Raging price escalation fuels shelter obsession, remakes map of city and industry
Welcome to Los Angeles, where the biggest show in town these days isn’t “Shrek 2” or any of the other blockbusters at the cineplex — it’s the ongoing surge in home prices, which show few signs of abating. The feverish ascent has only gotten steeper in the past year — at this point, they might as well call it “unreal estate.”
Nowhere is this more true than in the city’s posh western precincts, stretching from Los Feliz to Malibu, where much of the entertainment community resides, and where the talk at a swank soiree this summer is as likely to be about mind-blowing home transactions as showbiz deals
“Everyone’s interested in talking about houses when you go to a party, especially on the Westside,” notes Jonah Wilson, a Realtor in the Beverly Hills office of Prudential John Aaroe. “Homes are more important than ever to show business people; and if they’ve got the money, there’s no limit to what they’ll spend on a house.”
That idea may be in for a test. Marvin Davis, the oilman and sometime movie mogul, had put his Beverly Hills Georgian-style 10-bedroom manor on the market for $70 million. Getting no takers, he recently dropped the price to $59 million.
Pickfair, the house that started the Beverly Hills land rush when it was built in the 1920s by screen stars Douglas Fairbanks and Mary Pickford, also went on the market recently, though at what seems like a relative pittance of just $27 million. The sellers are Pia Zadora and her husband, Meshulem Riklis.
Unique parts of town continue to become flashpoints of desirability. Last year it was a section of the Hollywood Hills above the Sunset Strip, where a number of young celebs, such as Tobey Maguire and power couple Brad Pitt and Jennifer Aniston, decided to buy.
The latest such hot spot, according to Wilson, is the Trousdale neighborhood, above Sunset at the easternmost extreme of Beverly Hills. Recent buyers there include David Spade, and decorator doyenne Kelly Wearstler and husband Brad Korzen, the hotel developer.
Thirty percent jump
Another supercharged area where price continues to surge is Malibu, especially the Carbon Beach stretch south of the Malibu Colony. DreamWorks partner David Geffen, former L.A. mayor Richard Riordan and Hard Rock Hotel mogul Peter Morton have each bought multiple homes on adjacent properties (Geffen owns six) in order to build beachfront mansions.
“If any of them came to market, they’d bring in excess of $25 million,” says Wilson.
Broader statistical gauges tell the same story. The median sales price for a home in Los Angeles for the year ending in March hit a record $375,000, rising nearly 30% over the previous 12 months, the biggest increase in 15 years, per information from DataQuick.
Meanwhile, the Wall Street Journal’s May luxury home index had L.A. atop the list of major cities in terms of gains for the past 12 months, with an increase of 10.3% to $1.63 million, based on the median sales price of the 10% most expensive residences in the metropolitan area.
The prices are indexed to January 2000, which means Los Angeles luxury home prices have jumped 63% in four years (those in New York are up by 50% in the same period).
Such figures understate the stratospheric prices sellers are asking — and getting — in the tonier L.A. neighborhoods, where $1 million for a home is almost a minimum. Overbids are common, and houses sell in a matter of days. “Almost everything goes for over the asking price, and on some properties I’ve had 20 or 30 offers,” says real estate broker Helene Sherman Wayne, who has 23 years experience on the Westside.
The impact of ballooning prices cuts in different ways. Those trying to enter the market find it difficult to get a toehold. “I have a three-house theory,” says Wayne. “People have to lose out on two houses before they learn to really become aggressive bidders on the third.”
Those who already own homes have experienced a significant appreciation in net worth just by holding on — a convenient offset to the rough-and-tumble stock market.
Showbiz folks who’ve dallied in residential real estate over the years are finding that the sideline has become a major source of their wealth. “It started out as a hobby,” says producer and talent manager Sandy Gallin, whose clients have included Dolly Parton, Whoopi Goldberg, Donnie and Marie Osmond, and Sonny and Cher.
Since 1970, Gallin has bought and sold 32 homes. He typically refurbishes, decorates and moves into each one for a while, before putting it on the market. His “hobbies” have included a beach house in the Carbon Canyon area of Malibu, which sold for $9 million several years ago, and a Beverly Hills house on Loma Vista, which went for just under $9 million a few months ago.
Actor turned Realtor
Gallin says his business manager told him, “‘You’ve made more money on real estate, which is your avocation, than what you’ve netted in a very successful business career.’ I was shocked.”
One needn’t be in Tinseltown’s top brackets to become caught up in the unfolding real estate saga. Japanese-born actor Eugene Hasegawa still gets small parts — he recently did an episode of “The Shield” — but his main work these days is as a real estate broker with the Nelson Shelton firm in Beverly Hills, where he specializes in dealing with wealthy Pacific Rim investors.
“My dream is still to pursue an acting career,” says Hasegawa, who arrived here 25 years ago after reaching stardom in Japan at 19. “But at my age, it’s unrealistic to think I am going to leave real estate and go back solely to being onstage, and still make a lot of money.
He owns three houses, in Pasadena, Highland Park and Mount Washington.
Meanwhile, soaring rents for apartments have proved daunting for those on the bottom rungs of the entertainment business — the young people from around the country who flock to Hollywood, constantly replenishing the talent pool. A “Manhattanization” of rents has forced many newcomers to share apartments — doubling or tripling up — and making do with marginal or tiny spaces.
Aaron Taylor Harvey, 25, moved here last year from San Francisco with his band, Western, and has been trying to make it as a musician or model. He initially shared an apartment with the band’s drummer. Then he moved into a large closet — literally — in a two-bedroom apartment already rented by two young women (he had to constantly to avoid being seen by the landlord).
Now he’s living in the Silver Lake rehearsal space formerly used by his band — an arrangement that’s costing him only $250 a month. “There’s a long tradition of people coming here and struggling to make it, but I think now they’re living in far less comfortable situations,” Harvey notes.
According to Andrew Ostroff, 23, who came to L.A. from New York in November, trying to get started is a full-time job. He works at the restaurant bar of the W Hotel while taking acting classes and going on auditions.
He’s started sharing a two-bedroom apartment with a roommate who works as a production assistant. They split the $1,350 a month rent, which by New York standards is not so daunting.
But those who come from mellower climes face a real sticker shock. Tyson Breech, 20, arrived last spring on a bus from Cassoday, Kan., about an hour east of Wichita, seeking a break as a model or actor. For the first six months, until he moved in with a roommate, he slept on the floor of a friend’s apartment.
“Most people can’t afford an apartment on their own,” says Breech. “Usually two people share a one-bedroom, or three people are in a two-bedroom.”
The old adage is that trees don’t grow to the sky, and feverish advances like the present one — though they often last longer than anyone expects — don’t go on forever. In most cases, the ending isn’t pretty.
In a worst-case scenario, L.A.’s home hypermarket could go the way of the late-1990s stock market boom.
The historically low interest rates fueling the market nationwide have crept up during the past two months, and the Federal Reserve has indicated higher rates are in the offing.
“So far it’s no more than a whiff,” maintains Prudential’s Wilson. “There are tiny signs emerging of a slowdown.”
Some sellers have been forced to reduce their exuberant asking prices. Some market watchers are cashing out. Gallin, a player for more than 30 years, sees prime residential prices making one final ascent in the short run.
Even a small rise in rates could slow the market, says Joe Babajian, a leading broker for luxury Westside houses at Prudential. “Here’s what happens,” he offers. “As rates go up, affordability goes down for less affluent buyers. That affects higher-priced houses, too. Without the pressure from the bottom, the top end doesn’t have as much strength.”
Still, Babajian predicts home prices will keep climbing at around 10% annually.
It may be that nothing short of an earthquake could burst this bubble. The last major Southern California quake was 10 years ago, and, exacerbated by cutbacks in the aerospace industry, coincided with the last major downturn in area home prices.
“We have a wonderful defense mechanism — we forget until another one occurs,” says experienced Realtor Wayne. “Right now, no one talks about it.”
Not quite. A UCLA geologist who claims to have advanced the field of earthquake prognostication and who correctly predicted two major world tremors in the last year, is predicting that a strong earthquake will hit Southern California by Sept. 5.
As with government terror warnings, it’s hard to know how to respond to this frightening augury. Go on about your life, as the government says.
At the same time, some owners of high-priced haciendas will be keeping their fingers crossed through Labor Day, hoping there’s a day after tomorrow.