Passionate Purchases

Nothing inspires envy like real estate. That's been true for generations, but perhaps never more so than today, as home prices are on a tear in cities across the country. Author Steven Gaines first wrote about rich people jousting for trophy properties in the Hamptons, on New York's Long Island, in the 1998 best seller "Philistines at the Hedgerow." Now he's turned a critical eye on the world of high-end New York City apartments in "The Sky's the Limit: Passion and Property in Manhattan." The book profiles the city's most powerful real-estate agents and takes readers inside the secretive co-op boards that control access to the city's most prestigious buildings--groups who routinely deny attempts from celebrities like Madonna or Mariah Carey to buy apartments. Gaines spoke with NEWSWEEK's Daniel McGinn. Excerpts:

Steven Gaines: When I was little, my father was a schoolteacher in Brooklyn, where the starting salary was $12,000 or $13,000 a year. We lived above my grandmother's clothing store in Bensonhurst, in a railroad flat [a long narrow apartment with all the rooms in a row like train cars]. We didn't have a lot of money for entertainment, so on weekends we'd drive out to Long Island and look at model homes. I'd never seen a fireplace until I saw a model home, or heard the words "wet bar." When I moved to the Hamptons as an adult I became fascinated by the relationship between housing, real estate and rich people, and how it reflected how they behaved and who they were.

In 2000 when I started this book I started looking at studio apartments. I had a price cap of $200,000, and it was impossible--you couldn't believe how horrible these apartments were. I did find an apartment I thought I was going to buy, a studio on Jane Street for $220,000. Then they gave me the co-op forms. I just couldn't believe I had to show them my last three years of tax returns--and they didn't just want the top page, they were going to see what my deductions were for! It was awful. [They asked] the size of my dog, whether he was a biter or a barker. It was incredibly intrusive and disturbing to me that all these people I didn't know at all would see me in the elevator and know everything about me. Eventually I didn't buy it--I got "gazumped," as they say in the business: the buyer didn't cash my deposit check and got someone else to bid $232,000. I was outraged and I didn't have the extra money, but I regret it. I would have liked to have had that apartment.

No. I live in the Hamptons. I owned a townhouse in Manhattan but I sold it in 1990. Friends said: "Don't sell the townhouse--you'll never be able to move back to New York." They were right, it was a bad business move. Prices went up so much. Now when I go to New York I stay in a hotel.

The co-op method is dying out. Those exclusive buildings on Park Avenue, Fifth Avenue and Central Park West will probably always be co-op, but nowhere in Manhattan are there new cooperatives being built, and nowhere else in the country is building co-ops either. [Beyond] these very exclusive buildings, I think the co-op system is dead.

It's very cutthroat, a very crowded field. It's so competitive that if you look inside of a company where people are supposed to be colleagues and helping each other out, you really don't find that. It gets very nasty ... I find that all the top brokers are obsessed--they wake up in the morning thinking about real estate. Do they deserve the kind of money they're making? I guess so. The commission is only 6 percent, or 3 percent if you're sharing an exclusive [listing] in New York. It's not as if they're getting tons of money. Is it a lot of money for very little effort? I don't know. How hard is to show somebody a $20 million apartment and convince them they should buy it?

No. It wouldn't be in my nature to show people around the houses or apartments hoping to make a deal. I'd never be able to bull---t about a house or apartment. When people tell me they want to buy or rent a house in the Hamptons, I'll point them toward a broker. If I had my broker's license I'd be able to get a referral fee for doing that. I keep telling all the brokers, "I'm going to get my license." They say "Don't you dare."

I don't like the word bubble. The Internet bubble was actually a bubble. People started investing hundreds of millions of dollars into completely unproven business ideas. But they call it "real estate" because it's real. Whatever happens, you're going to have that physical property. Unless you do something stupid and buy a piece of property that nobody is going to have an interest in, it can't be that bad an investment. Will prices go down drastically so that something you pay $1 million for one day will only be worth $600,000 the next? I don't think so.

I do think there are dangerous markets, mostly markets that are not geographically contained. But Miami Beach is a safe market, even though it went up 187 percent in the last five years. It's a discrete area, and it's the second-most-densely populated place next to Manhattan. I think Miami is exploitative in terms of prices, but I think it's OK. Same with San Francisco. Las Vegas is worrisome--it can sprawl and spread all across the desert. I do think there will be a correction--I do think that prices may change a little. But I don't think there's a bubble.