Chinese Join Winklevosses in L.A. Luxury Home HedgesJohn Gittelsohn
Blue Jay Way, a street that inspired a Beatles song, snakes above Los Angeles, lined with glassy mansions that jut like diving boards from earthquake-prone cliffs.
One of the houses, a mid-century bungalow with an oval pool and a panoramic vista of the Los Angeles basin, rents for $27,000 a month. The owner, who lives in London, paid $2.25 million, or $835 a square foot, two years ago for the three-bedroom, three-bath home.
“This is a very safe investment,” Tyrone McKillen, an agent with Beverly Hills, California-based brokerage Hilton & Hyland Real Estate Inc., said as he walked through 1505 Blue Jay Way. “It’s all about the view.”
While the cliffside properties seem perfectly perched for a Hollywood disaster movie, they’re the equivalent of “safety deposit boxes” for wealthy global investors, according to Jonathan Miller, president of appraiser Miller Samuel Inc. Like luxury London homes or Manhattan trophy apartments, California mansions are being bought by Chinese families, foreign tycoons and U.S. celebrities as a hedge against currency and stock market disasters or the vicissitudes of politics. Many investors pay in cash and don’t live in the homes themselves.
“The money is flowing here,” Jeff Hyland, president of Hilton & Hyland, an affiliate of Christie’s International Real Estate that completed sales on $1.9 billion in homes last year, said in a telephone interview. “London’s a place to park your money and grow your business. L.A. they look at as a year-round playground because of the weather and the beach and Hollywood.”
As many buyers struggle to get a mortgage or save for a down payment, investors are pushing real estate prices to new heights in some of the world’s most costly markets.
While trophy homes often sell for cash, lenders are also more willing to advance money for high-cost homes. The value of jumbo loans, those exceeding more than $625,500 in high cost areas, jumped 34 percent in the first nine months of last year to $216 billion, according to Inside Mortgage Finance. Tyler and Cameron Winklevoss, the twins famous for suing Facebook Inc. co-founder Mark Zuckerberg over the social network’s origins, got a $9 million loan from Deutsche Bank AG to buy an $18 million house near Blue Jay Way.
A record number of California homes sold for $2 million or more last year, up 33 percent from 2012 to at least 7,383 deals, DataQuick reported last month. While new wealth from initial public offerings such as Facebook and Twitter Inc. propelled multimillion dollar sales in Silicon Valley and San Francisco, absentee investors accounted for much of the increase around Los Angeles, according to DataQuick.
“The multimillion-dollar buyers have different drivers and concerns than buyers in the lower-price categories,” said Andrew LePage, a senior analyst for San Diego-based DataQuick. “When you get to $2 million or above, it has more to do with IPOs and where the wealthy want to park their excess cash.”
Absentee owners bought 27 percent of California’s $1 million-plus homes last year, according to DataQuick. They represented 39 percent in Beverly Hills, 42 percent in Los Angeles’s Bel Air neighborhood and 45 percent in the hills of West Hollywood.
Los Angeles Mayor Eric Garcetti said those types of investors are buying in “a completely different stratosphere” than the area’s middle-class residents who face a dearth of affordable housing. So he welcomes their contribution to the city’s economy and reputation.
“For too long, L.A. has not been in the global conversation,” Garcetti said in a Feb. 7 interview at Bloomberg LP’s Los Angeles office. “I want those people to come here. I want those people to talk about L.A. when they go back.”
Los Angeles luxury housing has typically been less expensive than in other major cities, according to London-based Knight Frank LLP. High-end homes sold in 2012 for $5,920 a square foot in Monaco, $5,050 in Hong Kong, $4,300 in London and $2,240 in New York, compared with $1,340 in Los Angeles, the property-consulting firm said in a March report.
In Manhattan, the median sale price of condominiums reached a record $1.32 million in the fourth quarter, according to a report by New York-based Miller Samuel and brokerage Douglas Elliman Real Estate. Luxury properties, the top 10 percent, sold for a median of $4.9 million, up 10 percent from a year earlier. According to data from StreetEasy.com, a real estate website owned by Zillow Inc., there were 145 Manhattan residences listed for more than $20 million last year, the most in records dating to 2005.
Values in prime central London, including the affluent Mayfair and Knightsbridge neighborhoods, rose for a 39th consecutive month in January, gaining 7.8 percent from a year earlier and 135 percent over the past decade, according to Knight Frank. Foreigners bought 49 percent of all central London homes that sold for more than 1 million pounds ($1.66 million) in the 12 months through June, Knight Frank reported.
In the West Hollywood enclave known as the Bird Streets, where Blue Jay Way is located, buyers have included the Winklevoss twins, producer Megan Ellison and Leonardo DiCaprio, a best-actor Oscar nominee for his role in “The Wolf of Wall Street,” who has owned a house on Oriole Way since 1999.
The Winklevosses, who competed on the 2008 U.S. Olympic rowing team and whose current ventures include an exchange-traded fund investing in the virtual currency Bitcoin, bought a remodeled home on Tanager Way with an infinity pool, screening room and gym in August 2012.
The property is listed under Heraclean Holdings LLC. In July, they refinanced their $9 million adjustable-rate loan on the house through the private wealth unit of Deutsche Bank, according to public records. The loan starts with a 3 percent interest rate that adjusts based on the London Interbank Offered Rate. The twins and their attorney, David Lehn, didn’t reply to e-mails and voice messages left at their offices.
Deutsche Bank doesn’t comment on individual transactions and maintains strict confidentiality on its clients. In general, investors can use mortgages to their advantage in today’s low-interest rate environment.
“The residential mortgage is one of many tools financially sophisticated clients use in their overall investment strategy,” said Peter Ferrara, managing director of real estate products at Deutsche Asset & Wealth Management. “A client may finance a home purchase immediately due to attractive interest rates. They also may look to that home as a source of financing for other investments later on.”
Ellison, co-producer of “American Hustle” and daughter of Oracle Corp. co-founder Larry Ellison, sold three adjacent homes on Nightingale Drive last year for a combined $46.8 million, according to property records. In December, she paid $30 million for a hilltop estate on 8 acres east of Laurel Canyon Boulevard, with a view that sweeps from downtown Los Angeles to the Pacific Ocean. The deal was seen by real estate agents as opening new territory for high-end investors.
“The house in question is probably a teardown,” said Aaron Kirman, an agent with the John Aaroe Group who co-represented the property’s seller along with Hilton & Hyland. “The views are outrageous.”
An e-mail and phone message left for Bebe Lerner, a spokeswoman for Ellison’s Annapurna Pictures, weren’t returned.
Prices in high-end Los Angeles County communities, such as Beverly Hills, Malibu and Hollywood Hills, rose 7 percent last year to an average $825 a square foot for single-family homes, according to a report by the Agency, a Beverly Hills-based brokerage. The average is just 3.6 percent below its 2008 peak.
For the broader Los Angeles market, prices are still 22 percent below their September 2006 apex, even after climbing 35 percent from the post-bubble low in 2009, the S&P/Case-Shiller index shows.
Cash-bearing foreign investors account for the majority of high-end buyers in Los Angeles’ most expensive areas, said Kirman, who showed homes this year to visitors from countries such as China, Indonesia and Tunisia.
“Many of these buyers give you a six-hour window before they fly off home,” Kirman said. “If they don’t buy here, they’ll buy in London, New York or the South of France.”
Christian Candy, the British developer who helped create London’s One Hyde Park luxury condo with his brother Nick, paid $24 million in August for a rebuilt mansion in Los Angeles’s Holmby Hills neighborhood. The home is “an investment,” Jessica Patrick, a spokeswoman for Candy & Candy Ltd., said in an e-mail from London.
The builder of that house, Kristoffer Winters, closed this month on the purchase of a hillside lot “a golf drive shot” from Ellison’s new estate, where he plans to build a 12,500-square-foot home to sell for at least $25 million, probably to an overseas investor.
“Most of the buyers now are foreigners,” Winters said in a telephone interview. “I’m designing it as if someone is coming over with staff or with guests.”
International buyers are extending their influence into middle-class neighborhoods on the outskirts of Los Angeles. East Asians bought 53 percent of new homes sold last year in Irvine, a city 40 miles (64 kilometers) southeast of Los Angeles with a reputation for low crime and high-achieving schools, according to John Burns Real Estate Consulting Inc.
At least one builder worries about becoming too dependent on money from China, which may stop flowing if there’s a government crackdown or as a result of the economic downturn there.
It may be a risk for builders to become too dependent on buyers coming from China, Bert Selva, chief executive officer of Shea Homes, a closely held builder based in Walnut, California, said at an industry conference in January.
“You start to feel one group that’s inelastic, and that concerns me,” he said.
Los Angeles was the No. 2 city after New York searched by Chinese real estate shoppers on the website Juwai.com, with a growing number seeking knock-down and rebuild opportunities, according to Dave Platter, a spokesman for the Hong Kong-based company.
“Chinese buyers take up this trend because in Los Angeles, at the moment, stock is limited and prices are low,” Platter said in an e-mail. “They find it easier to knock down an existing house than to find one that meets their needs.”
Not all of the highest-priced homes find buyers. The Beverly House, a 3.7-acre Beverly Hills compound originally built for William Randolph Hearst and Marion Davies, failed to sell after a year with an asking price of $115 million. The owner, Beverly Hills attorney Leonard M. Ross, pulled it off the market this month because he expects better offers in the future. It’s still available for rent at $600,000 a month.
“Considering the current world economic and political situation, I expect values to rise,” Ross said in an e-mail. “I do not believe that this is the time for the fabled, incomparable estate to be sold.”
Local investors are scouring the priciest areas of Los Angeles for lots with aging homes that can be replaced by higher-value rebuilds.
Bob Etebar, a Beverly Hills developer and principal of family-owned Etco Homes Inc., intends to build a 10,500-square-foot residence on a Blue Jay Way lot he bought in October for $3.7 million. Etebar and his brother Afshin expect to sell the new residence for more than $20 million. Another property on Blue Jay Way sold for $5.25 million on Dec. 31 to an investor who plans a rebuild on the lot, according to Robin Plunket, an agent with Keller Williams Realty Inc. who represented the seller, hair stylist Christophe Schatteman.
“It’s a $5.25 million teardown,” said Plunket, a London native who has lived in Los Angeles for 30 years. “L.A. is still the lowest cost of any major city. Compared with London, L.A.’s cheap.”
Los Angeles also has a benevolent climate and a glamorous reputation. Marilyn Monroe posed in a Blue Jay Way home in 1962, one of her last photo shoots before her death. George Harrison, the late Beatle, wrote a 1967 psychedelic song called “Blue Jay Way” about waiting for friends lost in “a fog upon L.A.”
It was clear and 72 degrees Fahrenheit (22 degrees Celsius) last week when McMillen stood poolside at 1505 Blue Jay Way, the sun-splashed city spread at his feet, a scene that transforms to a carpet of starry lights at night.
A renovated house across the street sold in November for $15.6 million, or $2,219 a square foot. A neighboring property is on the market for $16 million, or $50,000 a month to lease.
“It’s a very in-demand street,” McKillen said. “The celebrity status has an effect. But the only reason they’re here is because of the views.”