart’s Bucket drew a fleet of 35 megayachts, including venture capitalist Thomas Perkins’ 298-foot nouveau clipper ship, Maltese Falcon. Even disgraced New York City real estate owner Harry Macklowe, who has lost several buildings to lenders lately, showed up with his 112-foot sloop, Unfurled. If the revolution is coming, all the more reason to seize the day.