Even Height of Luxury Proves a Tough Sell

By Dan Levy
Bloomberg News
Saturday, September 6, 2008

The U.S. housing crisis arrived on July 14 at Stonebrook Court, the 26,000-square-foot Tudor-style home of California venture capitalist Kelly Porter. On that day, four months after putting the house on the market, he cut the price by $7 million.

It's still for sale.

The mansion sits on 7.5 acres in Los Altos Hills, a Silicon Valley town where Yahoo co-founder Jerry Yang also lives. It boasts a wine cellar, a Venetian- inspired ballroom, Italian statuary and a swimming pool. At the reduced price of $38 million, the property is a bargain, the owner said.

"It's worth every bit of $45 million, and I reduced it reluctantly," said Porter, 45, a partner at Woodside Capital Partners in Palo Alto, in an interview. "We touched up every square inch."

The pain of the worst housing slump in a quarter century is reaching the highest end of the market as owners of luxury homes from California to Florida, New York and Connecticut slash list prices by millions. In the broader market, home sales plunged to a 10-year low in the second quarter and median house prices fell 7.6 percent, according to the National Association of Realtors.

"The upper end is not immune to this decline," said Kenneth Rosen, chairman of the University of California's Fisher Center for Real Estate and Urban Economics in Berkeley. A worsening economy means "these people will have less wealth and they will spend less."

A 10,340-square-foot home in San Francisco's Pacific Heights neighborhood is for sale at $14.8 million, 17 percent below last year's asking price. A 153-acre property with a vineyard near the Napa Valley sold in February for $14.7 million, 8 percent off the price last year. A home in Marin County's Tiburon, a town where tennis star Andre Agassi used to live, was acquired in August for $900,000 less than the $7 million list price in 2007.

To be sure, the price cuts may often mean only smaller profits on property acquired years ago. Cinthia Haan, 53, bought the Pacific Heights home for about $3 million in 1992 and spent $3 million on renovations, she said. She stands to make an $8.8 million profit at the current asking price.

While Porter declined to say how much he spent on Stonebrook Court, real estate records show he paid $5 million in 1999. He did say refurbishing the place cost "tens of millions" of dollars.

The same tightening of lending standards that has made it harder for ordinary people to finance property has also affected those who don't need a mortgage, said David Lichtman, 45, chief credit officer of First Republic Bank, a San Francisco-based private bank and unit of Merrill Lynch.

"You have smart buyers seeing a softer market, looking to negotiate a good price," Lichtman said. "Nobody wants to overpay."

Luxury home prices in the second quarter fell 3.8 percent in Los Angeles and 7.8 percent in San Diego from a year earlier, while gaining 0.2 percent in San Francisco, according to a First Republic property index. The measure tracks a group of houses costing more than $1 million in the three areas.

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