Two blockbuster Los Angeles real estate stories emerged in 2019 from opposite ends of the market.
On one side, an increasing number of spec home developers listed palatial properties that rocketed past $100 million. While testing the ultra-luxury market’s outer limits, a handful of those megamansions sold in the nine-figure stratosphere.
On the other side, city and state officials battled a deepening affordable housing crisis. The year ended with a sweeping statewide rent control law that will take effect on Wednesday, Jan. 1. Touted as landmark legislation, it received little pushback from landlords while receiving criticism by some housing advocates.
Meanwhile, Softbank-backed Compass went broker poaching throughout the year but also shuttered two offices. And though Douglas Elliman made a splash when its top New York City broker Fredrik Eklund announced his move to L.A., the firm has also struggled to climb the ranks in the city.
On the commercial side, the year saw developers scramble to accommodate the likes of Netflix, Amazon and Apple as they pushed for massive office and studio space. The industrial market in Inland Empire remained among the nation’s strongest — fueled by e-commerce — while in Downtown L.A., developer Greenland tried to find a creative way to fill its condo towers amid the area’s development boom.
In the legal arena, developer Mohamed Hadid is fighting a judge’s order to demolish his unfinished Bel Air megamansion, with the case nearing what appears to be a dramatic finale. The FBI is also investigating allegations that Hadid effectively bribed a building inspector to sign off on the 30,000-square-foot Strada Vecchia Road project. And amid the FBI’s probe of City Councilman Jose Huizar, L.A. ended the year by becoming the first city to ban development companies from contributing to election campaigns. Opponents, however, say the law doesn’t go far enough.
Up, up and away
Things started looking up for L.A.’s ultra-luxury home developers, owners and brokers in the second half of the year, when a handful of listings in the $100 million range sold. The biggest was also the most recent. In December, Lachlan Murdoch shelled out $150 million for the Chartwell Estate in Bel Air. It eclipsed the record for priciest sale in the county that had been set in July, when the 123-room Spelling Manor in Beverly Hills sold for $120 million. Both those properties, however, took massive price chops before getting sold. Developers kept pumping out high-priced spec homes, though L.A.’s overall ultra-luxury market slowed considerably in the last year or so, as listings lingered amid “aspirational” and “ego” pricing. Still, financier Gary Winnick put his Casa Encantada in Beverly Hills on sale in October for $225 million, which is currently America’s priciest listing.
Just about one year after the “Mountain of Beverly Hills” development site shocked the real estate world when it hit the market for $1 billion, the property sold at a foreclosure auction in August for $100,000. The buyer was also the property’s lender, after its owner — Secured Capital Partners — couldn’t get out from under a mountain of debt. “Aspirational” was perhaps not the right word to describe the July 2018 initial price of the 157-acre lump of land. Call it a stunt or marketing genius, but that 10-figure price — promoted by broker Aaron Kirman — got national attention. It also indirectly highlighted a growing trend of luxury land listings in L.A.
Rent reform, really?
A curious thing happened on the way to the state passing its sweeping rent control law. The real estate trade association that represents landlords and property owners quietly sought to add three years to the proposed measure, making it last for a decade instead of seven years. The California Apartment Association wanted certainty, and while AB 1482 caps rent increases at 5 percent plus consumer price index, the CPI has been well above the median annual rent increases in cities like L.A. and San Francisco. The law does implement “just cause” eviction protection — which places stricter limits on evictions — but does not prevent deregulation of vacant units, meaning a landlord could still substantially raise the rent on a rent-controlled unit that is vacated. The measure followed a wave of L.A. cities and municipalities enacting their own temporary rent hike freezes and rent protections. Gov. Gavin Newsom signed AB 1482 into law in October, but because it doesn’t take effect till Jan. 1, some landlords in L.A. soon began sending eviction notices to tenants in dozens of apartments, hoping to bypass the new protections. The brief uproar was quelled when the City Council invalidated those notices through Dec. 31. After the governor signed the law, Tom Bannon of the California Apartment Association said AB 1482 could slow down new construction but an analyst who follows multifamily market lending said it was unclear whether property values would be affected.
Streamers gotta stream
Once upon a time in Hollywood, the movie studios owned the giant lots and offices, and had their run of the place. Now, Netflix and Amazon and Apple are gobbling up more and more space. Netflix has inked leases for nearly 2 million square feet in Hollywood and the other two are expanding their footprint in Culver City. Developers like Hackman Capital, Hudson Pacific Properties and Lincoln Property Company have taken notice, customizing and improving their properties to fit the streamers’ demands. But as L.A. square-footage has become sparse, the hunt will be on for office property outside the county lines.
Sell and hold
One developer got a taste of how finicky the L.A. office-buying market could be in 2019. In January, Tishman Speyer found a buyer for one of its massive office assets, while another one of its big properties on the market couldn’t find a suitor. Canada-based Onni Group agreed to purchase Tishman’s 1 million-square-foot Wilshire Courtyard complex for a reported $630 million; the deal closed in July. Onni’s first tenant, WeWork — which inked a 135,000- square-foot lease — looked like a coup until the wheels started falling off the co-working giant’s bus a couple of months later. Meanwhile, Tishman couldn’t find a buyer at $600 million for its 620,000-square-foot Brickyard and Collective office campuses in Playa Vista, so the company recapitalized the Facebook-anchored property instead.