Los Angeles Times
In L.A. real estate, $10 million is the new $1 million
If you think that equity windfall will buy the house of your dreams, brace yourself.
By Shawn Hubler
Times Staff Writer
August 29, 2004
To appreciate the new math of this Southern California real estate market, consider the $10-million home.
Tom and Michelle Rhodes did. Not that that's what they'd wanted. What they'd wanted was to trade up from the five-bedrom tract house they had bought five years ago in one of Newport Beach's most family-oriented sectors.
When the home for which they'd paid $800,000 sold this year for a thrilling $2.36 million, the Rhodeses - a 43 year-old contractor and pharmacist-turned-homemaker, respectively, and three school-aged children - figured they'd soon be moving into the Taj Mahal bracket. Five million dollars, they proudly told their real estate agent, who promptly showed them a parade of lot-line-to-lot-line McMansions, most with no yard, some in neighborhoods that weren't even gated.
"I don't know what I was expecting," Tom Rhodes said, still mildly flummoxed. "Better views for sure. And bigger closets." It soon became clear that the dream house that they'd pictured - half-acre lot, great ocean views, wine cellar, home theater, elbowroom commensurate with the price tag - was going to run them eight figures. And in fact, now that they have it, they say it was a bargain at $10.9 million.
"It's amazing" Tom Rhodes now marvels, "what that kind of money won't buy anymore."
Once upon a time, $10 million was the tippy-top of the housing market, even here, in one of the nation's most rarefied markets for real estate. Ten million bucks was, in the 1970s, about ten times the then-record price of the Playboy Mansion. It was, in the 1980s, waht Aaron Spelling paid for the 6-acre former Bing Crosby estate.
Even in the 1990s, even among rich folks, $10 million was freakishly big noney; only a handful of homes each year sold in that range. Not Madonna, not Cher, not Arnold Schwarzenegger, lived in $10 million houses, at least in those days.
Now, however, even with the market momentarily cooling, real estate agents say $10 million is your basic starter mansion. "In the high bracket," said Beverly Hills real estate broker Cecelia Waeschle, "$10 million is now almost the norm."
Waeschle should know. For almost twenty years cross-referencing public records and private sources on the real estate grapevine, she has carefully tracked the home sales in the Hollywood Hills-to-Malibu swath of Los Angeles County that encompasses the West Coast's highest concentration of $10-million-plus homes.
Among real estate professionals in Los Angeles, Waeschle's personal list has become a crucial point of reference, in part because discretion - long a watchword in high-end real estate transactions - has become a near-fetish in the current market. According to agents, appraisers and county officials, confidentiality agreements have spiked in popularity in the last three years, as has the use of mechanisms that keep home sales prices and the tax information from which they might be deduced out of the public record.
On or off the books, however, 2004 is shaping up to be a record year for $10-million-plus home sales. With the year scarcely half over, Waeschle says she has already counted 30 just on the Westside, the area's highest number ever. A similiar list, maintained in southern Orange County by Bill Cote', a veteran Newport Beach agent, shows five such home sales, just two shy of the county's record, set last year.
Meanwhile, LaJolla-based DataQuick Information Systems, which relies exclusively on public records, has recorded 27 openly documented home sales of more than $10 million statewide this year. Because so many high-end sales prices are shielded from the public, DataQuick's numbers are substantially lower than counts kept by agents, but even so, the firm, which compiles housing data, reports that this year has already matched the last statewide high mark, set four years ago.
DataQuick analyst John Karevoll says the high end of the housing market tends not to be driven by the same variables that affect most home buyers, such as mortgage rates. Sales over $10 million tend to be all-cash or complex asset swaps and rarely hinge on the availability of a conventional mortgage.
"Obviously," he said, "people who can buy a $10-million house have different issues in their lives, such as, 'Hmmm, where do I park this money I inherited or sold my company for or something - stock market? Naah. Bonds? Buy a jet? How about property?'"
Fueling the market
Thus, Karevoll said, the demand for high-end homes has risen in part because of the doldrums on Wall Street have made real estate a comparatively more attractive investment. Indirectly, however, at least some of the $10 million-plus market has been fueled by current low interest rates.
Cheap mortgages, he said, have heightened demand for $1-million and $2-million houses, and as those owners have traded up, demand has shot up at the top of the market. In that sense, Karevoll said, "everybody's floating on the same rising tide."
"It's like a trickle-up effect," agreed Beverly Hills broker Jeff Hyland, a native of Little Holmby and a coauthor of a book on Beverly Hills estates. "The $10 million dollar buyer is probably moving up from a house he just sold for five to someone who sold theirs for three who just sold to a starter buyer. And those magnificent mansions that used to sell for for $10 million are now 20 and 30 apiece." By most measures, that's a lot of dough for a roof and four walls, but appraisers and agents say that the biggest part of an eight-figure home price - or any price, for that matter - is the land value.
"What bumps it up is acreage," said long-time Bel-Air broker Bruce Nelson, who this year helped a client get $12.3 million for two vacant lots on Sunset Boulevard near the Beverly Hills Hotel. (It's the big, fenced site that once held the estate of the late Sheik Mohammed al-Fassi, the Saudi royal who, in the 1980s rocked the neighborhood by painting his nude statues flesh-tone and his mansion lime-green).
"When the price of the dirt goes up, the value of the property goes up."
Agents and appraisers say that a vacant lot on a decent street in the so-called Platinum Triangle - Beverly Hills, Holmby Hills, Bel-Air - now averages $5 million dollars an acre. A lot on the Pacific Ocean in Newport Beach has been selling for upward of $125,000 per linear foot of beachfront. In parts of Malibu, that same "front-foot" as it is termed, has been bid up to $200,000 or higher.
Malibu locals blame a run-up in sales there during the last several years among show business people and second-home buyers who became nervous about international travel after Sept. 11, plus an eye-popping shpping spree by Oracle Corp. founder Larry Ellison. Over the last two years, the Silicon Valley billionaire has bought seven properties on Carbon Beach to the tune of nearly $100 million.
"Carbon Beach was already going up, but because of what he did, it's now the single most expensive beachfront in Malibu," laughed Alan Mark, a long-time local agent. "When he came in, the comps went crazy. He probably jumped the price of a front-foot a good 25%."
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