Saturday, February 28th, 2009 at 7:50 AM
Where’s the Floor?
From the U-T:
It’s a bad sign when a new home that cost more than $10 million to build fails to attract even a single bidder at a foreclosure auction.
Yet that’s what happened Feb. 13 when Chevy Chase Bank put a 15-bedroom, 17-bathroom Encinitas property on the block with an opening bid of $2.275 million. The 16,330 square-foot home, which has a library, yoga room, swimming pool, fountains, lush landscaping and much more, is described by local foreclosure experts as the county’s current largest home foreclosure.
Vivienda Estate, built between 2004 and 2006 on Fortuna Ranch Road in Olivenhain, was the dream of Suzy Brown, who originally partnered with the Deepak Chopra organization and 60 investors to create a spiritual healing drug rehab center on par with Promises in Malibu. Neighbors fought against the project, however, dubbing her property “the monster house.”
She searched unsuccessfully for other uses. Brown eventually defaulted on her mortgage payments a year ago but still maintains and lives in the home with several tenants. She says she knows of buyers willing to pay well over the auction price who have been unsuccessful in getting the bank to act on their offers.
James Dunn, a Southern California asset manager for the Washington, D.C.-area bank, says the Vivienda Estate is now being analyzed by a real estate broker and will be put on the market – probably some time next month.
Meanwhile, Brown, who designed a sophisticated computer-controlled “brain” that operates the estate’s heating, lighting, air conditioning, audio-visual systems and security, says the home’s value will plummet if she is evicted and takes furnishings with her.
“I’ve shown the property to several prospective buyers, and no one wants it empty,” she says. “It takes the life, breath and soul out of it.”
Despite having lost a fortune on the project, she is trying to keep a positive attitude and remains willing to work with the bank and with new buyers.
Brown says she originally was devastated by the demise of the project she had so lovingly nurtured. As time passed, however, the monetary loss became far less important and she forged friendships and underwent a personal spiritual transformation that she says has made her a better person.
*******************************************************************************
How many other high-end sellers are completely delusional about their property’s value?
Stats on the properties listed at $1,000,000 and higher:
ACTIVES = 2,238
PENDINGS = 178
SOLDS BETWEEN JAN 1 AND FEB 27:
2001 – 84
2002 – 116
2003 – 151
2004 – 272
2005 – 331
2006 – 332
2007 – 322
2008 – 213
2009 – 121
With an A/P ratio over 12:1, and only 121 properties closed this year, the million-dollar-plus market is in VERY unstable territory.
If you’re selling, drop your price early and often until you start getting offers. These days, you don’t really have any idea what the market will bear.
Posted on Saturday, February 28th, 2009 at 7:50 AM in Thinking of Buying?, Thinking of Selling? | 48 Comments » | 
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“With an A/P ratio over 12:1, and only 121 properties closed this year, the million-dollar-plus market is in VERY unstable territory.”
You listening, Carmel Valley? Yep, that’s you we’re talking about.
The Blur | February 28th, 2009 at 8:09 amWhat…..nobody left to ‘Scoop it up’? I would be afraid to buy it and ‘evict’ her because she may reprogram the sophisticated computer-controlled “brain” to attack me.
BottomFisher | February 28th, 2009 at 8:22 am“”"”says the home’s value will plummet if she is evicted and takes furnishings with her. “”"”"
I FELL OUT OF MY CHAIR LAUGHING SO HARD!!!
Todd | February 28th, 2009 at 8:47 amWhat was the minimum bid really after accounting for all expenses? Were there back taxes and construction liens or anything?
$3m is a screaming deal for a private assisted living facility even though you would likely burn another $2m in retrofit, certs and such. Existing CA law would make all but impossible for the neighbors to fight it as well and to be honest it would be the best use considering the alternatives.
The bank is crazy to let her stay.
Rob Dawg | February 28th, 2009 at 8:50 amHaha, just gotta laugh at her assertion that she knew buyers willing to pay well over the asking price, but the [implied stupid] banks were not willing to entertain lending the money. I can just imagine how that might have went…
Brown: “Hey, how much would you buy my mansion for?”
Average earning acquaintance: “I have no idea.”
Brown: “Certainly more than $2 million?”
Acquaintance: “… uh, yeah, if you say so…”
Brown: “You should buy it then, for like $5 million: it was built for $10 million, it’s a great deal!”
Acquaintance: “… I couldn’t get a loan for anywhere close to that much, I only make $50k a year.”
Brown: “… bank wouldn’t act, markets frozen, credit crisis, stupid banks, etc.”
In times like this, I’m reminded of an oldie-but-goodie: “In God we trust… all others pay cash.”
Nick | February 28th, 2009 at 9:12 amI have good friends who live just above this “home”. The place is crazy big. It could be a rehab. center eventually for sellers who have been on the market overpriced for a year or more that as Jim says “ain’t givin’ it away”!!!
doughboy | February 28th, 2009 at 9:21 amThis woman was never granted a permit to operate any facility at this home, so it’s a bust. Cannot run a B + B there, resort or any type of commercial enterprise. So she blames “the city” for her misfortune.
doughboy | February 28th, 2009 at 9:24 am“Brown says she originally was devastated by the demise of the project she had so lovingly nurtured. As time passed, however, the monetary loss became far less important and…”
And the free rent she got to live in a mansion for over a year didn’t hurt!
-Erica
Erica Douglass | February 28th, 2009 at 11:03 amAll you have to do is look at the neighboring homes behind this disaster to see that its “monster house” nickname is well-deserved.
Kokopeli II?
GeneK | February 28th, 2009 at 11:24 amWe have not hit the floor, but we’re pretty close. We have seen the end of accelerating price declines. Hopefully, prices will fall less and less, and settle down soon.
http://www.voiceofsandiego.org/storyart/dec08hpiyoytiers.jpg
no bubble here | February 28th, 2009 at 1:05 pmI’m sorry but the end is nowhere near. The end occurs when people want nothing to do with real estate in any way shape or form. Only then will markets start to “correct”. At least that’s the way it was in the 90′s.
shadash | February 28th, 2009 at 1:23 pmRob Dawg,
Apparently the area is zoned SFR, so you can’t run an assisted living facility.
The place would make a great cult compound though if you know anyone who’s looking for a ride to Comet Hale-Bopp.
W.C. Varones | February 28th, 2009 at 1:32 pmI can’t remember any time in my life when people wanted “nothing to do with real estate in any way shape or form.” Not even in the 70′s, when mortgage rates were in double digits.
I think “the end” of bubble pricing will come when the only people who buy homes are those who want them as homes and not “investments,” and won’t lose much sleep if their values fall.
GeneK | February 28th, 2009 at 1:53 pmI wish NAR and the current Administration and California legislature would get out of the way and let the market take care of itself. Hey Jim,
I didn’t know how big NAR was as an organization. I did some digging around on the net and found a list of the heavy hitters in terms of total contributions in American politics since 1989. NAR is #3.
Top 10 donors:
3clicks from da Beach | February 28th, 2009 at 2:28 pmAT&T Inc $40,829,395
American Fedn of State, County & Municipal Employees $40,693,880
National Assn of Realtors $34,538,503
Goldman Sachs $30,819,435
American Assn for Justice $30,095,429
Intl Brotherhood of Electrical Workers $29,658,639
National Education Assn $29,623,876
Laborers Union $27,791,489
Service Employees International Union $27,179,172
Carpenters & Joiners Union $26,789,808
The $34M went mostly towards fighting the idea of banks getting into real estate.
I guess they can stop worrying about that now, with banks getting nationalized.
On to the MID battle!
Jim the Realtor | February 28th, 2009 at 2:46 pmApparently the area is zoned SFR, so you can’t run an assisted living facility.
Trust me on this one. It’s gone to the State Supreme Court. Local zoning is preempted by State law regarding the placement of assisted living facilities. This one is so clearly covered by the law that even if you could find a lawyer to take the case you’d still likely need to post a bond in excess of the owners expected legal fees before taking it to court where you’d lose.
Rob Dawg | February 28th, 2009 at 4:39 pmI confess ignorance on the law, Rob. But the neighbors seem to have shut her down on her rehab plan. Maybe rehab doesn’t fall into the same category as assisted living?
I did a post a while back on this one with a lot of background here.
W.C. Varones | February 28th, 2009 at 5:53 pm“It takes the life, breath and soul out of it.”
So many baby girls. No. Angello Mozillo, IndyMac, WaMu, Greenspan, Paulson and, oh, tens of thousands of others took the “soul out of it”.
By the way Suzy Brown, you did your part to help bring on this epic, criminal Ponzi scheme.
Consultant | February 28th, 2009 at 7:01 pmGene K–
Do you honestly feel that people want “nothing” to do with real estate? I for one don’t agree with that. People are continuing to buy real estate both for investments and for residences–transactions are up nearly 100% over 2008 (month to month). Commercial/multi family cap rates are fairly stable and commercial prices have held fairly solid. Multi-family rents have actually increased locally. With prices down, investors are finally seeing properties in SD selling at 10 times gross or less again–and they are buying.
Local Boy | February 28th, 2009 at 9:23 pmNo, I said I couldn’t remember any time in my life that people had wanted “nothing to do with real estate,” I also don’t think we’re likely to ever see bubble pricing “end.” Bubbles will continue to expand, contract and occaisionally explode, though we probably won’t see another one like the last one again.
GeneK | February 28th, 2009 at 10:15 pmSorry to be another voice of sobering objectivity (and semi-OT rant-ish, but hopefully in an entertaining way), but we’re nowhere near the bottom, housing market or economy wise. Between the alt-a tidal wave and misguided government efforts to reflate the bubble (which prolong the correction), we’re looking at at least another couple years of dismal sales. This will be even worse if they start mucking with the tax laws (as has already started with the cap gains changes): people get justifiably nervous about making significant long-term investments when the rules might change with the political winds. Heck, I’m more inclined to sell now than I was a year ago, even with the huge unrealized loss in value of my property: who knows how much more it might cost me a year from now to hold it!
As for the economy, it will recover when sustainable income for private businesses gets back to “normal”; not before, not after. Since most income for private businesses is from consumer spending or B2B transactions, and B2B is dependent on the health of businesses, and the government is doing nothing to subsidize private business income in general (targeted capital allocation distortions don’t count, they hurt the economy in general), it’s going to end up resting on when sustainable consumer spending recovers to “normal”. This is dependent on when people can get out of debt and employed in general. The first of those will take a while (and/or a lot of bankruptcies, which will further hurt private business), and the second will take private industrial recovery, which will require a new political ideology in office (not the socialist leaning one we have now). And even after the country gets leadership which can comprehend that the only way to fix the economy is to resuscitate private industry (which might take a long time of bitter failure under pseudo-socialism, or a revolution and civil war, or a world war, or something similar), it will take a while to get private industry going again, probably proportional to the amount of time between now and when we start trying.
We’re in the process of sewing the seeds for a very, very, very long Depression, worse than the country has ever seen. Anybody who is planning on the country “recovering” in the next five years (at the very minimum) is either delusional, or not analyzing the facts.
That said, I, like most other people in the US, will now apply irrational hope that I am wrong. I just don’t plan based on hope.
Nick | February 28th, 2009 at 11:29 pmThe seeds of Depression have already been sown. Economically, the dotcom and housing bubble have been a virtual rerun of the roaring twenties, and last year was 1929. The New Deal is coming around the bend again, and the only question is whether rolling it out before the unemployment rate hits double digits will produce different results compared to waiting until it’s pushing 30% again like last time, or if we’re doomed to repeat history in its entirety.
GeneK | March 1st, 2009 at 12:08 amThe best solution for both the real estate, and stock markets is to crash with velocity.
econman | March 1st, 2009 at 12:37 am2.5 trillion dollar of baby boomers cash, 401k’s, pensions, etc is sitting on the sidelines with a furious “burn rate”.
The sooner this “scared capital” is deployed, the better, it is the only cure for the capital markets to become efficient.
The Goverment cannot spend the economy into action. Private enterprise and capital spending is the only way to generate production and income, which generates tax revenues for public use.
The longer the public(and the paying taxpayers) allow this “new deal era policy” to be created, the faster wealth will be destroyed……plain and simple.
The only private capital left once you exclude what has gone overseas to countries who have been selling us the rope to hang ourselves (oil), is in the hands of the very derivatives packagers and oil distributors who just got finished sucking it all out of the economy. Expecting them to save the economy by putting it back in now is like expecting Mr. Potter to show up at the last minute to save the Bailey Building and Loan by giving back the $8000.
GeneK | March 1st, 2009 at 1:29 amEconoman-
The Govenrment can spend it’s way out–they have a printing press, you and I don’t. Should they? That is debatable, I am going to expect that they will and that double digit inflation comes along with it.
Local Boy | March 1st, 2009 at 6:53 amLocal Boy:
“Out” is a poorly-defined term in your statement; the government can certainly spend without limit (until the currency loses its value and you get hyperinflation), but most people would consider “out” to mean the economy functioning well again (a la before the bubble/correction). I assure you that in the latter context, the government cannot spend its way “out” of the economic recession. Government spending is either funded by a drag on the economy (taxes) or by a devaluation of the currency (creating money -> inflation); there is no other way for the government to get money to spend. Both of these are injurious to the free market economy, even without the capital allocation distortions and inefficiencies which reckless government spending typically brings (which also hurt the economy). There’s a reason why the joke “we’re from the government, we’re here to help” is so depressingly humorous.
One of the truly sad facts to emerge from this whole bubble -> correction -> government-created Depression is the exposure that so many purportedly intelligent economists and economic pundits and advisers have no idea what they are talking about, and either just parrot established theories which may or may not be applicable, or pass off their own agenda as economically sound advice. The people end up being baffled as their national wealth is squandered by politicians claiming they need to sacrifice both current and future prosperity to “prevent even worse things”, while all the while their actions are creating the very disasters their claiming to help avert, and while they steal unprecedented wealth from the people they claim to be helping.
Nick | March 1st, 2009 at 11:30 amTo echo Rob Dawg’s comments on assisted living facilities in SFR areas, he may remember the dustup on the Westlake Island in Thousand Oaks in the early ’90s. A wacky realtor, obviously experiencing pain from that real estate downturn, opened one of these facilities in that high end area, much to the chagrin of the surrounding residents. Not only was it permitted to function but if residents picketed or filed suit, they were subject to hefty fines. The only thing that stopped it finally was that the realtor went broke. Your state government in action.
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Maximus | March 1st, 2009 at 1:02 pmNick–You left our “borrowing” as a means to fund Govt. spending–and our Govt. has been borrowing, like mad. I am going to speculate that the Fed will need to print money to cover these obligations and to cover further “stimulus” spending. If this is true, then there will be inflation. My plan is to protect myself and my family buy purchasing well-diversified, ivestment real estate (that cash flows)as a hedge against this inflation. Buy and hold.
Local Boy | March 1st, 2009 at 3:17 pmBorrowing is not really a means of financing spending, it’s just a way of stalling financing until you eventually do one of the two things I mentioned (either tax to pay back the borrowed money, or devalue the debt creating inflation).
Normally I would agree with the buy and hold investments strategy, but these are not normal times. With every new Obamanation proclamation, I become more convinced the government is going to change the rules down the line, in a way which is going to screw anyone with income or wealth within reach of the government. Imagine if you bought investment properties, only to have the government impose a 5% annual tax on all investment real estate in a couple years, and a 30% surcharge tax on the sale of investment properties (don’t be surprised, remember: investors are “rich” people who’s patriotic duty is to be taxed to oblivion in the New New deal). How would your investment strategy look then?
I’m thinking a better strategy might be buying hard assets (precious metals, etc.) from an offshore account, preferably somewhere without a tax treaty with the US. When the looters get more desperate and the looting accelerates, the rules are going to change, and planning without taking that into account is not prudent, given what’s already happening. This mess is going to get a whole lot worse before it has a chance of getting better.
Nick | March 1st, 2009 at 6:42 pmback OT:
Having run a successful B&B in my youth, I first looked at this place (online only) awhile ago, thinking of possible retirement life. When I saw the zoning, I thought “What on earth were these people thinking?!”
And when I saw the aerial picture, it just confirmed their craziness–there are virtually no “grounds” left on this property. Anyone who wants a place to “heal” or to relax (think B&B escape), is going to want to be able to wander the landscape a bit–but there’s virtually none here–it’s all building and patios. Un-believeable!
And good point, BottomFisher, about her programing of the smart building–I didn’t even THINK of that–yikes!
shoppingaround | March 2nd, 2009 at 4:30 amI just looked at the listings in Encinitas and it struck me that there seemed to be a ton over 4000 sf. I counted 46! Out of 198 SFRs. That’s almost a QUARTER of the SF market in jumbo homes.
I think I see the future of “we’re holdin up” Encinitas and it’s not gonna be pretty….
shoppingaround | March 2nd, 2009 at 5:23 amshoppingaround, this place was built to be a drug rehab center. Perhaps the lack of grounds is because if the residents were allowed outside they’d jump the fences and head for more drugs. I think the only other use this place might have as built (without much grounds or parking) might be eldercare/assisted living, where you also don’t want the residents wandering outside much (the swimming pool could be filled in and paved over to provide additional parking for visitors). The neighbors probably wouldn’t care much for that, but would probably be at least slightly less hostile toward it than they were toward a drug rehab facility.
GeneK | March 2nd, 2009 at 7:08 am“With an A/P ratio over 12:1, and only 121 properties closed this year, the million-dollar-plus market is in VERY unstable territory. If you’re selling, drop your price early and often until you start getting offers. These days, you don’t really have any idea what the market will bear.”
I go back and forth over this one. The $2 mil market is fairly illiquid even in normal times. In other words, it might ordinarily take a relatively long time to sell. A price-slashing campaign to get it to sell fast today could be a real waste. The more expensive the property, the more the seller should exercise patience. I’m not saying to stick to a crazy “wish price”, though.
Aztec | March 2nd, 2009 at 7:11 amI think Jim’s advice is probably based on the probability that most people seriously trying to sell in this market are doing it because they have to. For anyone in such a situation, the relative liquidity of the rest of the market is only relevant to the extent that it affects what the seller of a property needs to do to liquify that one particular piece of property.
GeneK | March 2nd, 2009 at 8:37 amYes, GeneK, agreed. I would just add a few words to the end, like this:
“…the seller of a property needs to do to liquify that one particular piece of property as quicky as reasonably possible.”
Aztec | March 2nd, 2009 at 10:42 amAztec, GeneK,
It has nothing to do with being a desperate seller.
If you’re not getting interest at your listing price today, you’re not going to have better luck next year. If you are competing with years of inventory, you either price attractively or don’t bother.
Ted | March 2nd, 2009 at 10:51 amLook at the industries that provided equity and high-end jobs for the high-end market:
- real estate
- stock market
- hedge fund
All of those are toast. Think they are rebounding strongly next year?
Plus, cheap jumbos are gone, and both state and national fiscal policy are going to hammer the rich.
Cut your price to where it needs to be now. Your price will be worse next year.
Ted | March 2nd, 2009 at 11:08 amWhether you lower your price in order to sell has everything to do with whether you have to sell.
Even in good markets, you often see homes in the very high end price range listed for very long times, because selling such a home is often a matter of putting a seller who doesn’t really have to sell and will only sell for a certain price and under certain terms together with that one buyer who can afford that price and loves that particular house enough to meet the price and all the terms.
Example: movie producer Joel Silver’s historic Frank Lloyd Wright home has been “on the market” for $3.5M since 2002. It hasn’t sold because not only will Silver not come down on the price, he’ll only sell to a buyer who agrees to never remodel the restored property. Obviously, Silver has not listed this house because he is a “desperate seller.”
Of course, there’s no way the place in this discussion will ever be that special kind of a property, though from Jim’s description it does appear that the person responsible for its contruction has deluded herself into thinking it is.
GeneK | March 2nd, 2009 at 11:10 amIf your house was designed by Frank Lloyd Wright, you get to be that picky.
If it wasn’t, you don’t.
That does it for today’s edition of “Simple Answers to Simple Questions.”
–Shannon
Shannon | March 2nd, 2009 at 12:03 pmThere’s a lot of people in this area who haven’t gotten that message yet. It’s really quite amusing to hear sellers at all price levels talk about why they think their homes are so “special” that they’ll be somehow immune to the market, especially when there are a half dozen houses with the exact same floor plan within two blocks.
GeneK | March 2nd, 2009 at 12:07 pmShannon,
That’s the funny thing about today’s sellers. Most of the ~$1MM listings are simple tract homes with HOAs and Mello-Roos taxes. I don’t care how big a house is, if it’s a **tract home** with high fees, it’s not a million-dollar home unless it’s on an acre with an ocean view.
IMHO, we will see a bloodbath in the next few years in this market.
CA renter | March 2nd, 2009 at 3:25 pmAs a Professional Counselor of 17 years, most of those in Coastal North SD County, I have never seen anything like what people are now bringing in.
There is never a shortage of depressed, suicidal people running around, but, there is a tsunami that is about to break. People with “very good” jobs (they live in Coastal North County) show up Monday morning only to find the lights out and a bunch of small print on the door, other’s getting lay off notices, forced retirement, hearing the Donald- “You’re Fired”! Many, seeing the writing on the wall are bailing for their roots in the Midwest and other cold places. Some have done emergency planning and will be smart enough to ride it out, the majority are over-leveraged, underwater and are hoping to make a graceful exit when the kids are out of school come June, not walking away, they are running. When this washes out…
anonymous | March 2nd, 2009 at 5:53 pm“If your house was designed by Frank Lloyd Wright, you get to be that picky.”
I think you meant “if your house was designed by FLW, you should tear it down and start all over.”
Anonymous | March 2nd, 2009 at 8:02 pmAnonymous #43-
We are remembering the departed at Greenspan’s Body Count.
W.C. Varones | March 2nd, 2009 at 8:34 pm@44 hehe cannot disagree with that. Unless you’re 5 feet tall.
The downdraft will be over when they write off all the CDS that Fed member banks owe to each other. Either that or they get taxpayers to pay them all off, but since the amount is in the many $trillions, that way may lie revolution.
So there’s hope Geithner et al won’t try that any more.
The old system is truly gone. If it can all be washed away, there is nothing wrong with the houses themselves!
artichoke | March 6th, 2009 at 8:16 pmI am one of those that sold my house in Long Beach and property in Palm Springs in 2007 and moved to the coldest place on earth, Lone Rock, WI.
I LOVE IT!. Modern home on 2 acres by the Wisconsin River, down the road from Frank Lloyd Wrights estate.
I paid $150K, yes, that’s right $150K. I then invested in a 4×4 with heated seats for winters, another 20K.
But the best thing is I have NO water bill as I have a well, and do not have to buy bottled water, as the ground water is so pure. And there is NO smog or traffic.
I sure hope the world doesn’t discover Wisconsin any time soon. I would hate to see it turn into So cal.
out,
Don
So Cal Refugee | March 16th, 2009 at 2:55 amLone Rock, WI
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