Instead of addressing California’s crippling drought with network of desalination plants (a plan which actually had the support of Gov. Gavin Newsom until the state’s HOA – aka the Coastal Commission – shot it down earlier this year), the city of Los Angeles and other agencies across Southern California are considering a plan to recycle wastewater into tap water.
(Tom Tapp) The Los Angeles City Council voted 13-0 today to have the city attorney prepare an ordinance requiring people to show proof of at least partial vaccination against Covid to enter most public indoor spaces in the city, including restaurants, bars, gyms, concert venues, movie theaters and even “retail establishments.”
Los Angeles’ head of homelessness announced on Tuesday, December 10, 2019 that he will be resigning after presiding over a 33 percent increase in homelessness during the last five years.
Peter Lynn, the head of the Los Angeles Homeless Service Authority, revealed that he would leave at the end of the year.
According to Paul Joseph Watson of Summit News, LAHSA reportedly spent $780 million with no effect.
The city’s homeless population grew even larger from 2018 to 2019, where it witnessed a 12 percent increase in that period.
Even with these unsavory facts in front of him, L.A. Mayor Eric Garcetti believed he did an amazing job and presided over “historic action.”
Lynn was apparently making $242,000 while homelessness went up along with cases of leprosy, typhoid fever, and even bubonic plague.
A few months ago, Dr. Drew Pinsky said L.A.’s public health infrastructure was a complete mess.
Builders and brokers are throwing blowout bashes and testing an array of marketing stunts amid the area’s spec home bubble
(WSJ) Heavy duty vehicles line both sides of many of the winding two-way streets in the Hollywood Hills, making them treacherous single-lane thoroughfares. Construction workers wave stop signs as trucks laden with glass and steel back slowly out of driveways. Empty parcels of land all over Los Angeles’s poshest neighborhoods are being transformed into lavish mansions with price tags in the tens, or even hundreds, of millions.
“Every time I drive up there for any reason, if I return without getting my car dinged I breathe a sigh of relief,” says Andy Butler, a real-estate marketing consultant.
Real-estate experts estimate that there are about 50 ultra high-end spec houses under construction in the area, from Beverly Hills to Bel-Air and Brentwood.
The unprecedented wave of development has its roots in the heady days of 2014 and 2015, when foreign buyers poured into Los Angeles and luxury markets across the country logged record sales. A couple of local megawatt deals—including the $70 million sale of a Beverly Hills compound to billionaire Minecraft creator Markus Persson in 2014—inspired the construction of bigger and pricier homes, most of which were built as contemporary cubes. Some were built by inexperienced developers; many had price tags north of $20 million.
Now, there are simply too many, and not enough buyers to go around. “It’s created its own monster,” says Stephen Shapiro of Westside Estate Agency. “We have an enormous oversupply of these white boxes. There’s years of inventory out there.”
A review of the Los Angeles multiple listings service shows close to 100 homes on the market asking over $20 million in Los Angeles County, at least 35 of which could be classified as spec homes, and more are under construction. And those are just the listed ones: Appraiser Jonathan Miller says more than a third of homes in that price category are never entered in the MLS. Some of the city’s most expensive are notably absent.
The surplus mirrors a similar situation in New York, where high-end developers rushed to build pricey condos amid a market upswing, and are now faced with enormous competition for buyers.
But unlike New York, smaller, private lenders and wealthy individuals have provided much of the financing for the Los Angeles spec homes.
Don Hankey, a California businessman known as the king of subprime car loans, says one of his companies has provided close to $300 million on high-end homes in the Los Angeles market, including on spec homes. Public records show Hankey Capital provided about $82.5 million in financing to “The One,” an almost-built megamansion by Los Angeles developer Nile Niami, who plans to list it for $500 million.
That asking price is more than twice the record paid for a home in the U.S., a record set earlier this year by hedge funder Ken Griffin’s purchase of a nearly $240 million penthouse in New York. The record price for a Los Angeles area home was set by the $110 million sale of a Malibu mansion in 2018.
“You have to be concerned,” Mr. Hankey says of the oversupply. “We’ve cut back. We’re not as aggressive in the financing.”
Other lenders on pricey spec homes include Axos Bank, formerly Bank of Internet, which financed a massive $180 million monolith built by plastic surgeon and newbie developer Raj Kanodia.
The debt load for developers can be substantial. “If I’m living in my house and I put it on the market for sale, I’m still living in my house,” Mr. Shapiro says. “These are empty houses, and the developer is spending a lot every month to keep them.”
In this environment, and amid signs that prices are falling, developers and their agents are going to extraordinary lengths to differentiate their listings from the pack. They are throwing themed bashes in lieu of traditional open houses, thinking up gimmicky new amenities and hiring marketing experts to reimagine homes as individual brands with their own names, logos and stories. Some developers are relisting plots of land, hoping to get their money out without sinking more money into construction.
“People come to us because they want to stand out,” says Alexander Ali, whose marketing and public relations firm the Society Group is finding a growing business in creating brands for megamansions. “There are so many new homes coming to the market every day.”
Mr. Ali’s latest exercise: Turning a roughly 7,600-square-foot contemporary home in Trousdale into “WARHOL 90210,” a property branded around artist Andy Warhol. Mr. Ali and the developer, Wystein Opportunity Fund, joined with a local gallery to display Warhol prints in the home. At a Warhol-themed disco to be held on site, a Warhol look-alike will be filmed striding through the party; the resulting video will be blasted out on social media. (The house has no connection to Mr. Warhol.)
Mr. Ali convinced the agent that Mr. Warhol’s onetime car—a 1974, two-toned, Rolls-Royce Shadow—and the Warhol prints featured in the home should be included in the deal. “It defines the house as a collector’s dream,” Mr. Ali says. The whole package seeks $17.75 million. The house can be sold separately for $15.625 million.
In February, Mr. Niami threw an elaborate party inspired by Dutch artist Hieronymus Bosch’s painting “The Garden of Earthly Delights” in a home he is listing for $39.995 million. Its three levels were organized into heaven, earth and hell, and models in colorful tulle dresses swam in the property’s glass bottomed pool, said Mr. Ali, who organized the party.
There were actors posing as Adam and Eve while hosting a virtual reality game that allowed guests to enter a rendition of the Bosch painting. People drank whiskey infused with the body of a dead cobra, and dancing women dressed in leather, whips and chains. A camel stood at the entrance to greet guests.
In Bel-Air, real-estate brokerage firm the Agency recently threw a “Great Gatsby” themed event to launch a $35.5 million spec house. A female performer in a bedazzled costume hung upside down from a trapeze to pour champagne for guests, while another floated on the pool in a transparent bubble.
Mr. Ali says developers will pay anywhere from $20,000 to hundreds of thousands to throw such events.
In addition to the parties, developers are always on the hunt for creative new amenities. “It’s about the wow factor,” says spec home developer Ramtin Ray Nosrati, whose under-construction mansion in Brentwood includes a secret room for growing and smoking marijuana.
The ventilated room, accessed by hitting a button hidden inside a living room bookcase, will have tinted windows that darken for privacy. The house, slated to ask between $30 million and $40 million, will also come with a budget for an employee to supervise growing and harvesting. Mr. Nosrati compared the amenity to “having your own vineyard.”
Despite all this, price cuts are the order of the day. Bruce Makowsky, a handbag designer-turned-developer who sold the Minecraft property, lowered the price of his latest project, a lavish Bel-Air house with a candy room and a helipad, to $150 million, down from its original $250 million asking price. Mr. Niami slashed the price of a sprawling 20,500-square-foot house known as Opus to $59.995 million, down from $100 million.
Developer Ario Fakheri has chopped the asking price for his Hollywood Hills home with a roughly 300-gallon indoor shark tank to $26.995 million from $35 million.
Sales are still happening: Approximately 11 deals have closed for more than $20 million in Los Angeles so far this year, and a Saudi buyer recently paid $45 million for a spec home built by diamond manufacturer Rafael Zakaria. But buyers know they have the upper hand. “People are making lowball offers,” says Mr. Shapiro of Westside Estate Agency. “They’re not being shy.”
Doug Barnes, the founder of Eyemart Express, sold a contemporary home in Beverly Hills for $34.65 million in April, or nearly 40% off its original $55 million asking price, records show. British restaurateur and Soho House co-owner Richard Caring is listing a home he bought in Beverly Hills for $29.995 million; he paid $33 million for it in 2016, records show.
As for “The One,” the $500 million property was originally slated to come on the market in 2017 but has yet to be listed. The developer blamed construction delays.
Corrections & Amplifications: Stephen Shapiro of Westside Estate Agency said buyers know they have the upper hand in negotiations to purchase high-end spec homes. An earlier version of this article incorrectly stated that sellers have the upper hand. (May 30, 2019)
Appeared in the May 31, 2019, print edition as ‘The Spec Home Bubble.’
Source: by Katherine Clarke | The Wall Street Journal via @kathieClarkeNYC
($150-million spec house, dubbed “Billionaire.” Perched above Bel Air, the four-story mansion offers a world of pure imagination within its walls.) It’s hard to overstate the opulence showcased in developer Bruce Makowsky’s
Jockeying for attention across 38,000 square feet are 12 bedrooms, 21 bathrooms, three kitchens, 130 artworks, a 40-seat movie theater, a $30-million fleet of exotic cars, two wine cellars stocked with Champagne, a four-lane bowling alley and a candy room filled with towering cylinders of sweets.
Image is everything when seeking nine figures for a single estate. What, then, happens when that image is allegedly tainted? That’s what a lawsuit filed by the self-assured, suede-jacket-wearing Makowsky against real estate company Zillow aims to find out.
Earlier this year, Zillow falsely showed that the mega-mansion sold for tens of millions less than its asking price. Makowsky sued for $60 million in damages, citing permanent harm to the property’s perception.
On April 19, Zillow filed to dismiss the suit, chiefly citing a section of the Communications Decency Act that protects web operators from being responsible for information published by its users. The hearing is set for June 24.
The sham began in February, when an unknown user with a Chinese IP address and fake phone number side-stepped Zillow’s security measures and toyed with the sale prices displayed on the mansion’s listing.
Zillow displays pages for roughly 110 million homes in the U.S., and it allows owners to go in and change information about their home when necessary. Usually, that means noting a recent remodel or added square footage that may affect a home’s value, but the feature also opens the door for false information.
On Feb. 4, Zillow showed that Makowsky’s home — which is on the market for $150 million — sold for $110 million. It never did. Over the course of the next week, the real estate site falsely reported sale prices of $90.54 million and $94.3 million, as well as a phantom open house that never took place.
Soon after, Makowsky’s attorney Ronald Richards pointed out the falsities to Zillow’s legal team in an email. After some back and forth, included in the lawsuit, Kim Nielson, senior lead counsel for Zillow Group, responded with this:
“Any home on our website can be claimed by the homeowner. There are a series of questions that must be answered, but if someone attempts to claim it enough times, they will know the questions asked (and be able to figure out what information they need to verify their identity).”
She added that not all claims are manually reviewed, which allowed the user to manipulate the listing details without proving their identity.
Later that month, a limited liability company owned by Makowsky filed the lawsuit seeking $60 million in damages. It claims that Zillow “admittedly published false information” and destroyed the property’s perception as an elite listing worth more than $100 million.
Makowsky himself has axed the price twice since bringing the spec house to market for $250 million two years ago. He most recently trimmed the tag to $150 million in January, saying that he was just trying to be realistic.
Taking aim at Zillow’s security process, the lawsuit alleges that Zillow has no safeguards in place to stop trolls or criminals from claiming a property and posting false information.
A spokeswoman for Zillow declined to comment on the pending litigation but stressed that it goes to great lengths to display current and accurate data on its website, which is largely sourced from public records.
The complaint also stresses Zillow’s market power. The website leads the real estate industry with an estimated 36 million unique monthly visitors, and Makowsky said multiple colleagues called to congratulate him on a sale that never happened.
But of those millions of monthly visitors to Zillow, few are searching for homes priced in the nine figures other than for aspirational reasons. Fewer have the actual means to afford it.
Only a handful of local L.A. residents, and a small market outside of that, have the ability to buy homes listed for north of $100 million. As of 2017, there were 680 billionaires in the U.S, according to the research firm Wealth-X, and about 2,750 worldwide.
Jerry Jolton, an agent with Coldwell Banker Residential Brokerage, said three things need to come together to sell a home in the $100-million arena: luck, timing and the right client.
“We’re dealing with a very exclusive group of people who’ve attained such wealth,” he said.
Oftentimes, developers eye international wealth when floating a nine-digit listing. However, Jolton said foreign buyers account for only around 21% of L.A.-area homes sales over $20 million.
Beyond visitors to online listing services, Makowsky faces another challenge in his pursuit of a high-dollar deal: comparable sales in the tony Westside area.
Michael Sahakian, also with Coldwell Banker, sold the property that now holds Makowsky’s mansion back in the ’90s. While noting the estate’s opulence, he said its placement in East Gate Bel Air — one of the city’s most exclusive and pricey pockets — will make selling it a challenge.
Most homes there sell for around $2,000 to $3,000 per square foot. For context, Makowsky’s estate is on the market for $3,947 per square foot.
Still, because an acre of East Gate goes for around $20 million, it’s rare for a home larger than 30,000 square feet to go up for sale.
Makowsky, in his early 60s, made his fortune selling handbags on QVC before shifting to high-end real estate about eight years ago as the head of BAM Luxury Development Group.
His development brand is largely a reflection of his own extravagant interests and tastes; many of the lavish furnishings, finishes and other accouterments incorporated into his projects are sourced from his travels around the world. Custom furnishings produced by high-end brands such as Fendi, Bentley and Louis Vuitton often play an integral role in his homes.
Among his notable projects was a testosterone-infused showplace in Beverly Hills that featured a $200,000 sculpture of a giant blue hand grenade and a replica of James Dean’s motorcycle. Originally listed at $85 million, the 23,000-square-foot house sold in 2014 to Minecraft creator Markus Persson for $70 million.
With its nation-leading murder rate, lake-effect weather, endemic corruption and financial mismanagement, who really wants to live in Chicago? Well, the data is in, and as Mayor Rahm Emmanuel prepares to hand power to a new administration next year, his legacy – already marred by the above-mentioned scourges – has accrued another ignominious distinction. According to Census data analyzed by Bloomberg, Chicago experienced the highest daily net migration in the US, losing 156 residents a day (strictly due to migration, not murder) a day in 2017.
After Chicago, Los Angeles came second with 128, followed by New York with 132.
On the other side of that coin were cities across the US sun belt, like Dallas (No. 1, with 246 net incoming), followed by Phoenix (with 174) and Atlanta (No. 3 with 147).
In terms of total net migration for the year, the tallies differed only slightly. While the sun belt was the biggest beneficiary of Americans’ growing preference for sunnier weather, lower rents and plentiful job opportunities…
Dallas was the greatest beneficiary of this domestic migration, adding nearly 59,000 domestic movers in 2017, followed by Phoenix (51,000) and Tampa (41,000), which serve as anchors for the western and southern regions that got the bulk of the gains.
…some of America’s largest cities saw net outflows as rising rents, crumbling (or inadequate) public infrastructure. The city with the biggest outflow was NYC, followed by Los Angeles and – in third place – beautiful Bridgeport, Conn.
On the flip side, more than 208,000 residents left the New York City metropolitan area last year. This was nearly twice as many as the second biggest loser, Los Angeles, which had a decline of nearly 110,000. Chicago fell by 85,000. Honolulu, San Jose, New York and Bridgeport, CT lost the highest shares of their residents to other parts of the country.
In Chicago, New York and Los Angeles, the three areas with a triple-digit daily exodus, people are fleeing at a greater rate than just a few years earlier. Soaring home prices and high local taxes are pushing local residents out and scaring off potential movers from other parts of the country.
But maybe if Emmanuel’s successor can successfully implement the outgoing mayor’s plans for a city wide UBI (which we imagine would go a long way toward offsetting its hated ‘amusement tax’ and other levies needed to pay off the city’s brutal debt burden), maybe he can bribe residents into staying.
Los Angeles, home to one of the least affordable housing markets in North America, is now proposing to expand rent control to “fix” its housing problem.
As with all price control schemes, rent control will serve only to make housing affordable to a small sliver of the population while rendering housing more inaccessible to most.
Specifically, city activists hope that a new bill in the state legislature, AB1506, will allow local governments, Los Angeles included, to expand the number of units covered by rent control laws while also restricting the extent to which landlords can raise rents.
Currently, partial rent control is already in place in Los Angeles and landlords there are limited in how much they can raise rents on current residents. However, according to LA Weekly, landlords are free to raise rents to market levels for a unit once that unit turns over to new residents.
This creates a situation of perverse incentives that do a disservice to both renters and landlords. Under normal circumstances, landlords want to minimize turnover among renters because it is costly to advertise and fill units, and it’s costly to prepare units for new renters. (Turnover is also costly and inconvenient for renters.)
By limiting rent growth for ongoing renters, however, this creates an incentive for landlords to break leases with residents — even residents who the landlords may like — just so the landlords can increase rents for new incoming renters in order to cover their costs of building maintenance and improvements. The only upside to this current regime is that at least this partial loophole still allows for some profit to be made, and thus allows for owners to produce and improve housing some of the time.
But, if this loophole is closed, as the “affordable housing” activists hope to do, we can look forward to even fewer housing units being built, current units falling into disrepair, and even less availability of housing for residents.
Why Entrepreneurs Bring Products to Market
The reason fewer units will be built under a regime of harsher rent control, is because entrepreneurs (i.e., producers) only bring goods and services to market if they can be produced at a cost below the market price.
Contrary to the myth perpetuated by many anti-capitalists, market prices — in this case, rents — are not determined by the cost of producing a good or service. Nor are prices determined by the whims of producers based on how greedy they are or how much profit they’d like to make.
In fact, producers are at the mercy of the renters who — in the absence of price controls — determine the price level at which entrepreneurs must produce housing before they can expect to make any profit.
However, when governments dictate that rent levels must be below what would have been market prices — and also below the level at which new units can be produced and maintained — then producers of housing will look elsewhere.
Henry Hazlitt explains many of the distortions and bizarre incentives that emerge from price control measures:
The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate.
Rent control … encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space.
Nor surprisingly, when we look into the current rent-control regime in Los Angeles, we find that newer housing is exempt, just as Hazlitt might have predicted. Unfortunately, housing activists now seek to eliminate even this exemption, and once these expanded rent controls are imposed, those on the outside won’t be able to bid for space in either new or old housing.
Newcomers will be locked out of all rent-controlled units — on which the current residents hold a death grip — and they can’t bid on the units that were never built because rent control made new housing production unprofitable. Thus, as rent control expands, the universe of available units shrinks smaller and smaller. Renters might flee to single-family rental homes where rent increases might still be allowed, or they might have to move to neighboring jurisdictions that might not have rent controls in place.
In both cases, the effect is to reduce affordability and choice. By pushing new renters toward single-family homes this makes single-family homes relatively more profitable than multi-family dwellings, thus reducing density, and robbing both owners and renters of the benefits of economies of scale that come with higher-density housing. Also, those renters who would prefer the amenities of multi-family communities are prevented from accessing them. Meanwhile, by forcing multi-family production into neighboring jurisdictions, this increases commute times for renters while forcing them into areas they would have preferred not to live in the first place.
But, then again, for many local governments — and the residents who support them — fewer multi-family units, lower densities, and fewer residents in general, are all to the good. After all, local government routinely prohibit developers from developing more housing through zoning laws, regulation of new construction, parking requirements, and limitations on density.
And these local ordinances, of course, are the real cause of Los Angeles’s housing crisis. Housing isn’t expensive in Los Angeles because landlords are greedy monsters who try to exploit their residents. Housing is expensive because a large number of renters are competing for a relatively small number of housing units.
And why are there so few housing units? Because the local governments usually drive up the cost of housing. As this report from UC Berkeley concluded:
In California, local governments have substantial control over the quantity and type of housing that can be built. Through the local zoning code, cities decide how much housing can theoretically be built, whether it can be built by right or requires significant public review, whether the developer needs to perform a costly environmental review, fees that a developer must pay, parking and retail required on site, and the design of the building, among other regulations. And these factors can be significant – a 2002 study by economists from Harvard and the University of Pennsylvania found strict zoning controls to be the most likely cause of high housing costs in California.
Contrary to what housing activists seem to think, declaring that rents shall be lower will not magically make more housing appear. Put simply, the problem of too little housing — assuming demand remains the same — can be solved with only one strategy: producing more housing.
Rent control certainly won’t solve that problem, and if housing advocates need to find a reason why so little housing is being built, they likely will need to look no further than the city council.
Billionaire Steve Wynn finally found a buyer for his Bel-Air home when he dropped the asking price to $15.95 million, or $300,000 less than what he bought it for in 2014. (Redfin)
A cooling market for the most expensive homes is costing hotel and casino magnate Steve Wynn some money.
Two years ago, Wynn paid $16.25 million for an 11,000-square-foot mansion perched on nearly an acre above the Bel-Air Country Club. Less than a year later, he sought to unload the home with a paneled library and staff bedroom for $20 million.
No luck. Then he tried $17.45 million. No luck again.
In May, Wynn dropped his price to $15.95 million, $300,000 less than what he paid for the property in 2014. The home went into escrow “very close” to that price last month, said Coldwell Banker agent Mary Swanson, who confirmed Wynn would be taking a loss.
It’s not just Wynn who isn’t getting as much money as he hoped.
Even before Britain’s vote last week to leave the European Union jolted investors worldwide, there were reports of a slowdown in the ultra-luxury housing market.
In Los Angeles, agents were seeing more price cuts. Condo sales on New York’s Billionaires’ Row were slowing. Luxury developers shelved projects in Miami. And prices at the tip-top end of the London market were on their way down.
Blame it on the global economy, which has displayed weakness in the past year, choking off the spigot of international millionaires and billionaires seeking a pied-à-terre, or two, in glamorous locales.
So far, in Los Angeles, Wynn’s experience aside, the effect has been minimal, given the nature of Southern California ultra-luxury development – which largely consists of one dramatic hillside estate at a time, rather than a condo tower with multiple units.
But a spate of new construction is on the horizon. By one estimate, there are about 30 new hillside homes priced above $30 million that could hit the market in the next year and a half.
The so-called Brexit vote may not help matters. It has sown economic uncertainty on a global scale and caused the dollar to strengthen against major currencies – potentially leading international buyers to trim their purchases in the United States.
“The price of real estate here in California and the U.S. has gotten more expensive,” said Jordan Levine, an economist with the California Assn. of Realtors.
In Manhattan, the slowdown has taken a sharp toll. The number of previously owned homes that sold in the first quarter for $10 million or more fell 40% from a year earlier to 15, according to appraisal firm Miller Samuel.
One builder, Extell Development Co., trimmed $162 million in projected revenue from its One57 condo-and-hotel project, a 1,000-foot tower on Manhattan’s 57th Street originally slated to bring in $2.73 billion, according to a March regulatory filing.
It features more than 90 units, with several reportedly selling for more than $40 million and one bought by an investment group for about $90 million.
“More has been constructed in New York,” said Stephen Kotler, chief revenue officer of real estate brokerage Douglas Elliman. “You have some sellers [in Los Angeles] getting more realistic, but in New York you are seeing more.”
In Los Angeles County, by comparison, $10-million plus sales ticked up by one to 17 in the first quarter compared with a year earlier, according to the California Assn. of Realtors, whose data largely covers resale transactions.
But over a longer timeline, it appears the market has begun to stall. The number of sales of $10 million or more in L.A. County has dipped in three of the last five quarters for which data is available, even as inventory has steadily grown, according to the Realtors group.
And, brokers say, the slowdown is more pronounced the higher the price.
As of mid-June, nine homes in the county had sold this year for $20 million or more, compared with 18 during the same period last year, according to Loren Goldman a vice president with First American Title Co.
Michael Nourmand, president of L.A. luxury brokerage Nourmand & Associates Realtors, said the slowdown will probably bleed into the rest of the market eventually, but that’s not likely to happen “any time soon.”
Like elsewhere, local agents put much of the blame on a pullback by international buyers who had flooded Los Angeles in recent years. Turmoil in their economies, along with a strong dollar, have many from Russia, the Middle East and China second-guessing a purchase here.
“It used to be, if they like it they buy it, or more like, if they like it they buy two,” said Cindy Ambuehl, director of residential estates for the Agency. “Now they are keeping their hands in their pockets and they are waiting.”
Nourmand has seen that first-hand.
A client from the Middle East recently hoped to pull the trigger on a nearly $40-million estate in Bel Air – one set behind gates with a driveway that took “one to two minutes” to walk from street to front door.
But the buyer got cold feet in February and backed out, Nourmand said, explaining that her family’s businesses had taken a beating along with the price of oil, which plunged last year.
“You have a shrinking buyer pool for the really expensive stuff,” he said.
Unlike other brokers, Adam Rosenfeld, founding partner of brokerage Mercer Vine, said he thinks the market is still strong and pointed to some recent mega-deals that went into escrow, including the Playboy Mansion, which is being purchased by the son of a billionaire food magnate for $105 million – a record for L.A. County.
(Though that’s half the asking price of $200 million, agents who know the market say they didn’t expect the mansion to sell for that astronomical, headline-grabbing figure.)
But even Rosenfeld said it was unclear how well the upcoming flood of high-end homes will sell.
“There are only so many buyers that can afford a $30-million plus house,” he said. “The [developers] that do them the best probably will make a killing. Guys who don’t … some of those people might lose their shirts.”
Levine, of the Realtors association, said that one dynamic has yet to play out – whether the strong dollar deters international investors from entering the U.S. real estate market, or as their own home country currencies weaken, they come to increasingly view it as a haven.
“It’s not necessarily clear which one of those two is going to win out,” he said.
Some of America’s most racially integrated neighborhoods and cities are on a path to becoming segregated all over again. In Los Angeles this means neighborhoods where Latinos and Asians now live alongside black or white neighbors may have few to no whites or blacks in 10 to 20 years.
In research I conducted with Siri Warkentien, another sociologist, we used a statistical model and census data to identify the most common changes in racial composition in 10,681 neighborhoods in metropolitan L.A., Houston, Chicago and New York, beginning as far back as 1970 in some areas. That starting point corresponds with the implementation of the 1968 federal Fair Housing Act, which protects buyers and renters from discrimination in choosing where to live.
Covina, 22 miles east of downtown L.A., provides an example of one city at risk of re-segregating. Whites make up about 26% of Covina as of 2014 and Latinos about 57%. Typically we consider neighborhoods with at least 10% of each group to be racially integrated. But the mix is crumbling. Latinos made up 13% of Covina’s residents in 1980, 26% in 1990, 40% in 2000, and 52% in 2010. Four years later, according to the most recent census estimate, the Latino population had grown by five more percentage points. By 2025, Covina is likely to be overwhelmingly Latino.
Something similar happened already in nearby Norwalk. In 1990, just under half its residents were Latino and about a third were white (not unlike Covina now). By 2014, Latinos made up 70% of residents and whites 11%.
The data show that vast portions of south and east Los Angeles are slipping from mixed populations toward single race populations. And the change has not just occurred in formerly white areas. One of the trajectories that we identified followed a similar pattern in neighborhoods that were once black. Compton residents were nearly three-quarters black in 1980; by 1990, the mix was about 52% black and 43% Latino; in 2014, two-thirds Latino. Such slow but steadily increasing Latino growth can be found in 46% of the neighborhoods we studied in the Los Angeles metropolitan region.
What’s causing a shift from mixed to single-race populations?
Immigration is one obvious factor. The Latino population increased in Los Angeles after immigration laws were changed in 1965 to encourage family reunification. That population was bolstered by a steady increase in Mexican immigrants from the mid-1990s until the recession. Newly arrived Latinos, like all immigrant groups, tend to find housing in neighborhoods already pioneered by their countryman who are already here.
Our research found that this process is occurring again in Southern California, but this time among immigrants from Asia, the source of the largest number of U.S. newcomers now. For example, the Asian proportion of the population in Cerritos increased from 44% in 1990 to 58% in 2000 to 62% in 2014. It appears to be following a path toward Asian segregation much like Covina is on the path to Latino segregation.
White preferences are another major factor that helps explain re-segregation.
Our model showed that, broadly speaking, during the 1980s, whites stopped fleeing from neighborhoods that were becoming integrated. But then — more than any other racial group — when whites did move they chose new neighborhoods with same-race neighbors.
In other words, Latinos moving to an area would not cause most whites to move out. But the prospect of having Latino neighbors might be enough to prevent whites from moving into a neighborhood. (Whites are moving to one kind of integrated neighborhoods: those that are gentrifying like downtown Los Angeles. But many fewer neighborhoods are gentrifying than segregating.)
For a time, places like Covina and Norwalk will remain integrated. But as whites in these areas get older and die, the outcome is clear. Consider the age patterns: In Covina, 22% of whites are 65 or older; only 14% are under the age of 18. Among Latinos in Covina, 6% are 65 or older; 32% are younger than 18.
Segregation is not, however, inevitable. Our statistical model found that in 20% of L.A. neighborhoods we examined, whites, blacks, Latinos and Asians have been living together for 10 to 30 years, and no group’s population is changing much faster or slower than any other. In fact, among L.A., Houston, Chicago and New York, Los Angeles had the highest proportion of these “quadrivial” neighborhoods.
There are ways to encourage integration. The Department of Housing and Urban Development has taken a positive step in this direction by requiring all grant recipients to show how they would promote integration, although Congress is threatening to undo this rule. At a local level, investment in neighborhood infrastructure, especially schools, attracts diverse residents and promotes integration. There is also new research that shows whites are choosing same-race neighborhoods not solely because of prejudice or animus, but because they don’t know about more mixed areas. In a separate study of Chicago area residents, for instance, whites were 2 to 6 times less likely than Latinos to even know about majority Latino neighborhoods.
Because so much of the shift in integration is based on whites’ decisions about where they will move next, Los Angeles’ future demographic patterns are in their hands. If whites do their homework, and find out more about neighborhoods that are now unfamiliar to them, they can make L.A. an example to the nation of how to create integration in the 21st century. Otherwise, knowingly or not, they may reproduce the problems of racial segregation for the future.
Housing prices in Crenshaw jumped way up, while Hancock Park’s tumbled way down
Redfin’s housing market report for February has been released, and, as per usual, a lot of activity took place east of Vermont. Neighborhoods like Echo Park, Eagle Rock, Glassell Park, Mount Washington, and East LA all saw double digit rises in median housing price.
Mount Washington’s median price for February was up 19.2 percent to $790,000, which is up significantly from the $699,000 median price Redfin cited in January when it predicted Mount Washington would be the hottest neighborhood of 2016. Their prediction may be coming true (self-fulfilling?). Sellers in Mount Washington are getting 6.5 percent above asking price and houses are staying on the market for an average of only 13 days.
The Valley also saw some action in February: Studio City, Sherman Oaks, Sun Valley, and Van Nuys all had double digit jumps in median housing prices. Studio City fared the best with a 26.9 percent increase, to $888,250, and a 22.9 percent increase in total sales.
Around town other neighborhoods experienced some major fluctuations. On the positive end, Crenshaw had a big February; median prices in that neighborhood shot up a whopping 66.8 percent, to $628,125. Total sales in Crenshaw were up 64.3 percent.
Redfin also reports a 25 percent increase in the median price of houses on the Westside of town—those are now selling for a median of $1.5 million.
Conversely, Hancock Park did not fare so well in the February report. Median prices for the neighborhood contracted 68.8 percent, to an even (and crazy low) $500,000. Sales were down 31.3 percent and sellers were getting 1.7 percent below asking price.
Los Angeles on the whole had a 14.6 percent increase in median price, up to $590,000. The city also saw a lot of new houses added to the market in February, with inventory moving up 10.5 percent. But total sales were down 2.5 percent for the month.
On a hilltop in Bel Air, a 100,000-square-foot giga-mansion is under construction, for no one in particular. The asking price—$500 million—would shatter records, but, as ridiculous as it sounds, in L.A.’s unbridled real-estate bubble, this house could be billed as a bargain.
My mansion really is worth $500M, claims the man behind most expensive home ever built which boasts five swimming pools, a casino and a VIP nightclub
- The Bel Air home, which will be finished in 2017, is close to those of celebrities such as Jennifer Aniston and Elon Musk
- The property has panoramic views of the LA basin and Pacific Ocean and will cover more than 100,000 square feet
- The price works out to about $5,000 per square foot, which the property’s developer Nile Niami says is a good price for what the buyer is getting
- The home will have five swimming pools, a casino, a nightclub and a lounge with jellyfish tanks replacing the walls and ceilings
- Niami, behind films including action-thriller The Patriot, hopes to double the world-record for the most expensive home ever sold
A mega-mansion in Bel Air has been listed for a whopping $500million – but the extravagant home is worth its value, the real-estate developer claims.
Sitting on a hilltop with views of the San Gabriel Mountains, LA basin, Beverly Hills and the Pacific Ocean, the home will have five swimming pools, a casino, a nightclub with VIP access, a lounge with jellyfish tanks replacing the walls and ceilings, and many other amenities.
The home, which will be finished in 2017 and boasts neighbors including Jennifer Aniston and Elon Musk, will be more than 100,000 square feet – twice the size of the White House.
A home being built in the Bel Air neighborhood of Los Angeles, California, by real-estate developer Nile Niami is being listed for $500million. Above is a depiction of what it will look like when finished
The 100,000-square-foot home, which is still being built (pictured) is close to several celebrities’ houses
The price works out to about $5,000 per square foot, which Hollywood producer-turned-developer 47-year-old Nile Niami notes is less than half of what some billionaires pay for Manhattan penthouses.
‘We have a very specific client in mind,’ Niami told Details magazine. ‘Someone who already has a $100million yacht and seven houses all over the world, in London and Dubai and whatever.
‘To be able to say that the biggest, most expensive house in the world is here, that will really be good for LA.’
Niami, behind films including action-thriller The Patriot, hopes to double the world-record for the most expensive home ever sold with the $500million asking price.
He grew unpopular with neighbors last fall, when he sliced off the top of a hill to create panoramic vistas on his four-acre lot.
For weeks, dump trucks filled the neighborhood’s narrow streets as they removed about 40,000 cubic yards of dirt from the property.
Drew Fenton, the real-estate broker listing the property, said that the home is important to Los Angeles.
‘It is by far the most important estate project in Los Angeles over the last 25 years and will raise the bar for all other estates built in the city,’ he told Details.
The home will have several features that most residential properties don’t, including a two-story waterfall, temperature-controlled room for storing fresh flowers, a cigar lounge and an indoor-outdoor dance floor.
It also will have a 30-car garage, 40-seat screening room and a 6,000-square-foot master suite.
Sitting on a hilltop with views of the San Gabriel Mountains, LA basin, Beverly Hills and the Pacific Ocean, the home will have five swimming pools, a casino, a nightclub with VIP access, a lounge with jellyfish tanks replacing the walls and ceilings, and many other amenities
The price works out to about $5,000 per square foot, which Hollywood producer-turned-developer Niami notes is less than half of what some billionaires pay for Manhattan penthouses.
But when inside the master suite, ‘it doesn’t look that big, because everything else is so big’, Niami said.
It will have three smaller homes, four swimming pools including a 180ft long infinity pool and a 20,000-square-foot artificial lawn to comply with California’s drought-induced water restrictions.
A glass-walled, high-ceiling library will take part of the first floor, but Niami said not to expect to find books in the room.
‘Nobody really reads books,’ he said. ‘So I’m just going to fill the shelves with white books, for looks.’
Niami sells his homes fully furnished and decorated to the buyers’ tastes.
The property’s chief architect, Paul McClean, told Details that listing prices are not often the reality.
Drew Fenton, the real-estate broker listing the property, said that the home is important to Los Angeles in that it will ‘raise the bar for all other estates built in the city’
‘The numbers right now are crazy, no matter how you look at them,’ he said. ‘But for most people who buy these kinds of houses, it’s not a decision that they calculate based on price per square foot.
‘It’s more about the emotional draw. With Nile, we’re trying to sell a lifestyle, a sense of how people imagine they would live.’
Niami said he does not know who sold him the Bel Air plot – the secret transaction took place through a bank trust where the owner remained anonymous.
The real-estate developer declined to say how much he paid for the property, which originally included a decrepit home that has since been torn down.
As for who he’d like to live in his soon-to-be mega-mansion: ‘It doesn’t make a difference as long as they pay the money.
The home will have several features that most residential properties don’t, including a two-story waterfall, temperature-controlled room for storing fresh flowers, a cigar lounge and an indoor-outdoor dance floor. This image gives an idea of what it will look like when finished.
“$20,000 on drinks is a plain night on the town,” says one local restaurateur, as big-time Chinese money pours into Los Angeles, consuming everything from wine to diamonds to watches to cars to prime real estate (in one case, 25,000 square feet for a teenage college student).
A version of this story first appeared in the Oct. 9 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
The ultra-wealthy Chinese tend to get what they want, and right now most of them want one thing: to get out. More than 60 percent of China’s most affluent citizens have already left the country or are planning to leave it, according to the Los Angeles Times. And L.A. — a politically stable and always-comfortable metropolis where catering to the rich is a way of life — is among their most coveted destinations. The numbers don’t lie: In 2014, a full 20 percent of the city’s $8 billion in real estate sales was purchased by Chinese buyers. Showing no signs of slowing down, this injection of Chinese capital and influence can be felt at every level of L.A.’s culture of consumption.
Thanks to big import and consumption taxes introduced in recent years by President Xi Jinping, most wealthy Chinese consider the cost of homes and luxury goods in L.A. to be something of a bargain. “They’ll buy high-end watches in threes and fours,” says Korosh Soltani, owner of Rodeo Drive jewelry store David Orgell, of his Chinese clientele, who’ll typically drop $200,000 on gifts in a single shopping spree. (Soltani has so many Chinese customers, he asks companies like Corum and Baume & Mercier to send him watches bearing the Mandarin logos they are more familiar with.)
Brand names are essential: Hermes tableware, Lalique crystal and yellow-gold jewelry from Carrera y Carrera — gold is the most popular gift among Chinese — are consistent hot sellers. Spending can easily soar much higher if shopping for a special occasion: “We just had a Chinese family come in looking for the finest, most vivid canary yellow diamond you can have. Fortunately I had one,” says Beverly Hills jeweler Martin Katz of a recent engagement ring purchase. “It was a seven-figure-priced stone in the six-carat range.”
While money is frequently no object, the Chinese still like to negotiate and won’t close a deal without getting “big discounts … it’s in the culture,” Soltanti says. They also expect a little something extra: “We ask our brands to give us pens or hats that will keep them happy. They’re very appreciative of it.”
The Beverly Center, meanwhile, has taken active steps toward luring China’s big spenders: The high-end shopping mall — which houses Louis Vuitton, Prada and Fendi boutiques — provides a Chinese version of its website and brochures, staffs Mandarin-speaking concierges, accepts China UnionPay credit cards and promotes itself on Sina Weibo, China’s answer to Twitter.
“They arrive with this endless stream of money without working or earning it. It’s just Monopoly money to them,” says Gotham Dream Cars’ Rob Ferretti of Chinese customers who come to him in search of an exotic ride. They lease cars like the $397,000 Maybach 57S for $2,200 a day. Color-wise, “They love these light blues,” Ferretti says. They’re even particular about the car’s VIN number: They like when it has as many eights in it as possible.
“Eight in Chinese rhymes with the word for prosperity. It’s extremely significant,” explains architect Anthony Poon of Beverly Hills-based Poon Design Inc. The Chinese fixation on the number can verge on the obsessive: One client, whose husband is a major film director, wanted Poon to design her an 8,888-square-foot home, while another Chinese developer working on a luxury community in Pacific Palisades insists that it have eight estates.
“They understand vertical living very well, and they love new construction, so condos are very much in their wheelhouse,” says Beverly Hills realtor (and Real Housewives of Beverly Hills star) Mauricio Umansky of his Chinese clients, most of whom are relocating from densely packed urban centers like Shanghai to the comparative expansiveness of Arcadia, an L.A. suburb and Chinese-wealth magnet. If their kids are attending UCLA, parents will think nothing of spending $1 million to $3 million or more on a Westwood pied-a-terre instead of putting their children up in dorms. “The wealth and lack of reference point can be staggering,” marvels Poon, before sharing an anecdote about the family who purchased a 25,000-square-foot home in the Hollywood Hills for their teenage son. On the ultra-high-end market — mansions that cost $50 million and above — Umansky estimates that about 25 percent of sales are made to Chinese, a figure he says is climbing due to ongoing “political and financial uncertainty in China.”
When it comes to design, feng shui — the ancient philosophy of living in harmony with your surroundings — is a top priority among Chinese buyers, with architects scrambling to accommodate its highly specific criteria. According to Poon, a contained foyer is preferable to an open-plan entryway (it helps retain life force, or chi); floor plans must be simple, with no awkward or cramped spaces; furniture should be placed away from doors and be round, not rectangular; sloping backyards are a no-no (again, to avoid chi loss); and, says Umansky, “you don’t want the staircase facing the front door because it’s the money and fortune flowing out.”
Dining, too, comes with its own set of Chinese rules. For a taste of home, Chinese emigres gravitate to authentic dumpling houses like Din Tai Fung — either the original in Arcadia or either of two trendier outposts in Costa Mesa and Glendale. (The latter location, nestled in Rick Caruso’s Americana at Brand, serves the much-coveted black-truffle soup dumplings, a Hong Kong delicacy.) Restaurateur Peter Garland, owner of Porta Via on Canon Drive, notes that uber-wealthy Chinese diners spend freely on high-end wines — especially chardonnay and California cabernet. That extends to any restaurant boasting a stellar wine list, as Beverly Hills mainstays like Cut or Mastro’s regularly draw a deep-pocketed Chinese clientele who’ll think nothing at dropping four-figures on rare vintages and for whom “$20,000 on drinks in one night is a plain night on the town,” says Poon.
The actual house didn’t factor much into the equation when Dr. Dre parted with his Hollywood Hills West home in January for $32 million.
The contemporary-style residence behind gates on Oriole Way was not purchased for its 9,696 square feet of space, but rather for its land value and potential to build an astonishing $100-million-plus estate on what has been called the best view lot in Los Angeles.
Such is life in the so-called Bird Streets, an enclave that has long been popular among celebrity and mogul types, where a developers flush with cash look to double down on a surging luxury market.
At 9212 Nightingale Drive, a home taken down to the studs and built new last year is now being shopped as a tear-down, according to listing agent Benjamin Bacal of Rodeo Realty Beverly Hills. That’s how popular and sought-after the area has become.
Priced at $13.8 million, the 5,000-square-foot house on more than half an acre is being marketed as the site for a 12,000-square-foot home that developers hope would garner as much as $70 million.
If that sounds like a pie-in-the-sky figure, Bacal points to two other homes on the same street where $70 million seems to be the magic number.
Three doors down, Global Radio founder and president Ashley Tabor has invested more than $30 million into a two-house compound he bought from Megan Ellison, the film producer and daughter of billionaire Larry Ellison, in 2013 for $26.25 million.
In similar fashion, billionaire Ted Waitt, who co-founded Gateway Inc., has put about $30 million toward his home on Nightingale. Also purchased from Ellison in 2013, the corner-lot property cost $20.5 million.
Each could end up worth $70 million, as long as the tear-down market stays red hot.
Source: Bloomberg BusinessThe Odeon, Monaco Penthouse: most expensive penthouse in the world
Sales are likely to increase this year with more newly built properties and off-market homes trading for at least $100 million, Conn said. Demand is growing among affluent Americans and Europeans; billionaires from unstable economies, such as Russia and Middle Eastern countries; and buyers from mainland China, who were barred from investing overseas before 2012 and since have snapped up houses in cities including Hong Kong, Los Angeles, New York and London, he said.
The penthouse and pool area of the Tour Odeon residential apartment block. At least 18 residences have asking prices of $100 million or more, led by the $400 million Monaco penthouse. Source: Realis/SCI Odeon via Bloomberg
“People want trophy homes,” Eyal Ofer, a Monaco-based shipping and real estate magnate, said in interview earlier this week at the Milken Institute Global Conference in Beverly Hills, California. “They’re a scarce commodity. And they’re better than gold because you can boast about it.”
Last year’s sales of homes for at least $100 million were led by an East Hampton, New York, estate purchased for $147 million by Barry Rosenstein, managing partner at hedge fund Jana Partners. The other top sales were a $146 million villa in Saint-Jean-Cap-Ferrat, France; a $120 million estate in Greenwich, Connecticut; a $104 million Hong Kong residence; and a $100.5 million duplex penthouse in New York’s One57 condominium tower, according to Christie’s.
Not all the properties went for close to the asking price. The Greenwich estate that sold for $120 million was originally listed for $190 million.
The fact that asking and sales prices for ultra-luxury properties are reaching new heights isn’t a sign of problems in the broader market and shouldn’t raise concerns that last decade’s housing bubble will be repeated, Conn said.
“I think of this market as fundamentally different from the rest of the market,” Conn said in an interview Thursday on Bloomberg Television’s “Market Makers.” “In order to buy one of these properties, you have to be in the billionaires club.”
Just one home sale exceeded the $100 million mark in 2013, following four such transactions in 2012 and three in 2011, Christie’s reported.
Residences currently on the market with asking prices at that level include a $400 million Monaco penthouse, a $365 million London manor and a $195 million estate in Beverly Hills, California, according to Christie’s. France’s Cote d’Azur, a getaway for jet-setters, has homes with asking prices of $425 million and $215 million.
The report analyzed home sales in 10 cities known for prime property and 70 additional markets, including weekend getaways, vacation resorts and suburban locations. The 10 cities are Dubai, Hong Kong, London, Los Angeles, Miami, New York, Paris, San Francisco, Sydney and Toronto.
The average starting price for a luxury home was $2 million in the areas Christie’s studied. It defines a luxury home as having a combination of location, such as a prominent street address, and amenities such as privacy, urban conveniences or collectible architectural quality.
London luxury homes averaged $4,119 a square foot, the most expensive of the top 10 cities. Beverly Hills and neighboring areas of Los Angeles had the highest luxury entry-price point, at $8 million. Toronto had the fastest sales pace, with prime properties finding a buyer an average of 31 days after listing. Dubai had the highest share of international and non-local buyers, at 75 percent.
The last time he advertised one of his apartments, longtime Los Feliz landlord Andre LaFlamme got a request he’d never seen before.
A man wanted to rent LaFlamme’s 245-square-foot bachelor unit with hardwood floors for $875 a month, then list it himself on Airbnb.
“Thanks but no thanks,” LaFlamme told the prospective tenant. “You’ve got to be kidding me.”
But he understood why: More money might be made renting to tourists a few days at a time than to a local for 12 months or more.
As short-term rental websites such as Airbnb explode in popularity in Southern California, a growing number of homeowners and landlords are caving to the economics. A study released Wednesday from Los Angeles Alliance for a New Economy, a labor-backed advocacy group, estimates that more than 7,000 houses and apartments have been taken off the rental market in metro Los Angeles for use as short-term rentals. In parts of tourist-friendly neighborhoods such as Venice and Hollywood, Airbnb listings account for 4% or more of all housing units, according to a Times analysis of data from Airbnb’s website.
That’s worsening a housing shortage that already makes Los Angeles one of the least affordable places to rent in the country.
“In places where vacancy is already limited and rents are already squeezing people out, this is exacerbating the problem,” said Roy Samaan, a policy analyst who wrote the alliance’s report. “There aren’t 1,000 units to give in Venice or Hollywood.”
Fast-growing Airbnb and others like it say they help cash-strapped Angelenos earn a little extra money. Airbnb estimates that 82% of its 4,500 L.A. hosts are “primary residents” of the homes they list, and that nearly half use the proceeds to help pay their rent or mortgage. And the effect on the broader housing market is so small that it’s all but irrelevant, said Tom Davidoff, a housing economist at the University of British Columbia whom Airbnb hired to study its impact.
“Over the lifetime of a lease, rents maybe go up 1.5%,” he said. “That’s peanuts relative to the increases we’ve seen in housing costs in a lot of places.”
But there are growing signs of professionalization of the short-term rental world, from property-manager middlemen like the one who e-mailed LaFlamme to Airbnb “hosts” who list dozens of properties on the site. The Los Angeles Alliance study estimates that 35% of Airbnb revenue in Southern California comes from people who list more than one unit.
“I don’t think anyone would begrudge someone renting out a spare bedroom,” Samaan said. “But there’s a whole cottage industry that’s springing up around this.”
City Council member Mike Bonin, whose coastal district includes Venice, and Council President Herb Wesson want to study how these rentals have affected the city. No regulations have been drafted, and Bonin said the council would seek extensive community input. Current rules bar short-term rentals in many residential areas of the city, but critics say they’re rarely enforced.
As city officials craft new ones, they’ll certainly be hearing from Airbnb and its allies. Last year, the company spent more than $100,000 lobbying City Hall and released a study touting its economic impact in L.A. — more than $200 million in spending by guests, supporting an estimated 2,600 jobs. A group representing short-term rental hosts has made the rounds of City Council offices as well.
This industry “needs to be regulated and regulated the right way,” said Sebastian de Kleer, co-founder of the Los Angeles Short Term Rental Alliance and owner of a Venice-based vacation rental company. “For a lot of people, this is a very new issue.”
Neighborhood groups are sure to weigh in too, especially in Venice.
The beach neighborhood has the highest concentration of Airbnb listings in all of metro Los Angeles. Data collected by Beyond Pricing, a San Francisco-based start-up that helps short-term rental hosts optimize pricing, show that in census tracts along Venice Beach and Abbott-Kinney Boulevard, Airbnb listings accounted for 6% to 7% of all housing units — about 10 times the countywide average.
A letter last fall from the Venice Neighborhood Council to city officials estimated that the number of short-term rental listings in the area had tripled in a year, citing a “Gold Rush mentality” among investors looking for a piece of the action. That’s hurting local renters, said Steve Clare, executive director of Venice Community Housing.
“Short-term rentals are really taking over a significant portion of the rental housing market in our community,” Clare said. “It’s going to further escalate rents, and take affordable housing out of Venice.”
Along the Venice boardwalk, a number of apartment buildings now advertise short-term rentals, and houses on the city’s famed “walk streets” routinely show up in searches on Airbnb. Even several blocks inland, at Lincoln Place Apartments — a 696-unit, newly renovated complex that includes a pool, gym and other tourist-friendly amenities — Roman Barrett recently counted more than 40 listings on Airbnb and other sites. Barrett, who moved out over the issue, said Airbnb effectively drives up the rent. He paid $2,700 a month for a one-bedroom; now he’s looking farther east for something he can afford.
“It’s making places like Santa Monica and Venice totally priced out. Silver Lake is impossible. I’m looking in Koreatown right now,” Barrett said. “They need to make a law about this.”
A new law of some sort is the goal at City Hall. New York, San Francisco and Portland, Ore., have crafted regulations to govern taxes, zoning and length of stay in short-term rentals, and Airbnb says it’s glad to help in that process here.
“It’s time for all of us to work together on some sensible solutions that let people share the home in which they live and contribute to their community,” spokesman Christopher Nulty said in a statement Tuesday.
Will Youngblood, the man who e-mailed LaFlamme about managing his apartment in Los Feliz, says he’d also appreciate clearer rules and an easier way to pay occupancy taxes.
Youngblood runs five Airbnb apartments, mostly in Hollywood. A former celebrity assistant, he’s been doing this for two years; it’s a full-time job. Most of Youngblood’s clients own their homes but travel a lot or live elsewhere. One, he rents and lists full time. He’s been looking around for another.
“I’m honest about what I do,” he said. “Some [landlords] are like, ‘That’s insane. No way.’ Other people say, ‘We’d love that.'”
If the city decides it doesn’t like what he’s doing, Youngblood said, he’ll go do something else. But for now, he said, it’s a good way to make some cash and meet interesting people.
But he won’t meet LaFlamme. The longtime landlord concedes he “might be old-fashioned,” but he just doesn’t like the idea of strangers traipsing through his apartments. He prefers good, long-term tenants, and in L.A.’s red-hot rental market he has no problem finding them.
“I almost find it painful to rent things these days,” he said. “There’s so much demand and so many people who are qualified and nice people who I have to turn away.”
For that apartment in Los Feliz, LaFlamme said, he found a tenant in less than 24 hours.
According to the payroll jobs report today (March 6) the economy created 295,000 new jobs in February, dropping the rate of unemployment to 5.5%. However, the BLS also reported that the labor force participation rate fell and the number of people not in the labor force rose by 354,000.
In other words, the unemployment rate dropped because the labor force shrunk.
If the economy was in recovery, the labor force would be growing and the labor force participation rate would be rising.
The 295,000 claimed new jobs are highly suspect. For example, the report claims 32,000 new retail jobs, but the Census Bureau reports that retail sales declined in December and January. Why would retailers experiencing declining sales hire more employees?
Construction spending declined 1.1% in January, but the payroll jobs report says 29,000 construction jobs were added in February.
Zero Hedge reports that the decline in the oil price has resulted in almost 40,000 laid off workers during January and February, but the payroll jobs report only finds 2,900 lost jobs in oil for the two months.http://www.zerohedge.com/news/2015-03-06/did-bls-once-again-forget-count-tens-thousands-energy-job-losses
There is no sign in the payroll jobs report of the large lay-offs by IBM and Hewlett Packard.
These and other inconsistencies do not inspire confidence.
By ignoring the inconsistencies the financial press does not inspire confidence.
Let’s now look at where the BLS says the payroll jobs are.
All of the goods producing jobs are accounted for by the 29,000 claimed construction jobs. The remaining 259,000 new jobs–90%–of the total–are service sector jobs. Three categories account for 70% of these jobs. Wholesale and retail trade, transportation and utilities account. for 62,000 of the jobs. Education and health services account for 54,000 of which ambulatory health care services accounts for 19,900. Leisure and hospitality account for 66,000 jobs of which waitresses and bartenders account for 58,700 jobs.
These are the domestic service jobs of a turd world country.
John Williams (shadowstats.com) reports: “As of February, the level of full-time employment still was 1.0 million shy of its pre-recession peak.”
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.
First-time buyers Kellen and Ben Goldsmith are shown in their new town home, which they purchased for $620,000 in Seattle’s Eastlake neighborhood. (Ken Lambert / Tribune News Service. Authored by Kenneth R. Harney
Call them the prodigal millennials: Statistical measures and anecdotal reports suggest that young couples and singles in their late 20s and early 30s have begun making a belated entry into the home-buying market, pushed by mortgage rates in the mid-3% range, government efforts to ease credit requirements and deep frustrations at having to pay rising rents without creating equity.
Listen to Kathleen Hart, who just bought a condo unit with her husband, Devin Wall, that looks out on the Columbia River in Wenatchee, Wash.: “We were just tired of renting, tired of sharing with roommates and not having a place of our own. Finally the numbers added up.”
Erin Beasley and her fiance closed on a condo in the Capitol Hill area of Washington, D.C., in January. “With the way rents kept on going,” she said, “we realized it was time” after five years as tenants. “With renting, at some point you get really tired of it — you want to own, be able to make changes” that suit you, not some landlord.
Hart and Beasley are part of the leading edge of the massive millennial demographic bulge that has been missing in action on home buying since the end of the Great Recession. Instead of representing the 38% to 40% of purchases that real estate industry economists say would have been expected for first-timers, they’ve lagged behind in market share, sometimes by as much as 10 percentage points. But new signs are emerging that hint that maybe the conditions finally are right for them to shop and buy:
• Redfin, a national real estate brokerage, said that first-time buyers accounted for 57% of home tours conducted by its agents mid-month — the highest rate in recent years. Home-purchase education class requests, typically dominated by first-timers, jumped 27% in January over a year earlier. “I think it is significant,” Redfin chief economist Nela Richardson said. “They are sticking a toe in the water.”
• The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which monthly polls 2,000 realty agents nationwide, reported that first-time buyer activity has started to increase much earlier than is typical seasonally. First-timers accounted for 36.3% of home purchases in December, according to the survey.
• Anecdotal reports from realty brokers around the country also point to exceptional activity in the last few weeks. Gary Kassan, an agent with Pinnacle Estate Properties in the Los Angeles area, says nearly half of his current clients are first-time buyers. Martha Floyd, an agent with McEnearney Associates Inc. Realtors in McLean, Va., said she is working with “an unusually high” number of young, first-time buyers. “I think there are green shoots here,” she said, especially in contrast with a year ago.
Assuming these early impressions could point to a trend, what’s driving the action? The decline in interest rates, high rents and sheer pent-up demand play major roles.
But there are other factors that could be at work. In the last few weeks, key sources of financing for entry-level buyers — the Federal Housing Administration and giant investors Fannie Mae and Freddie Mac — have announced consumer-friendly improvements to their rules. The FHA cut its punitively high upfront mortgage insurance premiums and Fannie and Freddie reduced minimum down payments to 3% from 5%.
Price increases on homes also have moderated in many areas, improving affordability. Plus many younger buyers have discovered the wide spectrum of special financing assistance programs open to them through state and local housing agencies.
Hart and her husband made use of one of the Washington State Housing Finance Commission’s buyer assistance programs, which provides second-mortgage loans with zero interest rates to help with down payments and closing costs. Dozens of state agencies across the country offer help for first-timers, often with generous qualifying income limits.
Bottom line: Nobody knows yet whether or how long the uptick in first-time buyer activity will last, but there’s no question that market conditions are encouraging. It just might be the right time.
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by Tim Logan
By most measures, the housing market these days is a bit sluggish. Prices are flat. Sales are drooping. A lot of people are priced out.
But not everyone. The high end is hopping.
Luxury home sales in Southern California are hitting levels not seen in decades. The number of homes bought for $2 million or more in recent months is the highest on record. Sales worth $10 million or more are on pace this year to double their number from the heights of the housing bubble.
“It’s pretty mind-blowing, to be honest,” said Cindy Ambuehl, an agent with the Partners Trust in Brentwood. “The luxury market has been completely on fire.”
Low interest rates, a strong stock market and waves of cash sloshing in from overseas are boosting demand for high-dollar homes. A record 1,436 homes worth $2 million or more were sold in the six-county Southland in the second quarter, according to CoreLogic DataQuick.
In the more recent third quarter, 1,431 were sold. That was up 14% from the third quarter of 2013, and well ahead of any three-month period in the housing bubble years of the mid-2000s. This comes even as the broader market has plateaued, with prices in the Southland still about one-fifth below their pre-crash highs and sales at less than two-thirds their 2005 pace.
It reflects a housing market that is now moving at two speeds, said Selma Hepp, senior economist for the California Assn. of Realtors. Fast for the high end, sluggish for the rest.
“It’s just a completely different story between the two segments of the market,” she said. “Those who are doing well are doing really well.”
between now and a decade ago is that the world is smaller, said Drew Fenton, an agent who specializes in high-end homes at Hilton & Hyland in Beverly Hills. Wealthy international buyers are scooping up second homes, investment properties and safe havens for their cash. And it’s easier for them to scout — and travel — the world to do so.
“Everything’s just more global now,” he said. Ten years ago “it was much harder to reach those people and they didn’t travel as much.”
Now they are, and so are the agents who cater to them. Sandra Miller, a broker at Volker & Engels in Santa Monica, last week was jet-lagged from a trip to London, where she met with nearly two dozen brokerages that represent high-end buyers. At the end of the month, she’s off to Kuwait. Every week, she has a conference call with international agents.
The South land scores points with these buyers for its weather, its glamor and a population diverse enough that nearly any transplant can feel at home. And despite its reputation as one of the nation’s least-affordable housing markets, Los Angeles can look like a steal compared with other high-end havens.
“We talk to private wealth managers around the world who think California is a very good market right now,” Miller said. “Compared to New York or London, L.A. real estate is a bargain.”
But it’s not just foreign money that’s heating up the high end.
A surging stock market has boosted portfolios for domestic buyers in recent years, especially for those who have money to invest. Low interest rates have made mortgages cheap. And banks — still risk-averse — are offering lower rates and better terms to deep-pocketed borrowers than to cash-strapped first-time buyers. Meanwhile, wealthier households have seen their incomes grow faster than average in recent years.
Builders are recognizing this. Aliso Viejo based home builder New Home Co. has several developments underway in Orange County targeting high-end buyers, including 6,700 square-foot five-bedroom homes in Irvine and ocean-view condos in Newport Beach.
Sales have been brisk, said Joan Marcus Colvin, New Home’s senior vice president of sales, marketing and design, especially at that Newport condo building, the Meridian, where 34 units have sold since February, at an average price of nearly $3 million. That’s without even having a model home to show customers — the site is still under heavy construction. Renderings and drone shots of the views are all that’s offered.
“It’s quite a testament to the strength of the high end of the market,” Colvin said. “These were bought sight unseen. We couldn’t even stand people there and show them it.”
But it’s the first new home development in Newport Center in a quarter-century, Colvin said, so there’s demand. And income growth has been strong in coastal Orange County, minting new buyers for high-dollar homes. The same trend is happening in places less associated with luxury than Fashion Island.
High-end home sales are surging in “Silicon Beach,” too, with tech entrepreneurs and Bay Area transplants scooping up multimillion-dollar homes in Santa Monica, Venice and Marina del Rey. Many of the buyers work in the area, said Miller, and prefer walkable neighborhoods, relatively close to work, to the traditional hubs of Westside glitz.
“These people don’t want to commute an hour and a half to Beverly Hills, which is a whole 13 miles away,” Miller said.
Then there’s the formerly sleepy South Bay. The average sales price in Manhattan Beach through the first nine months of the year topped $2.2 million, said Barry Sulpor at Shorewood Realtors. That’s up from $1.85 million in the same period last year. Even empty lots in the beach town’s “Tree Section” are going for $1.3 million.
“That’s just lot value,” Sulpor said. “And as you get closer to the beach it goes up from there.”
Prices have been climbing so fast that even fairly recent buyers say they’re lucky they got in when they did. About 18 months ago, Ray Ahn and his wife bought a place half a block from the beach, a pocket listing that was never widely marketed. Before the purchase even closed, the house’s appraised value started climbing. And of the eight or so houses that neighbor Ahn’s, three have gotten high-end remodels since he moved in.
“I probably wouldn’t be able to buy here today,” said Ahn, who works for an investment firm in downtown Los Angeles.
But to live by the beach, he said, it’s worth it. So did Daphna Oyserman. She and her husband — professors who relocated from the University of Michigan to USC — spent $2.2 million in January for a house just a few blocks from the sand. They expected to pay a premium to live in a nice beach town, Oyserman said, and they did. But, although their house is “half the size at three times the price” of what they owned in Ann Arbor, Mich., Manhattan Beach offers amenities Michigan can’t.
“We thought, if we’re moving to L.A., we’d like to enjoy it,” she said. “In the morning I go for a run on the beach. When we go to sleep we can hear the ocean.”
These well-heeled professionals have played a big part in the South Bay’s surge, said Sulpor, along with those in the tech industry who prefer a more laid-back scene than Santa Monica and a growing cadre of professional athletes. Then there are young buyers who walk in with trust funds or family money.
“A lot of folks in their 20s and 30s are coming in and taking properties off the table at $3 million or $4 million,” Sulpor said. “Sometimes all-cash.”
Ambuehl said her luxury buyers also are starting to skew younger. Among her clients, tech entrepreneurs and other wealthy shoppers in their 20s and 30s are gradually replacing baby boomers, who often weren’t as young when they earned enough to afford a big-ticket house. They’re looking for different kinds of homes — often with more outdoor space — and in different neighborhoods. And, she predicts, they’ll be driving up the high end of the market for a long time.
“You’ve got 70 million baby boomers. You also have 70 million Gen Yers. They are a huge part of our buyer pool,” she said. “It’s a market we have to pay attention to.”
I was out on the West Coast recently delivering a sales workshop for a group of about 40 loan originators. Our mission was to explore ideas for capitalizing on the summer home buying season and discover ways to increase their purchase loan application volume.
Early in the session, I handed out colored index cards and asked the participants to record their answers to this question: If a mortgage originator is serious about growing his or her purchase loan business over the next few months, what are three things he or she should be doing?
Everyone wrote down their best ideas, and I collected the cards so we could see their advice.
As you might imagine, we ended up with a lot of reoccurring themes and ideas. Overall, here are the top five suggestions they offered:
1. Work hard; put in the hours it takes.
2. Get out and see your Realtor and business partners.
3. Contact your database with cards and letters asking for referrals.
4. Attend local events and talk to people who might be in the market to buy.
5. Follow up on your pre-approvals, your leads and the contacts you make.
What do you notice about this list? There is nothing new! In all 40 index cards I collected, there was not a single suggestion that was original, earth-shattering or eye-popping. And that is exactly the point I wanted to make to that group and to you today: there is nothing new about success.
There are mortgage originators in the market today with 15 to 20 loans in their pipelines. There are originators closing $5 million a month and more.
Are they doing anything special? Absolutely not. Do they have “secrets” and strategies most others have never considered? Far from it. High producers and top performers have come to terms with the most important lesson about success—that success in this business is primarily caused by one enormously important factor: consistency.
Taking our cue from the list above, let’s apply this rule:
1. It’s not about working hard every so often, it’s about working a full eight- to nine-hour day, every day, five days a week. There’s no coming in late and no blowing out early on Friday afternoon. You can’t take two-hour lunch breaks and run personal errands on work time. You have to work hard at your job and put in a full day, every single day. Consistently.
2. It’s not about getting out to see your Realtor and other business partners when you can, when you are caught up, or when you feel like it. It’s about getting out to visit your Realtor and business partners every week, week after week. Consistently.
3. It’s not about contacting your database with an arbitrary email at accidental intervals. It’s about having a pre-determined marketing plan to contact your database with cards, letters and phone calls on an ongoing monthly basis. Consistently.
4. It’s not about attending a local community, networking or industry event once every few months or on the off-chance when the opportunity arises. It’s about getting out of the office once or twice a week to meet new people, make new contacts and generate potential prospects. Consistently.
5. It’s not about following up on your leads and pre-approvals when you get time (after you’ve read all your emails or once you have combed through your loan files for the 10th time today). It’s about following up on potential leads, referrals and pre-approvals every single day. Consistently.
“Success is not sexy,” a very successful loan originator once told me. “Success comes from doing the simple, basic, mundane things you need to do day after day after day.” His recommendation is right on.
Too many mortgage originators today are searching for that magic pill that will make them more successful without having to exert much effort. Guess what; it doesn’t exist. There is no easy road to success in this business—never has been, never will be. Success is the end result of doing the right things consistently over a long period of time.
As we discovered at my sales seminar, most of the loan originators in attendance knew what to do and most were doing all the right things.
But for many, their production volume wasn’t where they wanted it to be because they weren’t doing what they needed to do consistently. They were working hard, but not every day. They were connecting with their Realtors, but not all that often.
They were building and marketing a database, but only when they had time to get around to it. They were engaged in some networking events, but maybe only once every few months.
And they were following up on their pre-approvals and prospects in a haphazard, random sort of way.
Does that also describe how you are running your business right now? If so, perhaps the most effective strategy to growing your purchase loan business over the summer home buying season has less to do with adding new activities and more to do with doing what you are already doing, but with more (wait for it…) consistency.
You have a tremendous opportunity ahead of you over the upcoming months. Activity is picking up, buyers are out there looking at properties, homes are selling, and mortgages are being made.
If you are consistent in doing what you need to do you’ll score a lot of opportunities, take a lot of applications, help a lot of people, close a lot of loans, and make a lot of money. Isn’t that what this business is all about?
Doug Smith is a nationally known industry speaker, author and sales trainer. For more information, please visit http://www.DougSmithOnline.com or call Douglas Smith & Associates at 877-430-2329.
How we could fall into another housing crisis before we’ve fully pulled out of the 2008 one.
When it comes to housing, sometimes it seems we never learn. Just when America appeared to be recovering from the last housing crisis—the trigger, in many ways, for 2008’s grand financial meltdown and the beginning of a three-year recession—another one may be looming on the horizon.
There are at several big red flags.
For one, the housing market never truly recovered from the recession. Trulia Chief Economist Jed Kolko points out that, while the third quarter of 2014 saw improvement in a number of housing key barometers, none have returned to normal, pre-recession levels. Existing home sales are now 80 percent of the way back to normal, while home prices are stuck at 75 percent back, remaining undervalued by 3.4 percent. More troubling, new construction is less than halfway (49 percent) back to normal. Kolko also notes that the fundamental building blocks of the economy, including employment levels, income and household formation, have also been slow to improve. “In this recovery, jobs and housing can’t get what they need from each other,” he writes.
Americans are spending more than 33 percent of their income on housing.
Second, Americans continue to overspend on housing. Even as the economy drags itself out of its recession, a spate of reports show that families are having a harder and harder time paying for housing. Part of the problem is that Americans continue to want more space in bigger homes, and not just in the suburbs but in urban areas, as well. Americans more than 33 percent of their income on housing in 2013, up nearly 13 percent from two decades ago, according to newly released data from the Bureau of Labor Statistics (BLS). The graph below plots the trend by age.
Over-spending on housing is far worse in some places than others; the housing market and its recovery remain highly uneven. Another BLS report released last month showed that households in Washington, D.C., spent nearly twice as much on housing ($17,603) as those in Cleveland, Ohio ($9,061). The chart below, from the BLS report, shows average annual expenses on housing related items:
The result, of course, is that more and more American households, especially middle- and working-class people, are having a harder time affording housing. This is particularly the case in reviving urban centers, as more affluent, highly educated and creative-class workers snap up the best spaces, particularly those along convenient transit, pushing the service and working class further out.
Last but certainly not least, the rate of home ownership continues to fall, and dramatically. Home ownership has reached its lowest level in two decades—64.4 percent (as of the third quarter of 2014). Here’s the data, from the U.S. Census Bureau:
Home ownership currently hovers from the mid-50 to low-60 percent range in some of the most highly productive and innovative metros in this country—places like San Francisco, New York, and Los Angeles. This range seems “to provide the flexibility of rental and ownership options required for a fast-paced, rapidly changing knowledge economy. Widespread home ownership is no longer the key to a thriving economy,” I’ve written.
What we are going through is much more than a generational shift or simple lifestyle change. It’s a deep economic shift—I’ve called it the Great Reset. It entails a shift away from the economic system, population patterns and geographic layout of the old suburban growth model, which was deeply connected to old industrial economy, toward a new kind of denser, more urban growth more in line with today’s knowledge economy. We remain in the early stages of this reset. If history is any guide, the complete shift will take a generation or so.
It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.
The upshot, as the Nobel Prize winner Edmund Phelps has written, is that it is time for Americans to get over their house passion. The new knowledge economy requires we spend less on housing and cars, and more on education, human capital and innovation—exactly those inputs that fuel the new economic and social system.
But we’re not moving in that direction; in fact, we appear to be going the other way. This past weekend, Peter J. Wallison pointed out in a New York Times op-ed that federal regulators moved back off tougher mortgage-underwriting standards brought on by 2010’s Dodd-Frank Act and instead relaxed them. Regulators are hoping to encourage more home ownership, but they’re essentially recreating the conditions that led to 2008’s crash.
Wallison notes that this amounts to “underwriting the next housing crisis.” He’s right: It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.
During the depression and after World War II, this country’s leaders pioneered a series of purposeful and ultimately game-changing polices that set in motion the old suburban growth model, helping propel the industrial economy and creating a middle class of workers and owners. Now that our economy has changed again, we need to do the same for the denser urban growth model, creating more flexible housing system that can help bolster today’s economy.
Dream housing for new economy workers?
The dramatic resurgence of the oil industry over the past few years has been a notable factor in the national economic recovery. Production levels have reached totals not seen since the late 1980s and continue to increase, and rig counts are in the 1,900 range. While prices have dipped recently, it will take more than that to markedly slow the level of activity. Cycles are inevitable, but activity is forecast to remain at relatively high levels.
An outgrowth of oil and gas activity strength is a need for additional workers. At the same time, the industry workforce is aging, and shortages are likely to emerge in key fields ranging from petroleum engineers to experienced drilling crews. I was recently asked to comment on the topic at a gathering of energy workforce professionals. Because the industry is so important to many parts of Texas, it’s an issue with relevance to future prosperity.
Although direct employment in the energy industry is a small percentage of total jobs in the state, the work is often well paying. Moreover, the ripple effects through the economy of this high value-added industry are large, especially in areas which have a substantial concentration of support services.
Employment in oil and gas extraction has expanded rapidly, up from 119,800 in January 2004 to 213,500 in September 2014. Strong demand for key occupations is evidenced by the high salaries; for example, median pay was $130,280 for petroleum engineers in 2012 according to the Bureau of Labor Statistics (BLS).
Due to expansion in the industry alone, the BLS estimates employment growth of 39 percent through 2022 for petroleum engineers, which comprised 11 percent of total employment in oil and gas extraction in 2012. Other key categories (such as geoscientists, wellhead pumpers, and roustabouts) are also expected to see employment gains exceeding 15 percent. In high-activity regions, shortages are emerging in secondary fields such as welders, electricians, and truck drivers.
The fact that the industry workforce is aging is widely recognized. The cyclical nature of the energy industry contributes to uneven entry into fields such as petroleum engineering and others which support oil and gas activity. For example, the current surge has pushed up wages, and enrollment in related fields has increased sharply. Past downturns, however, led to relatively low enrollments, and therefore relatively lower numbers of workers in some age cohorts. The loss of the large baby boom generation of experienced workers to retirement will affect all industries. This problem is compounded in the energy sector because of the long stagnation of the industry in the 1980s and 1990s resulting in a generation of workers with little incentive to enter the industry. As a result, the projected need for workers due to replacement is particularly high for key fields.
The BLS estimates that 9,800 petroleum engineers (25.5 percent of the total) working in 2012 will need to be replaced by 2022 because they retire or permanently leave the field. Replacement rates are also projected to be high for other crucial occupations including petroleum pump system operators, refinery operators, and gaugers (37.1 percent); derrick, rotary drill, and service unit operators, oil, gas, and mining (40.4 percent).
Putting together the needs from industry expansion and replacement, most critical occupations will require new workers equal to 40 percent or more of the current employment levels. The total need for petroleum engineers is estimated to equal approximately 64.5 percent of the current workforce. Clearly, it will be a major challenge to deal with this rapid turnover.
Potential solutions which have been attempted or discussed present problems, and it will require cooperative efforts between the industry and higher education and training institutions to adequately deal with future workforce shortages. Universities have had problems filling open teaching positions, because private-sector jobs are more lucrative for qualified candidates. Given budget constraints and other considerations, it is not feasible for universities to compete on the basis of salary. Without additional teaching and research staff, it will be difficult to continue to expand enrollment while maintaining education quality. At the same time, high-paying jobs are enticing students into the workforce, and fewer are entering doctoral programs.
Another option which has been suggested is for engineers who are experienced in the workplace to spend some of their time teaching. However, busy companies are naturally resistant to allowing employees to take time away from their regular duties. Innovative training and associate degree and certification programs blending classroom and hands-on experience show promise for helping deal with current and potential shortages in support occupations. Such programs can prepare students for well-paying technical jobs in the industry. Encouraging experienced professionals to work past retirement, using flexible hours and locations to appeal to Millennials, and other innovative approaches must be part of the mix, as well as encouraging the entry of females into the field (only 20 percent of the current workforce is female, but over 40 percent of the new entries).
Industry observers have long been aware of the coming “changing of the guard” in the oil and gas business. We are now approaching the crucial time period for ensuring the availability of the workers needed to fill future jobs. Cooperative efforts between the industry and higher education/training institutions will likely be required, and it’s time to act.
by Erin Carlyle, Forbes staff.
Billionaire real estate investor Jeff Greene’s massive Palazzo di Amore in Beverly Hills hit the market today for $195 million, making it America’s new most expensive home for sale.
Set on 25 acres overlooking Los Angeles about five to seven minutes by car to Rodeo Drive, the estate includes a 35,000-square-foot main home plus a 15,000-square-foot entertainment center and a separate guest home, containing a total of 12 bedrooms and 23 bathrooms across the various structures. The massive Mediterranean-style spread also comes with a working vineyard that produces six types of wine. Joyce Rey and Stacy Gottula, both of Coldwell Banker Previews International, are the listing agents.
Building the Palazzo was a seven-and-a-half-year labor of love for Greene. In 2007 the real estate investor, who has a net worth of $3 billion, according to Forbes, purchased the home out of bankruptcy proceedings from the previous owners–a Middle Eastern businessman and his wife–paying a reported $35 million. “I have no logical explanation for why we spent the next seven-and-a-half years building this house,” Greene told Forbes. “But that’s the world of building very detailed custom homes.”
Greene hired mega-mansion builder Mohamed Hadid to do the lion’s share of the design, but remained intimately involved in nearly every decision (along with his wife), pouring in tens of millions to complete the estate. (Finishing touches were just put on last month.) At one point, a Peruvian woodcarver was on site for four months to hand-carve the fireplace mantels, Greene says.
Because the property was purchased out of bankrutpcy, Greene got the deed but not the house plans, he says. The partially-finished palazzo had no driveways, so Greene and Hadid had to design and build one. Same for the swimming pool. The land also came with a curious concrete foundation with nothing on it. At first, Greene and his wife planned to tear it out. Then they changed course to: ”Let’s just build an entertainment complex,” Greene says. Today, that space houses a bowling alley, a 50-seat private screening room, and a ballroom with a DJ booth and a revolving dance floor
Palazzo di Amore would make the ideal setting for some grand entertaining. The first floor of the main house features a chef’s kitchen with a commercial size walk-in refrigerator, plus a secondary staff kitchen, butler’s pantry, two staff rooms, a three-car attached garage and two private offices with separate entry. The living room, dining room, breakfast room, game room, office and family room all open onto grounds that face a waterfall set into the hillside. A separate guest house brings the total livable square footage to 53,000. And the property features garage parking for 27 cars and can accommodate up to 150 cars on site.
Plus, what better way to impress all these hypothetical guests than with your own private wine? When Greene purchased the land in 2007, the vineyards were producing grapes but hadn’t yet been turned into wine. So the billionaire hired three full-time people to turn make the vineyards productive. Now, “Beverly Hills Vineyards” produces between 350 and 500 cases a year of six varietals: Sangiovese, Syrah, Cabernet, Merlot, Rose, and Sauvignon Blanc. “We drink it all the time,” Greene says.
The estate also features facilities for showing off that home-grown wine, with a 3,000-bottle wine cellar as well as a tasting room in the main house; as well as lower-level space for an additional 10,000 bottles (plus barrels) in a temperature-controlled room, flanked by an additional tasting room.
Of course, the home would also make a fabulous private retreat. The private living space on the second floor of the main home contains two wings, one with a guest suite and the 5,000-square-foot master suite, with hand-carved fireplace mantel, Juliet balconies, and his-and-hers baths. The ‘his’ bath features a Turkish-style spa with hand-painted wood panels, a fireplace, and floor-to-ceiling Moroccan tiles. On the opposite wing, there are four additional bedroom suites, including one VIP suite with silk-upholstered walls and a full kitchen. The grounds surrounding the home contain a 128-foot reflecting pool and fountain. Also, a swimming pool, a spa, a barbecue area and a tennis court.
The massive Mediterranean-style spread was originally designed by architect Bob Ray Offenhauser and designer Alberto Pinto. Rey, the listing agent, says she expects the home to sell to a foreign buyer, since all the Los Angeles area homes over $50 million sold this year have gone to foreigners.
To date, the most expensive home sold in the U.S. is the $147 million East Hampton spread picked up by Jana Partners founder Barry Rosenstein earlier this year. The record-setting price tag is based on nation-wide sales of major properties priced around $100 million, Rey says. She cited Copper Beech Farm, the $120 million Greenwich, Conn., property that sold earlier this year, as well as the penthouse at One57, the new luxury condominium towers in Midtown Manhattan, that billionaire Bill Ackman and a group of investors reportedly purchased for north of $90 million. “None of those properties had the land, the amenities that we’re offering here,” Rey says.
As for Greene, who lives in Florida and has a home in Malibu and another house in the Hamptons, he’s simply ready to move on with his life. ”I’m a control freak, and that’s why these projects aren’t good for me,” he says. “It’s just too many years, too long. But hopefully the buyer will come along who will appreciate the fruits of our labor.”
Romania draws foreign buyers looking for historic mansions and modern villas in resort areas
Count Dracula, the central character of Irish author Bram Stoker’s classic vampire novel, eagerly left for England in search of new blood, in a story that popularized the Romanian region of Transylvania. Today, house hunters are invited to make the reverse journey now that Romania is a member of the European Union and that restrictions were lifted this year on purchases of local real estate by the bloc’s nationals.
Britain’s Prince Charles, for one, unwinds every year in Zalanpatak. The mud road leading to the remote village stretches for miles, with the clanging of cow bells accompanying tourists making the trek.
Elsewhere in the world, the heir to the British throne occupies great castles and sprawling mansions. In rural Romania, he resides in a small old cottage. His involvement, since 2006, in the restoration of a few local farmhouses has given the hamlet global popularity and added a sense of excitement about Transylvania living.
A living room in Bran Castle, a Transylvania property marketed as Count Dracula’s castle. The home is for sale, initially listed for $78 million.
Transylvania, with a population of more than seven million in the central part of Romania, has a number of high-end homes on the market. And, yes, one is a castle. Bran Castle in Brasov county is marketed as the home of Count Dracula. In reality it was a residence of Romanian Queen Marie in the early 20th century. In 2007, the home was available for $78 million. The sellers are no longer listing a price, said Mark A. Meyer, of Herzfeld and Rubin, the New York attorneys representing the queen’s descendants, but will entertain offers.
Foreign buyers had been focused on Bucharest, where there was speculative buying of apartments after the country joined the EU in 2007. But Transylvania has been luring house hunters away from the capital city.
A guesthouse on the property in Zalanpatak, Transylvania, that is owned by Britain’s Prince Charles. His presence has boosted interest in Romanian real estate.
Transylvania means “the land beyond the forest” and the region is famous for its scenic mountain routes. Brasov, an elegant mountain resort and the closest Transylvanian city to the capital, has many big villas built in the 19th century by wealthy merchants. A 10-room townhouse from that period in the historic city center is listed for $2.7 million. For $500,000, a 2,200-square-foot apartment offers rooftop views of the city and the surrounding mountains.
A seven-bedroom mansion in the nearby village of Halchiu, close to popular skiing resorts, is on the market for $2.4 million. The modern villa features two huge living rooms, a swimming pool, a tennis court and spectacular views of the Carpathian Mountains.
The village, founded by Saxons in the 12th century, has rows of historic houses across the street. Four such buildings were demolished to make way for the mansion, completed in 2010.
A $2.4 million mansion is for sale in Halchiu village.
“Rather than invest a million or more to buy an existing house, the wealthy prefer to build on their own because construction materials and work is cheaper,” said Raluca Plavita, senior consultant at real-estate firm DTZ Echinox in Bucharest.
Non-EU nationals can’t purchase land outright—although they may use locally registered companies to circumvent the restriction—but they can buy buildings freely, said Razvan Popa, real-estate partner at law firm Kinstellar. High-end properties are out of reach for many Romanians, who make an average of $500 in monthly take-home pay.
The country saw a rapid inflation of real-estate prices before 2008, on prospects of Romania’s entry to the EU and the North Atlantic Treaty Organization, as well as aggressive lending by banks. Values then fell by half during the global financial crisis.
The economy is stronger now, with the International Monetary Fund estimating 2.4% growth this year. But the country is still among Europe’s poorest. Its isolation during the dictatorship of Nicolae Ceausescu gave it a bad image.
The interior of the seven-bedroom Halchiu mansion, which was built on the site of four traditional Saxon homes.
“Interest in Romania isn’t comparable with Prague or Budapest where some may be looking to buy a small apartment with a view of Charles Bridge or the Danube,” said Mr. Popa, the real-estate lawyer.
The international publicity around Prince Charles’s properties offers a counterbalance to some of the negative press Romania has received in Western Europe, which is worried about well-educated Romanians moving to other countries to provide inexpensive labor.
The Zalanpatak property is looked after by Tibor Kalnoky, a descendant of a Hungarian aristocratic family. The 47-year-old studied in Germany to be a veterinarian and, after reclaiming family assets in Romania, has managed the prince’s property and has hosted him during his visits.
These occasional visits are enough to attract scores of tourists throughout the year to the formerly obscure village in a Transylvanian valley. The fact that few street signs lead there, that the property offers no Internet or TV and that cellphone signals are absent for miles, seems only to add to the mystery of the place.
Billy Gasparino and Jenna Dillon-Gasparino were savvy enough to wait out the housing boom of a decade ago as renters. Not until 2010, well into the bust, did they buy a house in the Venice neighborhood of Los Angeles, less than a mile from the beach, for $810,000.
Only four years later, the couple see new signs of excess in the housing market and have decided to go back to renting. They are close to a deal to sell their house – for $1.35 million, a cool 67 percent gain.
“It just seems like the housing market came back so strongly, so fast, that maybe there’s a little bit of a bubble there,” said Mr. Gasparino, 37, an executive with the San Diego Padres.
Their decision reflects a new reality in many of the nation’s largest metropolitan areas. An analysis by The New York Times finds that in the country’s most expensive places, including New York, the San Francisco Bay Area and Los Angeles, buying a home again looks like a perilous investment, based on the relationship between their prices and rents or incomes. And in a longer list of areas, including Boston, Miami and Washington, prices have risen enough that buying is no longer the bargain it looked to be a few years ago.
The Times also created an online calculator that enables prospective buyers and renters to analyze their own decision. For example, for a typical person considering the purchase of a $500,000 house who expects to live there seven years, it might make more sense to rent if a similar place is available for $1,956 a month or less.
“A lot of these coastal markets look overvalued compared to rents,” said Mark Zandi, the chief economist at Moody’s Analytics. “In these markets, it seems generally more attractive to rent than to buy, even as the national market is broadly well balanced.”
For example, Venice, where the Gasparinos are selling their house, has benefited from an influx of tech industry, including from the opening of Google’s Los Angeles office there in 2011. “You have engineers, visual effects artists, people making 2, 3, 400 thousand dollars a year coming in,” said Tami Pardee, principal of Pardee Properties real estate brokerage in Venice. “The problem I’m having is inventory. There isn’t enough of it.”
Thanks to low interest rates and home prices that remain 13 percent below their 2006 peak nationally, buying continues to look like a good deal in much of the country. In the once-frothy markets of Phoenix, Las Vegas and Orlando, Fla., for example, the typical home price is still 30 to 40 percent below 2006 levels, even more if one accounts for inflation.
But across much of California and the Northeast, prices are now high enough that the costs of owning a home – property taxes, repairs, fees to real-estate agents and mortgage interest – may outweigh the financial benefits, including the tax break.
It is the latest change in a yo-yo pattern over the past decade. From 2004 to 2006, the math overwhelmingly favored renting rather than buying across most of the country, even as many Americans mistakenly decided that home prices could never fall. From 2009 to 2011, buying was an extraordinary deal in most of the country. Even the markets that have experienced huge price increases are far from the clear-cut bubble conditions of the mid-2000s, but they’re inching closer with every bidding war.
Since the start of 2011, prices have risen 33 percent in the San Francisco area, 30 percent in Miami, 24 percent in Los Angeles — and even more in some of the most desirable neighborhoods within those areas.
In the San Francisco Bay Area, home of the sharpest recent price increases, the sale price of a home is about 20 times what it would cost to rent a home of the same size for a year. That ratio, based on an analysis of data from Zillow, is the same as in 2003, when the San Francisco real estate market had yet to become an out-of-control bubble but was well on its way there.
When low mortgage rates are taken into account, buying a home in San Francisco looks somewhat more attractive — but with a 10 percent down payment and prevailing interest rates, buying a home is 6 percent more expensive than renting a place of the same size, the same premium for buying as there was during the dot-com boom in 1999. Just two years ago, buying in the San Francisco area was 24 percent cheaper than renting an equivalent place.
The potentially overvalued markets are the result of three forces. They are taking place in local economies that suffered only minimally during the recession that began in 2008 and have experienced strong job growth since then.
They are fueled further by the low-interest rate policies that are aimed at bolstering the overall national economy but don’t discriminate based on geography. Even as San Francisco’s housing market is at risk of overheating, buyers there get the same ultralow mortgage rates engineered by the Federal Reserve as home buyers in depressed Detroit or Cleveland do.
And the new booms are taking place in markets where restrictions on building hinder developers from responding to rising demand by constructing more housing. That distinguishes the major California markets from the strong local economies in Texas and elsewhere. The Dallas area and the San Francisco area added similar numbers of jobs last year, but local governments in Dallas issued permits for nearly four times as many new housing units.
There are important caveats, of course. The wisdom of buying versus renting depends heavily on each person’s financial situation, plans and preferences. And the cliché about all real estate being local holds; each neighborhood can have its own unique dynamics in the for-sale and for-rent housing sectors that must be considered.
Home buyers in even the highest-price markets can take some solace in the fact that prices aren’t as outlandishly high relative to rents as they were in 2006. But they should also know that homes are also priced richly enough to leave no room for error.
It’s a bit like the current consensus opinion of economists on the value of the stock market: not in a bubble, necessarily, but certainly expensive enough to make a buyer wary. While home prices may stay high for months or years to come, buyers are leaving themselves vulnerable to a decline toward more normal historical valuations. Renters avoid that risk, even if they also don’t get some of the upside if the bull market for houses in places like Santa Monica, Nob Hill and TriBeCa has longer to run.
“If you thought home values in the Bay Area or Southern California were such that we might see another housing correction, that radically starts to advantage rental housing,” said Stan Humphries, Zillow’s chief economist, who argues that current prices are reasonably well justified, while acknowledging that prices are high enough to leave buyers exposed.
The real estate market in Venice, where the Gasparinos are selling their house to lock in the gains, shows the forces shaping the new boom markets. Besides the tech employment there on Silicon Beach, as the local boosters put it, the supply of housing can’t expand to meet that rising demand. The area is filled with block after block of low-slung houses and apartments, and density restrictions stand in the way of constructing tall buildings.
That combination has been enough to send the median price per square foot of homes that are sold up 49 percent since late 2010 in the 90291 ZIP code, according to Zillow, and the median rent per square foot up 23 percent in the same span.
“When we bought four years ago after the crash, the market was dead, and it felt like everybody learned their lesson,” Mr. Gasparino said. “It just went back so fast.”
Source: New York Times