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Brokers in cabs: An interview with Bohemia Realty Group’s Sarah Saltzberg

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[video_embed][/video_embed]

In the latest episode of The Real Deal’s “Brokers In Cabs” series, Bohemia Realty Group’s Sarah Saltzberg talks about juggling her work in theater and real estate, the future of Harlem and the mischaracterization of brokers as “money-hungry and doing the bare minimum.”

When Saltzberg and Jon Goodell co-founded Bohemia in 2012, the two conceived of the brokerage as a place where artists could earn a steady paycheck between creative pursuits or build up the cash to launch their own businesses. Most of its more than 100 agents also work in show business — so much so that Saltzberg calls her firm the “Green Room of Real Estate,” a reference to the room where performers wait until it’s time to grace the stage.

Watch the full video above to see Saltzberg’s thoughts on improvisation, making fantasy reality and more.


Compass makes new agents sign Silicon Valley-grade contracts

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Compass is one of the only brokerages that asks agents to sign these agreements. (Credit: iStock and Compass)

Compass is one of the only brokerages that asks agents to sign these agreements. (Credit: iStock and Compass)

In the dog-eat-dog world of residential brokerage, Compass appears to be playing defense.

Of nine real estate brokerages The Real Deal surveyed in New York City, only the $4.4 billion SoftBank-backed firm seems to take pains to clarify what agents cannot bring to the firm when they join.

Specifically, Compass requires all newly hired agents sign an agreement that defines what proprietary, confidential data belongs to its competitors. If that data or information isn’t left behind, the contract states that agents will face discipline, which could include getting fired.

The agreement, which was shared with TRD with Compass’ knowledge by South Florida agent Amit Bhuta, comes two weeks after Realogy slammed Compass with a wide-ranging lawsuit accusing the brokerage of using “illegal schemes” like “predatory poaching, data theft and encouraging agents to violate former employment contracts in order “to gain market share at all costs.”

The new-hire contract also offers a rare glimpse at the guiding philosophy behind Compass’ internal playbook — and how its executives and legal counsel may be planning to fight Realogy’s accusations.

Lawyers say such an agreement is a smart defensive move that Silicon Valley startups seeking venture money have used for decades. Brokers, meanwhile, look at Compass’ track record in court — Realogy’s suit marks the tenth time in five years that Compass’ competitors have gotten litigious over its alleged business tactics — and say it’s an obvious, albeit unusual, move.

Based on a survey of eight other brokerages, which was conducted through a mix of contacting firm heads and reviewing recent employment agreements and policy manuals that multiple agents shared with TRD on the condition on anonymity, no other New York City-based brokerage appears to have a comparable agreement in place.

Most brokerages’ agreements with agents include language intended to prevent agents from taking the company’s confidential data with them upon their exit, but only Compass has a dedicated document that outlines what agents can and can’t bring with them from their old firm.

Old hat

Compass says its practice of getting new agents to commit in writing not to bring other companies’ data with them is not new. According to a Compass representative, it began requiring new agents to sign the agreement in spring 2016.

“It is Compass policy not to permit the taking, storing or use of any information from your previous firm, in any form,” the document reads. “Compass requires that you honor all post-affiliation obligations to your previous firm and will not permit the disclosure or use of confidential or proprietary information.”

A chart on the document lists examples of confidential proprietary information and examples of “personal work product” that agents can bring. That includes client databases that agents sourced and developed personally. (Last summer, Compass’ chief evangelist and broker Leonard Steinberg wrote a blog post on LinkedIn saying that Compass views brokers’ client lists as their property, not the company’s, and CEO Robert Reffkin would be signing a document to affirm that stance. Keller Williams’ Mark Chin said in an email that his franchise also views agents’ data as their own.)

But, “when in doubt, leave it behind and we can officially request it from your previous firm after you join Compass,” the brokerage’s new agent agreement states.

A representative for the brokerage said in a statement that “we believe this document offers clarity and transparency for agents and speaks to the high standards we hold at Compass.”

The document was introduced after three lawsuits were filed against Compass in 2015 by competing New York firms accusing the tech brokerage of raiding, data theft and encouraging one agent to violate a non-compete agreement. The year before, tech entrepreneur Avi Dorfman sued Urban Compass (as it was then known) and Reffkin for building a business using his proprietary software.

Borrowing from Silicon Valley

Though Compass’ new agent agreement appears to be a rare business practice among real estate brokerages, it is commonplace for companies backed by VC money, according to intellectual property lawyers.

Jedediah Wakefield, a San Francisco-based litigator at Fenwick & West who specializes in disputes over trade secrets, described such language as “standard fare in technology companies for decades.”

The high-level purpose of such an agreement — which could be buried in any contract, policy or handbook workers are required to sign — designates what belongs to the company versus an employee. Sometimes known as Proprietary Information and Inventions Agreements, they are commonly used by tech companies in Silicon Valley to affirm that any technology created while employed at a company belongs to the firm, not the employee.

By having such agreements in place, the company has a defense against employees or competing companies they’ve recently hired from who claim ownership over the company’s technological inventions.

When the ownership of trade secrets are contested that can present a “huge problem” for companies seeking to raise funds through venture capital, according to a second lawyer who spoke on the condition of anonymity.

Wakefield said such agreements are “not required but they often appear,” and are a function of the “ecosystem in the VC community, ” in which board members and lawyers who’ve been around startups frequently enough to have seen first-hand “the advantage and disadvantage of certain practices.”

To date, Compass has raised about $1.2 billion in VC money to fuel its rapid expansion, which included hiring 6,000 new agents in 2018 under its plan to reach 20 percent market share in the top 20 U.S. markets by next year.

Speaking generally, Wakefield said an agreement akin to Compass’ would be a “helpful” tool for litigators to “show good faith by the employer.”

Mark Lemley, a partner at Durie Tangri LLP and professor at Stanford Law School who specializes in intellectual property, noted that such agreements are standard in the tech industry but “it’s good practice everywhere, though. Trade secrets suits are not confined to the tech industry.”

This just-traded LA Laker just sold his South LA warehouse

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Lonzo Ball and the warehouse (Credit: Getty Images)

Lonzo Ball and the warehouse (Credit: Getty Images)

Lonzo Ball, the recently-traded Los Angeles Lakers point guard, just sold his warehouse in South L.A. as he prepares his move to New Orleans.

Family Always Matters, an LLC tied to Ball’s Big Baller Brand clothing company, sold the 14,636-square-foot distribution center for $4.3 million, according to the Los Angeles Times. The 15-year-old warehouse, at 209 E. 32nd Street, includes about 8,000 square feet of office space.

The buyer was Jack Rimokh, chairman of the global handbag company Signal Brands.

Besides Ball’s trade to the New Orleans Pelicans, the deal also comes amid the surging L.A. industrial market. Family Always Matters LLC purchased the warehouse in August 2017 for $3.5 million. Ball is majority owner of Big Baller Brand, which his father started in 2016.

The warehouse is located in Historic South Central, just south of the Fashion District. Earlier this month, Holland Partner Group sold a pair of towers there for $403 million, and in May, Access Industries purchased two warehouses there shortly after it bought the historic Ford Factory building. [LAT]Gregory Cornfield

Common goals: Rapper teams up with investors for ambitious Chicago redevelopment plan

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Common and the South Works site (Credit: Getty Images, Flickr via Creative Commons)

Common and the South Works site (Credit: Getty Images, Flickr via Creative Commons)

A group of development firms are joining the rapper to propose a $71 million mixed-use campus including a film production lot, hotels and concert venues on the 415-acre South Works site, according to the Chicago Tribune.

The development team also includes Los Angeles-based developer Sam Nazarian, entertainment management company RoadTown Enterprises, New York-based Morris Nasser and Chicago-based DL3 Realty. They envision a 128-acre film production campus with up to 20 sound stages, plus a sports and recreation complex affiliated with pro golfer Greg Norman.

The group is not under contract to buy the massive former home of the U.S. Steel manufacturing campus, but its members plan to meet with city planning officials before the end of summer to discuss their plans. Any proposal would need city zoning approval and the support of Aldermen Greg Mitchell and Sue Sadlowski-Garza, whose wards cover the property.

The plan is at least the third shot at redeveloping the property since the steel plant closed in 1992. Most recently, Irish developer Emerald Living folded up its ambitious proposal to build up to 20,000 homes on the site.

South Works is one of five sites being considered as a potential home for the forthcoming Chicago casino.

[Chicago Tribune] — Alex Nitkin

The house that Kawhi built: A look at the Clippers proposed arena

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Steve Ballmer and a rendering of the Clippers Arena Inglewood project (Credit: Getty Images, NBA)

Clippers owner Steve Ballmer and a rendering of the Clippers Arena Inglewood project (Credit: Getty Images, NBA)

The timing couldn’t have been better. Just as the Clippers announced the signing of their biggest star, Kawhi Leonard, the team has revealed plans for their new arena in Inglewood, a 26-acre development that would finally separate them from the Lakers and Staples Center.

Billionaire owner Steve Ballmer is funding the entire project, a rarity for mass-scale developments like these, according to the Los Angeles Times.

Ballmer, who made his fortune as the CEO of Microsoft in the early 2000s, has owned the Clippers since 2014.

The proposed Clippers arena would centralize all of the team’s operations into one large complex. Currently, the team is one of three that play in the Staples Center in Downtown Los Angeles. But Clippers practices take place in Playa Vista, about 15 miles away.

The new area, dubbed Inglewood Basketball & Entertainment Complex, is a futuristic-looking complex. In addition to the games, it would house the Clippers’ corporate headquarters, training facilities, sports medicine clinic, educational spaces and restaurants. The 900,000-square-foot arena will also feature an enormous LED screen on its exterior.

Construction is expected to begin 2021, and be completed three years later when the Clippers’ lease at Staples Center expires. The organization has applied to fast-track the permitting process, though an environmental review is still pending.

If the project secures final approval, it would add to the number of sports and residential developments that are drastically changing the city of Inglewood. The largest is Hollywood Park, a 300-acre project multibillion-dollar construction that will include the future 70,000-seat home of the L.A. Rams and Chargers football teams. [LAT] — Natalie Hoberman

The Agency loses another two brokers to Douglas Elliman

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Sean Landon and Brendan Fitzpatrick

Sean Landon and Brendan Fitzpatrick

Two brokers have left the Agency for Douglas Elliman, the latest in a long series of departures from the luxury residential brokerage.

Brendan Fitzpatrick joined Elliman Monday after eight years at the Agency. He and his administrative assistant, who also left the Agency, will be based in Elliman’s office in Beverly Hills. As a director of the estates division at the Agency, Fitzpatrick was involved in deals ranging in the $10 million to $30 million range. Most recently, he listed a $9.5 million home in the Hollywood Hills, as well as several homes in the Bird Streets.

Stephen Kotler, CEO of Elliman’s Western region, said the former “Rich Kids of Beverly Hills” star is joining Elliman because of the firm’s international reach. Fitzpatrick declined to comment.

The Agency also lost Sean Landon to Elliman last week. Son of late TV star Michael Landon, the younger Landon recently made waves in Malibu when he sold his mother’s house for nearly $16 million. A Malibu native, he’s also listing a $125,000 per month rental in the neighborhood. He’ll be working in Elliman’s Malibu office.

Since January 2018, the Agency has lost at least 47 agents, The Real Deal previously reported. Many of those are top producers, such as Cindy Ambuehl, Don Heller and Dan Urbach, who have joined Compass.

Brokers who have left the firm, led by CEO Mauricio Umansky, cited issues with management as their reason for leaving. Adding fuel to the fire, Umansky is currently the subject of a bombshell lawsuit, brought forth by the vice president of a Central African nation.

The lawsuit was thrust onto the national spotlight last week when Umansky’s wife, reality television star Kyle Richards was forced to address it during a reunion episode of Bravo’s “Real Housewives of Beverly Hills.”

A spokesperson for the Agency did not immediately return requests for comment.

Compass valued at $6.4B after Series G

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From left: Robert Reffkin and Ori Allon (Credit: Compass)

From left: Robert Reffkin and Ori Allon (Credit: Compass and iStock)

Compass just added $370 million to its coffers.

The New York-based brokerage announced the Series G on Tuesday, which sources said values the company at $6.4 billion, up from $4.4 billion after the prior funding round.

Founded in 2012, Compass has now raised more than $1.5 billion from investors to date. The latest round — which the company said would further its tech investments — includes a mix of new and prior investors including SoftBank’s Vision Fund and the Qatar Investment Authority, which led the previous round last September. The Canada Pension Plan Investment Board also participated in the Series G with Dragoneer Investment Group.

The participation of Dragoneer — a late-stage investor that backed Slack and Uber before they went public — will likely fuel speculation around Compass’ plans for an IPO.

Like its last round, Compass plans to use the latest infusion of capital to “accelerate our growth and further our technology advancements,” company founder and executive chairman Ori Allon said in a statement.

Specifically, Compass will invest in software development as well as cloud, mobile and artificial intelligence tools to simplify homebuying and selling. It will expand its product and engineering team further on the East and West coasts, and in August, there are plans to launch a consumer search tool.


READ MORE: 

Compass is buying brokerages from coast to coast and targeting $1B in revenue. Can it deliver?


Sources said the valuation is based on a multiple of Compass’ revenue, which has been fueled by several key acquisitions in recent months. (Compass declined to provide specifics, but said it logged three consecutive months of record revenue during the second quarter, representing a 250 percent increase from 2018, when its revenue target was $1 billion.)

In April, the SoftBank-backed firm acquired Manhattan-based Stribling & Associates, a boutique firm with nearly 300 agents and $1.6 billion in sales last year. It also snapped up the Bay Area’s Alain Pinel Realtors, a 1,300-agent firm with $12 billion in annual sales in 2017.

Nationwide, Compass was the third-biggest brokerage on a ranking published by research firm Real Trends, which said the firm logged $45.5 billion in 2018 sales volume.

IPO watch

Compass’ latest round puts off (at least for now) what some speculators are waiting for: An IPO.

After closing its $400 million Series F led by SoftBank and QIA, some speculated that round would be Compass’ last before a public offering. That round valued the brokerage at $4.4 billion.

But the public market hasn’t been kind to residential brokerages. Compass rival Realogy has seen its market cap plummet to below $1 billion, down from $3.3 billion roughly a year ago. Earlier this month, Realogy filed an explosive lawsuit accusing Compass of illegal business practices, including data theft and attempts at price fixing. Realogy stock dipped below $5 on Monday, closing at $4.96 per share, down 8.15 percent from Friday.

Meanwhile, VC firms continue to pump money into proptech. Just last week, venture capital firm Fifth Wall closed on a $503 million fund focused on the sector — the largest of its kind to date.  This past May, real estate tech firm VTS closed a $90 million round valuing the company at more than $1 billion.

Addressing “missteps”
Over the past eight months, Compass has been doubling down on its technology. At the end of 2018, CEO Robert Reffkin acknowledged certain “missteps” in Compass’ rollout of new tools.

In the new year, however, Compass acquired Contactually, a customer relationship management system popular among rival firms. It expanded a new tech campus in Seattle and tripled the size of its product and engineering team to more than 300.

That growth has had casualties, however.

Last month, The Real Deal reported that three top executives in marketing and product resigned or were let go. Eytan Seidman, head of product, resigned in May. Former chief marketing officer and Max Henderson, Compass’ vice president of product, were reportedly let go. In April, chief people officer Madan Nagaldinne and general counsel David Carp also left.

Though some sources cited tension between Reffkin and COO Maelle Gavet over how to run the company, the CEO denied the assertion. Nonetheless, Compass announced a reorganization of its top executives designed to streamline certain departments and help identify opportunities to grow. Reffkin is now overseeing a streamlined tech team, including product and engineering. The application design team was consolidated under CTO Joseph Sirosh.

Why West Adams is ‘the future more than any other place in the market’ in LA

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In life, everything is cyclical. One day you’re hot, the next you’re not. And the day after that, you rebound and you’re hot again.

Such is the case with the cachet of West Adams, a 1.5-square-mile area at the northernmost part of South Los Angeles along the Santa Monica Freeway, where investment is gushing in. Developed in the late 1800s by railroad magnate Henry Huntington, West Adams was one of the first neighborhoods in Los Angeles — and also one of its wealthiest. By the early 1900s it was outshone by the star power of celebrity residents in Hollywood and Beverly Hills. But for the first time in about a century, the area is returning to prominence.

A convergence of factors has sparked a surge in the neighborhood over the past couple of years, with office conversions, rapid lease deals, new retailers, and mixed-use projects recently coming into the area.

The expansion of the Metro Expo Line — which opened three stops in West Adams in 2012, and completed its route between Downtown Los Angeles and Santa Monica in 2016 — has opened the door for more density bonuses, which are given to multifamily developers that include affordable housing through the city’s Transit Oriented Communities program.

Most of West Adams is also a federally designated Opportunity Zone (OZ). The OZ program was enacted as part of the federal Tax Cuts and Jobs Act in 2017 and offers tax incentives for development real estate in lower-income districts (check out our story on the biggest deals in L.A.’s Opportunity Zones on page 20).

Opportunity Zone-targeted investment is coming in. For example, in April, Abington Emerson Investments launched a Qualified Opportunity Zone Fund that will invest in three real estate projects on Jefferson Boulevard in West Adams: a 30,000-square-foot office building, a microbrewery and a two-story office building with ground-floor retail.

At the same time, nearby areas like Culver City, Century City and other office hubs have been overrun by tech and media companies gobbling up office space. That has pushed the door open for West Adams to gain traction as an affordable alternative.

“The cat is out of the bag a little bit on the excitement around West Adams,” said Jeff Weller, managing principal at Lion Real Estate Group, which has made a number of acquisitions in the neighborhood.

In the last week of June, the firm acquired a newly built 15,500-square-foot office property at 5242 West Adams Boulevard. Three potential tenants are competing to negotiate a deal for the space. One of the contenders is looking to relocate from Culver City.

Weller said Lion Real Estate is leasing its West Adams properties for about 20 to 30 percent more than the firm was expecting.

“It’s going to be as exciting or more so than Culver City,” Weller said. “It’s drawing more favorable lease rates and hot restaurants. That includes a lot of great amenities and eateries that will excite people. West Adams is the future more than any other place in the market.”

Gabe Kadosh with Colliers International said he’s also seen steep increases in rents for office and retail space in the area. Retail space in the neighborhood runs from $24 per square foot per year up to $60 per square foot per year in spots along Jefferson Boulevard, he said. In Culver City, it’s in the range of $54 to $96 per square foot.

The Luzzatto Company, which is also active in the neighborhood, is seeing office leases inked for rates about 20 percent higher than when it entered the market in 2011. But the firm’s president, Asher Luzzatto, said those rates are still about 30 percent less than the average in Culver City.

“It’s still a massive discount in West Adams from Culver City and West L.A., and I would argue it has much better space,” Luzzatto said. “Some of the buildings we’re looking at are perfectly positioned for creative redevelopment. And with the public transportation, it’s more idyllic because you can pull talent from both Downtown and the Westside.”

Luzzatto said he has seen land prices go up about 33 percent in a year. He added that properties under 10,000 square feet are trading at more than $500 per buildable square foot or more than $400 per square foot of land.

Lion Real Estate and the Borman Group — which partnered on a joint venture to build the new headquarters for Sweetgreen in the neighborhood — have both worked in the Arts District near Downtown L.A., which is years into its own renaissance. Weller said they are seeing tenants and leases similar to the ones that moved the needle in the Arts District, where the market gained similar momentum from companies facing higher prices on the Westside and in Downtown Los Angeles.

“There are also a lot of buildings that have vintage industrial bones that are hard to re-create,” said Mark Borman, co-founder of the Borman Group. “For right now, West Adams is an affordability pocket compared to Santa Monica, Culver City and parts of Downtown L.A.”

Top-tier tenants

That “affordability pocket” Borman references has lured some prominent brands to the neighborhood of late.

“Culver City and Century City have been fairly pricey,” said Weller. “That’s what we saw with TheRealReal.”

TheRealReal clothing brand (no relation to The Real Deal) is relocating from Century City after it recently signed a lease to occupy all 29,690 square feet in a West Adams building for its new headquarters. The newly converted office building is located at 3317–3325 Exposition Place.

In a joint venture, Lion Real Estate Group, led by Weller and Mory Barak, and the Borman Group developed the two-building project. The lease was valued at about $1.3 million per year, according to Lion’s marketing materials. Lion purchased the property in December 2017 for $7.3 million.

(Click to enlarge)

That lease came shortly after a similar deal with salad chain Sweetgreen, which is moving its headquarters to West Adams from Culver City. The Luzzatto Company redeveloped a former Unified Grocers building after acquiring it from Olson Company, a multifamily developer that specializes in affordable housing. Sweetgreen is expected to move in after the start of 2020. The fast casual chain’s headquarters will occupy 50,000 square feet on a two-acre parcel at 3101 Exposition Boulevard.

Scott Laurie, president and CEO of Olson Homes, said West Adams was relatively undiscovered until now. Olson still owns the adjoining administrative building, a yard and a parking lot across from 3101 Exposition. The company may end up selling them, but it is also looking at alternatives.

He said he has seen significant increases in land values and prices in the past two years but that it feels more stable now.

Laurie said Olson will continue to look at opportunities in the West Adams area, as it’s still affordable — “by L.A.’s standards” — to build new homes there.  It is completing 78 townhomes in a development called the Expo Walk just outside West Adams in Leimert Park. It’s set to open in August.

The Luzzatto Company is also converting the property at 3339 Exposition Place into office space. It’s already pre-leased to GOAT, an L.A.-based startup e-commerce company. Asher Luzzatto said the 56,000-square-foot structure is almost complete.

“We were the first ones in the area,” he said. “We bought that building from Steeldeck and starting negotiating in 2017, when nobody else was in West Adams.”

He compared the burgeoning neighborhood to the development around the Bergamot Station arts complex in Santa Monica that started about 20 to 24 years ago and said his firm was the first firm to own and lease a creative office in that area.

“West Adams has all the markings of a deeply creative community, and it has the kind of physical space that supports that kind of community,” Luzzatto said. “I think we’ll look three to four years down the road and say this is the new version of Bergamot Station.”


Despite housing market slowdown, mortgage lenders just had a great second quarter

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(Credit: iStock)

(Credit: iStock)

The second quarter of the year saw $565 billion worth of mortgage loans as homeowners are increasingly eager to refinance thanks to falling rates.

If the lending keeps up at this pace, it could mark just the third year since the recession where originations exceed $2 trillion, according to the Wall Street Journal, citing data from Inside Mortgage Finance.

Large banks like JPMorgan, Wells Fargo and Citigroup all reported an increase in mortgage originations, and smaller independent lenders also did well.

About half of new mortgages were because of refinancings, and refinance applications rose by 43 percent in the second quarter compared to last year.

Meanwhile, the amount of people paying off their mortgages also increased, according to Zillow data. Over the past decade, homeowners finishing their payments went up by 5.5 percentage points, and now about 37 percent have no mortgage.

Overall, however, the housing market is still showing signs of slowing down thanks to prohibitively high prices, but lower rates also provided an opening for some people who had been trying to buy.

“I was so scared of being in a situation where I took on this house and then right away was having money worries,” recent homeowner Laura Poole told the Journal. “So for me my biggest focus when purchasing a house was the projected monthly payment.” [WSJ] — Eddie Small

This Beverly Hill mansion with echoes of Dean Martin hit the market for $75M

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(Credit: Hilton & Hyland, Getty Images)

(Credit: Hilton & Hyland, Getty Images)

A Beverly Hills mansion owned by a mall developer just hit the market for $75 million.

The concrete structure, which has a modern museum style, spans 27,500 square feet, according to the Wall Street Journal, which first reported on the listing. Called “The Glazer Estate,” it was most recently owned by the late megamall developer Guilford Glazer and his wife Diane Glazer, who died in April.

The sprawling mansion replaced the home that had belonged to “Rack Pack” member and entertainer Dean Martin, and his second wife Jeanne Martin.

The existing mansion includes six bedrooms and 15 bathrooms. It features a two-story atrium, a ballroom, a large dining room, and an indoor pool. The 1.5-acre property has a series of man-made ponds, waterfalls, and a 98-foot outdoor swimming pool.

It’s located on Mountain Drive near the Sunset Strip, at the intersection of Loma Vista Drive. Dean Martin — who died in Beverly Hills in 1995 — also owned a spec mansion about two miles down the road in the Trousdale Estates, where much of the recent real estate action has been in Beverly Hills.

Despite Los Angeles’ recent lull in the high-end residential market, artist Ed Ruscha added a Trousdale Estates home to his real estate portfolio for $8.4 million earlier this month. Also this month, film producer Roger Birnbaum sold his 8,000-square-foot home for $21.4 million. Birnbaum originally asked $33.8 million last year.

Entertainment mogul David Geffen purchased one acre and a mansion blueprint for $30 million in Beverly Hills.

“The Glazer Estate” was listed with Jeff Hyland and Drew Fenton of Hilton & Hyland. [WSJ] — Gregory Cornfield

After $370M funding round, Compass back under IPO spotlight

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Compass Founder & CEO Robert Reffkin (Credit: Michael Toolan, iStock)

Compass Founder & CEO Robert Reffkin (Credit: Michael Toolan, iStock)

After raising another $370 million, the only thing standing between Compass and an IPO is time.

The New York-based brokerage — now valued at $6.4 billion — announced its latest round Tuesday, eliciting a new round of speculation as to when it may go public.

Robert Reffkin, CEO and co-founder of the firm, acknowledged Tuesday that going public was in the cards.

“Look, we’re likely going to have an IPO,” he said during an interview on CNBC’s Squawk Box. “But we’re fortunate, given our capital base, that we have flexibility in timing.”

It’s a line Reffkin has used before.

Launched in 2012, Compass has now raised more than $1.5 billion from investors. It’s used some of that money to recruit top agents across the country with bonuses and high splits, as well as acquire leading firms in gateway markets. That spending has attracted criticism that while the firm may be great at raising money, it’s not really building a sustainable business and is dependent on a constant stream of outside capital to stay afloat.

Squawkbox host Andrew Ross Sorkin made a point of asking Reffkin whether Compass had pivoted from its “straight-up” tech strategy, noting that its revenue gains have come from rollup acquisitions like Pacific Union International and Alain Pinel in California, and Stribling & Associates in New York.

“I think in the future you have to be both,” said Reffkin, describing a hybrid tech-brokerage model. “The future of this industry will be the first where there’s a place where you can search and do the transaction on one platform,” he added. “That’s what we’re building.”

A steady stream of hot companies going public have turned 2019 into what Fortune magazine dubbed “the year of the giant tech IPO,” prompting some to wonder if Compass’ investors may be ready to cash out now. As of mid-May, six venture capital-backed tech companies had gone public, raising $13 billion.

“There’s never been a better time to tap the IPO market,” said Zach Aarons, co-founder of MetaProp, a real estate VC fund and accelerator. “It’s one of the best IPO windows for tech companies I’ve seen in my career,” he added, describing the market as “ebullient.”

Despite Uber and Lyft’s disappointing debuts, several other tech IPOs have taken off. Pinterest is now trading at $28.27 per share, up 15.6 percent from its debut in April, while shares of the video conferencing company Zoom are up 32.71 percent and Crowdstrike, a cybersecurity company, are up 30.59 percent.

Compass’ march toward a public offering also reflects a maturing real estate tech sector. Investors that bet on real estate tech in 2012 and 2013 “are looking to have exits,” said Michael Beckerman, CEO of CREtech. “It’s a natural reflection of where we are in the cycle that companies are going to start to go public.”

For Compass, the catch could be the lackluster performance of rivals like Realogy, whose market cap has plummeted to $569 million, compared to $3.3 billion last year. As of midday Tuesday, Realogy’s shares were trading just above $5 – despite getting a temporary boost from an announced partnership with Amazon.

To avoid the same fate, Compass needs to sell itself as a tech company to Wall Street, Aarons said. Investors in the Series G round include Dragoneer Investment Group, a backer of late-stage companies, as well as the Canada Pension Plan Investment Board, SoftBank’s Vision Fund and the Qatar Investment Authority.

Compass said the new money will accelerate growth in product and engineering, as well as core products like Compass Concierge, which fronts the cost of home repairs for sellers.

But competition is picking up — and not just from traditional players. Tech-enabled brokerage firms like Side Realty and REX Real Estate are gaining steam.

Jeffrey Berman, general partner of Camber Creek Capital, said he’s seen a “marked uptick” in tech brokerages crossing his desk.

“As these companies mature,” he said, “It will be interesting to see what Compass’ competitive matrix looks like.”

Real estate firm Compass announces $370 million in new funding from CNBC.

TRD’s Daily Digest: Everything LA real estate needs to know today

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Thank you for reading The Real Deal. We’re always trying to give you everything you need to know about the world of real estate in Los Angeles. Today, we’re launching TRD‘s Daily Digest, a new feature that puts all the news you love in one place. Please let us know what you think. We update this page at 9 a.m., 12:30 p.m., and 4 p.m. PT. Please send any tips or deals to tips@therealdeal.com

This page was last updated at 12:30 p.m.

Compass Founder & CEO Robert Reffkin (Credit: Michael Toolan, iStock)

Compass Founder & CEO Robert Reffkin (Credit: Michael Toolan, iStock)

Compass is back in the IPO spotlight. In an interview on CNBC’s Squawk Box, company boss Robert Reffkin during an interview acknowledged the likelihood of an IPO, but said thanks to patient investors, Compass has flexible timing. According to experts, though, “there’s never been a better time to tap the IPO market.” [TRD]

 

A sprawling Beverly Hills mansion is asking $75 million. The 27,500-square-foot Beverly Hills was owned by late megamall developer Guilford Glazer. It replaced the former home of entertainer and “Rat Pack” member Dean Martin. The 1.5-acre property includes a 98-foot swimming pool and man-made ponds. [TRD]

 

(Credit: HGTV)

(Credit: HGTV)

HGTV will soon reveal its renovation of the “Brady Bunch” house. The 90-minute premier of “A Very Brady Renovation” will air on Sept. 9. The network bought the property that stood in as the exterior of the Brady home, but its iconic “interiors” were shot on a separate set. The network worked with the actors who played the siblings in the show to turn the inside of the home into a replica of the set. [Curbed]

 

 

Denver-based investor Daydream Apartments landed $268 million in financing for its latest buys. Pacific Coast Capital Partners provided the loan for Daydream’s acquisition of Griffin on Spring, and Grace on Spring residential towers earlier this month. Holland Partners Group sold the newly-built apartment buildings, totaling 575 units between them, to Daydream for $403 million. [REBusines]

 

 

Beverly Hills School District infrastructure spending is being called into question. A citizens’ oversight committee is questioning why the district has spent $15.7 million in Measure E funds on a lawsuit against Metro, to divert the Purple Line extension from under Beverly Hills High School. [Curbed] 

 

Downtown L.A.’s 112-year-old Barclay hotel building is getting a facelift. Prolific boutique hotel developer Relevant Group is working with Rockefeller Kempel Architects on the new “luxury boutique” hotel, which will have 11,685 square feet of ground-floor retail and a speakeasy vibe. The Barclay is L.A.’s oldest continually operating hotel and has for most of its recent history operated 155 single-room occupancy units. [Urbanize]

 

Singer Michael Feinstein relisted his Los Feliz mansion at $15 million. That’s $9 million lower than he first asked for the Tudor Revival-style home last April, shortly after he purchased the Cravens Estate in Pasadena for $7 million. The six-bedroom home in Los Feliz spans 15,000 square feet and features intricate hardwood floors and modern updates, including a movie theater, that Feinstein and husband Terrence Flannery added during their two decades at the home. [LAT]

 

There’s new renderings for Jamison’s 50-unit Koreatown project. The company is seeking to use Transit-Oriented Communities incentives for the seven-story project in exchange for setting aside five units for “extremely low-income” renters. Jamison filed plans for the project in February. [Urbanize]

 

Sean Landon and Brendan Fitzpatrick

Sean Landon and Brendan Fitzpatrick

Agents Brendan Fitzpatrick and Sean Landon are the latest to jump ship from Mauricio Umansky’s the Agency. Both left for Douglas Elliman’s Beverly Hills office. The Agency has lost at least 47 agents since January 2018, including many top producers. [TRD]

 

Speaking of Elliman agents, New York broker Ann Cutbill Lenane has put her marketing skills to work to find love. Lenane launched her “A Man for Ann” campaign last week, with a 30-second ad on YouTube in which she talks about her desire to find “a wonderful single divorced dad to remarry.” She’s also posted a questionnaire on her website for potential suitors. [TRD]

 

Compass’ latest funding round values it at $6.4 billion. The high tech brokerage announced its Series G on Tuesday, with a mix of old and new investors including Dragoneer Investment Group — a late-stage investor that backed Slack and Uber before they went public. The firm plans to use the new funding to “accelerate our growth and further our technology advancements.” [TRD]

 

Related CEO Jeff Blau, HACLA CEO Douglas Gouthrie, and a rendering of the project

Related CEO Jeff Blau, HACLA CEO Douglas Gouthrie, and a rendering of the project

A previously-stalled effort by the City of Los Angeles and Related Companies to build a 185-unit affordable complex in Montecito Heights is moving forward. The new development would replace 100 aging public housing units on a 5.3-acre site on Florizel Street. The project should be completed by 2025. [TRD]

 

Goldman Sachs is bringing back a fund business it dropped after the financial crisis. The investment bank’s real estate investment unit is raising a $2.5 billion fund that is structured similarly to its former Whitehall Property Funds. Those funds thrived around the turn of the century but suffered major losses during the downturn. [WSJ]

Compiled by Dennis Lynch

 

FROM THE CITY’S RECORDS:

New permit filings:
Las Palmas Housing Development Corporation and Western Pacific Housing filed plans for 122-unit senior housing project in Marina Del Rey. [DBS]

Compiled by Jerome Dineen

Developer plans to build tower in Historic Filipinotown

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Urban Stearns’ Lee Rubinoff and an aerial shot of the property (Credit: Google Maps)

Urban Stearns’ Lee Rubinoff and an aerial shot of the property (Credit: Google Maps)

In one of the tightest multifamily markets in the country, the bonuses awarded in Los Angeles’ Transit Oriented Communities program are continuing to attract developers now 22 months after it launched.

Urban Stearns, a mixed-use and multifamily developer, submitted plans with the city to build a 60-unit apartment building at 218-224 N. Alvarado Street, just south of Echo Park in Historic Filipinotown. With six units designated for extremely low-income households and the site’s proximity to public transportation stops, the project qualifies for tier-two incentives from the city.

If approved, the existing residences and duplexes would be demolished to make way for the six-story, 43,500-square-foot development. An LLC that’s tied to Urban Stearns’ Steve Cohen purchased the three parcels in three deals throughout 2018 for a combined $2.62 million. The project application was filed by Urban Stearns’ managing partner Lee Rubinoff.

In nearby Rampart Village, affordable developer LINC Housing is planning to build a 64-unit project at 3200 W. Temple Street. On the smaller side, owners Sam Kahan and Jerome Berger are planning a 14-unit project at 320 N. Mountain View Avenue in Filipinotown.

In April, Urban Stearns purchased a 30,000-square-foot multifamily development site from Harbor Shoreline LLC for $3.9 million, according to CBRE. That site is on the coast in San Pedro in a federally designated Opportunity Zone, which allows additional capital gains incentives for investors, and it also qualifies for tier-two TOC bonuses. Urban Stearns is planning to secure entitlements for 120 units and retail space at the site.

Fire, flood and profit: Real estate investors are chasing crises

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Homes damaged in Hurricane Katrina. (Getty)

Homes damaged in Hurricane Katrina. (Getty)

In the wake of natural disasters, some real estate investors are finding opportunity for profit.

So-called “disaster investors” are buying up properties damaged by floods, wildfires, hurricanes and other catastrophic events — and flipping them for a gain.

The practice is becoming increasingly common as the number of natural disasters climbs in the U.S, the Wall Street Journal reported. Last year saw the fourth-most natural disasters since 1980, causing an estimated $1 billion in damages, according to data from the National Centers for Environmental Information (NCEI.)

A string of wildfires in the Los Angeles region over the last few years have caused extensive damage, including last year’s Woolsey Fire, which led to an estimated $5 billion in real estate damage.

Lakeland, Florida-based investor David Dey, 45, has invested in multiple properties following disasters, including Hurricanes Michael, Katrina and Harvey, which hit southern states including Louisiana, Texas and Florida.

“Any place that there’s a need, there’s an opportunity,” Dey told the Journal. “I’m not hoping for the storms, but they happen.”

Investors are driving up the number of sales in affected markets. After Hurricane Michael hit Panama City, Florida, last October, sales dipped but ultimately increased. In Santa Rosa, California, home sales jumped 17 percent in the five months following a 2017 fire, according to data from Zillow. Home prices, on the other hand, can be volatile.

In areas affected by disaster, homeowners often choose to sell their properties, and those without insurance may be forced to — sometimes at a low price.

While disaster investors argue they are helping communities rebuild, the practice has faced criticism from storm-affected residents who believe they are exploiting vulnerable communities.

“It’s insulting,” Scott McElroy, owner of a damaged property in Mexico Beach, Florida, told the Journal. “You’re already looking at monetary loss. And then somebody offers you some ridiculously low price.” [WSJ]Sylvia Varnham O’Regan

Coldwell Banker will shutter 1 of its Beverly Hills offices, relocate about 150 agents: sources

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Realogy CEO Ryan Schneider, North Office at 301 Canon Drive and Jamie Duran, President of CB Southern California

Realogy CEO Ryan Schneider, North Office at 301 Canon Drive and Jamie Duran, President of Coldwell Banker Southern California

UPDATED, July 30, 3:21 p.m.: Coldwell Banker is consolidating its two Beverly Hills offices into one location, sources told The Real Deal, shifting about 150 brokers out of a space the company had poured $1 million into not long ago.

Jamie Duran, president of Coldwell’s Southern California region, said the company was considering a move to the existing, larger office, which has around 200 agents. She said plans were not final, but that noise from a nearby construction site was the cause.

But it also comes at an uncertain time for parent company Realogy Holdings, whose stock price has been trading at record lows amid slipping market share.

Coldwell’s Beverly Hills brokerage now operates the two offices: 166 North Canon Drive and the larger so-called “North office,” at 301 North Canon Drive. They are two blocks from each other, in what used to be known as “Realtor Row.” In recent years, an increasing number of brokerages have pulled up stakes and left for other, quieter and cheaper areas of the city.

Coldwell’s agents and staff at the smaller office will likely move into the 301 North Canon location, Duran said. The lease for the South Office isn’t expiring, and any formal consolidation will likely take months, Duran added. There are also no plans to cut staff or agent roles, though sources said some administrative positions may be cut to avoid overlap.

Duran said the company was moving to avoid the noisy Metrorail construction taking place near the South Office. “It has nothing to do with cost-cutting,” she said. Construction of the Purple Line Extension’s second phase began in the spring, and is expected to last until 2025.

“We just put in $1 million into that location not too long ago,” she said. “It just has not been a good thing for our agents so we are looking at options of being able to put all of our agents and staff under one roof.”

Some “key team players” have already moved into the new office, Duran added. In a followup, a spokesperson for Coldwell said those people were brought in in a consulting role. Management is exploring expanding their space at the building to accommodate employees from the South Office. Another option would be to move entirely into a separate, larger space, she said.

Beth Styne, Coldwell’s regional vice president, said the consolidation is something the company has been exploring for a long time.

At one point, Coldwell had three offices in Beverly Hills. Its “East Office,” which closed in 2008, used to be Fred Sands Realtors before Coldwell acquired the company in 2000. The North Office, meanwhile, was a former Jon Douglas Co. office. Coldwell merged with the brokerage in 1997.

That 301 North Canon location is believed to be the strongest, sources added. Heavy-hitters like Jade Mills, Ben Lee and Ginger Glass all work from that office.

The shift within Coldwell comes amid consolidation in the wider brokerage industry. Realogy, which is also parent company of Sotheby’s International Realty and Corcoran Group, has taken the biggest hit in recent months as profits tumble.

Its stock closed at $5.23 a share on Tuesday, down about 76 percent year to date. The company got a slight boost after it announced a partnership with Amazon, though the good news was short-lived.


Here’s what a Fed Reserve rate cut would mean to the US housing market

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Jerome Powell and the Federal Reserve building (Credit: Getty Images, Wikipedia and iStock)

Jerome Powell and the Federal Reserve building (Credit: Getty Images, Wikipedia and iStock)

UPDATED, July 31, 5:27 p.m. ET: What kind of difference could a quarter of a point make?

Plenty, according to some real estate developers and industry pros who say the Federal Reserve’s expected interest rate cut on Wednesday — which would be the first since 2008 — will make deals more profitable by lowering borrowing costs. (The Fed on Wednesday afternoon lowered the target range for the benchmark rate by 0.25 percent, to 2.0-2.25 percent.)

Commercial developers will find it easier to finance projects, but the biggest gain will be in single-family homes, according to Noah Breakstone, a Fort Lauderdale, Florida-based land investor and developer.

Breakstone said a Fed rate cut — even by as little as a quarter of a percentage point as expected — will lead to the increase in the overall supply of single-family homes across the country. It would come at a time when many states, including California, are mired in housing shortages. The reason? Land purchases and financing will be cheaper for homebuilders, which will have a cascade effect for consumers, said Breakstone, with BTI Partners.

The interest rate cut would also mark a shift from the Fed’s policy over the last few years. Last year, the board raised rates four times — and has done so a total of nine times since December 2015. The Fed began raising rates in 2015 after years of keeping rates low following the recession to boost the economy. But as the economy improved, the Fed raised rates.

After the Fed’s June meeting in which it held rates steady amid a weakening housing market, the expectation was the benchmark rate would hold at between 2.25 and 2.5 percent through the end of the year.

At the time, a potential rate cut even sparked concern of a possible economic slowdown. But President Trump has kept up his criticism of the Fed and Chairman Jerome Powell, cajoling the board to lower interest rates by as much as 1 percent to spur growth.

And with interest rates already low, mortgage originations are up, with some of the largest banks like Wells Fargo and JPMorgan having recorded upticks in second-quarter profits.

Still, over the past few years, construction and labor costs have grown significantly, cutting into profit margins for developers. In major markets like New York, Los Angeles, Chicago and Miami, these rising construction costs come at a time when land costs are also soaring, making it difficult for some deals to pencil out. Sporadic trade wars  under President Trump has also caused supply problems.

The housing market has also slowed as home prices have risen faster than income levels. Homebuilders also claim that mounting labor and supply costs have made it difficult to build single-family homes at affordable prices.

As a result, home price growth is falling. On Tuesday, S&P CoreLogic released the Case-Shiller U.S. National Home Price Index which showed that home price growth slowed to 3.4 percent in May on a yearly basis, down from 3.5 percent in the previous month.

But a rate cut also further erode buyer confidence in the housing market and overall economy, critics say.

“The average consumer might be a little wary of what this signals about future growth,” said Heidi Learner, the chief economist at Savills. “Is now the time to be buying a much larger house or upgrading?”

Breakstone said first time homebuyers, though, might not see falling rates as a signal that the economy is in trouble.

“I don’t know if the first-time homebuyer is contemplating that affect, he said. “Unemployment is low, we are seeing some escalation in wages, and I think that it gives homebuyers confidence.”

Lower interest rates could help buyers at a time when rents continue to rise across the country, since it can make buying a home a better value proposition than renting. The other big impact that lower rates could have is for consumers who are looking to refinance their existing mortgage.

“You will get a nice refinance pop because people who were borrowing a year ago at 4.5 [percent] and above are now likely able to obtain financing for between 3.5 and 3.75 [percent],” said Josh Migdal, of Miami-based law firm Mark Migdal and Hayden. “This should be enough of a spread to drive refinancing volume.”

Commercial developers could also increase their deal volume, as they find it easier to find financing with borrowing costs going down.

David Druey, Southeast Florida regional president for Centennial Bank, said this is especially true for smaller property owners who are more sensitive to these rate changes, and who are looking to take advantage of lower rates.

But he said for his bank, which has become a major construction lender  in New York City and South Florida, the move will not have much of an impact on its overall real estate lending.

“If we need a quarter of a point to make the deal work, we are probably not going to make that deal anyway,” Druey said.

Learner of Savills, agreed that a rate cut will not have a significant impact on commercial real estate developers. It could, she said, be a clear signal that overall economic growth is slowing.

“As a developer, do you really want to be borrowing at the top of the cycle?”

SoCal digest: The latest news from the counties outside LA

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Chula Vista hotel and convention center

San Diego County

Developers were likely popping bottles in Chula Vista, which, after a two-decade-long approval process, approved plans for a $1.13 billion hotel and convention center in June. In what city officials described as a “momentous” development, the Port of San Diego authorized a Coastal Development Permit for the waterfront project in San Diego county’s second largest city. Currently slated for a 2022 opening, the hotel is anticipated to offer 1,450 rooms adjacent to a 275,000-square-foot convention center space. Gaylord Hotels, the convention center hotel brand of Marriott International, will manage the property. Houston-based RIDA Development is building the project.

The rubber-stamping of the Chula Vista project was good news for the county, which, after many months of a lull, saw a 2 percent uptick in median residential sales price — to $660,000 — in May, according to statistics compiled through the San Diego Multiple Listing Service by the Greater San Diego Association of Realtors. Transactions were down year-over-year by 7.1 percent for single-family homes and down 7.6 percent for condos and townhomes.

Renters in the area are about to get some much-needed housing options, with 4,500 apartments expected to come online throughout the county this year. CoStar is building a 77-unit development in Harborview, which is slated for a July opening. Also opening then is the 300-unit luxury rental project Palisade at Westfield UTC from Unibail-Rodamco-Westfield in San Diego. Multifamily vacancy rates are at 4.4 percent throughout the county, according to a summer market report from Colliers International. “The increase in supply in the downtown San Diego and surrounding areas is in the process of being absorbed,” the report stated. In the city of San Diego, a one-bedroom is around $1,800 per month.

Ventura County

Simi Valley Town Center

Pockets of Ventura County will be home to significant upgrades soon, with innovative retail offerings and apartment projects set to revive local business districts.

The Mark, a food hall slated to open this fall in Old Town Camarillo, will offer 6,100 square feet of food retail space. It’s part of a project from Oxnard-based developer Aldersgate Home, which will also feature 23 resi units.

In Simi Valley, a 12.8-acre site that was once occupied by the headquarters for Farmers Insurance, is in the application process. Newport Beach-based Newport Equities, which acquired the site for $18.5 million earlier this year, plans to develop 164 for-sale units, plus 6,000 square feet of commercial retail space and several thousand additional square feet for fast-food options. The 240,000-square-foot building has been empty since 2012. 

Also in Simi Valley, the 13-acre Simi Valley Town Center is under the new ownership of international investment firm Bayside Capital, which has plans to redevelop the mall, according to the VC Star. The firm has yet to announce specifics on the project.

On the residential front, there was a 5.6 percent decrease in total home sales throughout the county — with 967 homes sold in May 2019 compared to 1,024 at the same time the previous year, according to figures from CoreLogic. The median sale price, at $590,000, remained consistent year-on-year, and that’s just marginally less than the $615,000 median sales price in Los Angeles County.

The Banc Hotel

Orange County

The priciest residential sale in the county so far this year closed before the home even hit the market: The 5,674-square-foot Laguna Beach residence at 188 Emerald Bay sold for $24.25 million in early May.

That sale was something of an anomaly in a local luxury market that has slowed down. Year-to-date, 73 homes sold in the O.C. for $5 million-plus, compared with 101 homes over the same period last year.

“Although there is still a lot of demand in the market, buyers are more price- sensitive than they have been in the past seven years,” said Douglas Elliman’s Andy Stavros. “They don’t see price appreciation on the horizon.” Stavros added that while the recent drop in interest rates “is tempting,” most buyers are not feeling the need to rush out and nab a property. Buyers, he said, “are being very patient,” which means that sellers need to think carefully about their pricing strategy and how to position their homes.

Overall, home prices in Orange County fell slightly in May 2019 compared to the same month a year before, landing at a median price of $720,500.

On the hospitality side, approvals were granted to the developers of the Banc Hotel, a mixed-use destination in Irvine. Designed by Architects Orange and developed by HJ Capital Group, the proposed 700,000-square-foot project will include a 258-room hotel, 143,721 square feet of office space and a 33,000-square-foot fitness facility, plus a spa, an open-air entertainment venue and a medical office building. Construction is expected to begin in early 2020.

Indio Towne Center

Inland Empire

In the Aftershocks of Early July’s terrifying quakes in Ridgecrest, locals are assessing the damage. Previous to that, Riverside and San Bernadino counties had seen a slight dip in listings in May compared to a year ago, according to Mark Dowling, chief executive officer of the Inland Valleys Association of Realtors. The median sales price of a home was $402,000 in May, up 3.1 percent from the previous year. But new listings were down by 3.5 percent compared to May of 2018.

On the commercial front, Colliers International brokered a trio of lease deals totaling 1.4 million square feet of space; the largest will be a logistics hub for Burlington Distribution of California, which has leased an 800,444-square-foot facility in Redlands for a reported value of $32.5 million. E-commerce company Redial leased a 475,555-square-foot warehouse in Rialto for just over $16 million in a six-year deal.

A revamp is underway at the Indio Towne Center, a 560,000-square-foot retail sprawl that services the east end of the Coachella Valley. Santa Ana-based investment company Red Mountain Group acquired the center in July 2018. Parts of the mall were converted and expanded to include a 40,000-square-foot Burlington location and new ground-up buildings for Marshalls, ULTA Beauty and Five Below, scheduled for completion next February.

 

Skid Row’s road map to gentrification

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Samantha Millman, President of the Los Angeles City Planning Commission, Lee Raagas, chief executive officer of Skid Row Housing Trust and Skid Row (Credit: iStock)

Samantha Millman, president of the Los Angeles City Planning Commission, Lee Raagas, chief executive officer of Skid Row Housing Trust; and Skid Row (Credit: iStock)

Could a new rezoning plan hit the gas on the gentrification of Skid Row?

In short, it’s more like a very slow release of the brakes.

Last month, when the Los Angeles Department of City Planning dropped DTLA2040 — a plan for the comprehensive rezoning across Downtown L.A. — activists jeered while developers simply shrugged. For homeless advocates, it goes too far. For developers, it doesn’t go far enough.

The central goal of the plan is to zone for enough housing for the 100,000 or so people the city expects to move to Downtown L.A. over the next two decades, which would more than double the area’s population from the 76,000 people living there today.

As a 50-block area within the downtown, Skid Row is the only part of Downtown that hasn’t seen significant market-rate development in the current cycle. The plan would allow market-rate development on the perimeter of the neighborhood, which has traditionally been a center for affordable housing and social service organizations in addition to functioning as a magnet for homeless people from around Southern California. Local social service organizations worry that the rezoning will harm Skid Row’s already vulnerable population.

L.A.’s homelessness crisis is worsening by the day. The number of people the county considers homeless within L.A. city limits jumped 12 percent during the 12 months ending in January to 36,300. Around 7,900 of those people live in City Council District 14, which covers Downtown L.A. and Skid Row. The majority of those people are unsheltered.

In 2017, United Nations Special Rapporteur on Extreme Poverty and Human Rights said Skid Row in some ways fell below minimum standards for U.N. refugee camps. Cases of typhus prompted city officials to designate Skid Row a “typhus zone” last fall.

Meanwhile, just across the street, on the western side of North Main Street, DTLA is on an upward economic trajectory — thanks in no small part to the billions of dollars developers have poured into L.A.’s urban core. Skid Row is looking more and more attractive to investors.

DTLA2040 or not, Skid Row is where the economics of L.A.’s renewed prosperity and destitution literally meet. As the economic forces driving development downtown strengthen, a clash seems inevitable. The question to ask is not whether Skid Row will change, but how it will change and what that change will look like.

What’s in DTLA2040 for Skid Row?

The city has stated that it wants to allow for a mix of uses across the area with the hopes that each micro-neighborhood will have a healthy mix of housing, commercial space, green space, and other uses.

The plan in Skid Row more or less boils down to this: zone only for more affordable housing in the very core of the neighborhood, where service agencies and affordable housing is already located, and allow market-rate development along the edges of Skid Row.

Only units affordable to people making under $58,000 would be allowed in the central parts of Skid Row. (The neighborhood is roughly defined by the boundaries of East 7th Street, South Alameda Street, East 3rd Street and South Main Street).

Lee Raagas, Executive Director of the the service provider and affordable housing developer Skid Row Housing Trust, cautioned that it was too early in the process to weigh in with a position on the plan, but said her organization and others have concerns over the effects market-rate development could have in Skid Row.

“The concern lies with market-rate development driving up land and construction costs so that affordable and permanent supportive housing is impacted by rising costs and pricing,” Raagas told The Real Deal.

The draft plan requires that all developers building on the edge of Skid Row pay into city programs to fund affordable housing and other initiatives to benefit unsheltered Angelenos. They could receive density bonuses — allowing building up to 24 stories in some parts Skid Row — if they include affordable units in those developments.

The Department of City Planning would not say if they had estimates of the number of affordable units the rezoning could allow and said they considered doing so to be problematic.

Helping the homeless

Officials told The Real Deal that planners did not design the rezoning and density bonus system based on the number of unsheltered people living in the area, adding that the department was one of numerous departments across the city government collectively tackling the affordability and homelessness crisis.

That is in line with the city’s long-term goal to spread affordable housing and social services across the city, a reversal of the now-maligned Skid Row “containment policy” officially adopted in 1976 and in place . Critics of the policy consider it to be the foundation of the health, safety, and economic issues that plague Skid Row today.

But the impacts of the containment policy can’t be reversed overnight. Years of the policy means a strong sense of community and belonging for many people living there exists, said Raagas.

“The spirit of the containment policy is people will stay where they want to stay, whether unsafe or not, they interpret it as familiar,” Raagas said. “How do you facilitate familiarity without centralizing? It’s a challenge.”

Raagas added that some unsheltered clients that have spent years in Skid Row will refuse housing in other parts of the city, preferring to stay where they’ve built a community.

Community isn’t all that keeps people in Skid Row. Betsy Starman, who’s volunteered or worked for numerous homeless outreach groups in Skid Row and herself spent years living on the street, is critical of city policies she says enables a cycle of poverty and prevents any sort of significant change on the ground.

Starman said the city’s recent legal settlement with homeless advocates to not clear out the belongings of unsheltered people allows for the proliferation of “tent cities.” She is also critical of the state’s decision to downgrade certain low-violence crimes from felonies to misdemeanors, which she claims artificially lowers crime rates in the neighborhood, which officials have pointed to as a sign of progress.

She’s highly skeptical that a rezoning would result in any change in conditions in Skid Row if the city doesn’t also change other policies in Skid Row.

“There is no zoning that would not make me pitch a tent wherever I want,” Starman said.

What will development look like in Skid Row?

DTLA2040 likely wouldn’t spur market-rate developers to suddenly scoop up and redevelop properties any more than a few blocks into the loose “borders” of Skid Row. What it can do is accelerate what’s already being going on for years: the slow, creeping change along the edges of the neighborhood. Block-by-block, buildings are renovated, more affluent people move in, retail shops open, and Skid Row shrinks.

Spring Street, just a 10 minute walk from the heart of Skid Row, was one of the first streets to become gentrified. Two decades ago, many of the historic buildings on the street were neglected and vacant. Many have been renovated and turned into residential lofts. Their retail spaces are home to hip brands, restaurants, and bars.

Brigham Yen, a commercial and residential agent and founder of the popular urbanist DTLA Rising blog, said that developers are likely to scoop up and redevelop properties where there’s already other development happening. Market-rate projects on a block that hasn’t yet begun gentrifying run the risk of filling up slower than a developer needs.

“Because how many investors are willing to risk that?” he said. “It doesn’t sense if they can’t make a profit, so I’m not 100 percent sure how that would take place.”

Today, zoning in L.A. is somewhat arbitrary. The zoning code is archaic and nearly all development projects viable by 21st century economic standards require some sort of discretionary approval, which is often granted by the city.

In other words, Skid Row doesn’t need a rezoning to be developed. Residential-friendly rezoning of industrial and commercial properties along the edges of Skid Row will promote development, but the city would likely support residential rezoning in those areas if requested by a developer today or yesterday.

A 2017 L.A. Times analysis found that since 2000 the city planning commissioners approved 90 percent of developer requests for general plan amendments, zoning, or height district changes.

Creating new zoning would allow for more as-of-right development and potentially move planning away from the ad hoc discretionary approach that is ubiquitous in L.A. and that critics say is ripe for abuse.

The AIDS Healthcare Foundation, a constant thorn in the side of L.A.’s developers, say spot zoning allows city officials to ignore land use regulations and has turned L.A. into a place where developers “could construct anything they wanted, whenever they wanted.”

Ad hoc zoning could be disastrous for Skid Row, considering the extreme disparity between the economic forces at play. That’s why activists have pushed so hard to influence the plan. Earlier in July, a group of advocates called on the city to make all housing in Skid Row and one of every four new units built across downtown income-restricted, according to the L.A. Times. They said that would create enough housing for every person living unsheltered in Downtown L.A.

The Skid Row Housing Trust is among a larger group of stakeholders the city is engaging with on the issue.

“We’re at a lot of the tables, and we understand the perspective of each angle,” Raagas said. “The upside to perimeter pressure is forcing comprehensive talks.”

In any case, Skid Row is bound for change. The DTLA2040 plan can both spur market rate development and protect affordable units already in Skid Row. The city will hold a series of open houses and public hearings to seek more input on the plan, which will then go to the City Planning Commission and City Council for approval sometime next year.

Foreign investor drops $13.7M on fully leased shopping center in San Gabriel Valley

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Rick Edwards, partner at Seagrove Property Group and the property

Rick Edwards, partner at Seagrove Property Group and the property

Seagrove Property Group has sold a fully leased shopping center in the San Gabriel Valley.

The property — at 1241-1251 Lone Hill Avenue in the city of Glendora — traded for $13.65 million. The buyer is a private foreign investor, which completed the deal using an entity named Oecus LLC, which is managed by Lemeng Shi, records show.

The shopping center, called Glendora Commons, was built in 2017 and has almost 41,700 square feet of space. Grocery chain Aldi anchors the center, and other tenants include Guitar Center, Chick-fil-A and Pick-Up-Stix. Glendora Commons is at the gateway to a larger 480,000-square-foot development called Glendora Marketplace.

Bryan Ley and Tony Ensbury with JLL Capital Markets represented Seagrove Property Group.

Shopping centers have maintained some demand in Southern California recently, as the Glendora sale came shortly after a Hollywood investor sold his restaurant to buy two shopping centers in Riverside County for $35.6 million.

Last year, Champion Real Estate flipped a retail center in Glendora. The firm had purchased a vacant building for $13.5 million two years prior, redeveloped it and then sold the property to Clarion for $34.2 million.

Upstart co-living expanding in LA, homeownership drops: Daily digest

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Every day, The Real Deal rounds up Los Angeles’ biggest real estate news. We update this page at 9 a.m., 12 p.m., and 4 p.m. PT. Please send any tips or deals to tips@therealdeal.com

This page was last updated at 12:30 p.m.

Supportive housing projects get a boost. L.A. County is in the throes of an affordable housing crisis, but this week it approved $6.5 million in funding for projects in Santa Monica and South L.A. The money will go to LINC Housing Corporation’s planned 50-unit affordable project in South L.A., as well as an eight-unit project in Santa Monica being developed by Community Corporation of Santa Monica. [Urbanize]

 

Mayor Eric Garcetti and rendering of proposed temporary shelter in Venice

Mayor Eric Garcetti and rendering of proposed temporary shelter in Venice

Venice residents sue to stop shelter. The Venice Stakeholders Association sued the city, claiming the proposed 154-bed homeless shelter will attract crime and generate noise. The suit alleges the city has not studied the impact closely enough. The shelter is under construction and is one of dozens that is part of Mayor Eric Garcetti’s “A Bridge Home” shelter program. [SMDP]

 

Upstart co-living space

Co-living startup Upstart looks to expand in L.A. with new funding. CEO Jeremiah Adler expects the Hollywood-based firm’s $15 million Series A round to close within six months and fuel an expansion in L.A. up to 1,000 members, along with new locations in West Coast cities. Upstart has five locations in L.A. and is opening a sixth in Mid-City. It is also eyeing Venice. [LABJ]

 

Federal Reserve Chairman Jerome Powell

A planned interest rate cut by the Federal Reserve Wednesday would be the first cut since 2008. For developers, and the real estate industry, that means deal will become more profitable, by a drop in borrowing costs. Commercial developers will have an easier time sourcing financing, but the benefits will be most clearly felt by single-family homeowners. [TRD]

 

CGI Strategies’ plans for a cafe at a Hollywood apartment building is angering locals. The Woodland Hills investor has run the Villa Carlotta as an Airbnb-style operation since local officials shot down its plans to open a hotel there. Now, it wants to add a 1,100-square-foot cafe to the 1926 building’s ground floor, which some locals call another step toward turning the building into a de facto hotel. [Curbed]

 

Homeownership in Los Angeles and Orange County dropped to near a three-year-low. Around 46 percent of households in the two famously expensive counties own their home, according to second quarter U.S. Census data. That is a 2.3 percent drop from the same period last year, and the second-lowest rate among the country’s 75 largest metro areas, trailing only Fresno. Meanwhile, ownership rates grew by 2.5 percent in the Inland Empire, a possible effect of greater affordability there. [LADN]

 

Actor Jussie Smollett took a $30,000 loss on the sale of his Studio City home. The embattled former “Empire” actor, currently facing a lawsuit from the city of Chicago over his alleged hate crime hoax earlier this year, sold the 2,600-square-foot home for $1.6 million in an off-market sale. Smollett has been out of the public eye since the alleged hoax was exposed, and is reportedly “camping out in New York.” [Variety]

 

Kilroy Realty’s One Paseo project in San Diego

A little farther afield…San Diego approves zoning for dense mixed-use housing amid housing crisis. New policies approved Monday are meant to encourage mixed residential and commercial developments in the city’s suburban areas. Developers previously needed special approval for such projects, similar to those needed in housing-strapped Los Angeles. The city is also exploring new inclusionary housing policies and a middle-income housing incentive program for developers. [LAT]

 

Compiled by Dennis Lynch

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