Slump Extends to the Market's Highest End
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.
High-end sellers must lower asking prices by 20 percent compared with a year ago, when initial listing prices didn't reflect stricter credit conditions, said James Chalke, a broker at Nelson Shelton & Associates in Beverly Hills.
"What's really happening is that sellers are taking value off their own markup," Chalke said. "A property is only worth what a buyer is prepared to pay for it."
An 11-bedroom property in the Bel Air section of Los Angeles, the neighborhood where actor Leonardo di Caprio and actress-singer Jennifer Lopez live, didn't attract potential buyers until the asking price dropped by $10 million, to $35 million, Chalke said.
Donald Trump's Palm Beach, Fla., estate, originally listed at $125 million, sold for $95 million in July, according to the Palm Beach Post. Trump, 62, paid $41.35 million in 2004 and renovated the property, according to the newspaper.
Charles Prince, 58, former chief executive of Citigroup, sold his five-bedroom home in Greenwich, Conn., for $5.2 million, 15 percent less than the original asking price of $6.15 million. The median price in the town fell 2 percent in June to $1.95 million, according to Prudential Connecticut Realty.
Sales of luxury Manhattan apartments are down 25 percent in the third quarter compared with a year ago, and "no one's sure where prices will go" as Wall Street firms cut jobs, according to Hall Willkie, 59, president of the Brown Harris Stevens brokerage.
The economic slowdown led Olivia Hsu Decker, of Decker Bullock Sotheby's International Realty in Tiburon, to organize a five-day tour of 20 unsold properties in the San Francisco Bay Area that began Sept. 1. More than 100 potential buyers from the United States, the United Kingdom, France, Switzerland, Taiwan and Macau are attending parties and opera and symphony performances as part of the event, she said.
Decker said she will throw in a $174,100 Bentley sedan for the buyers of Porter's Los Altos Hills property and of a 10,000- square-foot home on the tip of Belvedere Island with views of the Golden Gate Bridge, listed for $65 million. Owner Robert Friedland, chairman of Vancouver-based Ivanhoe Mines, bought the place, known as Locksley Hall, in 1995 for $5.5 million and spent $34.5 million on renovations, Decker said.
Haan, founder of the Haan Foundation for Children, spent three years redoing the six-bedroom house in Pacific Heights.
"I'm ready to let go now," Haan said. "I'm ready to sell."
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