Westside Realty Gold Rush Is on : Fast Sales of New Houses, Razing of Older Structures Spur Prices

Shades of the ‘70s: Multiple offers, quick resales, houses selling for more than their asking prices.

Whether it’s because of impending tax reform or something else, it’s all happening, especially on the city’s Westside, where there are some surprising stories.

Like the one told by Bruce Nelson of Asher Dann & Associates in Beverly Hills:

“I just sold a house in Bel-Air for $5 million, and the buyer is going to tear it down to build another one.”

Affects New Housing

Jeff Hyland of Alvarez, Hyland & Young in Beverly Hills tells of a house in Bel-Air that sold three weeks ago for $2.65 million and again since then for $3.1 million. “And it’s a tear-down,” he noted.

The hot market is also affecting new housing. Hyland represented a builder in the sale of a new house in Beverly Hills for $3.15 million--”without even a for-sale sign or an ad,” he said.

He also listed a new house on the former estate of the late actor Harold Lloyd, and--as he tells it--”20 people already walked through the house, and I haven’t even shown it yet. The landscaping isn’t in. The crews are still there, finishing the house, but they can’t keep the people out.”

It’s not exactly a bargain price, either, at $2.55 million.

Bought Before Completion

Similar things are happening elsewhere. Brian Sweeney of REMAX in Manhattan Beach said that in the South Bay, “there are lots of people buying new houses before the houses are finished.”

And he cites a six-unit condo project in Hermosa Beach “that hit the market and in one day sold out at prices of about $200,000 each.”

He also knows of four new houses in Manhattan Beach that were sold at prices of $450,000 and more the first day they were offered.

They were hardly a steal, but as William Cote of Cote Realty & Investment Co. in Newport Beach acknowledged, few real estate markets in the entire country can compete with the Westside, and Beverly Hills in particular.

Survey of Other Areas

“We have a lot of activity here but not at the level that is occurring up there,” he said. “No place has the allure and fantasy--with the interest there of people in the entertainment industry--and the cultural and political diversity of Beverly Hills, West Hollywood, Malibu, Brentwood, Holmby Hills, Bel-Air and the canyons.”

Only a few places even come close to the market activity in Beverly Hills, judging by a study by Coldwell Banker. In May, the firm tracked the price of a 2,000-square-foot, three-bedroom, two-bath house--deemed typical for a young corporate executive family--in cities all over the United States.

Seven cities exceeded the $300,000 price listed for Beverly Hills, but only one of these came anywhere near the short time--10 days--it was estimated that the Beverly Hills house would take to sell. That was Morris Township, N. J., with 14 days. (Newport Beach had a $300,000 price, but researchers said it would take 60 days to sell the house there.)

The only cities that did better than Beverly Hills in the “estimated-days-on-market” category were Torrance and Stamford, Conn. Each had seven days, but each had a house price of less than $300,000. Torrance was at $240,000; Stamford was at $295,000.

Price Records Set

The highest price was given for Greenwich, Conn., at $600,000. Yet, there are many houses in Beverly Hills and other places on the Westside that exceed that, including the highest priced single-family home in the nation: the $27-million Kirkeby estate in Bel-Air, which came on the market in February.

Some other price records have also been set lately on the Westside, despite Coldwell Banker’s conclusion that the price for the 2,000-square-foot, Beverly Hills house has not changed since 1984.

John McCormick, manager of Rodeo Realty (estates division of Merrill Lynch) in Brentwood, said that four months ago, he sold a house in the Riviera section of Brentwood for $2.5 million. That was a record for the area until two months ago, when another home was sold for $8 million, he noted.

Who are the buyers? There is, from all reports, no influx of wealthy foreigners as there was a few years ago.

‘Down-Home Americans’

“Nope,” McCormick agreed, “most of the buyers here are basic down-home Americans. And there are a lot of entertainment bucks. There’s always that.” Ron de Salvo of Merrill Lynch in Beverly Hills said, “There are some Saudis, but the buyers are mostly Americans, trading up, with a lot of cash.”

There are apparently a lot of Westside home buyers in the “rich” to “super rich” categories outlined by a Congressional committee in July. “And they spend freely,” Hyland observed. “When they vacillate about spending another $500,000, I just remind them that they can’t take it with them (when they die), so they might as well spend it.”

That partially accounts for what he describes as “the fever going around Beverly Hills,” which has also manifested itself in an abundance of building and remodeling.

Hyland tells of one house that sold for slightly more than $4 million, and the new owners are putting $2 million to $3 million into remodeling it.

Old Houses Razed

“Every block in the flats (an area of Beverly Hills) has at least one house under construction or in remodeling,” he said.

Ben Bartolotto, director of the Construction Industries Research Board in Burbank, said that for the first six months of this year, building permits were issued in Beverly Hills for 301 new housing units, in contrast of 41 for the same period last year, but of the 301 units, 273 are in three buildings--either apartments or condominiums.

Speaking of condos, the current hot market has also apparently seen the turnaround of the so-called “Golden Mile” of West L. A.’s Wilshire Boulevard, where there was a glut of expensive new condos five years ago. Delphinance Development Corp., owners of the 10560 Wilshire Blvd. high-rise, reports “solid and steady unit sales at rising prices” with 12 of 108 units remaining. In the area, there are an estimated 60 units left of 1,100.

Another facet of the hot market was described by Steve Moore of the Jon Douglas Co. in Beverly Hills, who said that there are a lot of old houses being torn down in Beverly Hills to be replaced by new ones. “After all, there is only so much land here, and Beverly Hills is a most, if not the most, desirable spot.”

It and other places on the Westside are so desirable, in fact, that there have been “more frequent instances of multiple offers,” Moore pointed out. John Aaroe, with the same realty firm, said, “We just sold a house for $3.5 million that was on the market for less than a week, and there were two or three offers on it.”

Prefers Slower Market

Some homes have gone for a few thousand dollars more than their asking prices after a bidding war between potential buyers, he added.

But these cases are scattered, like those involving the quick turnarounds described by Hyland. There are stories, he said, about people buying in Beverly Hills and old Bel-Air, owned for no more than a couple of weeks, and then selling for $500,000 more than they paid.

“I’d prefer that the market continue at a slower pace, because we could end up again with inflated, overvalued properties,” he warned, “but it is like old times.”

McCormick agreed. “We have seen a return of speculation, missing since the late ‘70s, by the occasional double escrow, but these have been few and far between.”

‘It’s Like the ‘70s’

Aaroe said, “It’s like the ‘70s in terms of tremendous activity. Good houses, those that are well priced, sell quickly. But prices aren’t escalating as they were in the ‘70s.” Unlike Coldwell Banker, he has seen a 10% rise in prices in Beverly Hills during the past couple of years, but that’s a vast difference from the 50% to 100% yearly increases in price he was seeing there in 1978 and 1979.

Joel Singer, research director for the California Assn. of Realtors, said, “The market in general is very good. We’re seeing the most rapid activity since the ‘70s, particularly in trade-up.”

However, inventory is very low--15% below the first half of last year, he noted, “and that’s one reason homes that are new and fairly well priced are selling very quickly.”

Or homes that Carol Rapf of Jim Rapf & Associates in Malibu described as “wonderful and properly priced,” whether old or new. Consider an old house that requires extensive remodeling on a lot 30 feet wide in Malibu Colony that is priced at $1.5 million. “Those sell right away,” she remarked. Malibu Colony is a prestigious community of about 110 houses, some behind gates.

Curtailed Travel Plans

Rapf suggested another reason why the housing market is so active, at least in Malibu Colony: “It has to do with people not going to Europe (because of the fear of terrorism). Instead, some people are saying, ‘Let’s have a wonderful house 30 minutes from the office.’ It’s like a vacation. Most people buying at Malibu Colony are buying weekend houses.”

Another reason for the hot market are the mortgage interest rates. “We’ve seen the first meaningful break in it in many years,” Singer observed.

Even so, he says, “the market might seem like the ‘70s in isolated areas but in general, it is not as heated.

“We’re not seeing the speculative activity that we did in the ‘70s, when there were 10% mortgages and a 10% inflation rate. Now there are 10% mortgages but less than 2% inflation. So, although prices are going up rapidly in general right now, we don’t expect the speculation of the ‘70s while inflation stays low.”

Availability of Money

Kenneth Leventhal, president of the Los Angeles-based public accounting firm bearing his name, said, “I think the fervor of speculatively buying residential property is pretty well done.”

And he contends that the current flurry of activity is “money driven.” “There is a lot of money available, and lenders are making high-end residential loans at more reasonable cost,” he explained.

But impending tax reform is probably also having an impact, though Singer says “there is no way of measuring it.”

Buying homes is what Singer termed “the type of activity you’d expect from the tax proposals.”

Anticipate Tax Changes

Leventhal added, “I do think that the tax law will spur some activity there (in residential real estate) because, as you recall, it was announced that deduction of interest on housing would be limited to primary home acquisitions and improvements.”

Realtors interviewed indicated that in anticipation of tax law changes, some clients are already selling investment properties to remodel or trade up primary residences, and some sellers are trying to close escrow on their properties this year to avoid paying next year’s expected additional taxes on capital gains.

“I always thought that this tax law would help residential real estate,” Hyland said.

‘More Spendable Income’

McCormick added:

“There is some feeling that after tax reforms are adopted, big ‘incomers’ might even have more spendable income and if so, these estate properties could become even dearer, or valuable, because of the demand for them. It’s a surmise but one I hear from the business managers and accountants of people making huge incomes.”

And what’s to become of investment properties?

Leventhal is optimistic. “Coming on the market are some good real estate investment opportunities,” he said, “because the market is getting discounted for Packwood (the tax bill) and the long incubation period.

“So there is some evidence that for the long-haul player, there will be some good buys, but they must be searched out.”