Condo Sales Rebounding From the Ruins of '81

Times Staff Writer

On Wilshire Boulevard amid some of the most expensive real estate in the nation stands the rusting steel skeleton of what was to have been a luxury condominium project.

The Evian was the 11th in a succession of nearly $1 billion worth of high-priced, high-rise condominium projects that came on the market just as soaring interest rates brought real estate sales to a standstill in 1981.

The Westside condominium market is gradually recovering. Buyers are returning to the market, attracted by lower interest rates and prices that are, in some cases, half of what was being asked a few years ago.

But the market is still recuperating from the orgy of overbuilding that has swamped the Wilshire Corridor and much of the Westside with condos.

Buyers remain wary of the market that left the Evian unfinished at Wilshire and Warner Avenue, in the middle of the deluxe "Gold Coast" between Westwood and Beverly Hills.

Not Talking

And bitterness lingers among some builders and lenders who suffered losses in the early '80s. A couple of developers who went bankrupt refused to be interviewed by The Times, saying they "just want to forget the whole thing."

In the aftermath of the collapse of the market in 1981, "condominium was a dirty word," said Albinas Markevicius, president of the Santa Monica Board of Realtors.

According to a score of real estate brokers, lenders and economic researchers interviewed by The Times, condo sales have improved gradually in the past few years as prices have been reduced.

Markevicius said that prices have been cut 10% to 15% on units originally tagged at $200,000 or less, while more expensive units have dropped as much as one-third throughout the Westside.

In the luxury category, where condos were listed as high as $11 million at the height of the boom, some prices have been cut in half.

Brokers and lenders said they expect an increase in sales this year as buyers take advantage of price reductions and lower interes rates.

"This will be a phenomenal year for the real estate industry," said Steven H. Gold, chairman of the board of Center Financial Group Inc., a real estate investment banking firm in Century City.

Market Seen as Healthier

"There will be a strengthening of the housing market on a permanent basis," he said. "We will start seeing the market go back to a buying environment--interest rates are coming down and are going to stay down. People are more confident that the country is not going to collapse. There will be a permanent strengthening of housing sales because of that."

"The market is much healthier, long-term, than the speculation fever that occurred from 1975 to 1980," said William S. Mortensen, chairman and president of First Federal Savings & Loan Assn. of Santa Monica. "People are buying condos like they used to buy houses, for housing for themselves, not for speculation."

Because of the high cost of single-family houses on the Westside, condominiums offer many people their only chance at home ownership here: Brokers say that there are practically no single-family homes under $150,000 and most are in the $300,000 to $500,000 range. Many cost $1 million or more.

The Westside is such a sought-after area that many people prefer to live in a condominium here rather than in a single-family home in the San Fernando Valley or other more distant areas, brokers said.

Condominiums may be less expensive than houses, but many of them are beyond the financial reach of middle-income buyers.

Many condominiums here are very expensive because land in the area costs as much as $125 a square foot, and developers see the potential for big profit in the Westside's prime neighborhoods.

Brokers said, however, that the best-selling condos are in the lower price range, starting at $100,000 to $150,000. Sales are much more sluggish for units costing $250,000 and more, they said.

Statistics compiled in mid-1984 by the Real Estate Research Council of Southern California show a big gap between the price of new condos sold and those still on the market.

The median selling price for new units was $165,000, while the median asking price of the unsold units was $295,294. The $130,000 difference is much greater than for new single-family homes, where the median selling price was $300,000 and the median asking price was $333,913.

Joel Singer, chief economist for the California Assn. of Realtors, said the statistics show that "in general, the lower-priced product is moving much more rapidly than the higher-priced . . . the more affordable, the more marketable."

Wide Price Range

Westside condominiums in the end-of-1984 multiple listings ranged in price from $38,900 for a small bachelor apartment conversion in West Hollywood to $1.85 million for a luxury unit in Brentwood.

The most expensive condominium for sale on the Westside is the east penthouse at the Wilshire House, which is being offered for sale for $5.3 million. (It did not appear in the end-of-the-year multiple listings). The west penthouse was sold to an American businessman for $5 million last year, according to real estate sources.

At the height of the boom, and accompanied by worldwide publicity, the Wilshire House originally set a price of $11 million for the five-bedroom, 7 1/2-bath penthouses that were to come with a "free" Rolls-Royce.

Condominiums at the Wilshire House today are "priced right" compared to the original listings, said Suzanne Nixon, vice president of Sotheby Parke Bernet International Realty Corp., which took over the marketing of the project a few months ago.

She described the original prices as "outlandish," even for the rich, and said that 56 of the 66 units have remained unsold. Several offers have been received since Sotheby's stepped in, she said.

The new prices at the Wilshire House, from $460,000 on the third floor to $1.95 million on the 19th, are in line with what current owners have paid for their dwellings, she said.

Variety Available

Here is a sampling of Westside condos at the lower end of the price spectrum:

- In Westwood: The Colony is a conversion of 256 apartments in a 12-year-old building on Veteran Avenue south of Wilshire. Prices start at $99,950 for a 400-square-foot studio with a combined living room-bedroom, according to sales associate Diane Barton. The monthly payments for the studio, including utilities and homeowner fees, range from $893 to $1,233, depending on the down payment and financing, she said.

- In Santa Monica: The enactment of Proposition X has provided a method of tenant-approved condominium conversions when two-thirds of a building's renters approve the owner's proposal and half sign an intent-to-buy agreement. Under this method, one-bedroom units are expected to be offered to tenants for as little as $55,000 and two-bedrooms will start at $150,000, according to Markevicius. When the tenant-owners eventually sell, however, prices are expected to increase to market value, he said.

- Near the Santa Monica Freeway and Robertson Boulevard in West Los Angeles: One-bedroom, 700-square-foot units in a rather dowdy apartment conversion are priced at $67,500. According to the real estate agent holding open house there, most of the units sold are not owner-occupied, but are being acquired as income property and will be rented out.

Prices of condominiums have declined on the Westside and interest rates have improved dramatically. The prime lending rate is 10.5%, compared to 21.5% in December, 1980.

Adjustable-rate loans are available to buyers at 12.5% at First Federal Savings of Santa Monica and 12.75% at Glendale Federal Savings, bank officials said. Fixed-rate loans are also available at higher rates.

Financing is readily available to qualified individual buyers, but lenders have shut off loans to builders so few condos are being built in the Westside.

Richard Mines, vice president of Fred Sands Realtors, said that the Combined L.A./Westside Multiple Listing Service showed 1,578 condo listings for the Westside and parts of Los Angeles at the end of 1984, practically the same number as the year before.

Brokers said that the oversupply of condominiums that glutted the market a few years ago has dwindled somewhat, but there are plenty to choose from.

Supply Exceeds Demand

"The tremendously overbuilt situation we had two or three years ago has eased pretty much," said Singer of the California Assn. of Realtors, "but the supply is still in excess of the demand."

"This is an excellent time for the buyer," said Fred Sands, founder of Fred Sands Realtors and president of the Beverly Hills Board of Realtors. "There are many good values out there now, and in five years they will look like bargains."

"For any first-time buyer, if you can do it, now's the time," said Gary Perkins, vice president and sales manager of the Beverly Hills branch of Coldwell Banker Residential Real Estate Services. "Prices have hit rock bottom. They have gone past rock-bottom."

Several brokers, including Elliott Feinman, president of Merrill Lynch Realty, say they have high hopes for troubled Wilshire Boulevard, where many condos remain unsold and others have been leased while builders wait out the slow market.

"Within five years' time, there will be a light shining in every window on Wilshire Boulevard," Feinman said. "It will be the Park Avenue of the West."

In spite of optimism in some quarters, others say it will be a long time before people forget what happened on Wilshire Boulevard in 1981 and 1982.

"The Wilshire Corridor was hit as hard as any area because so many units came on the market at the same time, and they were all in the high price range of $175 to $325 a foot," said Jon Douglas, president of Jon Douglas Co. (At those rates, a 3,000-square-foot condo would cost $525,000 to $975,000.)

"In the boom market of 1970 to 1979, a certain portion of that product would have been taken up, but the higher interest rates in 1980 and the number of units in the area made the market very weak," Douglas said.

"During the boom years, they used to say if you put a tent up on Wilshire Boulevard, you could sell it," said William Woolfson, owner of the William Woolfson Co., a mortgage loan brokerage firm in Beverly Hills.

'I Won't Get Hurt'

"Both developers and lenders said, 'It can't happen to me, I won't get hurt,' " Woolfson said. "They thought this street (Wilshire) was paved in gold and always would be. But the market is the market, and it has an absorption rate of just so much. Above that, even sponges can't hold water."

Real estate dealers say that the development of high-rise luxury condominiums along Wilshire was "a brilliant concept" that was sabotaged by overbuilding and extraordinarily high interest rates.

"You couldn't have picked a worse time to have all those units come on the market at the same time," said Perkins. "If you had wanted to plan a disaster, you couldn't have planned it better."

Builders had counted on a continuation of the rapid price inflation that occurred in real estate in late 1970s, when a person could buy a property, hold it three or four years and "make a killing," he said. That inflationary period set up expectations of unending profit, brokers said, so owners felt betrayed when prices eventually came to a standstill and, in some cases, went down.

"Nobody wants to admit he lost money on a real estate deal," Perkins said.

"It was a terrible thing for buyers and sellers and brokers when the market went so crazy," said Joan Horsfall Young of Century Hill Realty Co. The spiraling inflation in the 1970s set up unrealistic expectations of fast profits, she said, and some sellers have stubbornly held onto an inflated idea of what their property is worth.

"None of us has forgotten (the fast price escalation)," Young said. "Long-term, that was not the best thing for real estate. We needed consistent pricing."

Some Buyers Leary

Brokers said that the speculative fever of the late '70s is over, and the real estate market today is on a sounder footing.

A sign of life on the Wilshire Corridor, they said, is the purchase of the Evian by Goldrich & Kest, which reportedly plans a scaled-down version of the original project with fewer stories and prices more in line with today's market.

A spokeswoman for Councilman Zev Yaroslavky said that residents who live near the Evian are pleased at the prospect of ridding themselves of the high-rise eyesore, and brokers hope that completion of the project will improve buyer confidence in the area.

It has not helped the market for projects in prime areas like Westwood and Brentwood to stand unfinished or vacant, brokers said.

Buyers also have been put off, they said, by stories of people who purchased condominiums at the height of price inflation in the late '70s, and who now cannot sell their property for what they paid. Worst off are those who must sell quickly because of a job transfer or financial problems, Richard Rosenthal, owner of Rosenthal & Associates, a Venice-based real estate company.

Real estate sources are divided on whether condominiums are riskier than single-family homes in terms of potential resale.

"If a condo is priced correctly, it will sell just as fast as a well-priced single-family home," said Feinman. "But there are those sellers who will not listen to market comparables. They think they can get thousands more for their property because they have flocked wallpaper in the powder room."

"Overpriced properties don't sell today," agreed Sands. "Perhaps in the late '70s you could sell (at an inflated price) if you kept your property on the market long enough. But today if you are more than 5% over market value, you won't even get an offer."

Others say that it may be more difficult to resell a condo than a house.

Mortensen of Santa Monica First Federal said buyers should think of potential resale when they are shopping.

"It may be harder to resell a condominium than a single-family house, so it is important to have something unique about your condo--the design, or the amenities--something that makes your place separate and distinct. . . . If it looks like every other unit, it will be a lot harder to sell."

There is agreement that condominiums, which at first were dismissed as "nothing more than glorified apartments," now have gained wide acceptance as a form of home ownership.

While families with children still gravitate to single-family homes, condos attract "empty-nesters" and young professionals who want the security and maintenance-free advantages of condominium living, they said.

"In the Westside, where land is at an absolute premium, condos are the only way to go unless you are fortunate enough to be able to afford a single-family home," said Robert Smylie, a Century City attorney who represents developers and is a condominium dweller. "I still see a tremendous demand for condos, but maybe not at the prices originally anticipated."

Westside Condominium Prices at End of 1984

Bel-Air and Holmby Hills--$169,000 to $895,000

Beverly Hills--$99,500 to $1.25 million

Beverlywood--$67,500 to $329,000

Brentwood--$95,000 to $1.85 million

Cheviot Hills-Rancho Park--$125,000 to $171,000

Hancock Park--$69,900 to $419,000

Hollywood--$50,000 to $172,000

Hollywood Hills West-Sunset Strip--$87,750 to $750,000

Marina del Rey--$62,900 to $1.1 million

Mid-Wilshire--$39,900 to $189,500

Miracle Mile West--$79,950 to $365,000

Pacific Palisades--$125,000 to $499,000

Palms-Mar Vista--$76,500 to $169,000

Santa Monica--$95,000 to $895,000

Venice--$134,950 to $339,000

West Hollywood--$38,900 to $415,000

West Los Angeles--$74,000 to $355,000

Westwood-Century City--$115,000 to $1.2 million

From combined Los Angeles/Westside multiple listing service, according to Richard Mines of Fred Sands Realtors.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World
55°