THE FILTHY RICH ARE JUST FILTHY

Richest apartment block in US becomes a house of horrors
The crisis has hit the denizens of 740 Park Avenue hard, says James Doran
James Doran
The Observer, Sunday 18 January 2009

The financial crisis forged in the American housing market may have spread to every corner of the planet, but there is a single address in New York where the credit crunch, the stock market collapse, the implosion of Wall Street and even the Bernard Madoff affair are being felt more than any other place on earth.

The lavish apartments of 740 Park Avenue are home to 30 of America's wealthiest and most influential families. At least they were until the historic confluence of financial disasters struck, lopping billions of dollars off their combined net worth. Now the formerly untouchable denizens of this famous apartment building look like they could lose it all.

From the penthouse to the ground floor, there is hardly a household in "740", as the building is known across New York, not reeling from the impact of America's financial earthquake.

On the top three floors, in penthouse 15b, Stephen Schwarzman, the chief executive of private equity firm the Blackstone Group, lives with his wife Christine. The owner of 15b holds a special place in New York society: John D Rockefeller lived in it until his death in 1960, when it was sold to Saul Steinberg, the billionaire former owner of Reliance Insurance.

When Steinberg was forced into bankruptcy in 2001, he sold it for somewhere between $29m (£19.4m) and $37m, depending on who you believe, to the Schwarzmans. The pad had 24 rooms and 12 bathrooms when Rockefeller lived there. The Schwarzmans took over another floor - of course.

It is said that whoever inherits the biggest penthouse at 740 inherits the throne of New York society itself. But for how much longer the Schwarzmans will remain on top of New York's social heap is uncertain.

Blackstone group gave up its coveted private status in 2007 when it listed on the New York Stock Exchange. The company sold a 12.3% stake for $4.75bn, or $31 a share. The whole company was valued by the market at more than $33bn. Schwarzman, who owns 24% of the firm, watched his stake soar in value to $7.7bn overnight.

But in the 18 months since the listing, Blackstone shares have charted a steep downward course, and with them has gone the fortunes of the Schwarzman family. The shares are now worth a little more than $5 each, a true bargain basement price. And Schwarzman's stake, when the same mathematical decline is applied to it, is worth just north of $1.2bn.

The fall in Blackstone's share price has caught the attention of Michael Gross, a New York author who in 2005 published the history of 740. "I chose 740 Park as my subject because I was looking for a microcosm of New York society. When I discovered that 740 Park was literally the richest building in the city, the building became the obvious choice."

The apartment building is no stranger to controversy or financial hardship. The grand Art Deco block, just 17 stories high, was built in 1929 by James T Lee, grandfather of Jackie Kennedy Onassis, just months before the Great Depression. By 1933 the building had failed financially, even though the cream of New York society had moved in, and its finances would remain underwater for 50 years.

But still the rich and influential would pay ridiculous sums to live in 740, and go through a rigorous vetting procedure by the board of residents, who can veto a purchase, before they would be allowed near the place. And once the massive asking prices are met, average tenants must pay a $10,000 a month service fee, while Schwarzman and other penthouse dwellers must fork over in the region of $20,000 a month to pay for the legions of doormen, cleaners and other servants on hand 24 hours a day.

John Thain, the former chief executive of Merrill Lynch, and now second in command at Bank of America, owns one of the lesser penthouses in the building. But BoA's fortunes suffered last week after the banking giant was forced to ask the US treasury for a further $20bn of bail-out funds. All of a sudden, Thain's fortunes looked as unhealthy as Schwarzman's.

In Rockefeller's day, the inhabitants of 740 were largely industrialists and landowners. Then came the wave of corporate types - masters of the universe such as Henry Kravis of Kohlberg Kravis Roberts. Today, the building is dominated by hedge fund billionaires and private equity types who have all suffered terribly as the credit crunch wiped billions of dollars from their firms.

Gross believes the financial crisis could affect just about everyone at 740, from the liveried doormen to the Schwarzmans at the top. "In different ways, they have all been hit very hard. I am sure they won't starve, but these events are doubtless very troubling to everyone who lives at 740 Park."