Inside the playground of the super rich

Laguna Beach, the seaside Orange County community known for its cliffs, coves and scenic seven-mile coastline, draws millions of tourists a year. Compared with its coastal neighbors, the city is also among the priciest parts of Orange County to live in; the median price of a house in the area in September was $2.2 million, compared with $977,500 in Dana Point and $772,500 in Huntington Beach, according to MLS data.

Although the median home price has remained relatively steady, brokers say they’re seeing a polarization in the market. Ultra-high-end home sales are picking up, while sales for those less than $10 million have slowed, they say.

There were 15 closed sales in the $10 million-plus range in Laguna Beach between January and September 2018, compared with five during the same time last year, according to the MLS. This is reflective of a trend being seen in Orange County overall: In 2017, 33 homes sold for more than $10 million in the county, while by the end of September this year, that number was already 43.

“In the $10 million and over market, it’s busier than it’s ever been,” said Tim Smith of The Smith Group with Coldwell Banker in Newport Beach of the current Laguna Beach market. “We have a $16 million listing and have had more showings in the past few weeks for it than in the six months prior. But between $2.5 million and $10 million, it’s really slow.”

Three headline-grabbing home sales earlier this year — at $32 million, $32.7 million and $35.82 million — certainly show off the market’s extremes. Two of those sales were the result of the high-profile falling out between one of the city’s wealthiest couples — billionaire hedge fund investor Bill Gross and his wife, Sue. The pair, divorced since last year, vied for estates in the ultra-exclusive Irvine Cove, between them spending some $150 million on four houses in Laguna Beach.

“Big wealth has always wanted to be here,” said Smith, attributing the shift toward uber-high-priced homes to what is happening in the world overall, where “the very rich are
getting richer and growth is slower in other sectors.”

“The middle market is much more sensitive to interest rate pick-ups,” he added. “The real luxury buyer is not as affected by market shifts.”

But a softening at one price point hasn’t had an impact on home prices overall, said Bob Chapman, a broker with The Strand Realty in Laguna Beach.

“Those three [$30 million and up] sales were certainly milestones of activity,” Chapman said. “However, [the average sales price] has been hovering monthly between approximately $2.3 and $2.4 million over the past few years fairly consistently.” 

And counter to nationwide trends, overall inventory is up in the area. In September 2018, according to the MLS, the number of active listings in the market was 281, up from 234 over the previous year. Although more houses have become available, the number of sales year-over-year has remained pretty consistent: 30 in September 2018, compared with 33 a year earlier. 

The Laguna scene

Housing in Laguna Beach, while pricey, is also broadly split into a few different categories, said Chapman.

“You have the oceanfront houses, others that we call ‘walk to the beach’ houses and then the larger lots in the hills that start having substantial views,” Chapman said. “Between them, there are a lot of variables in pricing.”

This is a city, after all, that has not thrived necessarily because of its proximity to anything other than nature,
he added.

“Laguna Beach was not built to be adjacent to a money center or a workforce,” Chapman said. “Since the 1940s, it’s always been about recreation.”

According to the Laguna Beach Historical Society, Laguna Beach became an incorporated city in 1927. Currently home to about 22,000 residents, the area has a rich history, receiving conquerors in the 1500s, pirates in the 1800s and artists in the 1900s. That’s when it also started to draw wealthy merchants, who gravitated there for second homes and the pleasant year-round weather.

Laguna Beach has since become something of a luxury destination, with the Montage Hotel opening in the early 2000s, offering a chic resort sensibility and a venue for upscale weddings against a scenic backdrop. This past August saw the opening of the Hotel Joaquin, a 22-room boutique hotel that is part of Auric Road, a group of petite resorts owned by Makar Properties’ Paul Makarechian. The Joaquin used to be the Motor Inn, a dilapidated roadside motel. Room rates for the new property are in excess of $300 a night.

“What these smaller hotels are doing is so organic to the landscape, and so quaint, that they’ll get rental rates unlike what the owners may have expected,” said Smith.

The opening of the Hotel Joaquin is especially notable given that there’s very little development in Laguna Beach other than individual homeowners revamping their properties before potentially listing them, Chapman said. He previously served on the Planning Commission for the City of Laguna Beach, as well as the Design Review Board. Of foremost importance to the city, he said, is to retain its charm while still finding ways to modernize.

“How do we, in some locations, maybe add a residential element without tearing down buildings and starting from scratch?” he said, referencing the potential of adding living spaces above storefronts. “The architecture and character of Laguna Beach has changed very little in attractiveness and appearance. So how do we work to revolutionize uses in those buildings?”

One long-awaited project is finally getting traction. In mid-September, construction began on the $11.1 million Village Entrance project, designed to enhance the entry into Laguna Beach’s downtown area from the canyon road. According to the OC Register, the project has been more than 40 years in the making. Previous plans have been contentious; one of them — valued at $43 million, with a four-story parking structure — was scrapped in 2013. Over the years, proposals have pitted residents against city officials. The current Village Entrance project includes landscaping and a pedestrian bridge over the channel, plus paths for cyclists and pedestrians. 

Beautification plans notwithstanding, Smith said that Laguna Beach will continue to draw residential buyers who “want to feel like they are always on vacation. “It still feels like it’s kind of a family town, it’s a great place to raise kids and everybody knows everybody and looks out for one another.”