Real Estate

In 2011, Rich Homebuyers Went Bargain Hunting


The ultra-luxury real estate market took off at a gallop in 2011. In February, a Russian tech billionaire paid a record price for a single-family home in the U.S. Yuri Milner, an investor in Facebook, Zynga (ZNGA), and Twitter, bought a Silicon Valley mansion at 13310 La Paloma Road in Los Altos Hills for $100 million, with a $50 million loan from the owner, ESS Technology founder Fred Chan. The behemoth deal set the tone in housing’s top segment in 2011.

While the general housing market struggled to shake off the effects of foreclosures, unemployment, and a fragile economic recovery, several new records were set in such luxury markets as San Francisco, Manhattan, and the Hamptons as the superrich returned to real estate. Falling prices for many prestige properties helped close eight-figure deals.

“Our numbers as a brand are up year on year significantly,” says Philip A. White, president and chief operating officer of Sotheby’s International Realty, a network of luxury real estate companies and a subsidiary of Realogy. While average sale prices are about flat compared with last year’s (but still down from several years ago), says White, the company’s transaction volume is up from 2010.

“We think the reason the high-end market is doing well is [that] investors think this is the bottom of the market,” White says.

BIG DISCOUNTS, NEW RECORDS

It is not unusual for ultra high-end properties to sell at significant discounts from the original list price, and this year buyers negotiated some noteworthy steals.

On Dec. 16, for instance, a bank-owned penthouse at the St. Regis Hotel & Residences in San Francisco sold for $28 million—a bargain compared with the $70 million the original owner, real estate developer Victor MacFarlane, listed it at in 2008. It is also the highest sale price ever for a condominium in the city, according to the San Francisco Multiple Listing Service. Sotheby’s International Realty agent Gregg Lynn says MacFarlane bought the property as a shell for $30 million and spent $26 million finishing it.

“Prices are not rising like they used to, and the savviest buyers recognize that—and they want to take their trophies now,” says Lynn.

Other big 2011 bargains: the Spelling Manor in Holmby Hills, Calif., on the market since 2008 at $150 million, sold in July for $85 million (a discount of 43.3 percent) to Petra Ecclestone, the 22-year-old daughter of Formula One Chief Executive Bernie Ecclestone.

In Rancho Mirage, Calif., Edra Blixseth’s 249-acre Porcupine Creek golf course estate sold for $42.9 million, 42.8 percent off the original asking price of $75 million, to Oracle’s (ORCL) co-founder and chief executive, Larry Ellison.

In New York, the Italian Renaissance-style townhouse on East 70th Street that housed the Knoedler Art Gallery, a building listed at $59.5 million in 2009, sold for $31 million (a 47.9 percent discount). The gallery, which had been in business for 165 years and was one of the oldest in the U.S, closed in November. Other big sales in Manhattan included a $48 million apartment sale in the Plaza in March, and a penthouse in 15 Central Park West that reportedly sold for $88 million.

East of Manhattan, in Long Island’s Hamptons, a 55-acre property called Tyndal Point in North Haven sold for $36 million, 55 percent off the original asking price of $80 million. It is the most expensive sale in the Hamptons area north of Route 27.

It wasn’t only a good year in the U.S. In London’s Knightsbridge neighborhood, a penthouse apartment was purchased for about $157 million, reported Bloomberg News on Dec. 20.

MARKET WARMS UP

These blockbuster sales boosted the luxury segment in the U.S. amid seasonal sluggishness earlier in 2011. For instance, in the Manhattan luxury market (the top 10 percent of sales), the median sale price in the first quarter fell 11.1 percent year on year and the number of sales was down 12.7 percent, according to StreetEasy.com.

In the Hamptons and North Fork of Long Island, the median sale price in the luxury segment (the top 10 percent of sales) was down 16.1 percent in the first quarter vs. the same period the previous year, and the number of sales dropped 24.5 percent, says a Prudential Douglas Elliman Real Estate report.

In San Francisco, the median sale price of properties that traded for more than $2 million declined slightly (4.3 percent) year over year in the first quarter, reported Coldwell Banker Residential Brokerage.

Prices in many markets remain below peak levels, but by the spring and summer, activity was picking up. Typically, the second and third quarters tend to be stronger, says Sofia Song, StreetEasy’s vice-president for research.

In the third quarter, for instance, the median sale price of Manhattan luxury properties was up 3 percent from a year earlier, according to StreetEasy, and the number of luxury sales was up 31.3 percent compared with the same period in 2010.

“I think a lot of the performance in the fourth quarter and into 2012 will really be driven by the overall financial markets, the outlook for the economy, and consumer sentiment in general,” said Rick Turley, president of Coldwell Banker Residential Brokerage in San Francisco, in a release.

Even following this year’s big sales, a number of ultra-luxury homes remain on the market, including the Beverly House in Beverly Hills, offered at $95 million (down from $165 million), and the Tranquility Estate in Zephyr Cove, Nev., for $75 million (down from $100 million).

Better economic conditions may help these posh, discounted estates find new owners in 2012.

Click here to see the 25 most expensive home sales in 2011.

Venessa-wong-190x190
Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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