Sneak Preview: Indulge in The Century - Penultimate Luxury Living @ 1 Century Drive, Los Angeles - Or 1 Great Reason Why to Downsize from Bel Air

While construction in most of California sputters along, 700 workers are laboring furiously twenty-four hours a day to complete construction on architect Robert A. M. Stern's The Century to hit the target occupancy date of Spring 2010.

Although the building is not yet open to the public, we had the opportunity to tour the premises and with all confidence can state this 42-floor residential tower with 140 homes is a game-changer in Los Angeles real estate.

New Yorkers may be accustomed to 6-star high-rise living, but Angelenos think of mansions and estates -- not condos in the sky -- when it comes to creature comforts. Those seeking the grand, Westside life without the gardeners and handymen should take a look at this incredible alternative right in the heart of Century City.

Expectations were high for this building since Candy Spelling purchased the top two floors for $47 million in early 2008. And The Century does not disappoint.

39 units have been released ranging in price from $3.3 million for a 2,680 sq ft 3rd floor unit to $29.5 million for a 9,501 sq ft 40th floor penthouse.

The lobby sets the tone for the building -- rich, warm materials, abundant, uncluttered space -- all very pleasing to eyes.

Units come customized in three different designs: Manor, Century (both by Robert A. M Stern) and Metropolitan (by local designers Marmol Radziner).

The Stern designs are traditional and the Metropolitan design is contemporary -- and all three will find their fans.

There are currently two 8th floor models open. One of the most impressive features is the floor-to-ceiling windows that offer incredible, unobstructed views from every vantage point. Here is the Northeast view from the 8th floor. Another interesting feature is how the gently sloping, round contours of the building make for interesting spaces.

The list of amenities is long and impressive:

• 4 units per floor with private elevator and vestibule for each
  
• 24-hour valet, concierge, porter and doorman
• 75-foot pool with views of the Pacific Ocean
• 4 acre park setting
• 2 outdoor dining rooms with fireplaces & catering kitchens
• On premise restaurant and lounge
• Custom-designed entertainment suite on 2nd floor: lounge, screening room, fitness center, spa treatment rooms, business center, children's playroom ...
  
• Sony Cierge -- 24-hour digital access to all building services

And there is much, much more. The Related Companies that has an astounding track record in New York (Time Warner Center, et al) and elsewhere and what's great is that they stick around after the construction is complete. The company will manage with property -- and if the level of construction is any indication of their level of service -- Century owners should be living without a (material) care in the world. We look forward to the grand opening in months to come.

The Century
1 Century Drive

Developer and Sales:
The Related Company

Design Architect:
Robert A. M. Stern, LLP

Interior Design:
Robert A. M. Stern, LLP
Marmol Radziner and Associates AIA

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

The Good News: LA Times, "Housing Market Shows Signs of New Life"; The Bad News: Dr. Housing Bubble: "Option ARMs...The $189 Billion Recast Problem"

The Southern California housing market shows signs of resilience -- green shoots that are turning into sprouts, that seem to be leading to a full-blown recovery. First, let's point out the very good news.

• In October, the median home price in the five county Southern California area rose to $280,000, up 1.8% from September -- but off 44.6% from the July 2007 peak of $505,000
  
• The number of sales in October 2009 in Los Angeles County was 7,409, up 8.6% from October 2008.
• In October, the median sale price in Los Angeles County was $325,000, down 8.5% from a year earlier

But, there are also some fundamental problems with this housing market.

• Mortgage delinquencies are still rising. Nearly 10.2% of home loans in California are 60 or more days past due, up from 9.7% in the 2nd quarter.
• Nearly one in five homes in the Los Angeles area is "underwater", where the value of the house is less than the loan(s) on the property
  

[chart from Dr. Housing Bubble]

Another problem which has been explored in the Dr. Housing Bubble Blog is that California -- and especially Los Angeles County -- is the epicenter of "Option ARM" loans, which became popular during the bubble days. Option ARMs allow the borrower to pay less than the interest due for a given period, so that they "negatively amortize" -- and the loan principal actually increases as time goes along.

58% of these 900,000 loans nationwide are in California! 78% of these loans are underwater. 37% of these loans are 90+ days delinquent. And over 200,000 of these option ARM loans are in the LA Metro Area. Now-defunct WaMu (currently part of Chase) was the king of option ARMs -- and many of these loans are on high-end properties.

So, as the subprime crisis subsides on the low-end, we now face an option ARM crisis on the high-end. Many of these homeowners have no refinance options, and may do strategic walk-aways. So, how do we assess the Los Angeles housing market? "It's complicated."

Read the Los Angeles Times article, "Housing Market Shows New Signs of Life"
Read the Dr. Housing Bubble Article on Option ARMs

Westside Multifamily Market 3rd Quarter 2009: Palms-Mar Vista, West LA and Santa Monica Draw Investor Interest and Capital

In most cases, Westside Los Angeles is a world apart from neighborhoods further east. Investors are accepting returns of 10.3 - 13.8 of gross rents (GRM) in Palms - Mar Vista and West LA and 14.3 - 15.3 in the high-barrier-to-entry Santa Monica market. This compares to GRMs under 10 which have recently been recorded in areas such as Hollywood.
12449 Louise Avenue in the Del Rey neighborhood of Palms, rare new construction, sold for $6,300,000. This 25-unit building has 23,787 sq ft of living area, including 8 x 1 bedroom, 1 bath units and 17 x 1 bedroom, 1.5 bath units. GRM (gross rent multiplier) is 11.8 on current rents. The building had been sore point in the community because of its large scale in relation to the single family homes nearby. (See a Youtube video on the subject.)
Santa Monica is the neighborhood where sellers are able to command the highest prices for gross rents. 908 15th Street, with 6 large units, including 1 x 3 bedroom, 4 x 2 bedrooms, 1 x 1 bedroom, and 9,442 sq ft of living area, sold for $2,550,000 or a 14.3 GRM.
West LA is the Westside neighborhood with the lowest GRMs. 1421 Amherst Avenue, a 7-unit building with 6,845 sq ft of living area, sold for $2,000,000 and a 10.3 GRM. Unit mix is 1 x 1 bedroom, 4 x 2 bedrooms, and 2 x 3 bedrooms.

1724 Butler Avenue, also in West LA, sold for $1,500,000, and a 13.8 GRM. The building has 5,852 sq ft of living area and unit mix is 4 x 1 bedroom, and 4 x 2 bedrooms.

Another Santa Monica property, 2027 Euclid Street, also traded at a high GRM. This 8 unit building with 5,616 sq ft of living area has 6 x 1 bedrooms and 2 x 2 bedrooms, and sold for $1,265,000 -- or a GRM of 15.3.

Buildings yielding the highest GRMs and providing the lowest returns for investors are in demand as much as the lower GRM buildings in lesser neighborhoods. Santa Monica has its fans and investors are undeterred placing their bets in this prime spot by the beach.

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.

Hollywood Multifamily Market 3rd Quarter 2009 -- Prices Trend Down -- Lower Rents and Lower GRMs Translate into Higher Sales

In the Hollywood multifamily market in the 3rd quarter of 2009, sales are up and gross rent multipliers (GRM) are down. The GRM in Hollywood has declined from 10 - 11 in the first half of the year to 9 - 9.5 in the 3rd quarter. In layman's terms, new owners are demanding lower building prices for the same rents.

Ten of the seventeen properties that sold (all of them for $565,000 or less) were distressed properties -- short sales, pre-foreclosures and REOs. (Good luck to any owner selling a non-distressed property in this price segment.)
The highest sale was 1811 N Cherokee Avenue, a 32-unit building, which sold for $3,400,000. This property has 10 one bedroom units and 22 studios. On current rents, which are approximately 26% below market, the building is trading at a 9.4 GRM.

1406 N Serrano Avenue, a non-rent control building with 12 units, sold for $1,625,000. The unit mix is 8 two bedrooms and 4 one bedrooms. GRM is 9.6 on the sale price.

5628 Harold Way, a 12-unit building with 7 two bedrooms and 5 studios, sold for $1,400,000 at a 9.0 GRM.

5965 Fountain Avenue, a 6-unit property (3 of which had been substantially renovated), has 2 two bedrooms and 4 one bedrooms, and sold for $850,000 at a 9.0 GRM.

1535 N Normandie, a foreclosed duplex with two 2 bedroom units sold for $355,000 or a 9.9 GRM on current rents. 2 - 4 unit properties cannot be put on par with buildings that have 5 or more units because they are financed as residential income property, with more lax underwriting requirements than 5+ unit properties, which require commercial loans. Nevertheless, values are remaining consistent across property types.

Why are GRMs trending down? One good reason is that the rental market has softened during the current economic rout. We've spoken with many a property owner who bemoans the decline in rents (of 5% or more in some cases) and the increase in vacancies. One needs only to tour neighborhoods to see the abundance of "For Rent" signs.

Savvy investors know that the rental market that has suddenly slackened may suddenly tighten up. There are few (to no) new low- to mid-range apartments being constructed in central Los Angeles, and when (and if) the economy improves, rents could trend higher -- dramatically. Income property buyers today are trading off low rents, weak demand and uncertain visibility for decreased prices and the hope that when the market turns around, so will returns.

Le Melange @ 637 S Fairfax Avenue - Impressive Quality and Discounted Prices Near LACMA, The Grove and Storied Miracle Mile

Yesterday, the new owners of The Melange at 637 S Fairfax Avenue released new, discounted prices for the units. The Melange offers a winning combination of location, quality and price, and first-time buyers looking to get into the market should check out these units.

Updated 12/2/09 -- 11 out of 20 units are in contract! Additional Price Cuts announced! Availability is limited to these units:

303 - 2 br/2 ba - 1,300 sq ft - North facing - $489,000
304 - 2 br/2 ba - 1,475 sq ft - South facing - $459,000
404 - 2 br/2 ba - 1,475 sq ft - South facing - $479,000
502 - 2 br/2 ba - 1,150 sq ft - South facing - $469,000
504 - 2 br/2 ba - 1,475 sq ft - South facing - $509,000
PH2 - 2 br/2 ba - 1,150 sq ft - South facing - $479,000
PH4 - 2 br/2 ba - 1,475 sq ft - South facing - $529,000

Updated 12/29/09 -- only 502 is still available. It's proof that when the price is really good, properties trade hands -- with fervor.

HOA range from approximately $448 - 527/month.

The project sits near one of the most famous 20th century buildings in Los Angeles -- the May Company Building (Los Angeles Cultural Monument #566), which is now part of Southwestern Law School.)

Adjacent to The Melange on Fairfax is Johnie's -- a 1950's Googie-Style diner where umpteen movies have been filmed. And just down Wilshire is LACMA, a world-class art center. And a short distance away is The Grove and the Farmer's Market where you can catch a movie or go to the Apple Store.

The units are clean, modern and comfortable. This two bedroom, two bath model unit (#402) is 1,150 sq ft and is priced at $459,000.

The kitchens have granite, tile and Kitchenaid appliances.

The bedroom of this unit faces Farifax and the Bullocks Wilshire building. The sliding glass doors do a great job of masking the sounds from the street below.

Bathrooms have plenty of tile. Units also include washer-dryers, which are housed in a separate closet.

This fifth floor one bedroom, one bath unit (#501) with 892 sq ft is priced at$379,000.

Units have balconies -- enjoy the unobstructed views from units facing north.

There's also a rooftop deck where you can take in the sun and the views. Buyers take note: even by 2009 standards the value offered here is very, very good.

Sold by Platinum Realtors

Sunset Strip - Hollywood Hills Market: October 2009 -- Best of Hills sells at $815/sq ft -- Median Price $1,112,500

37 houses sold in the Sunset Strip - Hollywood Hills West area in October 2009. The median price was $1,112,500, nearly unchanged from the median price in September of $1,095,000.
The highest priced sale was 1899 Rising Glen Road, which sold for $4,500,000. This house in the Doheny Estates neighborhood has 5 bedrooms, 7.5 baths and 5,522 sq ft of living area and closed at $815/sq ft.
1485 N Doheny Avenue, in the same neighborhood, sold for $3,595,000 after a brief six days on the market. This Paul Williams traditional, which has 3 bedrooms, 3.5 baths, and 4,440 sq ft of living area, sold for $810/sq ft.
Now let's take a look at how values have declined over the past few years. 2767 La Cuesta Drive, a 2 bedroom, 2 bath mid-century home with pool sold for $1,200,000 last month. The previous sale was for $1,450,000 in May 2007 -- or a decline in value of 17% in two and one-half years.

7615 Jalmia Place, with 4 bedrooms, 4.5 baths and 3,300 sq ft of living area sold for $1,112,500 in October. The previous sale was for $1,470,000 in June 2004 -- a decline of 24% in 5 years.

One distressed property sale shows how much values have gotten whittled down. 1784 N Orange Grove Avenue, in a central Hollywood location, sold for $570,000. The house has 2 bedrooms, 2 baths and 1,035 sq ft of living area. This is a condo alternative, with a condo-type price. Gone are the days when everything in the Hills starts at a cool million.

Savor The Carlyle Residences @ 10776 Wilshire Boulevard -- Developers of NY's Plaza Hotel Bring Fendi Casa and White-Glove Concierge Service to LA

Last night we attended an event at The Carlyle Residences at 10776 Wilshire Boulevard, a 74-unit building that sets a new standard in luxury living for an area already known for its feathered nests.

Pull up to the porte-cochere and a valet whisks away your car. Then enter into the lobby which has one of the finest Dale Chihuly chandeliers around.

The interiors have been done in collaboration with Fendi Casa, and the 3-bedroom model unit shows off this clean, contemporary style.

You can purchase it -- all 3,535 sq ft, furnishings included -- for $5.6 million. (Lop off $2.0 million for the 3 bedroom on the floor that hasn't been tricked out.)

Oh, did we mention that Fendi Casa did the interiors?

The kitchen features Poggenpohl cabinetry, Miele appliances and lots of fine, polished surfaces.

The master bedroom has a balcony with unobstructed views.

The master bath does not disappoint.

Walk into the walk-in closet. There's plenty of room.

The second bedroom is sizable.

The second bath.

The third bedroom can serve as an office.

The stonework in the floors and the wood marquetry are impressive.

The building offers a full array of amenities, from 24-hour white-glove concierge service (sushi at 4 AM?), to a full fitness center, private wine lockers and a heated pool. Prices range from $2.4 million to penthouses that top $11 million (with over 5,000 sq ft of living area). If you're in the market for a lofty place above the Wilshire Corridor, be sure to stop by the Carlyle.

The Carlyle was developed by Elad Properties, which also developed New York's Plaza Hotel. Sold by the Valerie Fitzgerald Group.

Commercial Real Estate Retreating from the Brink: Banks "Extend and Pretend" -- Values to Hit Bottom in 2010

On a scale of 1 to 10, with 10 being a rosy, optimistic environment, and a 1 being a market down in the dumps, how is the US commercial property market faring? We'd say it would earn about a 2. Yes, the fear of utter market collapse has retreated, but with record job losses and businesses in triage mode, returns for commercial properties have hit the skids.

Complicating matters, few buildings have changed hands. Sellers are stuck with huge loans and are fixed on unrealistic, outsized asking prices. Buyers find it all but impossible to obtain loans. The market has been in a deep freeze for well over a year, with sales volume off 80 - 90% from 2007.

The retail and office sectors are anticipated to suffer the greatest declines in value and to take the longest to recover. Multifamily is expected to be the first sector to bounce back, as the fundamentals in Southern California -- young population, high birthrate and immigration -- are strong. The hotel sector could also recover quickly as the economy improves.

Just like in the residential market, the banks will play a key role in the recovery. Currently, instead of foreclosing on delinquent property owners, banks choose to "extend and pretend" -- to rework terms rather than call loans and demand balloon payments from distressed owners.

Is there a light at the end of the tunnel? Yes. Commercial property values are expected to bottom out in 2010. And equity investors are now sitting on the sidelines earmarking cash for purchases. Expect exciting times ahead when deep-pocketed investors go building shopping at bargain-basement prices. [Los Angeles Times]