Is Putin’s Demise Spelled Out in New York’s Real Estate Listings?

As the West tries to make sense of Russian President Vladimir Putin’s belligerence in Ukraine, policymakers may be starting to feel that his regime is invincible. Sanctions seemingly do little to alter his foreign policy; he appears to remain popular at home. But is Putin’s Russia a foe that Washington will have to deal with forever (or at least until 2024, when his second term would end)? Not necessarily. Policymakers might see hopeful signs if they start looking in some unlikely places: Iranian history and New York City’s luxury real estate market.

Realtors in New York City confirm that at least a third of purchases of new luxury apartments in the city in recent years have been made by international investors, many of them wealthy Russians. “Since 2008,” reports the Nation, “roughly 30 percent of condo sales in pricey Manhattan developments have been to buyers who listed an international address — most from China, Russia and Latin America — or bought in the name of a corporate entity, a maneuver often employed by foreign purchasers.” The city has been flooded with money of dubious origin; new pencil skyscrapers dot the skyline along Central Park. So far, many of the apartments remain empty because the new Russian tenants have shown little interest in actually living in them.

The same thing is happening in London, where wealthy Russian families enroll their children in British schools and buy lavish property. London real estate consultancy Knight Frank reported in November 2014 that Russian buyers accounted for 21 percent of “super-prime” property sales in the half-year leading to October, an increase of 13 percent over the previous year.

What does all this tell us about Putin’s future? A lot, potentially. Undemocratic regimes are hard to read. They rely on censorship and propaganda to hide problems and manage public opinion. For that reason, the behavior of the ruling elite can be a helpful gauge of where things are headed. The wealthier the elite are, the more options they have. And the way they spend their money can tell us a great deal about their own confidence in the future. In snapping up some of the world’s most expensive property, “the global elite,” real estate developer Michael Stern told New York magazine last June, “is basically looking for a safe-deposit box.” If Stern’s assessment is true, it suggests that even those who have done well in Vladimir Putin’s “New Russia” prefer to store at least a portion of their wealth in countries with strong legal safeguards and a history of political stability.

This might all feel a little familiar to those who know the history of the Iranian revolution. Just as many have a hard time imagining Putin’s regime collapsing any time soon, so did U.S. officials find improbable the possibility of the Shah of Iran losing his grip on power. On Nov. 3, 1978, President Jimmy Carter received a briefing from his national security advisor stating that there was “dissatisfaction with the Shah’s tight control of the political process, but this does not at present threaten the government.” Two days later, riots enveloped the Iranian capital, Tehran; 10 weeks later, the shah flew into exile; and on Feb. 11, 1979, the Iranian monarchy was overthrown by Islamic revolutionaries, in what today is remembered as one of history’s worst intelligence failures. But if the National Security Council and the Central Intelligence Agency had only kept a closer eye on the Los Angeles real estate market, they might have been taken a bit less by surprise.

In the 1970s, Iran under the shah, like Russia under Putin, experienced an oil boom when income from oil quadrupled in a single year in 1973 to 1974. The country’s business elite prospered from the petro windfall — but so, too, did many average Iranians who for the first time in centuries enjoyed prosperity in an atmosphere of political stability. Per capita income soared and middle- and upper-middle class consumers binged on automobiles, television sets, refrigerators, and designer fashions.

“There’s something a little desperate in the air,” Newsweek reported in March 1975. “The spiraling price of oil has made Tehran a boom town reminiscent of San Francisco in the days of the great Gold Rush. Hordes of bankers, brokers, super-salesmen and carpetbaggers of every description fill the three major hotels to overflowing…. By day a haze of smog drifts skyward against the magnificent backdrop of the Alborz Mountains. By night the city’s restaurants and nightclubs are jammed with expense-account tycoons wolfing down caviar and stuffing wads of money into the bosoms of belly dancers.”

But as they were living the high life, these newly wealthy Iranians were also keeping a careful eye on the future. Many Iranian families catapulted into the ranks of the middle- and upper-middle classes made sure that one of their first major purchases was a piece of land overseas or an apartment in France, Britain, or the United States. Parking capital offshore made economic sense at the time, given the soaring cost of living and a shortage of affordable housing at home. “The cost of living in Iran — where more than 60 percent of the families have a subsistence level income of $15 a week — is jumping almost daily and is expected to rise soon to 20 percent above what it was last year,” the New York Times reported in October 1974. “Prices for staple foods, textile goods and home appliances have been soaring, in some cases to 100 percent above last year’s levels. A black market has developed to circumvent the Government’s price controls.”

“I was aware of it,” Hassanali Mehran, the governor of Iran’s Central Bank from 1975 to 1978, told me in an interview. “Inflation and the price of real estate in Iran were both rising. Foreign apartments looked very cheap by comparison.”

At what point, however, does an investment decision become an insurance policy? Iran, like Russia did 10 years ago, made a point of lifting controls on how much money could enter and leave the country as a tool to encourage investment and consumer confidence. But in the summer of 1977, the pace of capital flight from Iran suddenly accelerated to upwards of $100 million per month — a substantial sum at the time. As this was happening, thousands of miles away, realtors in California’s San Francisco Bay Area reported a sudden influx of wealthy Iranians “buying up the place,” in the words of an Iranian newspaper. Properties went for between $250,000 and $400,000. These sums were described by the Iranian newspaper as “quite reasonable to an Iranian who has sold his business, land or house in Iran for an astronomical sum.” Further south, Iranians were “pouring into” Los Angeles to the extent that they had “rejuvenated the place.”

Something else was happening, too. U.S. consular officials in Tehran reported a flood of visa applications to enter the United States. By the summer of 1978, when Amb. William H. Sullivan was telling his superiors that Iran was “stable,” his embassy on Takht-e Jamshid Ave. was processing between 600 and 700 non-immigrant visas each day. The State Department responded by announcing plans to build a new consular facility in Tehran to handle the extra paperwork.

The propertied class was already looking for a way out. As the heirs to a country with a long history of upheaval and revolution, they took the long view. “We knew it couldn’t last,” an Iranian prominent in business at the time told me. “If it wasn’t for my wife I would have left five years earlier.” In 1977, the average middle-aged Iranian had experienced the deprivations of World War II, the chaos of the postwar years, foreign intrigue, political, religious, and tribal revolts, several bouts of national bankruptcy, and threats of invasion. The shah was a survivor too — and a realist. He once pointed out to a foreign guest that only four of his predecessors had died peacefully in their beds. “It’s not a good job,” he drily remarked.

Russian behavior today is similarly defined by a keen awareness of the past. Picture today’s middle-aged, upper-middle-class Russian: He was born some 45 years ago into a mighty empire that was supposed to last a thousand years but that survived just seven decades. He probably earned his first fortune in the early 1990s; having lost it once in the 1998 crash, he spent the better part of his 30s and 40s making it back. He is now hardly about to entrust his hard-won earnings to the same corrupt bankers and officials who bled the country dry and crashed the stock market when he was in his 20s, especially not with a cratering ruble and sanctions-wracked banks. Better to hedge his bets, support Putin to the hilt, wave the flag — and keep a bag packed just in case.

The chronic insecurity of the Russian middle- and upper-middle classes — the hope that things will get better while always expecting the roof to fall in — poses an existential threat to the Putin regime, one more potent even than tumbling oil prices, economic sanctions, international isolation, and border wars. No strongman can erase memories of the past or short-circuit the cycles of history. Nationalism is a poor substitute for loyalty.

In his heyday, the shah was regarded as no less impregnable than Putin is today. “Once dismissed by Western diplomats as an insecure, ineffective playboy-King, this emperor of oil commands new respect these days, as much for his ambitions as for his wealth,” declared Time magazine in November 1974. “In the 33rd year of an often uncertain reign, Mohammad Reza Shah Pahlavi has brought Iran to a threshold of grandeur that is at least analogous to what Cyrus the Great achieved for ancient Persia.”

The Manhattan tower blocks built with Russian money remain dark this winter; they’re safe-deposit boxes, not homes. But for how long? According to the U.S. State Department, the number of non-immigrant visas issued by the Moscow consular section alone rocketed from 67,286 in 2004 to 191,471 in 2013 (a marked increase of 31,859 over the year before). Most of the visa applicants were likely tourists or relatives of family members living in the United States. But keep an eye on New York City’s skyline over the next year or two and remember that for every light turned on in an empty Russian-owned apartment in Manhattan, another has been turned off in Moscow. When the next crisis comes, and Putin calls on his wealthy comrades to support him in the streets, he may find they have already decamped to Columbus Circle and West 57th Street.

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