The greatest Mega-Mansion play

There was a great story in the L.A. Times this week about the contunied heavy pace of mega-masions being built in Bel-Air Beverly Hills and Homby Hills. The continued strength of the ultra-luxury market in Los Angeles is something that I've talked about repeatedly in this space in the last year as it's been noticed by myself and others that work with luxury homes.

If you missed it, here's my previous posts about this topic:

• The Real Story on Luxury Housing in L.A. -- Part 1
• The Real Story on Luxury Housing in L.A. -- Part 2
• Off-Market Mansions in L.A.
• L.A. Market for $10 million+ homes

Those of you who know me well know I've been working with an experienced mega-mansion builder to put together a mega-mansion development. We have targeted the land and planned out the development. It's an incredibly conceived project. But given the current economic environment, it's been difficult finding an additional equity partner even for an experienced developer.

That said, there are many ways for a possible JV partner to come into this project. It could be simply as an equity partner. Or it could be someone who simply wants to build one of these homes, but instead of building a home just for themselves, they can leverage the dollars they'd be putting into their own house into several others and make a substantial profit. Either way, it's an opportunity to be a part of the most incredible luxury housing projects in the city's history and invest in one of the only still-strong segments of the housing market.

The Real Story on Luxury Housing in L.A. – Part 2

In Part 1, I looked at the flawed criteria of a recent report on luxury housing that showed price declines in L.A. “luxury housing.” I explained why the criteria in the study included many non-“luxury homes,” while excluding many true “luxury” homes.

The study was released by First Republic Bank, and the company’s press release almost seemed to acknowledge its flaws. The release quoted one L.A. agent explaining the discrepancy in the market:

• "The market is slow until about $4 million, but the moment you hit that threshold, there is consistent, pent-up demand," said Barry Sloane of Sotheby's International Realty in Beverly Hills. "The higher the price, the greater the demand, and the more sales there are. It's extraordinary."

So the authors of the study must have realized that they were really combining two separate markets – non-luxury and true luxury – into one report and calling it “luxury housing.” Unfortunately, however, the media reports did not examine, nor did they mention, the fact that the demand is still strong for true luxury housing.

OK, but is the basic premise of the report still true? Are luxury home prices slipping in L.A.? Obviously, Barry Sloane would probably say no. Other agents I’ve talked to say no. But are these agents’ anecdotal claims supported by more legitimate statistics?

I’m going to look at this several different ways to make sure we can see a trend. Also, I want to make sure we’re looking only at luxury.

First, I’m only looking at single-family homes in Beverly Hills, Bel-Air and Brentwood. No one can argue that’s luxury. And that’s the area I know best. The First Republic report included some questionably luxury areas (North Hollywood?).

Second, I really disliked including 3 bedrooms, and looking at the actual houses in the study, the 3-bedroom criteria in the First Republic area clearly led to non-luxury homes. So we’re starting at 4-bedrooms and we won’t limit it at 6-bedrooms like the First Republic report. Also we’ll look at both “4+ bedrooms” as well as the even more restrictive “4 beds, 4 baths, 4,000+ sq. ft” in the interest of trying to find a trend.

Finally, we’re going to look at sales prices as well as sales prices per square foot.

Drum roll please …

FIRST QUARTER 2008 -- Beverly Hills, Bel-Air and Brentwood

• 4 bedrooms or more

– 69 sales (-20%)

-- $ 4,745,057 avg. sales price (+6%)

-- $881/SF (+16%)

• 4 bedrooms or more, 4 baths or more, 4,000 sq. ft. or more

– 30 sales (-30%)

-- $6,156,463 average sales price (+23%)

-- $944/SF

FIRST QUARTER 2007 -- Beverly Hills, Bel-Air and Brentwood

• 4 bedrooms or more

– 86 sales

-- $4,462,446 average sales price

-- $760/SF

• 4 bedrooms or more, 4 baths or more, 4,000 sq. ft. or more

– 43 sales

-- $5,007,625

- $767/SF

As you can see from the data, while sales are actually down over the first quarter of last year, prices are up over last year no matter how you look at it. The source for this data was The Combined Los Angeles/Westside Multiple Listing Service.

This is not to say that luxury homes have not been unaffected by the decline in the housing market. They have been affected. But the bottom line is the more expensive, the less affected it’s been. The better the area, the less affected it’s been.

I think this squares with what I’m seeing and what most agents I talk to are seeing in the luxury market. Demand is strong. Yes, buyers are more hesitant and some things are taking a bit longer to sell. If you look at purchases that were made in March, there was a pause. And if you remember, this was a time of extreme turmoil in the financial markets – Bear Stearns collapsing, stock market bottoming – and people were spooked. But at the higher levels – the true luxury – in places like Beverly Hills, Bel Air and Brentwood, prices have not fallen to the extent you heard about in the media last week.

The Real Story on Luxury Housing in L.A. – Part 1

This week, news broke in The L.A. Times and across the country about the decline in values of luxury homes in California, specifically in Los Angeles, San Francisco and San Diego.

I wanted to look deeper into the numbers on this story because both myself and many of the luxury home agents I encounter still see a strong market at the upper end of the spectrum here in L.A.

I also want to emphasize that I’m not out to prove or disprove this story. I’m just trying to find out where the disconnect is. People who know me will tell you I am not the average “Realtor with Rose-Colored Glasses.” I’m the one who will tell you not to listen to the forecasts of the National Association of Realtors, because they’re always more optimistic than they should be. Perhaps, that’s my pragmatist background as a former newspaper journalist coming through. But my newspaper background also gives me insight into how news is created, which makes me equally skeptical when I see a story like this.

First of all, the genesis of the story was a report by First Republic Bank. You can read the First Republic press release by CLICKING HERE.

The study defined “luxury homes” as 3,000 to 6,000 square feet, three to six bedrooms, and three to six bathrooms. These “luxury homes” were located in Arcadia, Beverly Hills, Calabasas, La Canada Flintridge, Encino, Los Angeles, Malibu, Marina del Rey, North Hollywood, Pacific Palisades, Pasadena, Playa del Rey, Santa Monica, Studio City and the West Los Angeles enclaves of Bel Air, Brentwood and Westwood. And the average sale price of these “luxury homes” in Los Angeles was $2.35 million in the first quarter of 2008.

OK, right away, in looking at the study’s criteria anyone who is familiar with luxury homes in L.A. will quickly understand how these criteria are flawed. The criteria include many homes that simply would not be considered luxury. There are tons of 3-bedroom, 3,000 square foot houses in these areas that are not luxury homes, they are not attracting luxury buyers, and yes, their values are dropping tremendously. In this market, if you include smaller homes like that in an index that’s supposedly “luxury,” well, of course, the values are going to fall. Those are not luxury homes.

Secondly, let’s look at what is in the index in one relatively focused area – Beverly Hills, Bel Air, Brentwood. Let’s look at what sold in the first quarter that met the study’s criteria and sold for $2.35 million or less. There were six homes. Here are the links to the homes: 1, 2, 3, 4, 5, 6. These are all decent homes. However, they are not what people normally consider luxury in these parts of L.A. These are not mansions in Bel Air that would impress the Fresh Prince. This is not the Beverly Hills the Hillbillies dreamt of.

By contrast, there were 33 homes that met the study’s criteria and sold for more than $2.35 million. The point is that there clearly were homes that would not be considered “luxury” that pulled down the average sales number in the report.

Additionally, let’s look at sales of homes in the same areas that did not fall within the study’s criteria that I would consider “luxury.” There were at least 11 homes that sold in the first quarter that were more than 6,000 square feet in Beverly Hills, Bel Air and Brentwood alone. Here are the listings: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11. Are these not more indicative of what is considered “luxury” in this part of town? If you want further proof of how flawed the study's criteria is, consider that the home that the L.A. Times profiled when it wrote about the report didn't meet the report's criteria either: CLICK HERE

OK, I think I’ve established that the study has a flawed definition of "luxury." But what about the underlying question of whether there is a slowdown in the luxury housing market? Well, I’m going to address that in my next post.

Scheduled Foreclosures – Where are the continuing problems in L.A.?

Back in January, I did a breakdown by zip code of where the foreclosures were happening – and where they weren’t. At that time, the numbers clearly showed that while many areas of Los Angeles were drowning in foreclosures, the area broadly defined as L.A.’s Westside was not hit as hard with foreclosures as other parts of Los Angeles. Since then, there’s been a number of reports talking about how the Westside has generally weathered the housing market decline better than elsewhere. This is not to say that the Westside has not seen declines. It has. In some areas, the declines have been significant. But overall, the drops in housing prices on the Westside have not been dramatic as elsewhere in Los Angeles.


So where are things going from here?

Well, we know that there are still plenty more mortgage resets coming yet this year. So we’re definitely not out of the woods yet. The nasty subprime resets peak later this year, so we may begin to see some relief later this year. But we also have many loan recasts of those nasty option ARM loans remaining. (Yuck!).

But still, these are likely to be more of a problem in some areas than others. The reason is that in some areas – like the Westside – where housing prices have held most of their ground, where there’s still a relatively low supply, and there’s still decent demand, it will be easier for people to get out of their predicaments by selling. You see, the prices and the foreclosures are symbiotic. So, we still need to look at foreclosures by neighborhood. And even though zip codes are too big of an area to truly be considered one neighborhood, it’s as close as we’ll get from the available data.

So this time I’ve decided to look forward a bit. The following are the numbers of scheduled foreclosure auctions between April 22^nd and May 22^nd for each zip code. The source is propertyshark.com:

SAN FERNANDO VALLEY

• Woodland Hills (91364, 91367) – 13
• Tarzana (91356) – 8
• Encino (91316, 91436) – 7
• North Hollywood (91601) – 5
• Sherman Oaks (91403, 91423) – 4
• Valley Village (91607) – 3
• Studio City (91604, 91602) – 1

LOS ANGELES

• West Hollywood (90046, 90069) – 12
• Echo Park (90026) – 4
• Silver Lake (90039) – 4
• Hollywood Hills (90068) – 2
• Miracle Mile (90036, 90048) -- 3
• Los Feliz (90027) – 1

PLATINUM TRIANGLE

• Beverly Hills (90210, 90211, 90212) – 2
• Brentwood (90049) -- 1
• Bel Air/Holmby Hills – 0

WESTSIDE

• Sawtelle/West L.A. (90025) – 1
• Westwood (90024) – 1
• Cheviot Hills/Rancho Park (90064) – 1
• Pacific Palisades (90272) – 0
• Venice (90291) – 0
• All of Santa Monica (90401, 90402, 90403, 90404, 90405) – 3

See what I mean. It’s not like this is La Puente (42), Inglewood (28), Norwalk (27) or West Covina (20).

Tons of L.A. foreclosures – except on the Westside

The big real estate headline in today’s Los Angeles Times tells of record foreclosures across California – more than twice the biggest quarter in the last housing recession in 1996 – a 421 percent increase over last year. And L.A. County wasn’t spared. Foreclosures in the fourth quarter of 2007 were up 83 percent over the fourth quarter 2006 in our county.

The sky is falling! At least in some places.

But as I like to say, reading the L.A. Times won’t tell you anything about the real estate market in your neighborhood – and that’s especially true for L.A.’s Westside.

Oh yes, there are foreclosures in Los Angeles. Oh yes, housing prices are falling in Los Angeles. The last six months of 2007 were terrible for the L.A. housing market. Just look at some of these foreclosure numbers for certain areas:

FORECLOSURES – June 1-Dec. 31, 2007

• Woodland Hills (91364, 91367) – 100 foreclosures
• Tarzana (91356) – 69 foreclosures
• Encino (91316, 91436) – 54 foreclosures
• Sherman Oaks (91403, 91423) – 43 foreclosures
• Studio City (91604, 91602) – 32 foreclosures
• West Hollywood (90046, 90069) – 27 foreclosures

But then take a look at some of the most desirable areas for those same six months:

• Miracle Mile (90036, 90048) – 7 foreclosures
• Beverly Hills (90210, 90211, 90212) – 3 foreclosures
• Brentwood (90049) – 6 foreclosures
• Bel Air/Holmby Hills (90077) – 11 foreclosures

And now take a look at some other prime Westside areas:

• Sawtelle/West L.A. (90025) – 6 foreclosures
• Westwood (90024) – 11 foreclosures
• Cheviot Hills/Rancho Park (90064) – 3 foreclosures
• Pacific Palisades (90272) – 4 foreclosures
• Venice (90291) – 1 foreclosure
• Santa Monica (90401, 90403, 90404, 90405) – 10 foreclosures
• Santa Monica (90402) – not available (north of Montana where there were likely few)

The point is: Even though foreclosures are hitting California – and Los Angeles County – like crazy, they aren’t hitting the most desirable areas of the Westside.

If you want to look up foreclosures for any zip code in Los Angeles County, you can do so by CLICKING HERE.

LA Market for $10 million + homes

Overall, 2007 was a terrible year for home sales in Los Angeles. Yet homes at the highest end of the spectrum in Los Angeles did not see the kind of a freefall seen everywhere else.

As reported in The Los Angeles Times, Dec. 30, 2007, “sales in the multimillion-dollar price range were strong (in 2007) ... A look at the closings shows 63 home sales over $10 million for the area in 2007 compared to 55 in 2006. There were 12 over $20 million in 2007 in contrast with 10 over $20 million in 2006.”

And a closer look at the sub-market that I work in most frequently — Bel Air, Beverly Hills, Brentwood and Malibu — reveals that more homes sold for $10 million or more in 2007 than in any previous year, according to statistics from the Los Angeles Board of Realtors.

This is exactly why despite the slow overall real estate market, I'm currently putting together a development of 8-figure homes.