Hamptons Overdrive

While much of America worries about foreclosure, John Paulson, who made $3.7 billion shorting subprime mortgages, has plunked down $41.3 million for a Southampton estate. Another just went (to Tiger Woods?) for $60 million. And Blackstone’s Stephen Schwarzman is building a vast compound in Water Mill. But, amid whispers about which Wall Street casualties will lose their summer spreads, the market for properties below $10 million is grim. Michael Shnayerson checks the real-estate temperature of the country’s most celebrated summer retreat to see if its mere mega-millionaires are about to take a cold dip.

One week not long ago, a strange transferal of property occurred in one of the Hamptons’ choicest enclaves. The country’s most celebrated summer retreat, where two-bedroom cottages near the Atlantic go for $5 million and up, and weekenders driving from Manhattan on the Long Island Expressway in their Porsche 911 Carreras are poor compared with the ones flying out overhead, might seem impervious to the U.S. real-estate woes so deeply felt everywhere else. But no. Even in the high-hedged estate section of Southampton—the old-society Hampton—a little turbulence could be felt in what happened to Old Trees.

Old Trees is a gated estate of 10.4 acres—a private park, really—with a 15,000-square-foot 1911 Georgian mansion, guesthouse, barn, pool, and tennis court overlooking Lake Agawam, in the heart of Southampton Village. Last fall, after it had languished some months on the market at $48 million, Rodney Propp, a 43-year-old Manhattan-based real-estate investor, offered $39.2 million and, on November 20, 2007, signed a contract of sale.

Propp had done well—very well—in part by buying up residential buildings in Harlem during the last decade and presiding over the area’s gentrification. But as the stock market’s autumn swoon deepened, and the subprime-mortgage crisis metastasized, Propp’s plans for Old Trees seemed to founder. He had gone into the deal thinking he’d keep the main house for his family but possibly sell off two lots of the compound—one with the guesthouse, tennis court, and pool; the other with the barn—together totaling 2.8 acres. “He wanted $15 million for the two lots,” says a developer who was approached to buy one. “But everyone felt he’d take $12 million.” Even then, Propp would end up with a princely Southampton domain of seven-plus acres for under $30 million. In the Southampton estate section, that’s not bad.

But no one stepped up to buy the shavings from Old Trees—at any price. By mid-March, when Bear Stearns imploded, not one bid had yet come in, and the world looked very different than it had in November.

Propp could not be reached for comment, but family considerations, a source close to him says, came into play: Propp has three pre-school-age children, and a wife who was finishing law school, and the prospect of taking on Old Trees’ staff of four, not to mention furnishing its 22 bedrooms, suddenly seemed daunting. Whatever the incentive, Propp wanted out. To his relief, the greatest Wall Street winner of 2007 wanted in.

John “J.P.” Paulson, 52, had just made $3.7 billion shorting the subprime-mortgage market: betting tens of millions of dollars it would go bust. His was thought to be the highest annual compensation on Wall Street—ever. Happily for Propp, he took a liking to Old Trees.

Thus, on the last day of March 2008, Rodney Propp became the owner of Old Trees for $39.2 million, only to sell it four days later to Paulson for almost the same sum plus transfer tax—in all, a reported $41.3 million. Paulson, a shy, smooth-faced family man and father of two young daughters, was taking possession of his house as millions of Americans were losing theirs. The Harlem developer was off the hook on a $4 million down payment, with a little change in his pocket to boot. Now, like so many other Hamptons buyers and sellers, he could watch and wait for the market to bottom out.

But when would that happen? And how low would that bottom be?

“Stuck in the Mud”

In hindsight, which is the only sight there is in real estate, the giddy Hamptons market hit its peak three years ago this month. That was when any fool who’d paid $2 million for a house a few years before was doubling or tripling his money. Every carpenter and electrician was a spec-house builder, and all their wives were brokers, and the similarity to shoeshine boys trading stock tips in 1929 was lost on all. As sales flattened through 2006 and 2007 for houses in the $1-million-to-$9-million range—which is to say, for 90 percent of the market in this privileged preserve—the story was obscured, not merely by brokers eager to keep the party going, but also by the headline-grabbing sales of houses at the high end. That changed last March. “Once Bear Stearns happened,” says one real-estate broker, “the high end came to a screeching halt.” (See Bryan Burrough’s story beginning on page 106, “Bringing Down Bear Stearns,” about the fall of the famed investment bank.)

True, the odd billionaire such as Paulson kept shopping for a grand estate, impervious to the market’s swings. But overall the numbers were dismal. For Southampton Town—a broad area including Bridgehampton, Sag Harbor, and Sagaponack—the number of houses sold in the first quarter of 2008 was 225, down from 337 in the first quarter of 2007. In East Hampton Town—the rest of the way east from Wainscott to Montauk—the drop was as precipitous: 100 houses sold in the first quarter of 2008, down from 160 the year before. Worse, the latest figures marked a 50 percent decline from the market’s peak. Those houses that did sell in the winter and spring of 2008 went for 20 to 25 percent less than they would have fetched a year before. Thousands more sat unsold. “The market isn’t moving,” as Molly Ferrer of Sotheby’s International Realty puts it. “It’s sort of stuck in the mud.”

Hamptons mud is some of the richest in America, and so is its real-estate market, isolated to a great extent from the rest of the country’s pain. But mud is still mud. “You do have plenty of sellers who don’t need to sell, buyers who don’t need to buy, and it causes a stalemate,” says Pam Liebman, C.E.O. of the Corcoran Group, the largest of the Hamptons brokerages. “A lot of sellers will put their houses on the market at an overreaching price, and buyers won’t touch them.”

“What I see is an enormous amount of cash on the sidelines, a lot of people watching,” says Scott Strough, whose homegrown Hamptons brokerage vies with Corcoran for Wall Street buyers. “I heard from one guy the other day, ‘My portfolio is down 38 percent,’ and when you’re sitting on $150 million—you do the math. That guy is not talking about buying a house for $15 million right now.

“I’ve had another kind of reluctant buyer,” Strough adds, “the guy who’s the head of a large Wall Street firm. He says, ‘How can I spend $40 million on a house when I’m about to lay off 2,500 people?’ ”

Certainly the layoffs at many Wall Street firms—and fears of more to come—made a cold spring in the Hamptons seem even chillier. “I’ve just gotten my first Bear Stearns listing,” one broker confided in a whisper to a colleague not long after the firm collapsed. If 20,000 people had lost their jobs on Wall Street, another broker, Town & Country’s Judi Desiderio, speculated, and even 10 percent of them owned homes in the Hamptons, that would be 2,000 people. “Let’s say only 10 percent of those owned houses on the high end—that’s 200 people. Let’s say just 20 percent of those owned houses south of the highway between Bridgehampton and Sagaponack and Water Mill and they all bought their houses for between $3 million and $5 million. That would be 40 houses now put on the market at $10 to $15 million.”

“I did lose a lot of money,” sighs one former Bear Stearns director with a house in Sagaponack south of the highway. But, he adds, “I just turned 60. I’ve been working since I was 13. I don’t necessarily need to work. From my personal point of view, this means I might not fly on a private jet, but I’ll still fly first-class. I’m not cutting back on my personal trainer or housekeeper.” And, he says, he’s not selling his house. “Maybe my kids might have to work more in the long run,” he muses, “but it’s not going to change my lifestyle.”

Real-estate connoisseur Rodney Propp considered whittling down his $39.2 million outlay on Old Trees by selling the guesthouse and barn for $15 million. Instead, four days after buying it, he sold the entire Southampton estate to subprime shorter John “J.P.” Paulson.

A younger Bear Stearns alum with a place in Sagaponack says he too will get by without selling his house: “I have a mortgage, but not a major one. It doesn’t keep me up nights.” He did have a high-profile wedding not long ago, and he doesn’t know what his next job move will be—after more than 20 years at Bear Stearns, he doesn’t see a “compatible role” for himself, as he puts it dryly, at J. P. Morgan Chase, the firm that acquired Bear Stearns for pennies on the dollar. But if anything, his Hamptons house is a plus in the picture. “Anyone who took stock out of Bear Stearns to buy real estate is better for having done that,” he says. “At least the money wasn’t sitting there going down to nothing.”

Not all of his colleagues are so sanguine. “I do have clients who worked at Bear Stearns—husband and wife both worked there,” says Lynda Ireland of Prudential Douglas Elliman. “They’d finally found a beautiful home they loved, and they bought it.” The house is in Bridgehampton, in the $2 million range. “Now they may have to sell it. They’ve told me it’s not that they’re afraid of being foreclosed upon. But they’re frightened. They have a big apartment in New York, and they feel they have to choose between New York and out here—they can’t carry both. And they have small children, so they want to be in New York for the kids. It’s very sad.”

Bad news has brought the bottom-feeders; every broker has a story. “The worst was one who said, ‘I know it’s a distressed market—show me somebody who’s bleeding,’ ” one broker reports. “And of course you want to say, ‘Please get out of my car now.’ ” Instead, the shark in the passenger seat nosed around and made low offers on four houses in the $1.5-million-to-$2-million range. “Three of the four [owners] said go to hell,” the broker recounts. “The fourth said, ‘I hate this, but I need the money.’ It was actually a very amicable transaction after we agreed on the number. They were both very nice people, and it turned out they had friends in common.”

That’s a rare happy ending for a bottom-feeder story. One New York woman who owns a good-sized business has driven Hamptons brokers to distraction with her relentless lowballing. “She’s still looking!” one broker groans. “Am I taking her out? Only when I have to!” Another broker tells of his firm showing at least 200 properties to a Wall Street guy who finally chose 2 or 3—and made offers of 50 cents on the dollar. “This isn’t an isolated case,” the broker sighs. “We call them the undertakers.”

The undertakers’ fondest scenario, the word they mutter like a mantra, is foreclosure. Last May, the New York Post ran an article headlined trouble in paradise: foreclosures looming for the hamptons’ poshest pads. The story was hyped, to say the least. None of the handful of homeowners the Post cited had actually been foreclosed upon. They’d received notices of delinquency in their mortgage payments; if they didn’t act, their banks would foreclose at some point. The headlines brought back memories of the early 1990s, when some Hamptons properties in foreclosure did get sold on the steps of Town Hall. So far this year, not one foreclosure sale has occurred east of the Shinnecock Canal, the dividing line between the low-rent Hamptons (West Hampton and Hampton Bays) and the glamorous ones. The proportion of Hamptons mortgage holders who got notices between January and late May, notes Pat Ammirati of the Real Estate Report, a company that tracks Long Island foreclosures, is dramatically smaller than that of most areas of the country, and most of the 160 delinquents appear to be working-class families lured into subprime mortgages. (Shockingly, some working-class families do still live in the Hamptons.) Nevertheless, a few owners of big Hamptons houses will likely lose them at some point.

“We’ll be in for at least a year, but they’ve initiated foreclosure,” says one homeowner, who received a notice from the bank this spring after his financial business faltered and he fell behind on mortgage payments. Initially he put his house on the market at nearly $3 million. “Now I’m taking it down to closer to $2 million,” he says of his capacious home. “If I can get out from under it at $1.7 million I’d be thrilled—just to unload it before the bank grabs it.” Yet even with the price reduction, he says, “the only people who come by are the brokers. They don’t come in with any clients at all. The house market over $10 million is flying, and anything under $1 million, everyone wants to get in. But anything between $1 million and $10 million, you sit and churn. It’s dead.”

White-Elephant Blues

The elite sector—actually quite a bit higher than $10 million, more like $20 million and up—seems the only happy slice of the market these days. At about the time Old Trees sold, rumors swirled that a mansion on Southampton’s oceanfront Gin Lane that had once belonged to producer Marty Richards, of Chicago fame, had sold to pro golfer Tiger Woods after sitting on the market for merely a month at $65 million. A media scrum descended, with helicopters overhead, until Woods denied the story and the rumor changed. Now the buyer was said to be hedge-funder David “Tiger” Williams. But that story was shot down, too. The buyer is, as usual for trophy Hamptons properties, a cryptic limited-liability company (L.L.C.)—South Lane Properties. Determining who ended up paying $60 million for the mansion has become Southampton’s parlor game for the summer. “Actually, I’ve heard it’s Tiger Woods after all,” says developer Kim Pape, who with her husband, Phil, builds some of the best of the grand new houses in Southampton’s estate section. “The seller told someone who told me.” (Neither Tiger Woods’s representatives nor South Lane Properties responded to queries.)

Even at the elite end, though, many Southampton properties are sitting—and sitting. At those prices, the slightest deterrent can be fatal. Canadian publishing magnate Louise McBain had no luck selling her oceanfront Stanford White house on Gin Lane for $70 million. (The property does have a history of beach erosion.) Former Warnaco C.E.O. Linda Wachner has had her Meadow Lane property on the market in the $60 million range for two years. (“It’s overpriced, and Linda’s hard to deal with,” says one broker.) And the 15.4-acre Howard Gittis estate, on Southampton’s Ox Pasture Road, which went on the market after the right-hand man to Revlon’s Ronald Perelman died in his sleep last year, remains orphaned at $59 million. Perhaps the estate’s lack of a water view is to blame. “If there was water, it would be more salable,” says one broker. “When you’re up in those numbers people like water.”

John Paulson has put his three-acre Southampton estate on the market for $l9.5 million—an “aggressive” price, as brokers put it—just two years after he acquired it for $l2.75 million from former Esprit head of operations Jurgen Friedrich, who buys and sells big Hamptons houses as a hobby. So far, no takers. A buyer will have to like the somewhat cheesy indoor swimming pool with child-friendly slide, and the semicircular master bedroom that feels like the prow of a ship, not to mention a claustrophobic guest bedroom whose window faces a shingled outbuilding only inches away.

For most high rollers, such as private-equity mogul Stephen Schwarzman, the better solution is to build new compounds of their own, the farther from stuffy Southampton the better.

Every day now, dozens of construction trucks turn south off the Montauk Highway at Water Mill’s quaint green and rumble a quarter-mile or so to an unprepossessing turnoff called Mohawk Avenue. “Avenue” is a misnomer, since the road ends a quarter-mile farther down, at the northern end of Mecox Bay. There, past relatively modest, new houses that fill former fields, lies the tree-enclosed spread that once belonged to the farmer who worked those fields. Now it belongs to Schwarzman, the Blackstone Group chairman and C.E.O., who’s once again living up to his reputation for transforming his trophy properties—history be damned—into baronial dwellings built just for him.

Like Paulson, Schwarzman is the rare Wall Street player who avoided disaster last year: Blackstone’s I.P.O. of June 2007 enriched him, on paper at least, by about $7 billion, even though that has now shrunk to between $4 and $4.5 billion. He’d been drawn to the Water Mill site not only by its lovely specimen trees and old farmhouse and its 300-degree views of Mecox Bay—but also by its social pedigree. The house had been owned for years by Carter and Susan Burden, one of New York’s most glamorous couples. Carter, a “progressive patrician,” as his New York Timesobituary proclaimed him when he died prematurely at 54, in l996, was a direct descendant of Commodore Cornelius Vanderbilt’s and had made his own mark as a New York City councilman, owner of The Village Voice, philanthropist, and man-about-town. Schwarzman loves trophy names: his wife, Christine, is a Hearst by a previous marriage, and his triplex at 740 Park Avenue was once owned by John D. Rockefeller Jr. A Vanderbilt house would fit right in.

In fact, Schwarzman nearly lost the house to Edgar Bronfman Jr. When Susan Burden put it on the market at $32 million, the Seagram heir and Warner Music chairman offered the full asking price. Bronfman had just missed out on a $25 million house on nearby Sagg Pond by refusing to contemplate a bid of more than $23.5 million, only to see another buyer snap the house up. He was determined not to let this one get away. Yet Schwarzman countered with $34 million—$2 million over the asking price!—and won the deal. Bronfman was heartsick until he heard that the Sagg Pond deal had fallen through and the irritated seller had taken his house off the market. With the negotiating savvy for which he’d become so well known, Bronfman went back to that owner and insisted on buying his house after all—for $31 million.

Schwarzman has a funny way of appreciating the pedigree he purchases. About the only visible evidence of the old Burden place that remains on the 9.9-acre property is the oak trees—though many of those have been moved—and the modest boathouse. Scores of workmen spend their days erecting half a dozen structures that will provide the Schwarzmans with roughly 20,000 square feet of interior space. A “sports barn” will have roughly 5,500 square feet, a carriage house 3,000 square feet, the greenhouse l,400 square feet, a garage 1,200 square feet, the pool house 1,040. As for the Burdens’ main house, its interior designed by the late Mark Hampton, no outside trace of it remains. Schwarzman’s wife, Christine, according to one friend, wanted the gracious old house to stay, and there was some talk of keeping it. (The Schwarzmans have no comment.) But in the end Schwarzman received permission for a “partial interior demolition,” as well as a complete demolition of the pool house, shed, garage studio, pool, tennis court, and greenhouse. In fact, the house appears to be encased within the brand-new, if traditional, structure that dominates the site. That structure is so big, with l3,000 square feet of living space, that it looks less like a house than a Thanksgiving-parade float.

Perhaps it’s just a coincidence that Peter G. Peterson, co-founder with Schwarzman of the Blackstone Group, has a weekend place on Mecox Bay, too. Or perhaps not. At 82, Peterson was once a father figure of sorts to the 61-year-old Schwarzman, but the relationship is not what it was, and some friends of Peterson and his wife, Sesame Street creator Joan Ganz Cooney, have discerned in Schwarzman’s quest for control of the firm an Oedipal instinct. Peterson’s Water Mill house is large but hardly grandiose. Schwarzman’s place, when it’s finished, in a year or less, will dwarf it. Blackstone spokesman Peter Rose says the notion of real-estate rivalry is absurd. “This is the longest partnership on Wall Street It’s survived any number of little Pekingese yapping at their heels about a rivalry.”

Ironically, Peterson moved to his current house from a much bigger one, right on the ocean dunes, some years ago. (Cooney had found the roar of the ocean disturbing and wanted a view of still water instead.) Shrewd deal-maker though he is, he never imagined that the $11 million he got for that house would look meager a decade or so later. But it does. After a renovation so thorough it amounts to a teardown, the old Peterson place is now back on the market—at $80 million, making it the most expensive house for sale in the Hamptons. “That’s ridiculous,” says Cooney when apprised of it. “How could it possibly be worth $80 million?”

Late one afternoon, Sotheby’s Harald Grant does his best to answer that question with a private tour that starts at the gates of the 11-acre estate and leads up a long driveway, past half a dozen gardeners, to the new, l3,500-square-foot house, traditional in style with a slate roof and stone and cedar siding, by Kurt Andresson, the Hamptons’ highest high-end builder. Everything inside is very … solid. Doors as thick as those of bank vaults. Dark-wood floors that never creak. The lowest of four levels has a private theater as plush as any Hollywood screening room. The top floor is taken up entirely by the master suite, with two lavish bathrooms—hers with a huge tub overlooking the pond and farm field behind the house—and his-and-her offices. Beyond the master bedroom’s balcony, the Atlantic’s rollers crash dramatically—but without any sound. Thanks to steel-reinforced walls and double-glazed windows, the silence inside is absolute.

So is the security. Video monitors offer ceaseless scrutiny of every outside view, one after another. If an interloper manages to evade the cameras and somehow get inside, he will face other high-tech security measures. Grant is forbidden to say who the security-conscious seller is, but a memo left on a desk in the master suite suggests he’s a top venture capitalist at J. P. Morgan Partners. You’ve never heard of him. He’s just another of those quiet Hamptons plutocrats who live in homes like these. Except that he doesn’t. “That’s why they’re selling it,” Grant says of the mystery sellers. “They never use it.”

Supersize Me

Compared with the old Peterson place, the McMansions that litter Bridgehampton are mere cottages, often built not terribly well on spec by small-time builders hoping to double their money. North of the highway, especially, most of the newest McMansions sit unsold in former potato fields, their builders unwilling as yet to lop $3 million off their inflated $9 million price tags.

The king of the big-house builders, though, is riding the downturn with ease—or so he says. Joe Farrell, 45, still works out of a little office overlooking Bridgehampton’s Main Street. Only his houses are huge: anywhere up to 17,000 square feet. A former trader on the New York Mercantile Exchange, Farrell realized 13 years ago that his Wall Street peers didn’t have the time or patience to personalize their houses. They wanted big, they wanted it fast, and they wanted to walk in to find everything done. Farrell saw that in building big, bigger was better. “If my competitor had a 9-foot ceiling, I had a 10-foot ceiling. If my competitor had a two-car garage, I had a three-car garage. I was the first guy to finish basements, unbelievably. Then we went to elevators and steam rooms and wine cellars.”

Now Farrell has partnered with the Carlyle Group, giving him access to as much as $100 million in funds to construct more new houses. It’s as if the Hamptons have been not just exploited but securitized. Still, Farrell admits he’s cut way back. Of the 24 mansions he’s building, only 5 are going up on spec. “I used to have 10 spec, 12 spec. And we’re going to keep it around 5. Only when we sell one will we buy land for another. In the old days if it was a good deal, we’d buy without reloading.”

To scrape by, many builders for the first time in memory listed their new houses for summer rental. They asked six figures, and found a lot of takers, for when house sales are down in the Hamptons, the demand for rentals is up. Even Farrell has joined the trend: last fall, when confronted by the first-ever of his spec houses that failed to sell, he rented it—for $600,000.

“You can get a nice house in Bridgehampton with tennis court for $250,000,” says Corcoran’s Susan Breitenbach of the 2008 summer-rental market. “But north of the highway. To get the same house south of the highway, you need to spend $350,000 to $400,000.” In Sag Harbor, a young Wall Street banker paid $395,000 for a waterfront rental this summer—about $250,000 more than anyone’s paid in Sag Harbor before. On East Hampton’s elegant Middle Lane, one house rented for $450,000. On the same street, even the house of murdered investment banker Ted Ammon rented for $275,000. The 2001 tragedy, followed by the 2003 death from cancer of his widow, Generosa—who had married Danny Pelosi, eventually convicted of Ammon’s murder—left the two Ammon children, now teenagers, as titled owners of the house. Their onetime English nanny, who has the right of lifetime tenancy, is said to be cut in on the rent. “Everybody’s suing everybody,” says one person close to the situation, “and it really is a mess.”

How long ago it seems that rock musician Sting, in 1996, set a record for Hamptons summer rentals by paying $100,000 for a mansion on East Hampton’s Further Lane! This year the record appears to have been set in Sagaponack, where a builder-broker named Andrew Saunders coyly asked $1 million for the summer for his McMansion on 4.1 acres on Parsonage Lane, ensuring enough buzz that it went for $700,000. At the same time, he set a purchase price of $19.9 million. Because the house is well built—and perhaps helped by a bit of luck—he got an offer close to his asking price from a European buyer. The renters were upset to learn the house had been sold out from under them. Sotheby’s Beate Moore admits they said, “If we had been in the house, it’s very likely we would have bought it.”

Europeans are circling, that much is for sure. A sign in the window of the Loaves & Fishes Cookshop catering business on Bridgehampton’s Main Street says it all: we accept euros. (At Loaves & Fishes’ wildly extravagant food shop in Sagaponack, the price of lobster salad, always the annual benchmark for Hamptons excess, is thus either $100 or 63 euros per pound this season.) Prudential’s Jane Gill, a former Ralph Lauren model, reports “a lot of Germans, a lot of Brits” for high-end rentals. “A hundred thousand dollars is nothing to them.”

In Sagaponack a generation ago, writers gathered on the front porch of novelist James Jones’s Victorian farmhouse, on the town’s wide and graceful thoroughfare to the beach, Sagg Main: Truman Capote, William Gaddis, Willie Morris, John Knowles, Irwin Shaw, and others. Now all are dead, and so is Jones’s famously feisty widow, Gloria, whose memorial service at the house two summers ago brought an era to an end. A frail Kurt Vonnegut spoke then; now he’s gone, too. The original 1860 house seemed to join them, but when the construction dust cleared last spring, a complete restoration appeared instead on the hilltop, like a vision of hope, green-designed from roof peak to cellar by owner/builder Peter Sabbeth and his conveniently named wife, Melissa Green, of Modern Green Home. A late July opening gala to benefit the Peconic Land Trust is scheduled; soon after, Sabbeth hopes to sell the house for $12 to $14 million to a green-minded hedge-fund manager with too much green to worry about the downturn. (Jones would be astonished.) Perhaps no era ever ends exactly: Peter Matthiessen still lives at the ocean end of Sagg Main, vigorous at 81, having just published his 900-page masterpiece, Shadow Country. But hardly any writers under 60 can afford Sagaponack—or anywhere else in the Hamptons—anymore. One of the few is Jay McInerney, 53, who, unlike Stephen Schwarzman, is married to a true Hearst—Anne—and lives with her in Water Mill on a property called Ashgrove Farm with an emu, a wallaby, a parrot, and various dogs.

With its farm-field views and country-store cuteness, Sagaponack appeals to a broad range, from screenwriter William Goldman to singer Billy Joel, and offers the priciest real estate, acre for acre, in the Hamptons. Because of that, the standoff between sellers and buyers here is most intense, and most properties—those, that is, between $3 million and $10 million—are, as a result, going unsold. The prices are so high that even when they’re lowered, buyers hold back. One longtime resident of Sagg Main Street put his three-and-a-half-acre property up for sale not long ago at $6.9 million—a not unreasonable price, considering it has a tennis court and an artist’s studio, and Sagaponack land south of the highway usually goes for at least $2 million an acre. When no bids came in, he lowered the price to $5.7 million. Still no bids. Now it’s off the market. Around him, like the last twitchings of a slain giant, four new houses are going up, three on spec.

The pressure on Sagaponack’s last farm fields may be less intense than it was three years ago, but not by much. The Whites, a prominent farming family, recently protected 34 more acres of their oceanfront land just to the east of Sagg Main (46 acres of White land were already protected) by selling the development rights to the town of Southampton, which had to pay $19 million for those rights. Throughout the Hamptons, communities have used proceeds from the infamous 2 percent property-transfer tax to buy and preserve open land. But those coffers are almost bare, at least for now, and the campaign, while very successful, has had the perverse effect of driving up land prices.

One of Sagaponack’s most beautiful fields, on the road to Gibson Beach, is now up for grabs as a result. A new owner has indicated he’s open to selling the land for preservation instead of development. “But this is a tough piece of property to get the public to want to protect,” explains John Halsey, of the Peconic Land Trust. “It’s so extremely valuable, and you’re not dealing with a farm family. There’s clearly a finite amount of public money available.… It’s hard to justify a big purchase here.” The likeliest scenario by next year: six new houses on that gorgeous 17-acre field.

A quarter-mile away along the ocean, industrialist Ira Rennert has settled into his lavishly landscaped 63-acre fiefdom. The trees don’t quite obscure one of America’s largest private dwellings—more than 100,000 square feet, including various outbuildings—but local fears that Rennert would use his compound as a Zionist synagogue have proved groundless. Rennert’s once ghastly environmental record has improved—both his lead operation in Missouri and his magnesium plant in Utah have reduced their pollutants—and a whopping suit by the E.P.A. has been turned back for now. True, Rennert’s metal mining operation in Peru remains one of the world’s 10 worst polluted places, according to the Blacksmith Institute, and 99 percent of the children in its vicinity have significantly high levels of lead in their blood. But that’s out of sight and mind in Sagaponack, where the 74-year-old Rennert is viewed now as a benign presence, and certainly a shrewd land speculator: the reported $11 million he paid in the mid-90s for those 63 acres is chicken feed today.

The Great Wall of Sagaponack

Doubtless to Rennert’s relief, the new bad boy of Sagaponack is a neighbor to the east: William Macklowe, the 40-year-old son of hard-hit real-estate magnate Harry Macklowe. Last year, the father-and-son team took on nearly $7 billion of debt to buy seven office towers just as the subprime crisis was about to freeze the credit markets. Their precipitous fall into near insolvency ended in late May with the sale of their crown jewel, the General Motors Building, on Fifth Avenue, and three other Manhattan office towers for $3.95 billion to a group headed by developer (and East Hampton neighbor) Mort Zuckerman. Though the deal shrunk his empire considerably, Macklowe père maintains his Georgica Pond mansion—and Macklowe fils is building a vast contemporary house near the ocean in Sagaponack that has his neighbors up in arms.

It’s not the size of the house—about 12,000 square feet—that has some neighbors incensed. It’s the concrete wall which runs 217 feet in length, nearly as long as a city block, and stands roughly 16 feet high. The house looks oceanward; the wall is attached to its rear. “The arrogance to build that wall!” marvels Hamptons chronicler Steven Gaines, author of Philistines at the Hedgerowfame. “On a potato field!” Doubtless it will provide privacy and serenity to Billy and Julie Macklowe and their guests, once the scores of workmen swarming over the site are done. (Macklowe declined to comment to Vanity Fair.) But it also blocks the ocean view for passersby. (About 12 years ago neighbor Martha Stewart got so irked by Macklowe senior’s view-blocking hedge of trees, planted on her land, that she removed some of them, precipitating a bitter feud.) Oddly, when the Macklowe house plans were reviewed in 2006, they were deemed “non-substantial.” That meant they were reviewed and approved by merely one member of the Architectural Review Board. Normally, a project as large and untypical as Macklowe’s house would have come before the whole board. Why didn’t it? Unfortunately, the member who approved it, architect Michael Tortorice, can’t answer that question: he died, prematurely, in the spring of 2007.

Nothing so grand is going up in Sag Harbor—the onetime whaling village that has long drawn writers, editors, and artists—but only because the village plots are too small. That puts a premium on the town’s historic homes, especially on Main Street, where the largest of the whaling captains’ houses was on the market not long ago for $9 million—a shockingly high price for a town that languished apart from the rest of the Hamptons for decades. Yet already that record has been broken: Christie Brinkley, supermodel and ex-wife of Billy Joel, recently paid nearly $10 million for a waterfront North Haven house, originally built in 1805, with a view of downtown Sag Harbor. It’s a new phase after the collapse of her marriage to architect Peter Cook; as part of the change, Brinkley’s old Bridgehampton house, famous for its castle tower, north of Scuttlehole Road, is on the market for $30 million. Now even that seems low: at the far end of North Haven, just to the right of the Shelter Island ferry slip, lie the densely forested 55 acres of Tyndal Point, its houses overgrown and dilapidated, but with so much potential, for the right person with $75 million.

Still, the town’s most expensive properties are the floating ones. To the stupefaction of longtime locals, Sag Harbor now looks like St. Tropez by midsummer, its modest marina filled with mega-yachts more than 100 feet long. The yacht of Florida sugar baron Pepe Fanjul appears regularly. New York developer Larry Silverstein, leaseholder of the Ground Zero site, brings his Silver Shalis here. Tiger Woods has been in and out, as has Jim Simons, the code breaker turned quant hedge-fund manager who earned $2.8 billion last year, by trading with complex mathematical programs. Leslie Wexner, of the Limited Brands clothing empire, used to dock up here, too, recalls Bruce Tait, who runs an eponymous yacht-chartering-and-sales operation on the Sag Harbor wharf, but then his boats got too big. Now he’s relegated to the Mediterranean in the summer.

Every summer night, crowds spill down from Sag Harbor’s crescent-shaped Main Street to the wharf to gawk at the big boats and revel in some sense of Hamptons-ness—though what exactly that is, they never seem quite sure. Now they may be on the verge of loving the town to death. From afar, the big-box chains have noted the numbers. In September, the first of them, CVS, is due to open a 17,000-square-foot store near the water. The mega-pharmacy may well kill the town’s family-owned five-and-ten, which sells toiletries, as well as the small Main Street pharmacy. Neither could compete on price with mighty CVS. With the town at a tipping point, New York lawyer and Sag Harbor homeowner Duncan Darrow took out full-page ads in the local paper, blasting CVS and stirring locals to action. “Save Sag Harbor” now has more than 100 members and land-use lawyers drafting a zoning plan that may yet thwart other big-boxers. Whether CVS gets in under the wire to take the space it has leased will be clear all too soon.

For sheer bragging rights, the biggest number in Hamptons real estate still belongs to Ron Baron. He’s the mutual-fund guy who last year paid $103 million for 40 acres of oceanfront land on East Hampton’s Further Lane—the estate long owned by Adelaide de Menil Carpenter, heiress to the Schlumberger oil fortune. But that story has taken a new twist.

Baron, 65, started in 2001 with an adjacent, 11-acre compound closer to Two Mile Hollow Beach. He was appalled to learn he’d just paid $23 million to live next to the Hamptons’ notorious gay beach, where nighttime activity in the dunes was quite robust. He tried everything from rallying the neighbors to having the beach policed, to employing private security patrols. Recently he just knocked his house down and had another one built farther from the dunes of sin, this one a 30,000-square-foot mansion designed by the architectural firm of Hart/Howerton. As of Memorial Day, armies of workmen were rushing, as at the Macklowe place in Sagaponack, to finish the house for summer—a Hamptons real-estate game pioneered by Ronald Perelman, who famously bought the old Ossorio estate on East Hampton’s Georgica Pond and had it re-done in six weeks. Baron’s new house is to be given the old-money look by society decorator Bunny Williams; it is said to have a full-size basketball court in the high-ceilinged basement, perhaps a fantasy come true for the New Jersey–born Baron.

Baron’s purchase price for the de Menil estate may have seemed insane, but Paul Brennan, the sage of Hamptons brokers, still thinks Baron got a bargain. “When you look at what he got for his money, it wasn’t that expensive. An acre south of the highway with a little teardown would be at least $2 million. An acre on the ocean? At least $5 million.”

Both buyer and seller faced a curious dilemma. De Menil Carpenter—whose grandfather Conrad Schlumberger built, with his brother, one of Houston’s largest oil fortunes, and whose late mother, Dominique, founded the city’s Menil Collection museum—had saved 14 far-flung historic houses and put them on her Further Lane estate. She didn’t want to sell them, too. Fortunately, Baron didn’t want to keep them. But what then to do with them? One day last year, East Hampton locals gawked as six of the houses rolled down Montauk Highway to be placed around the town’s tiny municipal building. De Menil Carpenter had agreed to pay for their transport and endow their re-siting as new town offices. (Another five have since found other town homesteads nearby.) Only in the Hamptons would a buyer be happier to buy land without a dozen historic houses than with them.

Now it seems that Baron has a spin-off plan like the one that Rodney Propp tried to carry out with Old Trees. The easternmost 10 or so acres of the property are being hedged off and landscaped to be sold. One broker says the price of the oceanfront plot will be $85 million. If Baron can get anything close to that, he’ll not only recoup most of his cost but boost the value of his remaining acres by tens of millions of dollars. That may be a tall order. Scarce as oceanfront is, one of the few available parcels near Baron is sitting unsold at $24.5 million. It’s a house that used to belong to Washington lobbyist Liz Robbins and former newscaster Doug Johnson. They sold it in February 2007, after listing it for $15.5 million, to a Texan who thought he could flip it for a fast profit. Now it’s languishing. “In a good market it would be gone,” says Prudential’s Ray Smith, who has the listing. “Still, if you want to buy in East Hampton there’s no inventory on the ocean! The next stop is $40 million. At $24.5 million, this is a deal!”

Famed architect Stanford White’s Seven Sisters houses, in Montauk, are now occupied by, among others, artist Julian Schnabel and photographer Bruce Weber.

One rumor has Baron selling the $85 million spin-off to Steven Cohen, the Greenwich, Connecticut, hedge-fund mega-billionaire. Cohen did buy an $18 million Further Lane house (built by Joe Farrell) last year. But a spokesperson says any talk of Cohen’s extending his domain is just wishful thinking.

Certainly Cohen is indicative of the buyers who are still shopping, unperturbed by the downturn. All up and down Further Lane, new money is supplanting old. Reed Krakoff, executive creative director of Coach, has spent 18 months renovating Lasata, the onetime summer home of Jacqueline Kennedy Onassis’s paternal grandparents, and more recently the home of New York socialite Miriam Fitzsimmons Meehan. About the same time Baron bought the de Menil place, the old Tyson estate, just east of it, went to adman and TV talk-show host Donny Deutsch, for $29 million. On nearby Lily Pond, however, old money isn’t letting itself be pushed around.

The pond and its gently sloping meadow are a precious glimpse into the East Hampton of old—one of the village’s last sylvan settings. Neighbors assumed the meadow was preserved in perpetuity—after all, wasn’t it staked with Peconic Land Trust signs? But the late industrialist and conservative philanthropist John M. Olin, it turns out, only put this portion of his land into a 30-year “scenic enjoyment easement.” Last fall, when that easement ended, five of his grown grandchildren moved to subdivide the land. The plan they’ve proposed would carve the 20-acre meadow into five 4-acre lots. Most directly affected would be the neighbors, who include director Steven Spielberg, writers Nick Pileggi and Nora Ephron, and Vornado Realty Trust’s Steven Roth. But the grandchildren seem adamant. “It’s their land,” says their mother, Evelyn Williams. “They have the right to do with it as they wish.”

East Hampton has the cachet—and four Ralph Lauren stores to go with it. (As a family, the Laurens actually have five stores, all on Main Street: 34-year-old daughter Dylan opened one of her candy stores last year.) Amagansett, four miles east, is still much quieter, though that’s made it, in a low-key way, the new hottest Hampton. Paul McCartney sightings are common. Gwyneth Paltrow is a recent arrival; so are actors Sarah Jessica Parker and Matthew Broderick, as well as author James Frey. (Actress Kathleen Turner has lived here long enough to be a local. And so, of course, has actor and activist Alec Baldwin.) The once humble “lanes” that lead from Main Street toward the ocean are now a whole neighborhood in mid-teardown, with 1950s ranch houses tucked between new, baronial shingled homes—many, however, still awaiting buyers.

One reason new arrivals love Amagansett is its greater distance from Manhattan: that extra hour on the highway on an August Friday night inching out from Southampton keeps a lot of weekenders away. And what fun to fly over them all, alighting at the newly expanded East Hampton Airport for the seven-minute drive home. So it is with Montauk—“The End,” as locals fondly call it—whose tiny airport accommodates prop planes and helicopters. The difference is that Montauk still has wide-open spaces, and compared with Ron Baron’s Further Lane purchase, they’re cheap.

Seclusion-loving artists have long constituted a colony of sorts in Montauk—among them songwriter Paul Simon, artist-filmmaker Julian Schnabel, photographers Peter Beard and Bruce Weber, and art critic (and Vanity Fair contributing editor) Ingrid Sischy. Ralph Lauren is there, too. Last year, J. Crew chief Millard “Mickey” Drexler startled the lot of them by paying $27 million for Eothen, the 5.6-acre estate with panoramic views long owned by Warhol collaborator Paul Morrissey. Polo player and media entrepreneur Adam Lindemann followed with a six-acre beachfront buy for $21.5 million. “It’s the new frontier—you get a lot more for your money,” says Prudential’s John Golden. “The coastline is extremely dramatic, and it’s coming into its own because everything else has been so saturated.”

Surfers have always flocked to Montauk’s Ditch Plains beach, but now, along with nationally known surfing veterans like Joel Tudor and Herbie Fletcher, you’re likely to see Schnabel, Lindemann, or activist hedge-funder Daniel S. Loeb, who paid $45 million for a penthouse apartment at newly built 15 Central Park West earlier this year. Some of the hottest real estate is in the beachfront trailer park. Singer Jimmy Buffett reportedly offered $430,000 for a trailer not long ago; Paul Morrissey has decamped here from Eothen. “The status symbol is to have a double-wide and a double lot,” Golden explains. “It’s where the elite meet.” Even trailer rentals are climbing: $35,000 for the season is about average.

The downturn has slowed sales in Montauk—but not sellers’ fond new expectations. Peter Beard is trying to get $26 million for his five-plus-acre compound of cottages with ocean views and access. And former TV talk-show host Dick Cavett has put 77 acres of oceanfront land next to his home on sale for $30 million. Conservation groups want to buy but haven’t been able to move quickly. “My personal wish would be that someone build an eighth sister and place a conservation easement on the rest of it,” says Corcoran’s Krae van Sickle, referring to the adjacent enclave of seven houses designed by architect Stanford White. (Cavett lives in one, rebuilt exactly as it had been before a 1997 fire; Weber, Sischy, and Schnabel are all Seven Sisters neighbors.) But that’s for the market to say, and van Sickle, the listing agent, will field all offers. Chances are that, when the market hits bottom and starts bouncing back, some builder will subdivide the land—and start putting up houses.

When will the market hit bottom? Sotheby’s Ed Petrie is asked that question all the time by his customers. “These are Wall Street guys. And I say, You should be telling me! I’m just the guy out here selling houses.”

“If we’re not at bottom, we’re close,” suggests Corcoran’s Tara Newman. “It’s all about collective consciousness, and now that we have a two-person presidential race, people are stimulated, looking toward the future. In fact, as soon as Hillary quit, we got a little Obama bump.” Corcoran C.E.O. Liebman is more cautious. “We have to get through the election and some more layoffs, and then find our stable ground. I hope next spring things will be active again.”

Perhaps they will. Though Sotheby’s Frank Newbold, one of the Hamptons’ most experienced brokers, recalls a cautionary tale. Back in 1941, Gerald and Sara Murphy, the Jazz Age golden couple who grew so close to Hemingway, Fitzgerald, Picasso, and others, faced a conundrum. The Great Depression, and their own elegant lifestyle, had left them with a vast East Hampton spread they could no longer afford. They’d already sold much of their land—some of it becoming part of the golf course for the Maidstone Club. But no one wanted the Dunes, the oceanfront mansion that was East Hampton’s largest residence at the time. It was just too big to heat in hard-pinched times, and no one wanted to maintain it. It was, as the Murphys’ daughter, Honoria, put it, “a big white elephant.” Rather than keep paying the $1,200 in annual taxes on it, the Murphys simply ordered it burned to the ground.

The lesson is that the bottom never really drops out of the Hamptons real-estate market—until it does.

Michael Shnayerson is a Vanity Fair contributing editor.