Nicolas Berggruen, a real estate investor who earned the moniker “homeless billionaire” through his jet-setting lifestyle and lack of a permanent address, just shelled out $63.1 million for the Hearst estate in Beverly Hills, winning the prized property in a bankruptcy auction that was more competitive than some expected.
The co-founder of the Berggruen Institute think tank beat out five other bidders at the Edward R. Roybal Federal Building and U.S. Courthouse in downtown Los Angeles on Tuesday in a heated auction that lasted around 45 minutes.
Twenty-four people — the bidders along with attorneys and agents — crowded into the courtroom, and a few others watched the action on a monitor in an overflow room, said Anthony Marguleas of Amalfi Estates, who held the listing on the estate.
The bidding began at $48 million — $1 million more than Berggruen’s original offer, which was accepted by the seller, attorney Leonard Ross, in August. The accepted offer triggered a Chapter 7 bankruptcy sale through auction, the proceeds of which will go toward paying off the roughly $50-million debt Ross has accumulated on the property after years of failing to sell the home.
With bids increasing in $100,000 increments, all but two bidders dropped out around the $52-million mark: Berggruen and MBRG Investors, a West Hollywood real estate investment company, records show.
Berrgruen’s winning bid of $63.1 million is the most ever paid for a home at an auction, beating out an Italian-inspired mansion in Beverly Park that sold for $51 million this year.
It’s a record-setting sale, but still far shy of the $195 million Ross originally wanted for the property . He set the ambitious price tag after the Playboy Mansion sold for $100 million in 2016, but years of relists and price cuts brought it down to $69.95 million earlier this year.
Like William Randolph Hearst’s other home — the famous castle in San Simeon — the Beverly Hills Hearst estate’s reputation precedes it.
In addition to being tied to the newspaper magnate, it was also said to be the honeymoon spot for President John F. Kennedy and Jacqueline Kennedy in the 1950s. Its myriad film credits include “The Godfather” and “The Bodyguard,” as well as Beyoncé’s 2020 visual album “Black Is King.”
Built in 1926, the salmon-colored showplace was designed by Gordon Kaufmann, the prolific architect behind the Hoover Dam, Greystone Mansion and the Hollywood Palladium. He designed it for banker Milton Getz.
The 29,000-square-foot Mediterranean mansion captures the spirit of Old Hollywood glitz and glamour with 22-foot-high hand-painted ceilings, a two-story paneled library, two screening rooms and an Art Deco nightclub with a bar salvaged from Hugh Hefner’s now-defunct nightclub Touch. In the billiards room is a stone fireplace moved down from Hearst Castle.
Elsewhere are nine bedrooms, 15 bathrooms and grand public spaces with room for 1,000 guests. The 3.5-acre compound also includes two guest apartments, a pool house, tennis pavilion and five-bedroom gatehouse set among terraces, lawns, waterfalls and an Olympic-size pool lighted by vintage lampposts.
“You can’t build a house this big in Beverly Hills anymore, and getting 3.5 acres is very rare,” listing agent Gary Gold of Hilton & Hyland told The Times in August.
Since the property surfaced for sale in April for $89.75 million, there were 71 inquiries, 41 private showings and 12 written offers. Marguleas and Gold held the listing with Zizi Pak and John Gould of Rodeo Realty.
Berggruen, who was born in France, founded his private investment company Berggruen Holdings in 1984 and also created the independent think tank Berggruen Institute in 2010.
No stranger to Southern California real estate, he bought 450 acres in the Santa Monica Mountains in 2015 with the goal of building a headquarters for the think tank. Forbes puts his net worth at $1.7 billion.
The institute annually awards a $1-million prize “for major achievements in advancing ideas that shape the world.”
The estate is the latest prized property to hit the auction block because of bankruptcy. The owners of the Mountain, a 157-acre parcel in Beverly Hills touted as the city’s finest piece of undeveloped land, racked up a $200-million debt on the property, which led to it being sold for $100,000 at a foreclosure auction in Pomona.
Two more high-profile bankruptcy sales are coming from Bel-Air.
Bids are being accepted through Sept. 27 for Mohamed Hadid’s infamous hillside home , which was ordered to be torn down by a judge who declared the 30,000-square-foot mansion a “danger to the public.” Proceeds of the sale will go toward the home’s destruction, and the winning bidder will get the raw land.
Just across the hill from Hadid’s place, Nile Niami faces a debt of more than $110 million on “The One,” a 100,000-square-foot mega- mansion that he’s been trying to sell for $500 million. A court-appointed receiver is preparing it for sale.
Two years ago, the National Association of Realtors began the Clear Cooperation Policy, a directive that compels agents to submit their listings to the MLS within one business day after any public marketing.
It was an attempt to quell off-market sales, but Glenn says that it’s done the opposite.
Specifically, because the CCP allows brokerages to have ‘Office Exclusives’, he asserts that more companies are withholding their listings from the MLS and selling them in-house without any attempt to include outside agents or buyers.
Rob and Sam, two industry titans, conducted a livestream discussion to see what else can be done.
Rob has the likely solution – that any agent who wants to exclude their listing from the MLS will need to get a signed waiver from the MLS committee to do so.
Yes, it has come to that – agents can’t be trusted to play by the rules, and will need a permission slip from the principal to officially withhold a listing from the MLS.
But it gets worse – I left a bomb in the comment section here:
The industry has been abuzz over Zillow buying ShowingTime, our appointment-scheduling service.
Wouldn’t it be great if Zillow published the number of showings publicly? The intel that could be gathered would be of great interest to buyers, and help enhance the home-selling transparency.
The data is already available.
Buyer-agents who book their appointments to show on the ShowingTime mobile app can see the whole schedule of times already reserved by other agents. It also makes you wonder if listing agents are reserving a bunch of times to make their listing look more popular (no names or other info is given on the app).
If buyers knew how many showings were scheduled, it would help them decide how much to offer.
Same with the number of offers.
The trend is to do less for buyers, so when asked, most listing agents won’t discuss how many offers they’ve received – and they certainly won’t divulge the offer prices.
But they should.
It would give other buyers a number to shoot at, and that transparency alone makes them more likely to hit it, or even offer more. It’s an old wives’ tale that you can’t divulge – the opposite is stated in the contract:
Another benefit of divulging the number of offers and their terms is you quickly eliminate the non-players. Most buyers are comfortable offering the list price, and +/- 5%, so why not just tell them that you have an offer that is 12% over list and save them the trouble – and save the listing agent from having to process another offer that’s going nowhere.
You can then concentrate on having the real players compete against one another.
With no real surge in inventory (yet), we are entering the hyper-frenzy phase now.
It’s an environment where most listing agents are ill-equipped to handle the pressure because they’ve never done this before. The only time we’ve been close to having insanity like this was at the bottom in 2009 when the bank-owned properties were getting 10-30 offers on every property.
How many REO listing agents are left, besides me? Yep, I can’t think of any either.
As a result, sellers are leaving money on the table all over the county. Why? Because inexperienced agents get inundated with requests and offers, and instead of handling them professionally, they just shut it down instead. Examples from this week:
They stop answering the phone, or returning calls/texts.
They direct you to automated services.
They mark the listing as pending or withdrawn before accepting an offer.
They accept an offer before showing appointments are completed.
Basically, they blow you off.
While they may think that it is their prerogative, they aren’t upholding their fiduciary duty to their seller by limiting the showings. Furthermore, they have an obligation to their fellow agents to allow them the opportunity to sell the listing. Yes, broker cooperation includes letting every agent have a chance to sell your listing – it’s how the system works. You sell my listings, and I sell yours.
It’s gotten so bad that another agent was joking with me that when he sees a hot new listing come up, he just books the first appointment available, and then looks for a buyer.
If we are going to abandon the traditions, let’s take it a step further to solve all the problems at once.
There have been misguided attempts previously that have probably sent us backwards, so there’s work to do to convince people. But auctions are the answer.
Conducting a live auction where all participants can witness the process (to keep it honest), and let the transparency drive the Fear Of Losing is the most effective way to get buyers to pay top dollar.
Will the jacked-up Covid-19 era finally cause auctions to emerge as the answer?
It doesn’t have to be anything fancy – this one worked great:
Will auctions be implemented by the old guard? It’s doubtful. While the hottest bidding wars are primarily on the lower-end properties (under $2,000,000), we can learn a lot from an auction company who only works the higher-end. They have a designated showing period where buyers are welcome to tour the home with their inspectors, then attend the live auction where a lucky bidder will likely buy a house that day.
Think of their benefits:
Showing dates and times arranged in advance.
Day of sale (Auction date) set in advance
10% commissions (known as ‘premiums’ which sounds friendlier)
Commissions are PAID BY BUYER and tacked onto the winning bid.
Sellers and agents will love that program, and we’ve already seen buyers be ready, willing, and able to pay 10%+ over list price these days – so they end up in the same place anyway.
The industry should convert to this auction format today and solve everything!
Hat tip to Susie who sent in this article about a law recently passed in California:
The new rules apply to one- to four-unit properties sold at foreclosure auctions. If an investor wins one of those homes at auction, then people who want to live in it, as well as nonprofit organizations and government entities, get 45 days to submit competing offers.
If the home is a rental, the tenants living there could win by matching the investor’s offer. Other would-be buyers must offer more than the investor.
Known as SB 1079, the law takes effect Jan. 1, 2021.
State Sen. Nancy Skinner (D-Berkeley), the bill’s author, said her goal was to make it easier for individuals and affordable-housing groups to compete with investors.
“Homeownership is the primary way people have to build up generational wealth,” she said. “When we have rules that give advantage to a corporation, then that dream is just not available.”
The manager of the foreclosure auction is required to maintain a website that details the highest bid at the auction and how to submit competing offers.
I don’t know how many amateurs will be paying more than investors for homes sight unseen, and without proper title searches for additional liens. But there will be a few!
It was the last paragraph that was the most intriguing.
The State of California has institutionalized transparency!
Making the highest bid known to the public could revolutionize our business. Can you imagine if Zillow ran a website that openly tracked the offers on their homes for sale – buyers would love the transparency! Then every brokerage would be pressured into doing the same, and boom – no more agent shenanigans!
Are you thinking of selling?
Transparency can help ignite a bidding war, and get buyers to bid up the price because it becomes more about winning, then getting a deal. It’s how I handle my listings – let’s talk about how I can help you!
Here’s the classic courthouse-steps example of how auctions help to drive up the price:
Two of the same models were for sale across the street from each other in La Costa.
I had listed the green house on May 30th for $859,000, but because the seller claimed to be intensely private, he didn’t want it on the MLS, no signs, and no open houses.
I was curious to see if it is possible to sell an older house for a premium price just off internet ads – but we didn’t have one showing, so we agreed to part ways after five weeks.
Before we did, I suggested that we lower the price to $829,000.
The seller said, “I can sell it myself for that – I don’t need you”.
At the end of July, I listed the house across the street at 3022 Segovia Way for $888,000. It was featured here a few times – it was the original-looking house with the 13,000sf lot that backed to the school/park:
Twelve days later an agent from the auction company puts the green house on the MLS, priced on the range $839,000-$859,000.
When I was dealing with that seller, he was unwavering about price, so no surprise to see them adopt a similar pricing strategy – especially with me across the street at $888,000.
But it caused a standoff.
Buyers liked my big yard but were cautious about backing to a school yard and the amount of work needed to bring the home into this century. The competitor across the street was cheaper and move-in ready….if you liked his DIY improvements.
The inevitable price war began:
August 12th: She listed on the range $839,000-$859,000.
August 19th: We lowered to $859,000.
August 23rd: She changed to $830,000 (no range).
August 27th: We lowered to $839,000.
We were doing open houses at the same time and were friendly competitors who compared notes. The action was good, and I thought we were probably close to selling both.
But her listing was running out at the end of August.
So when she re-listed with the seller, they decided to adopt the auction format instead. She re-inputted the home as a new listing, priced at $699,000!
Their format provides some uncertainty because the seller has an undisclosed minimum price and they can sell the house before the auction. Up until now, everyone knew that the seller had been expecting $800,000+, so buyers figured that they weren’t going to be able to buy it for the $699,000 or close – and they’d have to wait a month until the auction before finding for sure.
We didn’t change our price or strategy, and two weeks later – after buyers had a chance to re-calibrate – we had three offers and sold for $835,000.
My general rule-of-thumb is that if two people send me the same article, then I should blog it.
Not only did two people send this in, but Henry Fung also mentioned to the article’s author on twitter that she should read my blog, and as a result, she followed me.
Now I really need to comment!
Here is Lydia’s article, which is more coverage of the latest lawsuit that intends to bust up the realtor cartel:
The lawsuit alleges collusion between brokerages to make sellers pay 2.5% or more to the buyer’s agent.
The National Association of Realtors shrugged it off, and by the time the case gets to court, the current way we sell houses could be long gone anyway.
But let’s discuss being paid by commission.
The reason commissions are high is because of the home-selling process, and the amount of work involved just to have a shot of earning an actual paycheck.
Though I have a written listing contract with every seller, I can’t force you to sell your house.
I don’t do buyer-broker contracts with buyers, but if I did, you still don’t have to buy a house.
Whether I have a contract or not, there is no assurance that I will ever get paid, regardless of how much time I invest, and though I have a commission agreement with a seller, I have no control of the outcome – only the sellers decide if they can live with the resulting offers.
If an agent does get paid, it’s at the end – there’s no pay received along the way. Plus, the commission gets treated like a slush fund with many people trying to nibble away at it throughout the process. Then the brokerage and other parties take their cut, and the agent gets what’s left.
Given those conditions, shouldn’t there be a bonus, or reward attached?
Would you work for your current pay today if you knew you might not get paid anything? Or would you expect an additional bonus to live with that risk?
Just because buyers look at houses online doesn’t change the problem with being paid on commission. We’ve had these same issues before and after the internet.
Should we devise new pay structures for realtors?
The problem with a pay-as-you-go system is that you don’t know how long it could take. Consumers (both buyers and sellers) aren’t really sure what to expect in the beginning, and aren’t going to start writing checks unless, and until they get a good feeling that it would pay off. Flat-fee and salaried companies only provide transaction-processing services – which is only a small part of what I do.
There are two solutions:
A. Burn the business to the ground. This is the path we’re on, and the one-percenters will impose the systems they decide are good for you. They will also offer you their houses at prices they tell you are fair.
B. We convert to a free-market auction system.
The reason agents deserve big commissions is because of the all-encompassing nature of the service we provide. I handle every one of your real estate wants and needs all day, every day. I have skillfully navigate every possible issue/event that happens, because any one thing can kill the sale – and then you don’t get what you want, and I don’t get paid.
If the business was more predictable, less time-intensive, and had guaranteed pay, would I work for less? Absolutely, and the auction solution is the best answer.
It would take a major player like Google or Amazon to bring enough brand and reputation so consumers would consider the auction format. But if that were to happen, here are the benefits for everyone involved:
The selling process becomes structured – everyone knows how and when a house will sell. Post the auction date 30 days in advance so buyers can inspect the property – because the house is sold as-is, no repairs. On auction day, conduct the bidding out in the open where all have a fair shot at buying.
A real auction removes the agent shenanigans – no tilting the table in favor of anyone.
Sellers get a little more than retail value, and know the close date in advance.
Buyers know exactly what to expect, and have a fair shot of buying any home.
A streamlined, predictable process means less work for agents.
The hardest part? Convincing sellers that there aren’t two in the bush who will pay more.
P.S. If the current business does crash and burn, I’m thinking of being an artist:
