LA luxury homes catch investors’ eye

Global buyers use property as hedge

Blue Jay Way, a street that inspired a Beatles song, snakes above Los Angeles, lined with glassy mansions that jut like diving boards from earthquake-prone cliffs.

One of the houses, a midcentury bungalow with an oval pool and a panoramic vista of the Los Angeles basin, rents for $27,000 a month. The owner, who lives in London, paid $2.25 million, or $835 a square foot, two years ago for the three bedroom, three-bath home.

“This is a very safe investment,” Tyrone McKillen, an agent with Beverly Hills, Calif.-based brokerage Hilton & Hyland Real Estate Inc., said as he walked through 1505 Blue Jay Way. “It’s all about the view.”

While the cliff-side properties seem perfectly perched for a Hollywood disaster movie, they’re the equivalent of “safety deposit boxes” for wealthy global investors, said Jonathan Miller, president of appraiser Miller Samuel Inc. Like luxury London homes or Manhattan trophy apartments, California mansions are being bought by Chinese families, foreign tycoons and U.S. celebrities as a hedge against currency and stock market disasters or the vicissitudes of politics. Many investors pay in cash and don’t live in the homes themselves.

“The money is flowing here,” said Jeff Hyland, president of Hilton & Hyland, an affiliate of Christie’s International Real Estate that completed sales on $1.9 billion in homes last year.

As many buyers struggle to get a mortgage or save for a down payment, investors are pushing real-estate prices to new heights in some of the world’s most costly markets.

While trophy homes of-ten sell for cash, lenders are also more willing to advance money for high-cost homes. The value of jumbo loans, those exceeding more than $625,500 in high cost areas, jumped 34 percent in the first nine months of last year to $216 billion, according to Inside Mortgage Finance.

Tyler and Cameron Winklevoss, the twins famous for suing Facebook Inc. co-founder Mark Zuckerberg over the social network’s origins, got a $9 million loan from Deutsche Bank AG to buy an $18 million house near Blue Jay Way.

A record number of California homes sold for $2 million or more last year, up 33 percent from 2012 to at least 7,383 deals, DataQuick reported last month. While new wealth from initial public offerings such as Facebook and Twitter Inc. propelled multimillion dollar sales in Silicon Valley and San Francisco, absentee investors accounted for much of the increase around Los Angeles, according to DataQuick.

“The multimillion dollar buyers have different drivers and concerns than buyers in the lower-price categories,” said Andrew LePage, a senior analyst for San Diego-based DataQuick.

“When you get to $2 million or above, it has more to do with IPOs and where the wealthy want to park their excess cash.”

Absentee owners bought 27 percent of California’s $1 million-plus homes last year, according to DataQuick. They represented 39 percent in Beverly Hills, 42 percent in Los Angeles’ Bel-Air neighborhood and 45 percent in the hills of West Hollywood.

Los Angeles Mayor Eric Garcetti said those types of investors are buying in “a completely different stratosphere” than the area’s middle-class residents who face a dearth of affordable housing. So he welcomes their contribution to the city’s economy and reputation.

“For too long, L.A. has not been in the global conversation,” Garcetti said. “I want those people to come here. I want those people to talk about L.A. when they go back.”

Los Angeles luxury housing has typically been less expensive than in other major cities, according to London-based Knight Frank LLP. High-end homes sold in 2012 for $5,920 a square foot in Monaco, $5,050 in HongKong, $4,300 in London and $2,240 in New York, compared with $1,340 in Los Angeles, the property-consulting firm said in a March report.

In Manhattan, the median sale price of condominiums reached a record $1.32 million in the fourth quarter, according to a report by New York based Miller Samuel and brokerage Douglas Elliman Real Estate. Luxury properties, the top 10 percent, sold for a median of $4.9 million, up 10 percent from a year earlier. According to data from StreetEasy.com, a real-estate website owned by Zillow Inc., there were 145 Manhattan residences listed for more than $20 million last year, the most in records dating to 2005.

Christian Candy, the British developer who helped create London’s One Hyde Park luxury condo with his brother Nick, paid $24 million in August for a rebuilt mansion in Los Angeles’ Holmby Hills neighborhood. The home is “an investment,” said Jessica Patrick, a spokesman for Candy & Candy Ltd.

The builder of that house, Kristoffer Winters, closed this month on the purchase of a hillside lot, where he plans to build a 12,500-square-foot home to sell for at least $25 million, probably to an overseas investor.

“Most of the buyers now are foreigners,” Winters said in a telephone interview. “I’m designing it as if someone is coming over with staff or with guests.”

International buyers are extending their influence into middle-class neighborhoods on the outskirts of Los Angeles. East Asians bought 53 percent of new homes sold last year in Irvine, a city 40 miles southeast of Los Angeles with a reputation for low crime and high-achieving schools, according to John Burns Real Estate Consulting Inc.

At least one builder worries about becoming too dependent on money from China, which may stop flowing if there’s a government crackdown or because of an economic downturn there.

It may be a risk for builders to become too dependent on buyers coming from China, Bert Selva, chief executive officer of Shea Homes, a closely held builder based in Walnut, Calif., said at an industry conference in January.

“You start to feel one group that’s inelastic, and that concerns me,” he said.

Business, Pages 29 on 02/15/2014

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