Metropol Hollywood Returns, Bank-Owned -- 41-Unit Condo Project Gets Standing O From Public

Everyone in Hollywood loves a comeback.  Metropol, a hip, 41-unit condo project smack in the middle of Hollywood, has emerged from oblivion, and the public has given it the equivalent of a standing ovation.

When Metropol originally came to market last September, we were excited by the modern look, and the quality of design and construction you typically see in West Hollywood and Westside markets.  The lack of sales at Metropol at that time was purely a response to prices that were above market.

But Metropol is back, and in its second act, the project is now bank-owned.  What a difference a few months makes.  Prices on units have been lowered in some cases over 20%, and the units are flying off the shelves.  It's difficult to calculate, but these units appear to be selling below cost.

Although the official opening isn't until July 24, during the pre-launch phase over 30% of the building's units are in reservations.

Prices for 1 br units (920 sq ft) are $369,900 - $399,900. Prices of 2 br units (1200 sq ft) are $399,900 - $499,900. 

Metropol
6001 Carlton Way
Los Angeles, CA  90028

Sold by Revive Real Estate Group

California Legislature Offers Hope to Homeowners Following Foreclosure or Short Sale -- and Added Time to Homeowners in Distress

The state of the state of housing of in the State of California, is, well, dire straits. In May, California was home to six of the top ten metropolitan areas in the nation with the most foreclosure filings (Riverside-San Bernardino, Bakersfield, Merced, Modesto, Stockton and Vallejo-Fairfield.) Not to be forgotten, though, is the situation is improving:

"In May, 23,911 Californians received notices of default — the first step in the foreclosure process — and 27,841 got notices of trustee sale, according to online tracking service ForeclosureRadar.com. Default notices dropped 43% in May compared with May 2009, while trustee sale notices fell 36%." (Los Angeles Times)

Help may be on the way to those who have gone through foreclosure (or are facing foreclosure) in the way of three bills that have been approved by the state Senate and are before the State assembly.

The first bill addresses the issue of deficiency judgment for those who refinanced their home during the time they owned it. Under current law, since the loan is not the original ("purchase money") loan, those foreclosed are liable for the "deficiency" amount (the unpaid principal). The idea is, the collateral is the house -- and even if the owner has a "new" loan, the bank cannot pursue the person's other assets.

The second bill concerns eliminating the deficiency judgments for short sales (read our notes on short sales here).

Both the first and the second bill address the "double whammy" of owners losing their home (presumably under financial stress) and then being served with often outsized bills for unpaid principal.

The third bill will allow more time before homeowners who face foreclosure while they attempt to obtain a loan modification or other work-out.

It's impossible to assign blame for who created the "bubble" real estate market. But the reality is, with so many homeowners "upside down" (owing more on their mortgage than their property is worth), measures must be instituted to prevent the state's citizens from being saddled with loans, for something they no longer own, that are far beyond ability to repay.

655 Hope Street in Downtown Los Angeles: 17 Stories and 80 Units of Glass, Steel and Fine Finishes at the City's Center

Updated 4/22/10: The developers of 655 Hope in Downtown Los Angeles elected to auction only 30 of the 45 lofts on April 18, 2010. This adaptive reuse project (an office building -- with lots of parking!!! -- converted to residential use) is located in the center of Downtown close to Staples Center, LA Live, Ralphs Freshfare supermarket, and the 7th Street Metro Station.

The building consists of 17 stories, the lower floors of which are reserved for parking. There are 8 units to a floor, which range in size from 600 sq ft for a 1 bedroom, 1 bath unit, to 1268 sq ft for a 2 bedroom, 2 bath unit. "Starting bids" are $165,000 for the least expensive units. (Expect the units to go for much more). HOA dues vary according to unit size.

What did the units sell for at auction? $268,000 - $500,000. This amounts to $329/sq ft for the largest floorplan (1,255 sq ft) on a lower floor (9th), and $486/sq ft for the smallest floorplan (and we mean small -- 600 sq ft) on a high floor (15th). See more details about the auction at Curbed LA.

The finishes have the polish of a high-end project. Floors are an attractive dark chocolate wood. Kitchen are outfitted with GE Profile appliances, glass tile and slick counters. The building has a fitness center and a roof deck.

Those looking for a traditional layout with enclosed bedrooms will be disappointed by 655 Hope's open floorplans. One can see that a 2 bedroom unit (like 1502, pictured above) has no doors, and it's up to you to create the boundaries between rooms. Here's a walk-through of the unit.



655 Hope is wedged into the urban fabric of Downtown Los Angeles. The downside is that the view from many of the lower floors are obscured by neighboring buildings. Some units on the upper floors, however, like 1502 (above) do have quite spectacular views. Those interested in the purchasing units should not simply choose based on floorplan but should check out the light/view for individual units.

Kennedy Wilson, which hosted the Market Lofts auction in November 2009, will be conducting the 655 Hope auction. This traditional auction format in which one unit is sold at a time leads to rapid-fire bidding (2 - 3 minutes per unit) and buyers must be deliberate and quick-paddled to get in on the action.

655 Hope Street
Los Angeles, California
Auction Website

El Dorado Lofts in Downtown Los Angeles: 1914 Hotel Conversion Brings Craftsman-Era Magnificence to Old Bank District

El Dorado Lofts at 416 S Springs Street in Downtown Los Angeles will not be auctioning 44 of its 65 units at an event on April 25, 2010. Update 4/16/10: The auction has been canceled because of delays in the building obtaining a Certificate of Occupancy (per developer). The units will be sold through a traditional sales office, with prices starting at $280,000 for a 1 br-1 ba (848 sq ft) and $386,000 for a 2 br - 2 ba (1,176 sq ft).

Floorplans of this 12-story building range in size from 848 sq ft to 1,394 sq ft. HOA range from $456 - $622. Parking is not included with the purchase, but the building has a perpetual and exclusive parking easement with Bankhouse Parking Structure on 4th Street.

[from Los Angeles Historian Blog]

Located in the Old Bank District next to the Rowan Lofts and future Spring Street Park, the refurbished El Dorado Lofts hark back to a bygone era when this neighborhood was known as "Wall Street of the West".

The developer is Goodwin Gaw, responsible for the Rowan Lofts, the Hollywood Roosevelt Hotel, and in a large part revitalizing residential Downtown.

The grand lobby was a bustling hub for businessmen and frequent travelers, and a "much-proclaimed venue for local social events."

The El Dorado is certain to be full of life nearly a century later and a great addition to emerging Downtown scene. Be sure to grab a Burgundy or Malbec at the Must Wine Bar and small plates at the innvotiave eatery The Gorbals just down the block.

Dozens of tiles from the Pasadena-based Batchelder Tile Factory, harbingers in the Arts and Crafts movement, cover the lobby walls.

There are a couple of negatives -- the ceiling height feels low in some of the units and some of the new, exterior balconies feel a little rickety.

Regardless, the El Dorado's features are extensive and impressive:

• Bosch appliances with stainless steel finishes
• Granite countertops
• Grohe kitchen faucet
• Double-compartment Franke sinks
• Snaidero Italian bathroom cabinets
• Soaking tubs
• Toto bath faucet and shower sets

Clean, clean, clean ... and plenty of space to spread out in the 2 bedroom units.

And this view is amaze-balls!


El Dorado Lofts
416 S. Spring Street
Los Angeles, California 90013
www.eldoradolofts.com

Beverly Hills Development Watch: Developers of 9900 Wilshire Surrender 8-Acre, $500 Million Site to Bank

We hear so much about foreclosures, short sales and "cash for keys" that it almost seems common course that banks repo real estate for which owners are in default. But we forget that sometimes these distressed properties have some very big price tags.

Like $500 million, for example.

Today, the posh British development team Candy & Candy and Iceland’s Kaupthing Bank will hand back ownership of 9900 Wilshire Blvd in Beverly Hills to a bank controlled by Mexican billionaire Carlos Slim. The developers had defaulted on their $365.5 million loan, which had been one of the largest transactions in Los Angeles County.

This 8-acre site, formerly home to the Robinsons-May Department store, was to be home to 235 super-luxury condominums designed by Richard Meier. Candy & Candy had successfully promoted similar developments, such as One Hyde Park in Central London.

But times change, and the project never got past the drawing board. We believe even more money could have been lost if the project saw the light of day and its multi-million dollar condos were languishing on the market. And whoever the new owner is will have a lower cost-basis and the ability to set prices at realistic levels.

There were signs that the $500 million price tag was perhaps a tad inflated: the property sold for $33.5 million only three years earlier.

[Beverly Hills Gets Waldorf Astoria, Luxury Condos, and Bump in Traffic]

Downtown Los Angeles 2010: Banks, Mezzanine Lenders and Developers Tussle at the Negotiating Table

Since the Great Depression, bankruptcy -- both personal and corporate -- has cast a long shadow over the American psyche. Whether it was the titans of 20th century commerce canonized in Monopoly -- or the wizards of Wall Street canonized in the last decade -- the greatest financial parties of all time terminate in one brief acronym - BK, or its adoring sibling, foreclosure.

Now, as some mega-projects go under, foreclosure of real estate projects is reaching a new apotheosis. This week, the owners of Stuyvesant Town and Peter Cooper Village -- a haven for the middle class on the East Side of Manhattan -- handed back the keys to its creditors. Four years ago, Tishman Speyer Properties purchased the 11,227 apartment complex for $5.4 billion dollars -- the largest real estate deal in US history. Their projections of a 13.5% return on capital never came to pass.

Because real estate relies on a large measure debt for its financing, when values drop the equity portion of a deal can very quickly evaporate. CALPERS (California Public Employees' Retirement System) wrote off its entire $500 million investment in the project (a 26.5% stake). Even the Church of England got punished, losing its $64 million investment in the project. Gross miscalculations based on bubble-era projections turned good money into naught.

The Flat, Downtown Los Angeles

Downtown Los Angeles has its fair share of projects in bankruptcy, and they are shaping the city. The dual-headed Hydra of BK and foreclosure is impacting at least five projects Downtown, according to reports from the Los Angeles Downtown News.

1. LA Central (South Park, 11th and Figueroa) Wells Fargo is in the process of foreclosing on NY developer the Moinian Group for failure to make payment on its $45.6 million note. The developer is in negotiations with the lender and hopes to keep the land, set to become a $1 billion mega-project near Staples Center.
   
2. The Flat (Downtown West, 750 Garland Avenue) China Trust Bank foreclosed on owner 750 Garland LLC after they defaulted on a $23 million construction loan, and later sold the project to private equity fund SA Properties for $20 million. The rental building's cash flows were likely attracted the new investors.
3. EVO South (South Park, 11th and Grand) The mezzanine lender, Westport Capital Partners, took over the project after Portland-based South Group stepped away from its loan on this 311-unit condo project. The building continues to sell units, uninterrupted by this transfer in ownership.
4. Santee Village (Fashion District, 716 S Los Angeles Street) Bank of America now owns the four condominium building project after investor Patriot Group and developer MJW investments defaulted on its $47 million loan. One of the buildings never opened and probably will not any time soon.
5. Brockman Building (Jewelry District, 7th and Grand) Developer West Millenium Group defaulted on its $35 million loan for this 12-story condominium projects, but has not yet been foreclosed upon by lender Bank of America.

In the best of times, developers and investors project mighty cash flows and dramatic increases in the value of their assets. When times don't prove so flush, they run for cover -- and in the process may lose a building or two.

Who will benefit from this financial churn? Buyers and renters. There is a lot of discounting going on, and others' losses will prove to be their gains.

Homes Prices in Hollywood Hills at 2004 Levels - But Market Bottom Behind Us - Still Some $10 Million Sales Above Sunset Strip

High above the city, from the Bird Streets to the Hollywood Knoll, lie the fabled Hollywood Hills West. Since the days when Sunset Boulevard was a dirt road heading from the Beach to Hollywood, the Hills have never gone out of style. The Hills proved its eternal draw even in dire times -- in 2009 there were three sales of over $10,000,000.

But like other neighborhoods, the Sunset Strip - Hollywood Hills West has gone through some seismically shifting times during the recent real estate heyday.

From 2004 to the peak of the market in 2007, the median sale price in this area rose 36%, from $1,125,000 to $1,525,000. From 2007 to 2009, the median sale price fell back to earth, dropping 25%, back to 2004 levels.

Sales volume dropped an amazing 60% from 2004 to its low point in 2008. In 2009, there was a 16% increase in sales off the 2008 bottom.

The market bottom in sales activity was in approximately October - December 2008, during the prime of the financial crisis. The percentage of properties under contract lagged at around 3% for months. Sales activity picked up in 2009, and current sales activity is at a level seen in the early days of 2008.

Conclusions:

• Easy, available money, contributed to the huge run-up in prices from 2004 - 2007
• The sales activity "bump" in 2009 was due to the large number of well-priced bank-owned properties (REOs) that hit the market
• An increase in sales activity in 2009 is a sign of a stable market
  
• Many buyers who purchased homes from 2003 - 2008 have "negative equity" -- or are "upside down" -- whereby they owe more on the mortgage than the the value of the house
  
• Homeowners with negative equity who fail to get loan modifications will "walk away" from their houses, even if they can afford their monthly payment
  
• Look for short sales and foreclosures to "make the market" in 2010
  

Los Angeles Housing Market: November Median Price up 1.8% - Foreclosure Sales Decline - But Repossessions Indicate Bank-Owned Inventory Grows

Today the Los Angeles Times reported some good news about the Southern California housing market in November:

• The median sale price increased 1.8% from October to $285,000 (but note in Los Angeles County, the median sale price declined 3.2% to $329,000)
• Prices have increased (or held steady) for seven consecutive months
• The percentage of foreclosures as part of the overall resale market continued to decline
• Sales of new construction units reached a yearly high
  

Lots of positive news that supports the consensus that we are in a housing recovery. But there are some negative indicators as well:

• The number of homes repossessed in November increased 2.4% over the previous month
• The residential construction industry continues to shed jobs -- in LA County 18,700 are employed vs 21,400 in October 2008
• Government-incentives -- generational-low interest rates spurred by the Fed's purchase of mortgage backed-securities and the $8,000/$6,500 buyer credit -- will come to an end this spring

Our opinion is that in central Los Angeles, the under +/- $800,000 market will hold firm in 2010 while the higher-end market will be under pressure from short sales-foreclosures precipitated by job losses and resets of Option-ARMs and other "Alt-A" loans. This applies to "riskier" sub-markets ("B" neighborhoods in Hollywood Hills, e.g.). But in the best sub-markets -- Beverly Hills, Los Feliz and Venice, for instance -- we believe the worst is already behind us.

LA Times: Rebound in Home Prices Continues

Tiffany at Target Prices - Median Sunset Strip/Hollywood Hills Sale Price $1,000,000 in November 2009, Down from $1,425,000 for 2008

The median home sale price in the Sunset Strip - Hollywood Hills West neighborhood in November 2009 was $1,000,000. It has been declining steadily since 2007 ($1,525,000) and 2008 ($1,425,000) and trailing down over this year (July - $1,237,000 ... August $1,130,000 ... September $1,125,000 ... October - $1,053,750).

The usual culprits -- job losses, unavailable financing, and an abundance of REOs and Short Sales -- have created a drag on the market. Look for the median sale price to continue declining in 2010.
There were, nevertheless, some big ticket sales. 1457 Blue Jay Way in the Bird Streets sold for $5,000,000. This 6 br, 7 ba, 6,600 sq ft house sold for $5,000,000, below its $5,750,000 list price.
8400 Grand View Drive up Laurel Canyon sold for $3,875,000, about $500,000 below its asking price. This high-end modern remodel has 3 br, 4 ba and 3,550 sq ft of living area.
8967 Shoreham Drive, located just north of the Strip, was another home that sold for over $3 million. This 4 br, 4.75 ba home has 4,000 sq ft of living area and sold for $3,200,000, about $800,000 less than its asking price.
9023 Hopen Place, a refurbished modern on a quiet cul-de-sac in the Bird Streets, sold for $2,900,000, about $1,100,000 off its asking price. The home has 3 br, 3 ba, and 2,616 sq ft of living area.

Not everthing has a million dollar price tag in the hills. In fact, a few sales are less than the price of many 1 br condos in the area. 8174 Laurelmont Drive, a foreclosure, sold for $440,000 -- $260,000 less than the original asking price. It has 3 br, 2.5 ba and 1,539 sq ft of living area.

Even some non-distressed properties sold at what seem like discount prices. 8416 Ridpath Drive, with 2 br, 2 ba and 1,248 sq ft of living area, sold for $475,000. (There are likely some owner profits -- the house sold for $189,000 in 2007). With 20% down and a 30-yr fixed mortgage, monthly payments are about $2,550/month -- close to the cost of renting.

If Juveniles Were As Delinquent as FHA Borrowers, We'd Have a Teen Crime Wave On Our Hands

(This Chart gives new meaning to California as a "Blue State". Darker shading indicates a higher level of mortgages that are 90+ days delinquent. Source: NY Fed Q2 2009.)

The weak job market has sapped homeowners of their ability to pay their mortgage. The situation is bad. Several years into the housing crisis, the US is still being roiled by record homeowner delinquencies and foreclosures. Consider these statistics:

1. "One out of every six FHA mortgages was late by at least one payment and 3.32 percent were in foreclosure, the highest for both since at least 1979"

Implication: FHA loans are backed by the US government and are subject to rigorous underwriting requirements. More than 30% of new loans being underwritten in California are FHA loans. But the bottom line is -- no job means no salary and no ability to pay a mortgage. And with many borrowers putting down as little as 3.5% (with a possible 6% seller credit), these delinquent borrowers become prime walk-away candidates. No downpayment = no equity = no downside of going into foreclosure except the collapse of one's credit score.

2. "The delinquency rate for prime fixed-rate mortgages, considered home loans with the least risk, rose to 5.8 percent and the foreclosure inventory rose to 1.95 percent, the highest since at least 1972."

Implication: Again, no job means no salary. And with many prime borrowers' nest eggs decimated by the collapse in the financial markets, no reserves means no ability to pay a mortgage once the paycheck stops. Now that prime borrowers are going into default, the whole housing spectrum, from low end to high, is under stress.

3. "The share of all types of mortgages with one or more payments overdue climbed to a record seasonally adjusted 9.64 percent in the third quarter. The foreclosure inventory increased to 4.47 percent from 4.3 percent. Both were the highest in 37 years of data."

Implication: 10% of mortgages are delinquent -- and we're in a housing 'recovery'!?! Yikes! It's impossible for recovery to take place without a wave of government-backed loan workout and forbearance programs. The "Making Home Affordable" program initiated in 2009 is a travesty and banks are doing everything in their power to avoid helping homeowners. And although the high level of foreclosed inventory presents buying opportunities, it also puts downward pricing pressure on existing homes for sale. See you at the bottom.

4. "Builders broke ground on 529,000 homes at an annual pace in October, down 11 percent from the previous month and the fewest since April’s all-time low, the Commerce Department said yesterday."

Implication: Horrendous news on the job front. In California, job losses in the construction industry have already been staggering. No building means no jobs means no recovery. Long-term, the lack of housing units in the pipeline (particularly in the multifamily - rental sector) will lead to a housing crunch after the housing crash. Look for high rental increases in major metropolitan areas (Los Angeles, especially) by the middle of the decade.

5. "The FHA’s insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12."

Implication: The FHA will be the next federal bailout. Although Fannie Mae and Freddie Mac are close contenders.

6. The U.S. economy returned to growth in the third quarter after a yearlong contraction, the Commerce Department said in an Oct. 29 report. The world’s largest economy expanded at a 3.5 percent pace from July through September. Household purchases climbed 3.4 percent, the most in two years.

Implication: Hope. There are many, many signs that the nation is on the mend. However, during this recovery period the housing sector nationwide will be under pricing pressure as foreclosures, short sales and homeowner walk-aways shape the market.

Source: Bloomberg.com

Market Lofts Auction: Some Market Prices and Some Sweet Deals Net Developer $20 Million -- Downtown Los Angeles, November 14

The Market Lofts Auction of 55 units in Downtown Los Angeles was a much anticipated event. The advertised $140,000 "starting bids" for 1 bedroom units got many eager buyers thinking -- is it possible that I can get into prime Downtown LA for a low, low price? As the auction hall swelled with bodies, it became clear that many people came to the event with the same question in mind. (For pictures of Market Lofts Units click here.)

Bidding was fast and furious right out of the gate and it quickly became clear that the "starting bids" were far below the actual selling prices. 754 sq ft 1 bedrooms, of which there were many, sold for $298,000 - $316,000. Were these bargains? "Fairly valued" is a better assessment, considering that the same size units on the 9th floor at EVO South, arguably a superior building, were selling for $340,000 as recently as a few months ago.

The rapid-fire pace continued unabated throughout the day. A few buyers were discouraged and left early, but many stayed until the end when four or five units retained by the developer were released for sale. The best deals of the day were the 2 bedroom, 2 bath units, that ranged in price from $393,000 for an 1,138 sq ft unit to $522,000 for a 1,427 sq ft unit. The total developer net was about $20 million -- not bad in two brief hours.

The $/sq ft varied with condo sq ft area. One bedroom units sold roughly for $370 - $420/sq ft and 2 bedroom units sold for roughly $310 - $360/sq ft, smaller units having a higher $/sq ft value.

The best deals of the day were a 880 sq ft unit for $310,000, a 1,076 sq ft unit for $362,000 and a 1,308 sq ft unit for $422,000. As the auctioneer states, all final bids are subject to seller acceptance, so there's no guarantee that these sales will go through.

The worst deals of the day were the first two properties auctioned. Both were 2 bedroom 2 bathroom units. One with 1,220 sq ft sold for $485,000; another with 1,427 sq ft sold for $522,000 -- the highest sale of the day. It's hard to explain why these two sales are so far off the norm in terms of $/sq ft value. Perhaps an adrenalin rush?

We can draw a few conclusions from this Market Lofts auction:

1) This auction seem to fairly value the lower-priced properties and to offer a discount on the higher-priced properties.

2) Values were fairly consistent throughout the auction, i.e., sequence in order of bidding did not matter.

3) The floor of $300,000 needed to buy into the South Park neighborhood was clearly established

4) The desire to own a slice of this Downtown Los Angeles real estate is very much alive.

Your Home is not an ATM and 7 Reasons Why You Should Weigh Your Options Before Investing in Real Estate

Over the past couple of years, America has been wracked with financial pain and many of the basic tenets of investment and wealth-building have been upended.

Although real estate has brought some handsome returns, it’s important to point out that real estate has also ruined many property owners who rue the day they tiptoed into “the market”.

Inspired by an article, “Real Estate Price Plunge Makes U.S. Homeownership a Perilous Path” we’ve outlined a few principles that every buyer should consider before signing on the dotted line:

1. A home is shelter. When you purchase a house, condo, duplex, manufactured home or mansion – you are buying a roof over your head. It may indeed be the best investment you ever made -- or the worst. The great American Dream of homeownership has turned into the biggest nightmare for many recent homebuyers.
2. A home is not an ATM. In recent years, homeowners were able to get Home Equity Lines of Credit (HELOC) and could “tap” their equity, open the spigot, and pay for vacations, remodels, and college educations. HELOCs are now much harder to obtain, and the days of home as cash machine are probably long behind us.
3. Past trends are no indications of future performance. Read your mutual fund literature and you’ll find a similar disclosure. The following is the breakdown of annual price appreciation over various decades: 40s – 6.2%, 50s – 15%, 60’s – 4.3%, 70’s – 13%, 80’s – 6.8%, 90’s – 5.1%, 00’s – 2.5%. It’s anyone’s guess where real estate values will head in the future.
4. Tax rules change and so may the tax benefits of homeownership. Although the mortgage interest tax deduction is the sacred cow of the American tax system and has been preserved through generations thick and thin, there’s no guarantee it will continue in the future. Ditto for the deduction of property tax.
5. Real estate belongs in the “risky” pool of your investments. Just because it is real property and it is tangible doesn’t mean its value can’t vaporize just like that great Internet incubator stock you picked in 2000. Although it probably won’t run to zero, many California homeowners have seen the value of their “investment” plunge by 50% or even more.
6. Renting can be cheaper and less of a headache than owning. In much of central Los Angeles, it’s much cheaper to rent a house or condo than to purchase the same. And when your roof is leaking one rainy night during the monsoon season, you may wish you could just call your landlord to handle the problem.
7. You might get lucky and real estate might make you rich. “If you buy a home in Beverly Hills or an apartment on Manhattan’s Upper East Side, over the next five and even 10 years you are going to do very well,” said one quoted consultant. You might build wealth by buying a home – but go into the proposition with eyes wide open.

There are many compelling arguments why you should own a home or invest in real estate, but it’s important to consider the downside and the risks before you – like many Americans – get burned.

West Hollywood Single Family Market: October 2009

Five houses sold in the West Hollywood area in October 2009. As in previous months, the high end of the market is dominated by traditional sales, while the low end is dominated by distressed sales. There are currently 50 houses on the market in West Hollywood -- roughly a ten month supply of inventory.
The highest priced sale was 934 Orlando Avenue, which sold for $1,512,500. This 3 bedroom, 2.5 bath house with 1,892 sq ft of living area in a prime West Hollywood location is sited on an exceptionally large 13,125 sq ft lot. Look for pool and improvements some time soon.
Another traditional sale hit the million dollar mark -- exactly. 9002 Vista Grande Street sold for $1,000,000 -- 20% below its $1,249,000 asking price. This house in the desirable Norma Triangle neighborhood has 3 bedrooms, 2 baths, 1,416 sq ft of living area on a modest 3,864 sq ft lot.
The three lowest priced sales give us insight into how frothy and over-heated the market was three years ago.

8471 Waring Avenue, with 2 bedrooms, 2 baths and 1,288 sq ft of living area on a 3,024 sq ft lot sold for $700,000 in a short sale. The previous sale was for $859,000 in October 2006 -- a decline of 19% from the height of the market three years ago.


1155 N Fuller Avenue closed at $610,000 in a short sale last month. The previous sale for this 3 bedroom, 1 bath house with 1,472 sq ft of living area was for $985,000 in October 2006 -- a decline of 38% in value. The hyper-inflated value in 2006 was partially due to the purchase for condo improvement.

The most astonishing example of value decline can be seen with 901 Larrabee Street, a modest 1 bedroom, 1 bath cottage with 565 sq ft of living area on a tiny 2,362 sq ft lot. This foreclosure sold for $475,000 last month -- down from $950,000 in November 2006 -- a decline of exactly 50%. As with 1155 N Fuller, this property was sold for redevelopment, not for habitation.

But how the mighty have fallen. Since redevelopment opportunities in West Hollywood at present are nearly non-existent, this property sold for exactly what it is -- a shack and condo alternative in a central West Hollywood location.

These distressed sales illustrate the churn in Los Angeles real estate sales where properties purchased at the height of the market are so far underwater that even if the owner can afford to make payments, they sometimes opt for strategic walk-aways and distressed sales. These properties exist at all ends of the price spectrum, and it may be years before this "upside down" inventory works it way through the system.

8 Bankrupt Projects Shaping Downtown Los Angeles

There's plenty of good news to celebrate in Downtown Los Angeles residential real estate. A few major, recent, high-profile projects are more than 2/3 sold (Ritz Carlton at LA Live, EVO South, Rowan Lofts, Barker Block). Prices are off 20% or (significantly) more from their 2005 - 2006 highs. Downtown LA, ironically, is among the most affordable and most dynamic residential neighborhoods in the city.

However, what was conceived, purchased, and designed in the exuberant mid-2000s is now coming to market in maundering 2009. Developer equity has evaporated, bank loans are underwater, and some of these projects and their owners are facing Chapter 7 and Chapter 11 bankruptcy.

The Los Angeles Downtown News summarized the projects:

1. Concerto – 900 S Figueroa Street – All eyes are on South Park’s mega-project, Concerto. On August 29, a much-promoted auction attracted broad buyer interest and all 77 lofts units “sold” at the event – which was intended to fund construction of the uncompleted 271-unit tower. A few weeks later, developer Astani filed Chapter 11 after its major funder Corus Bank was taken over by the FDIC. The FDIC wants to get out of the auction contracts believing the sale prices were too low. A court ruling today makes it seem that the units may indeed get released to buyers.
   
2. The Roosevelt – 727 W Seventh Street -- The 222-unit Roosevelt, which was designed as a condo building, is now being leased. The website still advertises.”Have It All. Luxury condominium loft residencies from the mid-$500,000s to over $1,000,000. Planned Move-ins First Quarter 2009.”
3. The Flat – 750 S Garland Avenue – a former Holiday Inn was transformed into a 206-unit apartment building that also houses trendy dining spot Blue Velvet. Although the project is 90% occupied, the developer defaulted on its $23 million loan and filed for Chapter 11 protection. Ultimately, a judge allowed the bank to repossess the property.
4. 705 W 9th Street – Developer Meruelo Maddux, Downtown’s largest landlord, declared Chapter 11 in March and is going through reorganization. Despite the project’s woes, they are currently proceeding with leasing.
5. Title Guarantee Building – 411 W Fifth Street. This building opened two years ago as a rental and went into Chapter 11 this February.
6. Brockman Building – 530 W Seventh Street. Many may know this building as the home to Downtown hotspot Bottega Louie. The cost of updating the 80-unit office building rose from $16 million to $35 million early on, portending ill for the project. The developer filed Chapter 7 after defaulting on a $35 million loan.
7. Santee Village – 716 S Los Angeles Street. At the edge of the Fashion District, Santee Village, a hugely ambitious 780,000 sq ft, seven building development failed to achieve its sales goals. In April, the developer declared bankruptcy, exited the project, and its assets were sold off. The project has about 300 condo units and 150 rental units. One of the seven buildings is not occupied, and two are only 30% occupied.
8. Blossom Plaza Project – Broadway & College Street. Blossom Plaza was planned at the site of Little Joe’s restaurant, which had operated for 101 years at this site in Old Chinatown (but closed in 1998 because the owner’s couldn’t afford to retrofit the building). This transit-oriented project which received more than $9 million in public investment, was to include 262 apartments. The developer filed Chapter 11 and the project is now in the hands of original equity partner Morgan Stanley.

Although the failure of these projects has brought great distress to equity partners, banks and developers, the public that will benefit from the BKs through lower condo prices and a softer, more affordable rental market.

Venice Market: June - Sept 2009

While there seems to be heavy erosion in the Hollywood Hills home market, what's the drift at the beach?

All things considered, Venice seems to be the paragon of stability. In the past four months there were fifty home sales, including one for over $5 million, four for $2 - 3 million, and seventeen for $1 - 2 million. During the June - September period, the median sale price was $900,000. Currently, there is a scant seven months of inventory.

Venice is a hot market. Walk down the blocks north of Abbott Kinney and see the construction, with some owners rehabbing properties and others building new. The hip, laid-back life west of the 405 freeway never loses its appeal. C'mon, it's the beach!

Here are some sales from June - September 2009:

An eye-popping sale closed at 1311 Abbott Kinney. This 5 bedroom, 5 bath pad on a postage stamp-sized 3,397 sq ft lot sold for $5.6 million. That's well below its January 2008 $9.9 million asking price, but $5.6 million is a princely sum in the Los Angeles real estate market today.
The canals had some high-priced sales. 242 Sherman Canal, 2008 construction with 3 bedrooms, 3.5 baths and 3,580 sq ft of living area, sold for $2.9 million. Two houses on Linnie Canal sold for $2.38 million and $1.89 million.

The pedigreed architectural project -- even with land purchased at 2006 prices -- is still alive and well in Venice. 743 Palms Boulevard, purchased in 2006 for $1.25 million, was formerly the site of a shambling bungalow. The site was redeveloped with a Marmol-Radziner 2,878 sq ft beach shack with 3 bedrooms and 2.5 baths, and for $2.1 million three years later.

2009 is by no means 2006 and we estimate that values for properties priced $1.5 million and under have fallen 10 - 15% since the peak of the market. (And more for higher-priced properties.) 29 29th Avenue, a 3 bedroom house about 50 yards from the beach, sold for $1.67 million in October 2006. It was resold in July 2009 for $1.51 million, a 9.3% reduction in price.

887 Commonwealth Avenue was also sold in 2006 and again in 2009, except in this case the second sale was a foreclosure. This 2 bedroom, 1 bath home sold for $690,000 in November 2006 and was resold for $575,000 two and one-half years later. This is a 16.7% reduction in price, but some of this loss can be attributed to its sale as a distressed property.

Sunset Strip - Hollywood Hills Market: September 2009

Twenty-five homes sold in the Sunset-Strip Hollywood Hills West area in September 2009 with a median sale price of $1,095,000. One house sold for over $3 million, three houses sold for $2 - 3 million, and nine houses sold for $1 - 2 million.

But consider this -- there are currently 68 homes priced over $3 million in this area, and at the current sales rate there is almost six years of inventory.

This begs the question -- what is a $10 million Hollywood Hills house worth these days? Or an $8 million house? Or even a $5 million or $4 million house? It's hard to know since few properties are trading in this range.

The lack of comparable sales means even appraisers cannot value these properties, so if they do go into contract, deals are thwarted by appraised values that do not jibe with contract prices.

Short sales and foreclosures are just beginning to assert their impact on the high-end as over-leveraged homeowners fail to pay their notes due to job loss, income reduction, or the sentiment that the albatross of an "underwater" home is not worth hanging on to.

Prices are crashing in this multi-million dollar range and in this broker's opinion it will be years before values hit bottom.

Listings that start over-priced run this risk of "chasing the market down" as eventual price reductions fail to keep up with the continuing price declines.
The whittling down of prices is evidenced by the highest priced sale, 8444 Harold Way in the Sunset Strip neighborhood. This house, with 2 bedrooms, 3 baths, 3,653 ft of living area on a 6,650 sq ft lot was originally listed in March 2008 at $6,995,000. It eventually sold eighteen months later for $3,500,000 -- a 50% reduction from its original asking price.
2807 Nichols Canyon Road had a similar fate. This home with 3 bedrooms, 3.5 baths, 4,642 sq ft of living area on a 20,400 sq ft lot, was originally listed for $4,999,999 in March 2008. It sold eighteen months later for $2,825,000 -- 44% off its original listing price.
The sale of 2073 Outpost Drive illustrates the kind of short sale scenario which is becoming increasingly common with properties bought at the market's peak. This 4 bedroom, 3.5 bath home with 3,550 sq ft of living area on a 51,401 sq ft lot sold for $1,902,000 in May 2007. It was relisted in February 2009 for $1,999,000 and eventually sold as a short sale for $1,492,700, 22% off its sale price of 28 months ago.

The lowest end of the market is being made by distressed properties ($585,000 for a short sale, and $529,000 for this foreclosure above.) 2251 Stanley Hills Drive was originally listed in December 2008 for $899,000. This home with 2 bedrooms and 1.5 baths in the Laurel Canyon neighborhood sold last month as a bank-owned property for $529,000, a drop of 41% from its original listing price.