The Reserve is a six-bedroom, 11-bath Art Deco mansion in Los Angeles that Kristoffer Winters
spent more than two years rebuilding and decorating down to its
monogrammed bathroom towels. His asking price was $25 million.
“The gentleman that bought it got it completely
furnished,” Winters said during an interview at the Holmby
Hills estate, a six-minute walk from the Playboy Mansion. “The
day we close escrow, he can actually throw a dinner party.”
Their deal is scheduled to close today.
Speculative building and flipping of homes with $20
million-plus price tags are rebounding in the toniest areas of
Los Angeles as buyers, many from overseas, are drawn to the land
of swimming pools and movie stars. Sales stalled after the 2008
real estate crash when demand and financing dried up. A stronger
economy and scarce listings are driving prices skyward again.
“One percent of the one percent are overly rich and they
go to only a few cities in the world,” said Alessandro Cajrati
Crivelli, chief executive officer of Est4te Four Capital, a
developer of fashion and design showrooms in London, New York
and Los Angeles who is building five spec homes as large as
20,000 square feet (1,858 square meters) in Holmby Hills and
nearby Bel Air. “London is No. 1 in the world and New York is
No. 2. And the only other American city that I think can attract
the international set is Los Angeles.”
The revival of luxury spec homes illustrates a growing
divide in the global housing market, where cash-rich investors
have the edge over people who need a mortgage in every segment
of the market. Winters, who previously partnered on two dozen
smaller projects with actor Jeremy Renner, sold the Reserve to a
man from London, whom he declined to name.
Global Currency
“Luxury real estate is the new global currency,” Jonathan Miller, president of New York-based appraiser Miller Samuel Inc.
said in a telephone interview. “They’re building the world’s
most expensive safety deposit boxes.”
More than half of housing purchases since 2012 were
financed with cash compared to 10 percent in 2005, when mortgage
lending standards were less tight, Goldman Sachs Group Inc.
economists Hui Shan, Marty Young and Charles Himmelberg wrote in
an Aug. 14 report.
“Before the crisis, for each dollar of home sales
transaction, 67 cents were taken out to finance the
transaction,” the report said. “Currently, only 44 cents are
being borrowed to finance each dollar transaction.”
U.S. all-cash sales accounted for 31 percent of
transactions in June, up from 29 percent a year earlier, as
median prices climbed 13.5 percent from a year earlier to
$214,200, according to the National Association of Realtors. The
U.S. homeownership rate maintained an 18-year low of 65 percent
for the quarter ending June 30, according to Census Bureau data.
‘Tiny Share’
Sales of U.S. homes for more than $1 million jumped 25
percent from a year earlier while sales for less than $100,000
fell 19.6 percent, the real estate trade group reported from
Washington.
Trophy homes are “still a tiny share of the market,” said
Stephen Melman, an economist for the National Association of
Home Builders. “We’re more worried about the fact that first-time homebuyers can’t qualify for a mortgage. That’s one of the
reasons the markets are recovering so slowly.”
Ultimate Homes, a guide to the most expensive U.S. houses,
listed 270 residences with asking prices at $20 million or more
in its annual edition published in May, a month when the
National Association of Realtors reported 2.15 million homes
were on the market.
Ready Market
While many high-cost homes take months or years to sell,
sometimes because they’re listed for unrealistic asking prices,
there’s a shortage of new mansions in Los Angeles because
builders haven’t added inventory for years, according to Joyce
Rea, executive director with Coldwell Banker Previews
International in Beverly Hills. Buyers with cash want new homes
in move-in condition and don’t have time to supervise
construction themselves, she said, providing a ready market for
spec houses.
Rea, who sold $200 million in homes last year, was a
listing agent for Le Palais-The Crescent Palace, a 48,000-square-foot (4,460-square-meter) Beverly Hills spec house. It
sold in June for $32.75 million, according to Redfin Corp.
More Demand
“We need more of them,” Rea said in a telephone
interview. “We have very strong demand for the product once
it’s ready.”
While London has reigned as the top market for
international mansion investors, money is moving to the United
States because property is still relatively cheap by global
standards, according to Miller. London luxury homes sold for
$3,890 to $4,300 a square foot ($41,900 to $46,300 a square
meter) in the fourth quarter of last year compared with $2,030
to $2,240 in New York and $1,210 to $1,340 in Los Angeles,
according to a March report by Knight Frank LLP, a London-based
real estate services firm.
The three most popular U.S. Zip codes searched by overseas
buyers over the last year were all in the Los Angeles area:
Holmby Hills and Bel Air’s 90077, Beverly Hills’ 90210 and West
Hollywood’s 90069, online real estate information service Trulia
Inc. (TRLA) reported in April. Miami’s 33131 and downtown Manhattan’s
10013 ranked fourth and fifth.
Greenwich Inventory
Spec home building has a long way to recover in much of the
country. There was a 3.9-month supply of unsold new homes on the
market in June, the lowest inventory since 2004, according to
the Commerce Department.
In Greenwich, Connecticut, home to many of the financial
world’s elite bankers and money managers, the high-end market is
still working through spec inventory built before the 2008
financial crisis, according to Miller. In the Hamptons on Long
Island, the summer haven for rich New Yorkers, spec builders are
targeting homes for $15 million or less, down from peak target
prices above $20 million, according to Joseph Farrell, owner of
Farrell Building Co. in Bridgehampton, New York.
“I need closings,” Farrell said. “I can’t wait for $18
million closings.” He’s preparing 20 spec homes in the Hamptons
for 2014, about the same as last year, which was his busiest
since the housing bubble popped in 2008.
Miami Beach, Florida, is another city where a spec home
recovery is underway, driven by buyers from New York, Latin
America or Europe shopping for a third or fourth mansion,
according to Oren Alexander, a broker with Douglas Elliman Real
Estate. He set a local record with a $47 million spec home sale
last year.
Home Collectors
“Some people collect cars, some collect watches and some
collect girlfriends,” said Alexander, whose father built the
waterfront spec home purchased by a “Russian friend.” “The
people that are buying these homes don’t look at it on the cost
basis of how much it is to spend two weeks a year in Miami. It’s
more about having a trophy property.”
Trophy homes can be risky investments because they’re not
liquid and they come with high carrying costs, such as taxes,
maintenance and security, according to Kacy Gott, a San
Francisco-based director at Aspiriant, a wealth-management firm.
“There are so many headaches, we don’t see a lot of upside
to it,” he said.
Financing for spec builders and flippers of multi-million
dollar Los Angeles homes is starting to become available as
boutique lenders gain confidence in the market. Arixa Capital
Advisors LLC lends to investors for acquisition and renovation
of homes selling for as much as $6 million, according to Jan
Brzeski, founder of the Los Angeles-based fund. The loans are
typically for one year at 9.9 percent interest rates and limited
to 75 percent of the project’s cost, he said.
‘Deep Pool’
“There’s a deep pool of buyers for a $6 million house,”
Brzeski said. “Above $6 million is a more rarefied market,
where we don’t feel completely comfortable yet.”
New homes in such Los Angeles-area communities as West
Hollywood, Beverly Hills, Bel Air or Holmby Hills sell for more
than $2,000 a square foot, according to Stacy Gottula, an agent
with Coldwell Banker Previews in Beverly Hills.
“Developers have scooped up a lot of land where they’re
going to build spec homes, especially in the hills,” said
Gottula, who has closed three homes for more than $25 million
this year. “The demand right now is for high-end contemporary
view homes.”
Celebrity Connections
Los Angeles attracts international home buyers because of
its balmy climate, Hollywood glamour and the variety of
landscapes from the Malibu beachfront, to the leafy estates of
Beverly Hills to the hillside perches above the lights of West
Hollywood, according to Mauricio Umansky, whose listings include
three spec homes with asking prices above $20 million.
Celebrity connections also help drive international sales,
said Umansky, who appears on “The Real Housewives of Beverly
Hills,” a series broadcast by Comcast Corp. (CMCSA)’s Bravo cable
network, where his wife Kyle Richards is a cast member.
“I get e-mails from people in Russia and Korea and
Australia who saw the show who want to see my houses,” Umansky,
CEO of the Agency, a Beverly Hills-based firm he co-founded in
2011. “We’ve taken advantage of the notoriety.”
Winters, 39, developed the Reserve after partnering on
smaller projects with Renner, who starred in “The Hurt Locker”
and “The Bourne Legacy.” The earlier homes, which sold in the
$4 million to $6 million range, each took almost as many phone
calls and workers as the Reserve, which is why he decided to go
big, he said.
Winters razed everything but two chimneys from an older
house on the Reserve’s two-acre (8,000-square-meter) lot off
Sunset Boulevard, which allowed him to speed up permitting
because it was technically a renovation and lowered the property
taxes compared with a new build, he said. He doubled the floor
area to 10,005 square feet, boosted the ceilings to as much as
18 feet, added 11 indoor and outdoor fountains and a 12-seat
screening room outfitted with lighting fixtures salvaged from
1920s movie theaters.
“Jeremy and I did very well, even during the tough
times,” he said. “Right now you’re seeing a lot of luxury
homes that are coming online by spec builders who saw the market
getting hot a year ago. Three years ago you couldn’t find
anybody.”
To contact the reporter on this story:
John Gittelsohn in New York at
johngitt@bloomberg.net
To contact the editor responsible for this story:
Kara Wetzel at
kwetzel@bloomberg.net
L.A.’s Trophy Homes Star in Sequel for Luxury Market
Jason Mitchell/BuzzFoto/FilmMagic via Getty Images
An aerial view of the Holmby Hills’ house on which Mariah Carey reportedly made an offer in Los Angeles, California is seen on March 20, 2009. The three most popular U.S. Zip codes searched by overseas buyers over the last year were all in the Los Angeles area: Holmby Hills and Bel Air’s 90077, Beverly Hills’ 90210 and West Hollywood’s 90069.
An aerial view of the Holmby Hills’ house on which Mariah Carey reportedly made an offer in Los Angeles, California is seen on March 20, 2009. The three most popular U.S. Zip codes searched by overseas buyers over the last year were all in the Los Angeles area: Holmby Hills and Bel Air’s 90077, Beverly Hills’ 90210 and West Hollywood’s 90069. Photographer: Jason Mitchell/BuzzFoto/FilmMagic via Getty Images