4th Quarter 2009 Hollywood Multifamily Sales: Foreclosures and Short Sales Dominate Market

Foreclosures and short sales drove the Hollywood income property market during the 4th Quarter of 2009. 10 of 13 sales were distressed properties and 11 of 13 of them sold for $670,000 or less. It is difficult to evaluate this market in terms of traditional investment property metrics since nearly all are value-added opportunities.

The highest sale was 1811 Wilcox Avenue, a vacant 12 unit building (8 singles, 4 two-bedrooms), which closed at $1,475,000. This fixer in central Hollywood shows that investors often see more value in vacant buildings rather than occupied ones saddled with below-market rents.

1807 Grace Avenue, an 8 unit building (4 singles, 4 one bedrooms) sold for $1,115,000. Annual income is $104,643, giving a GRM of 10.7.

4327 Burns Avenue shows the kind of value-added opportunity that investors are seeking. This 8 one-bedroom bungalow complex from the 1920s in East Hollywood has lots of deferred maintenance and sold for $550,000. But with $73,872 in annual income, the Gross Rent Multiplier is 7.5, far below any comparable property.

Beverly Hills Market 2009: $2,870,000 Median Sale Price Down 20% From 2007, But Prized Land in Flats Sells for $13.4 Million Per Acre

Beverly Hills is perhaps the best branded neighborhood in Los Angeles, known far and wide as the oasis of palm trees and luxury living.

Beverly Hills, however, is not immune to the ills of the real estate market, and has been subject to the same boom and bust cycle of the recent years.

The median home sale price in Beverly Hills in 2009 was of $2,870,000, down 20% from the high of $3,600,000 reached in 2007.

This drop in prices is less dramatic than in neighboring areas such as the Hollywood Hills, which saw a decline in median price of 25% since 2007.

The median condo sale price in Beverly Hills last year was $800,000, down 12% from the high achieved in 2006.

The number of home sales in Beverly Hills have been declining steadily since 2004. Last year sales volume was only 45% of what it was during 2004.
What sold in 2009? Most properties that change hands are not rehabbed, gleaming gems, but out-of-date teardowns or fixer-uppers that will be upgraded by their new owners.

And there is plenty of interest in the Flats. 808 N Camden Drive, a 5 bedroom, 4.5 bath, 3,334 sq ft house on a 12,800 sq ft lot (with two guest houses) sold for $3,471,000, $276,000 above its asking price, in 15 days.

A teardown at 825 N Roxbury Drive on a 22,310 sq ft lot, sold for $3,825,000, slightly below its $4 million asking price, in 13 days.

623 N Maple Drive, a 5 bedroom, 6.5 bath, 5,549 sq ft 1925 Spanish estate on a 16,150 sq ft lot sold for its $6,495,000 asking price in 13 days.
Beverly Hills, with its lofty prices and the grand ambitions its landowners, has also experienced pockets of distress. This development opportunity at 631 N Crescent Drive sold for $6,500,000 as a short sale in October 2009. The site is 34,580 sq ft, pricing the land in this neighborhood at $8.2 million per acre. The property previously sold in March 2008 for $7,900,000.

Another teardown on a one acre lot, 424 Robert Lane, just south of Trousdale Estates, sold for $7,350,000, below its $7,900,000 asking price.

Want to live on Rodeo Drive? It's going to cost you. This Colonial teardown on a 31,000 sq ft lot near the Beverly Hills Hotel sold for $9,500,000 -- or $13.35 million an acre.

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.