Edward Lampert is one of the wealthiest people in America. He is the chairman of Sears Holding Corporation and the founder and CEO of ESL Investments, a hedge fund that is estimated to be worth more than $10 billion.
Up until last year, he brought most of his wealth to Greenwich, Connecticut. That changed as soon as the state raised its taxes.
“When they did that, it forced out one of their wealthiest residents,” said Evan Rapoport, CEO of HedgeCo Networks. “Eddie Lampert was, I think, the fifth wealthiest person in Connecticut. He’s worth about $3 billion.”
For Lampert, “The jump in state taxes was one of the reasons that he moved out of Connecticut,” said Rapoport.
“Potentially he was a forward-thinker, as I think a lot of hedge fund managers are, and had the foresight to see this trend in increased taxation as a result of the large amount of debt we carry both as a nation and in certain states and municipalities,” he said. “Understanding that taxation was going to increase, by Eddie moving to Miami and relocating, he saved himself not only the state taxes, but of course any city taxes that would exist.
Florida is not merely an alternative to Connecticut, however. It is also proving to be a popular alternative to New York.
“For a person that earns a million dollars, the difference in savings from someone that lives in New York versus someone that lives in Florida is $147,000 just from state and city taxes,” said Rapoport. “That’s 14.7 percent just in savings to live in Florida versus living in New York City.”
Best of all, financial professionals don’t have to be in Florida full-time. “You have to be here more than six months and have a residence here,” Rapoport explained. “But let me tell you, from saving $147,000, you could certainly rent a very nice house for over $10,000 a month or purchase a very nice house for over $10,000 a month and be down here and go back to New York when you need to.”
That, of course, is another benefit of being in Florida: the great accessibility to New York.
“If I need to be in New York City, I can hop on a flight from Palm Beach International Airport — which is 10 minutes away from us — and I can be in NYC in two-and-a-half hours,” said Rapoport. “I hop on a six-o-clock flight, I’m in NY by 8:30, I’m in the city by 9:00 or 9:30 and I can start taking meetings. That’s very easy.”
“In fact, I would compare that to some commutes from people in Connecticut who have an hour-and-a-half to two-hour commute from door to door, maybe more,” Rapoport added. “It’s not that different.”
Like many financial firms located outside of New York, HedgeCo Networks has an office in NYC.
“What we do is, senior management and our headquarters are down here in Florida, but we still keep a sales office in New York City, and we come up to New York when needed,” said Rapoport. “I think that’s one of the better ways to play this, if you will, and still have the networking opportunities and the abilities to take multiple investor meetings in a single day.”
That said, there are some firms that would be better off in New York.
“There is no comparison relative to the investor base in New York City, especially the institutional investor base versus down here in Florida,” said Rapoport. “But if you’re a young, emerging fund that needs to get out there and spread the word, I think you’re better suited in New York than you would be down in Florida.
“But for those that are more established and can have multiple offices, it certainly is a huge benefit just to be down here from a taxation perspective.”
In addition to the tax benefits, Rapoport also praised the lower cost of living. “For fun, before I went on Fox Business the other night, I ran a cost of living calculator,” he said. “What I found was that someone that made $500,000 in Florida, the equivalent in New York City would be well over a million dollars. That’s a pretty big difference — almost double the cost of living (forgetting taxation, by the way, on top of that), to live in New York versus Florida.
“That is also another impetus behind people moving from New York to Florida — it’s simply more affordable. Property taxes are less, commercial real estate is less, so the operational expense of owning a business is less down here than it would be in New York City.”
Those who are looking ahead will also benefit.
“How about this: there’s no estate tax here in Florida,” said Rapoport. “So while we’ve talked about no state taxes, that also applies at the estate level. So if you’re estate planning, and if you’re thinking about your future, and God forbid you’re passing, when you’re planning you would save anywhere from six to 10 percent on your estate. That’s a big savings for your family.”
Rapoport also appreciates the access to Latin America, “Which is obviously enormous down here in South Florida,” he said.
“Miami, surprising to some, has the second-largest concentration of international and national banks here in the country,” he added. “It has become a large hub not only for Latin America but for Europe and for Asia.”
But it’s not just about taxes, cost of living expenses and other savings. Florida also provides its residents with an incredible lifestyle.
“On top of taxes you also have a lifestyle down here that is very good, in my opinion,” said Rapoport. “What I mean by that is, if you’re someone that likes the outdoors — we’ve always had great weather, but the ability to play golf year-round, tennis, go boating, fishing — those are all tremendous benefits to being here in Florida.”
The corporate lifestyle is also very good. “It’s not uncommon to walk into a hedge fund manager’s office in Florida and find everybody in khakis and golf shirts,” Rapoport added. “In the summer, find those same people in shorts and golf shirts and sandals. Being comfortable and coming to work and having a relaxed corporate lifestyle is also a huge benefit to being down here.
“One of the reasons I enjoy being here, certainly, is that lifestyle. It’s one of the reasons I made that shift. Frankly I got tired of being in NYC and spending my weekends either taking long travels out to The Hamptons or the Jersey Shore in the summers or in the winters going to the stores and shopping and spending and not really enjoying some of those outdoor activities as much as I could down here.”
Rapoport said that he can sum up the benefits of Florida in just six words: “Affordability, availability, no snow, no subways.”
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