Former J. Crew CEO Mickey Drexler and 760 N Walnut Ave, Ketchum (Getty; Realtor)
Former J. Crew CEO Mickey Drexler sold his Idaho estate and a pair of neighboring lots for $11 million.
The property hit the market last year asking $13.9 million, according to the Wall Street Journal. The home plot alone without the two neighboring properties was recently asking $8.9 million.
The 6,600-square-foot home sits on a hillside in Ketchum’s Knob Hill neighborhood and has views over the Smoky Mountains. It was designed by architect Thierry W. Despont.
The house has three bedrooms and five bathrooms. It comes fully furnished with some notable pieces including a chandelier made by artist Dale Chihuly; the kitchen and elevator, meanwhile, have gold-leaf ceilings.
Suzanne Devitt Levit, who bought the home with her husband Carson Levit, said she has no plans to change anything in the house.
“When friends ask me are you going to change anything (because they know what a design buff I am), I say, ‘Absolutely not! I would never have the audacity to alter Thierry and Mickey’s creation,’” she said.
The couple is moving from Napa Valley in California and said the move wasn’t motivated by the pandemic.
Some 16 million Americans have moved since the pandemic hit this year. Cities like New York and San Francisco have seen disproportionately large number of people leaving. Some rural markets have seen an increase in demand. [WSJ] — Dennis Lynch
Airbnb executives plan to target a higher-than-expected valuation range of as much as $33 billion for its initial public offering, which is expected sometime next month.
On Tuesday, the company will start marketing its offering to mutual funds and hedge funds, the Wall Street Journal reported. The investor roadshow will take place via Zoom meetings, rather than the usual meetings across the nation.
Companies and their underwriters typically set a relatively conservative initial offering range, leaving some room to improve before trading starts. But in the case of Airbnb, the initial range is higher than expected. People close to the company’s offering thought the offering would be $30 billion, according to the publication.
The higher-than-expected pricing may be a reflection of the short-term rental company’s rebound from the early days of the pandemic.
At the onset of the pandemic, people stopped traveling, and Airbnb’s valuation took a nosedive to $18 billion from the $31 billion mark set in a 2017 investment round. Bookings at Airbnb rebounded by summer as people preferred to stay in short-term rentals rather than hotels.
But the pandemic still pummeled the company’s finances: According to its S-1 prospectus, filed in November, bookings totaled $18 billion as of Sept. 30, a 39 percent year-over-year drop. Revenue for that period dropped 32 percent, to $2.5 billion.
Airbnb and its underwriter will set the final IPO price based on feedback from investors in the virtual roadshow. Morgan Stanley and Goldman Sachs are leading Airbnb’s IPO.
Spending outpaced foot traffic because shoppers purchased at the stores they did visit (Getty)
Foot traffic to stores on Black Friday was about a half of what it was last year.
But the level of decline in spending at physical stores was smaller than the one in foot traffic, according to the Wall Street Journal, citing findings by several analytics firms that track retail .
Spending outpaced foot traffic because shoppers purchased at the stores they did visit, said Brian Field, a senior director at Sensormatic Solutions, a tracking firm with cameras in stores.
“Customers, if they chose to shop in stores, they chose to be a little more thoughtful about where they wanted to shop,” said Field, whose firm’s research showed a 52 percent decline in in-store traffic on Black Friday compared to last year.
According to RetailNext, another tracking firm, foot traffic on Black Friday fell 48 percent from last year. RetailNext estimated that spending at physical stores declined about 30 percent on Black Friday, with apparel, footwear and jewelry fell more than 50 percent. In-store spending went down by 52 percent in the Northeast, while a decline was 42 percent in the South.
The pandemic has hit the retail sector particularly hard, cutting into both rent collections and foot traffic at stores and shopping centers, although there are signs of a rebound for the former. In October, retail rent collections hit 89 percent, the highest point since before the pandemic.
But shopping centers have a long way to go before they’re out of the woods. Stores are closing, individual retailers are struggling and big mall landlords are ready to hand keys back to lenders.
“The biggest issue for malls is their debt and lack of access to capital,” Alexander Goldfarb, a senior analyst at Piper Sandler, recently toldThe Real Deal.
Record-low interest rates have created an unprecedented opportunity for homebuyers. That’s the party line in the residential industry. But that’s not how things are playing out on the ground.
Many buyers have little chance to secure the cheap financing that headlines and marketers often claim is fueling the residential market this year.
“If you’re not a wealth management client, most people who want to take advantage of the historically low rates don’t know where to turn,” said Jim Fried, a Miami-based mortgage broker, referring to how banks often reserve favorable loan terms for clients with significant deposits.
“It’s a very difficult process. Extremely difficult. Extremely difficult,” he said. “People don’t realize it.”
Fried’s not alone in talking about the challenges of home financing. But as the national housing market continues its historic climb, many brokers and housing economists are focused on the positive, overlooking the struggles of many buyers trying to qualify for home loans.
“You’re really just relying on growth in the high end,” said Joel Kan, head of industry forecasting at the Mortgage Bankers Association, noting that mortgage applications for the biggest loans have grown significantly during the pandemic. “Just like any ramp-up, it may run out of steam.”
Though the housing market is continuing its run — with record-high home prices and rising sales — its recovery is uneven. In September, mortgage credit supply, which reflects the accessibility of mortgage financing, hit its lowest level in about six years, according to MBA.
“Lenders are being cautious,” Kan noted. That’s particularly true in major cities, where banks are tightening lending guidelines for jumbo loans — those too large to be sold to government-sponsored entities Fannie Mae and Freddie Mac.
Though the industry insists some urban markets are invincible, economists are beginning to worry as the pandemic stretches on and some homeowners flee for the suburbs.
“There is a risk that the longer the pandemic goes on, home values may actually drop in those places,” said Daryl Fairweather, Redfin’s chief economist, pointing to Manhattan and San Francisco as examples. “And that is not something a lender wants to be giving a mortgage for.”
Big city bust
JPMorgan Chase is the most high-profile example of betting against New York City.
In early November, the bank limited jumbo home loans in Manhattan to 70 percent of the sales price, down from 80 percent previously, according to a report by Bloomberg. (A few days later, the bank’s head of consumer lending told investors that the bank is still bullish on other housing markets across the country, and was even loosening some lending criteria as home prices rise.)
Jumbo loans dominate major urban markets, where housing is more expensive. The median sale price of existing homes across the country was $311,000 in September, according to the National Association of Realtors, while the median sale price in Manhattan last quarter was $1.1 million, according to a Douglas Elliman report.
Now, Manhattan homebuyers borrowing from Chase must pay at least 30 percent of the purchase price upfront. A down payment of 30 to 35 percent became the norm during the initial months of the pandemic, according to mortgage brokers.That translates to a down payment of at least $330,000 on a median-priced Manhattan home.
A spokesperson for Chase said the increased down payment requirement for Manhattan jumbo loans is “temporary” and a result of economic conditions in the borough. Unemployment is twice that of the rest of the nation, and a recent report on key-card access data from Kastle Systems International found that nearly 87 percent of New York City office employees continue to work from home.
Manhattan, which was already facing an oversupply of luxury condos, saw a 46 percent year-over-year drop in transactions last quarter. And as the pandemic drags on, failing retailers and restaurants threaten to depress home values.
Realtor.com’s chief economist, Danielle Hale, said the shift in lending standards stems from homebuyers ditching urban markets for the suburbs, leading to greater price growth in the latter. She said the trend is playing out in the most populated cities in the country.
“It makes sense that lenders are mindful of that and adjusting that lending criteria to that trend,” said Hale.
New York isn’t alone. A Federal Reserve survey of loan officers last month found that banks are tightening standards for most home loans across the board — especially for qualified jumbo mortgage loans.
Mat Ishbia, president and CEO of United Wholesale Mortgage, one of the largest nonbank lenders in the country, said he is following bank guidelines on loans of more than $1 million. This translates to loan-to-value ratios of about 70 to 75 percent.
“[In] downtown city areas, there is some concern,” Ishbia said. “There is a little bit less demand. … The prices are going down a little bit, or not going up as fast as the rest of the market.”
Susan Wachter, a professor of real estate and finance at the Wharton School, said it amounts to a flipping of the script for notoriously tight housing markets.
“The large megacities, they were the disproportionate success stories,” she said.
Before the pandemic, the biggest risk facing these cities was the lack of affordable housing, which was starting to slow growth in places such as New York, San Francisco, Los Angeles and Chicago. But as the pandemic and remote work have changed the desirability of these cities, Wachter expects prices there to drop significantly.
“New York is going to suffer, unfortunately,” she said.
Not every city (yet)
Metropolises where single-family homes dominate aren’t faring as badly.
Sales volume in Los Angeles last quarter was up about 14 percent year-over-year, according to the latest report from Douglas Elliman. And so far, lenders don’t appear to have any concerns with the city, where vertical living is far from the norm, according to Mark Cohen, a mortgage broker based in L.A.
“This market’s strong. Values are coming up because people are spending money on houses,” he said. “There’s a hot demand for houses because people want to have room.”
But Michael Nourmand, an L.A.-based residential broker who runs his eponymous firm, said he has run into problems with lenders when he has “move-up buyers” — clients looking to trade up to a more expensive home. Lenders often bar them from having a contingency on selling their old house.
There are ways around that, but they come with a cost. “When you don’t fit in the box, you’re going to pay a higher interest rate,” Nourmand said.
The most difficult aspect of Covid-era home lending in L.A. concerns verifying borrowers’ income, which has been complicated by this being an unusual year for many Angelenos. Cohen noted, for instance, that many people in the entertainment industry saw their income disappear for a few months earlier in the year.
“They love people who are employed,” said Nourmand. “So what I mean by employed is a Disney executive with a W-2.”
Fried, the Miami mortgage broker, recounted an instance where a lender put the kibosh on a loan after taking more than two months to review it. For another client, he had to produce three years of tax returns. Other clients have been asked for a certified letter from an accountant detailing how much they will earn in 2020.
But apart from the delays and additional scrutiny, he said, there haven’t been major changes in home lending because with few homes on the market, their values have remained high.
“The concept of a softening residential market has not yet made its way into the underwriting to a complete degree,” he said. “The lack of supply is really, really holding things up.”
Single-family home sales surged more than 70 percent year-over-year last quarter in Miami Beach and the nearby barrier islands. There were also major annual gains in sales volume of homes in Fort Lauderdale and West Palm Beach, Florida.
Zillow economist Matthew Speakman doesn’t believe tighter lending criteria will dampen buyer demand. He noted a significant uptick in L.A. and Miami properties selling above asking price in September.
In L.A., 33 percent of September sales were above ask, compared to 21 percent a year earlier. In Miami, the number increased to 8 percent from 5 percent, according to Zillow.
Even in New York City, some lenders are confident that once the pandemic ends, values will recover.
“We know the New York City market very, very well, which is why we are not pulling back on our guidelines,” said Alan Rosenbaum, CEO of nonbank lender GuardHill Financial. He believes that an effective vaccine will bring values in the city back to pre-Covid levels and appreciating as before.
“We’re the contrarian,” he said. “The big banks aren’t lending. We are.”
The bottom line
What does all this mean for homebuyers? They have to fit a very particular bill to take advantage of the current rate environment.
Lenders are generally looking for several years’ worth of tax returns; a steady, salaried job in the same industry for at least two years; a high credit score; and highly liquid assets, mortgage brokers say.
The disparity between homebuyers who can and cannot secure cheap financing may seem minor as the housing market continues its upward run. But some economists and industry insiders are sounding alarm bells that differing access to credit exacerbates stark inequality in America.
“If you lost your job during this recession, you’re not going to get approved for a loan,” said Redfin’s Fairweather. “The people that are able to take advantage of low rates [are] the people who have the best credit histories; they have the highest incomes.”
This reflects what Wharton’s Wachter described as a K-shaped economic recovery, in which the wealthy bounce back more quickly than lower earners.
But others argue that tightening the screws is what responsible lenders should do.
“You can’t have it both ways,” said Ishbia of UWM. “To change those rules puts you back in the ’07, ’08 world [of reckless lending], and that’s not what anyone would want or is interested in.”
Hale, of Realtor.com, agreed, noting that lenders’ additional scrutiny of borrowers means those who do get loans during the Covid era are going to be “higher-quality, better-qualified buyers.”
Wachter noted that an uneven recovery in the housing market poses broader problems.
“What we’ve seen in my research is that the inability to buy into a community with jobs is keeping mobility down and keeping people from moving to markets where there’s job growth,” she said. “That’s going to hurt the overall economy.”
MBA’s Kan agreed. “You need the lower end of the market to move up eventually,” he said.
Los Angeles County’s three-week stay-at-home order, which takes effect today, makes it the most restrictive in California.
The most controversial rule requires restaurants to cease outdoor dining for the duration of the order.
The measure comes as coronavirus cases have been spiking county-wide — and throughout the nation — in recent weeks.
All public and private gatherings are prohibited, except for outdoor religious gatherings and outdoor political protests, according to the Los Angeles Times. Previously, small gatherings of 15 people from up to three households were allowed.
The county’s stay-at-home order reduces capacities allowed at business functions. Retail stores considered essential are now limited to 35 percent capacity, while nonessential businesses — such as hair salons and massage therapy — are limited to 20 percent capacity.
Outdoor museums, zoos, galleries, and aquariums can operate at 50 percent capacity with social distancing rules in place. Outdoor gyms, mini-golf, batting cages, and go-kart racing facilities can also operate at 50 percent capacity. Playgrounds not connected to a school or child-care center must close.
Retailers and landlords are among those who are strongly opposed to the move, which the L.A. County Department of Public Health announced last week.
A group of about 50 protesters demonstrated outside the home of L.A. County Public Health director Barbara Ferrer on Sunday.
And Pasadena has opted out of the order. The city has its own health department and chose to break with the county on that measure, although is now considering more strict measures after health inspectors found violations of its own outdoor dining rules at more than 40 out of 60 restaurants inspected last week. [LAT] — Dennis Lynch
Issuance of single-asset/single-borrower (SASB) loans is likely to increase in 2021. Major assets like One Manhattan West, Hudson Pacific’s Hollywood studio portfolio, and the MGM Grand & Mandalay Bay were financed with SASB deals this year. (Photos via SOM, Shimahara Illustration, and iStock)
After a hot start in the first two months of 2020, the market for commercial mortgage-backed securities came to an abrupt halt in March with the arrival of the coronavirus pandemic. Issuance of new CMBS deals has gradually ramped up, but is still a far cry from the heights it reached in 2019.
Total CMBS issuance for 2020 is now projected to total up to $55 billion, according to a new report from Kroll Bond Rating Agency — well short of the $95 billion that its analysts had predicted last fall.
And next year’s deal volume may only be marginally better, held back in part by hobbled hotel and retail properties.
Commercial real estate recoveries have “typically lagged economic recoveries, and we expect this cycle to be no different,” Kroll analysts wrote in the report. “While the virus is expected to remain a significant headwind to issuance volume, there are factors that may support the pipeline including GDP growth, effective vaccine distribution and low interest rates.”
Within the broader commercial real estate lending space, CMBS loans accounted for just 4 percent of all loan originations in the third quarter according to CBRE, in contrast to 17 percent in the same quarter a year prior.
Loans on retail and hotel properties, the two sectors most hard-hit by social distancing measures, represented one-third of CMBS issuance last year, and the continued struggles of those sectors in 2021 is likely to put a damper on overall CMBS activity.
“However, the record low interest rate environment combined with continued interest in asset classes including industrial, essential retail, multifamily, and certain pockets of office — such as single-tenant properties with good credit — will help spur activity,” the report said. Activity is expected to pick up as the year progresses, especially if a vaccine becomes widely available, it said.
One CMBS sector that is poised for a modest comeback in 2021 is single-asset/single-borrower (SASB) deals, and Kroll predicts that total SASB issuance could reach $30 billion next year, up from $26 billion in 2020 but down from $46.2 billion in 2019.
“Given the current environment, the [SASB] market may continue to benefit from pullback by competing insurers and banks that often lend to trophy properties and high quality portfolios,” the report said. It noted that the securitization market has the ability to finance large loans that other types of lenders cannot.
The SASB market has produced some of 2020’s biggest refinancings, including loans for Brookfield’s One Manhattan West and Grace Building in Manhattan, and Blackstone and Hudson Pacific Properties’ Hollywood studio portfolio in Los Angeles.
Meanwhile, the CRE CLO (collateralized loan obligation) sector has held steady despite the pandemic, with total issuance predicted to total $10 billion both this year and next, a slight improvement from 2019.
Kroll attributes the steady performance of CRE CLOs, which are generally shorter-term bridge loans for transitional properties, in part to “loan structures in place related to the business plans contemplated at loan origination.”
“Many nonbank lenders plan to increase their bridge loan programs in response to the pandemic,” the report said. “However, even prior to the virus, the growing field of bridge loan lenders hampered many firms’ ability to hit volume targets — which may impede an individual issuer’s ability to timely originate sufficient loans for a CRE CLO securitization.”
The rating agency has not downgraded any CRE CLO transactions to date, although it notes that things could change “as temporary relief measures expire and reserves … are depleted.”
The pandemic has also had a clear impact on the types of properties included in CMBS transactions this year, as the above graph shows. Loans on retail properties saw the biggest drop in their share of total volume, falling behind multifamily for the first time since 2012, and continuing a downward trend that started before the pandemic.
Gil Cedillo and Hillside Villa apartment building (Google Maps)
When it comes to real estate, cities have used coronavirus relief funds to help renters and landlords, but haven’t earmarked the money to make property purchases.
Los Angeles City Council member Gil Cedillo wants to change that. Cedillo is calling on the city to buy a Chinatown apartment building with $46 million in federal pandemic relief funds, according to the Los Angeles Times.
Cedillo formally proposed the acquisition of the 124-unit Hillside Villa building at 636 North Hill Place last week, the Times reported.
Landlord Thomas Botz wants to raise rents at the property, and Cedillo argues that purchasing the complex would prevent residents from being displaced amid the wider economic fallout.
Cedillo has previously proposed the city buy the property through eminent domain. Botz said he has no intention of selling to the city.
Hillside Villa was developed in the 1980s with around $5.5 million in loans from the city, which were provided with the agreement that rents would stay affordable for 30 years. That agreement expired in 2018, allowing Botz to legally raise rents.
One Hillside Villa resident said his $1,400 per month rent is set to go up to $2,500 per month. Another three-bedroom unit is set to increase from under $900 to $2,500 as well.
Cedillo wants to use money from the federal CARES Act, which the government passed earlier this year. L.A. received $694 million from the legislation and has allocated nearly all of it on programs to cover unpaid utility bills, housing for people experiencing homelessness and to address other needs.
There is about $32 million left. The funds must be spent by Dec. 30. It would be difficult to close a deal for Hillside Villa by then, and the city would have to find more money to cover the remaining amount. [LAT] — Dennis Lynch
CBRE Acquisition Holdings, a blank-check company formed by CBRE Group, has lowered the target deal size for its upcoming initial public offering to $350 million, according to a filing with the Security and Exchange Commission.
CBRE, the world’s largest real estate services firm, initially set the valuation goal for its special purpose acquisition company (SPAC) at $400 million. But according to a new document filed with the SEC on Friday, the company lowered its IPO size by $50 million, offering 35 million stakeholder aligned initial listing (SAIL) securities at a price of $10.
With its SPAC, CBRE aims to “identify and acquire a privately held company with significant growth potential,” according to a regulatory filing. The date of the IPO has yet to be made public. It’s subject to the completion of the registration statement.
Blank-check companies have become increasingly popular among real estate firms this year. SPACs have no underlying assets and are formed with the goal of merging with a target company and taking the company public.
Last month, Tishman Speyer formed a $300 million SPAC that aims to merge with a proptech company. Real estate investors Joseph Beck and Thomas Hennessy are looking to raise $175 million for their second blank-check company, PropTech Investment Corporation II, that seeks to merge with a real estate tech company with an enterprise value of $500 million or more.
CBRE’s new SPAC is led by Bob Sulentic, the firm’s president and CEO, and William Concannon, its global group president.
Strategic’s Edward Lorin and Alliant’s Shawn Horowitz with the property (Linkedin, Alliant, Google Maps)
A joint venture wants to build a 148-unit apartment complex in Canoga Park, near fast-developing Warner Center.
Alliant Capital and Strategic Realty Holdings filed the plans with the Los Angeles Department of City Planning.
The development would replace a two-level office building at 7322-7340 North Topanga Canyon Boulevard, records show. The site totals just under an acre. The developers picked up the property in April for $8.2 million.
The partners are requesting an increase in the project’s allowable height through the city’s Transit Oriented Communities program. The TOC program allows developers to increase a project’s density and choose from a number of other entitlements in exchange for reserving some units for low-income renters.
The partners plan to set aside 9 percent of units for “extremely low-income” renters. They are looking to price the roughly 100 other units in line with workforce housing pricing — about $200-$500 below rents in nearby Warner Center, Strategic’s Eddie Lorin said.
The development site is also within a federal Opportunity Zone. That would allow investments in the project eligible for certain tax deferments. Lorin said the partners may pursue funding through the Opportunity Zones program, but said the pandemic and uncertainty about the incoming Biden administration’s policies have made that funding more challenging.
Second monthly decline in contract activity signals looming decline in U.S. home sales (iStock)
In another indication of a potential slowdown in the country’s hot housing market, an index tracking pending home sales declined for the second month in a row.
The monthly metric from the National Association of Realtors fell by 1.1 percent in October, compared to September. The drops followed four months of growth.
NAR’s index tracks signed contract activity for single-family homes, condos and co-ops, and is seen as an indicator of future sales of existing homes. The typical lag time between a contract signing and a sale being finalized is one or two months.
Sales of existing homes increased to 6.85 million in October, the fifth month of consecutive gains, while just 1.42 million homes were for sale at the end of the month — a record low in the history of NAR’s monthly report on existing housing stock.
Despite the pending home sales index’s monthly drop in October, the number of contracts signed nationally are up 20 percent year-over-year.
Citing the annual gains, Lawrence Yun, NAR’s chief economist, maintained that the housing market was “still hot,” though he admitted that the second monthly decline in NAR’s index signals that rising home prices are beginning to tamp down demand.
“We may be starting to see rising home prices hurting affordability,” he said in a statement.
The median home price in the U.S. surpassed $300,000 for the first time in July and has continued its climb since. Prices are being driven up by unrelenting demand from homebuyers as remote work has become widely accepted, and historically low mortgage rates and homes for sale.
“The combination of these factors … has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers, who don’t have the luxury of using housing equity from a sale to use as a down payment,” said Yun.
Increasingly, first-time homebuyers, and buyers with lower incomes or poor credit history, are finding it hard to secure a mortgage. Economists warn that the housing market’s uneven recovery, described often as K-shaped and some people prosper and others struggle, could spill into other aspects of the economy.
David Geffen and 1169 N. Hillcrest Road (Getty, Google Maps)
Billionaire entertainment mogul David Geffen sold a development site in Beverly Hills for $33.8 million, more than a year after he bought the mansion-ready property, The Real Deal has learned.
The buyer of the 1-acre parcel at 1169 North Hillcrest Road is a Santa Barbara investor, who sources declined to identify. The sale closed Nov. 20.
Geffen paid $30 million for the property in what’s considered “Billionaires Row” in July 2019. It includes plans for a 24,500-square-foot mansion designed by architectural firm Shubin Donaldson. According to PropertyShark, the property has changed hands six times since 2013, with no owner holding onto the land long enough to develop it.
The sale is the latest in what has been a prolific year of real estate deals for the founder of Geffen Records and former DreamWorks executive and co-creator. Geffen set a record in February for the priciest single-family home deal in California when he sold a Beverly Hills estate to Amazon CEO Jeff Bezos for $165 million.
Westside Estate Agency co-founder and CEO Kurt Rappaport represented Geffen in the Hillcrest Road sale, and in his $68 million purchase of Casey Wasserman’s Beverly Hills mansion in June.
Rappaport declined to comment. A message left with a Geffen representative Monday was not returned.
“American Idol” host Ryan Seacrest has put his Beverly Hills home on the market for $85 million, more than twice what he paid for it in 2012.
The listing is the latest sign that aspirational pricing in Los Angeles’ ultra-luxury market — which has essentially weathered the pandemic — has returned.
Seacrest, who has branched off into numerous ventures since “Idol,” acquired the 8,628-square-foot home at 1196 Cabrillo Drive for $36.5 million, according to property records.
TMZ first reported Seacrest was selling the home, and that his longtime broker, Westside Estate Agency’s Kurt Rappaport, is handling the listing.
The listing on Redfin describes the property as being in one of Beverly Hills’ “most private and secluded estates, situated on over three acres.” The home was built in 1963 and remodeled in 2009. The property includes two guest houses.
Rappaport brokered the $125 million sale of Jeffrey Katzenberg’s Beverly Hills mansion over the summer. High-end home sales in L.A. have generally picked up since the summer, despite low inventory.
Some other stratospheric listings include Pierce Brosnan’s Malibu home, which hit the market in late September for $100 million; and a 41,000-square-foot Bel Air spec mansion that returned to the market in early May, also asking $100 million.
Spencer Rascoff built the most consequential residential tech startup of a generation. As co-founder and former CEO of Zillow, he pioneered consumer access to home listings and price information, making his firm a platform that buyers and sellers — and, resentfully, brokers — could not do business without.
After stepping away from Zillow in February 2019, Rascoff jumped back into the startup world as a founder. In January, he launched dot.LA, a news site covering the tech scene in Los Angeles, where he lives. He’s also an active investor, raising $350 million in an October IPO for a blank-check company with as yet undisclosed acquisition targets. Last month, he launched Pacaso, a startup that lets buyers purchase shares in second homes.
Rascoff was just 24 in 1999 when he co-founded the discount travel startup Hotwire, which Expedia bought in 2003 for nearly $700 million in cash. Three years later, Rascoff and Expedia co-founders Rich Barton and Lloyd Frink started Zillow. Rascoff held various roles at the firm — COO, CFO and vice president of marketing — before being tapped as CEO in 2010. The following year, when he was 35, he led Zillow through an IPO that valued the company at more than $1 billion.
Rascoff recently characterized that IPO as a “facepalm” moment because the stock surged from $20 to $60 per share within minutes of trading. That kind of one-day pop makes for a great headline but indicates the company left money on the table.
The IPO did, however, fuel Zillow’s exponential growth. Over Rascoff’s tenure as CEO, Zillow acquired 15 companies, including Trulia, which it purchased for $3.5 billion in 2014. Its headcount went from 200 to 4,000, while annual revenue grew to $1.3 billion from $30 million.
Last year, with Zillow’s stock dropping, Barton replaced Rascoff as CEO to go full-tilt on iBuying,an algorithmically driven homebuying model that guarantees sellers a quick close and then aims to resell the property at a premium. (Barton has described it as a “moonshot” opportunity; he believes ignoring iBuying poses an “existential” threat.) Rascoff called the change “bittersweet,” but told The Real Deal he’s hardwired to keep building companies.
“I’m just going,” he said, “Like a rocket that doesn’t have any burners anymore … The habits have been formed.”
Born: October 24, 1975 Lives in: Los Angeles Hometown: New York City Family: Married with three kids (15, 12 and 9)
Why real estate? I have a terrible memory for faces and names, but I have a fantastic memory for houses. I can remember almost every listing I’ve ever seen. I love that real estate is a store of wealth that you can enjoy. I’ve always found it dissatisfying and hollow to open up a brokerage account website and see numbers on a screen that show me some imaginary amount of money that I have sitting there.
You were a nationally ranked chess player. Any lessons learned? I was the fifth-best chess player in the country under the age of 12. My coach at Dalton was Svetozar Jovanovic, a Yugoslavian chess master. He’d have a big pointer and he’d snap it on your desk if you weren’t paying attention. It was straight out of the Cold War Soviet Union, but on the Upper East Side. But it taught me everything: competition, concentration, how to plan ahead, to hate losing.
Your dad managed the Rolling Stones. How did that happen? My dad worked at a white-shoe accounting firm called Hurdman & Cranstoun. One day in 1972, he was in the men’s room and the gentleman next to him was grumbling. He was a rotund British gentleman who identified himself as Prince Rupert Loewenstein, manager of the Rolling Stones. He was disappointed that Hurdman & Cranstoun wouldn’t take on the Rolling Stones because they were too wild for a white-shoe firm.
My dad thought that sounded like an exciting opportunity, so he took a leave of absence to be the tour accountant. Ultimately, he left the firm, and over the next 30 years, he expanded into producing rock concerts and became one of the largest producers and business managers of tours for the Rolling Stones, U2, David Bowie, Pink Floyd, Paul Simon and lots of other folks.
What was that like for you? It was cool but in a nerdy, business-y sort of way. Watching concerts with my dad was never about the music. We would stand together on the mixing plot, with 120,000 people cheering for the Rolling Stones, and he would be whispering in my ear, saying, “Those fireworks cost $100,000, and they probably weren’t necessary, but Mick wanted them.” “That big, inflatable woman in a bikini, it was $80,000 and probably wasn’t necessary, but Keith wanted it.”He’d walk me through the P&L of every show.
Each tour was really a startup in its own right. [My dad] would come home from work one day and say, “U2 has agreed to tour, so it’s time to spin it up.” About 200 employees would come together within a couple weeks.
Seems like you took a lot from your father. You now also have a business podcast with your son, called “Dad I have a question.” How’d that come about? Luke [age 12] asks me a lot of questions. One time, my father-in-law was there when Luke asked me, for the millionth time, about some topic. After listening to me explain the answer, my father-in-law said, “You should really turn this into a podcast.” Luke loves measuring the statistics, tracking which ones perform better than others. He’s very focused on the fact that the tech-focused ones do well, and the political-focused ones do poorly. We have 35,000 listeners, so it’s been a fun project. Yesterday, Sophie, my 15-year-old daughter, had no school, so I brought her to the dot.LA summit for the day, and she ran social media. This is breaking news, I suppose, but I’m incubating another startup idea for which Sophie is the program manager.
What’s the concept? I can’t tell you that yet. Stay tuned.
You were 24 when you co-founded Hotwire, which you sold to Expedia. Was it hard to get taken seriously at that age? Yes. I vividly remember, as a 24-year-old, sitting with a 45-year-old who reported to me and thinking to myself, “How can I mentor, manage, coach and direct this employee?” That experience changed my management style to be more collaborative. In other words, I realized that I couldn’t tell him what to do. Instead, I could discuss what challenges he was facing and try to help solve his problems along with him.
Where did the idea for Zillow come from? We were brainstorming business ideas in a conference room in Downtown Seattle, looking out the window at [the neighborhood of Queen Anne], where these Victorian houses all sit on a hillside. Somebody said, “Imagine if you could see a price on every one of those rooftops, almost like magic glasses that you could put on and see data and information on every home.”
The original idea was to try to create three prices on every home: a bid price that somebody would offer to pay for the home, an ask price that a homeowner would sell their home for and a market-clearing price, which was meant to be the Zestimate.
So the initial idea was around pricing, not listings? Right. In fact, for the first two years there were no listings on Zillow. It wasn’t until about 2008, once we were already the fifth-largest real estate website, that we went to brokerages and said, “Will you please give us your listings?”
Is it true your first move as Zillow CEO was to get rid of all the individual offices [switching to a bullpen] ? Absolutely. It was quite controversial at the time, and Rich [Barton] wasn’t immediately sure that it was a good idea.
Do you think the Zestimate deserves the hate it gets? A few years ago, you sold your house for way less than the Zestimate; this year, you listed another for $7 million over. There are two points of criticism, accuracy and privacy.
On privacy, Zillow provided enormous transparency to the marketplace, which helps people make smarter decisions. And I have no apologies for that level of information, even though I sometimes am the subject of articles about my own real estate transactions, which brings me no joy.
The accuracy issue is a different topic. Zestimates have always been less accurate at the high end and at the very low end because there are fewer data points. What is a $30 million house worth? It’s very hard to know. The accuracy, however, has improved dramatically over time. When we launched in 2006, we had approximately a 14 percent margin of error. Today, it is in the mid-single digits.
Zillow sparked a lot of fury among residential agents in markets like New York. How did you handle the criticism? I like to be liked. Personal criticism and criticism of my company always cut deep. My strategy was one of intense engagement. I spent a lot of time on message boards, on social media and in brokers’ offices … building personal relationships and listening. That differs from some other companies like Uber, for example, that have a more aggressive approach to the industries that it disrupts.
You stepped down as CEO of Zillow last year when co-founder Rich Barton took over to spearhead a big iBuying push. I’ve heard you’re not a fan of iBuying. Oh, I’m a huge believer. I set into motion Zillow’s iBuying strategy. First we tried this marketplace model called Instant Offers: A consumer would say “I want to sell my home” and we would send their information to a handful of iBuyers. This experiment showed us there was clearly demand for the service, but ultimately we realized we had to be the ones that did the iBuying, so Zillow Offers was born. I still think it’s a fundamental and growing part of the real estate universe.
How’s your relationship with Rich Barton now? Do you agree with the Zillow 2.0 strategy? He’s busy running Zillow and I’m doing my thing, so we don’t talk often. It’s friendly. There are always little things from the outside that you ask yourself, “Would I have done that little thing or not?” But the overall strategic direction I agree with.
Is dot.LA a source of deal flow? Absolutely. It’s certainly not why I started it, but dot.LA unites my passions in startups, journalism and L.A. It’s also allowed me to meet great founders, some of whom I’ve gone on to invest in.
You just started a company called Pacaso that lets people buy shares of a second home. Do you have other homes? I had a second home in Napa Valley that burned down in a wildfire a couple of years ago. It was our family’s happy place. We sold the land to a neighbor and still think a lot about trying to have a second home there. I’m looking for a Pacaso.
You prefer to own a piece rather than the whole thing? I’m not going to use it all the time. My home that burned down was a $3 million home. Instead of buying 100 percent of a $3 million home, I can buy a quarter of a $12 million home.
How has the pandemic changed your routine? For the 20 years prior to Covid I was on a plane every couple of days, and instead I’ve been with my family for eight months. The big innovation that launched today in the Rascoff house is doors. This house has a pretty open floor plan, and I’ve always thought about adding a door to my home office. After four years of waiting, I finally had a door installed.
Where was the last place you traveled or vacationed? Last Christmas, we went to Machu Picchu, Peru. My wife is Colombian, and there’s a South American tradition on New Year’s Eve: You take an empty suitcase and run around shouting the place you hope to travel in the next year. We were shouting “Thailand! Russia! Antarctica!” I certainly had no idea at the time that those would be off the table.
What are your vices? I watch a decent amount of garbage TV. We watch “Vanderpump Rules” and “Real Housewives” and “The Bachelor.” I eat a lot of ice cream.
Do you feel successful? Yes. I’m not really motivated by money or media. I’m motivated by identifying new challenges and solving interesting problems.
How do you instill that value in your kids? My parents always told me I’d never get a single dime of their money, but they’d always pay for my own education and then I’d be on my own. We’ve been saying the same thing to our kids. We’ll be there to cheer them along, but not support them.
Your brother died in a car crash when he was 17. Did that shape you? He died the day before graduating from high school. He was taking the last edition of the school newspaper to the printer after an all-nighter. It caused me to kick things into the next gear in terms of focus and drive and seeking accomplishment. I felt like I had to accomplish twice as much to compensate for what he would have accomplished. I haven’t stopped running since.
What’s the best piece of advice you’ve gotten? Wherever you’re working, look [for someone] 10 years your senior. Find out if you want to be that person, and if you aren’t totally satisfied, get out.
This interview has been edited and condensed for clarity.
Gov. Gavin Newsom is advising Californians that the state could issue a wider stay-at-home order, one that would affect retailers and other businesses, as Covid-19 cases continue to surge.
Fifty-one of the state’s 58 counties would be affected because they are in the strictest tier of the four-tier coronavirus risk system, according to the Los Angeles Times.
Those counties are home to 99 percent of the state’s population. Newsom did not definitively say that all 51 counties in the purple tier would be subject to such stay-at-home order, and it’s possible that only those counties with the most cases and most severe spread would be subject to the measure.
The state also did not provide details about the potential order. California last imposed a stay-at-home order in March, during the first wave of coronavirus cases.
L.A. County put in place its own stay-at-home order last week in the leadup to the Thanksgiving holiday. The order is in effect through Dec. 21. Outdoor dining is suspended and the order prohibits all public and private gatherings except for outdoor religious gatherings and outdoor political protests.
L.A. County’s average new Covid cases per day on a rolling seven-day basis is now above 4,000. On Sunday there were 2,316 new hospitalizations, breaking a previous record of 2,232 set in July. [LAT] — Dennis Lynch
Ken TaeHern Kim and Zhongyuan Li with Fairmont San Francisco (Linkedin, Google Maps)
South Korean investment bank Mirae Asset Daewoo won a significant U.S. court case against Anbang Insurance Group after Mirae reversed its plans to buy 15 U.S. hotels for $5.8 billion at the start of the pandemic.
The Delaware Court of Chancery found that Anbang made extensive changes to its business because of Covid-19, including layoffs, furloughs and closing amenities, Reuters reported. As a result, Anbang failed to meet a condition that its business be “conducted in the ordinary course of business,” allowing Mirae to get out of the agreement.
The lawsuit between the two parties drew heated allegations. Anbang claimed that Mirae was trying to get out of the deal because the pandemic had devastated the hospitality industry and because Mirae’s parent company feared Korean regulators were scrutinizing foreign real estate investments.
Mirae, meanwhile, claimed Anbang’s lead dealmaker buried his head in the sand as the commercial mortgage-backed securities market seized up, and resorted to “absurd” tactics to force Mirae to close the deal.
Anbang has been liquidated and some of its assets have been placed in a new entity called Dajia Insurance Group.
The Meadowlands project has been beset by 18 years of starts and stops (Getty)
New Jersey’s American Dream mall was projected to have 40 million visitors when it opened in 2019 — and then Covid-19 hit.
The mall was already beset by 18 years of starts and stops, and the pandemic put another roadblock in the shopping center’s final stretch toward completion and fiscal viability, the New York Times reports.
After years in the making, the $5 billion retail and entertainment complex in the Meadowlands finally started opening its facilities in phases in October 2019. Its retail component was set to open in mid-March, but the pandemic forced the owner, Triple Five, to put that on hold. It finally opened more than 80 stores and attractions in October, but the pandemic has taken its toll.
“It was extremely, extremely unfortunate, the timing of it all,” Don Ghermezian, chief executive of Triple Five and co-chief executive of American Dream, told the Times.
Ghermezian said as many as 200 of the mall’s retail and food tenants would probably have opened this month if there had not been pandemic shutdowns. Instead, about 90 are now open, including the biggest Zara in the United States and the flagship for the fast-fashion chain Primark.
But there are other troubles. The Ghermezians missed loan payments over the summer at the Mall of America, which is being used as collateral for the New Jersey property; there’s also a $27 billion debt payment due on American Dream next month, and it’s unclear if it will be paid.
“We are working with our lenders on a regular basis to put a plan in place that allows the center to continue to flourish,” Ghermezian said.
Initially known as Xanadu Meadowlands, development of the site next to MetLife Stadium started about 15 years ago. Triple Five took over the project in 2011, determined to reignite enthusiasm for the project.
New Jersey legislators have long maintained that the mall could weather the storm, but the possibility of further lockdowns as Covid cases spike across the country is dampening that optimism.
“How long can you keep going without any revenue?” said Joel Brizzi, a councilperson for East Rutherford, New Jersey, who has supported the project. “The jury’s still out on whether it’s going to survive.”
Outdoor dining along Colorado Blvd. in Pasadena on Nov. 29, 2020 (Getty, iStock)
Pasadena’s decision to break with Los Angeles County’s three-week ban on outdoor dining has lawmakers in other cities exploring their own ways around the order.
Pasadena has its own public health department, allowing it to make its own policy on dining. The city saw an influx of diners over the holiday weekend, according to the Los Angeles Daily News.
The L.A. County order went into effect last week and applies to restaurants, breweries, wineries and bars.
West Covina Mayor Tony Wu plans to introduce a request at a City Council meeting this week to discuss alternatives with the county’s health department. Wu said he’s “really frustrated” and worried that small businesses won’t be able to stay afloat if the county imposes stricter regulations on activities as Covid cases rise.
Councils in Whittier and Beverly Hills are also exploring options for their own public health departments. Whittier is even exploring the possibility of contracting with Pasadena’s health department, the legality of which is murky.
Eastern L.A. cities La Verne, San Dimas and Claremont are looking into variances that will allow them to break with the county order as well. La Verne and San Dimas also wrote to County Supervisor Kathryn Barger urging her to allow their cities to break with the order. [LADN] — Dennis Lynch
Residential construction accounted for 44% of spending in October. (iStock)
A strong housing market continued to fuel construction spending this fall.
Construction spending grew an estimated 1.3 percent in October to $1.43 trillion, seasonally adjusted, compared to $1.42 trillion in September, according to the U.S. Census Bureau’s monthly report.
Private housing units made up the lion’s share of the total amount spent, with an adjusted estimate of more than $637 billion going toward residential construction, or 44 percent of the monthly total. Nonresidential construction accounted for nearly $457 billion, a 0.7 percent drop from September’s nearly $460 billion spend. Public construction totalled close to $345 billion.
The amount of money pouring into construction, unadjusted, is up 4.3 percent year-to-date with $1.18 trillion confirmed so far this year. That’s an increase of $49 billion from the first 10 months of 2019.
Housing starts rose 5 percent in October with 1.5 million housing units beginning construction. But supply can’t keep up with demand: Last month, the number of existing homes on the market fell to an all-time low with just 1.42 million units on the market at the end of October.
Lawrence Yun, chief economist of the National Association of Realtors, has called for additional measures aside from construction to cure the lack of available housing stock.
There are also signs that the housing market’s strong performance could be waning. Pending home sales declined for two months running in October and September, which could signal a drop in closed sales in one or two.
The slowdown could be a product of the market’s uneven recovery, described as a K-shape, where higher earners recover faster than those making less or who’ve experienced income loss due to the pandemic.
Prospective buyers who haven’t owned a home before or who have poor credit are increasingly having trouble securing a home mortgage, as are buyers interested in homes located in densely populated areas, particularly in New York City and San Francisco.
Nile Niami and “The One” mansion (Getty, Society Group PR)
Nile Niami is getting serious about selling “The One” — a Bel Air spec mansion that the developer previously boasted could fetch $500 million.
A Niami spokesperson said that construction is virtually complete with “finishing touches” on the interior pending. And the 100,000-square-foot mansion will hit the market soon, perhaps before year’s end, said Rayni Williams, of the newly formed Beverly Hills Estates Inc.
Rayni Williams and Branden Williams of Beverly Hills Estates along with Compass’s Aaron Kirman will have the listing.
The agents and Niami have yet to agree on a price, Rayni Williams said. It will ask less than $500 million, but likely break the record for a home listing in Los Angeles County. The record for a closed transaction is Amazon CEO Jeff Bezos’ purchase of David Geffen’s Beverly Hills home for $165 million earlier this year.
Niami is known for his Hollywood Hills mansions as well as his flashy promotional videos and Instagram page. But The One has been beset by construction and financing delays, as it was first scheduled for completion in 2017.
While Niami has said in interviews that the home’s asking price is $500 million, The One has never actually hit the market. Williams, Williams and Kirman are its first assigned agents.
The listing would come amid an eventful several months for Niami.
A lender, Joseph Englanoff, took control of a Beverly Hills spec mansion, “The Opus,” from Niami in February.
In October, Compass sued Niami over an unpaid debt in using the company’s concierge service, though both parties say a settlement is close.
And the Daily Mail reported this week that the city of Los Angeles fined Niami five times this year for house parties in violation of Covid laws against large social gatherings.
Left to right: Viceroy L’Ermitage Beverly Hills and THEA at Metropolis in Downtown (Google Maps, THEA)
Greenland USA secured a $250 million loan for its recently-opened THEA at Metropolis rental tower in Downtown.
Apollo Global Management provided the financing on the 685-unit luxury property, according to the Los Angeles Business Journal. The 56-story tower is one of four at Greenland’s sprawling Metropolis complex.
Apollo also provided a $56.5 million acquisition loan to help finance EOS Investors’ recent purchase of the Viceroy L’Ermitage Beverly Hills, according to the report. EOS paid $100 million in October for the 116-key luxury hotel. The acquisition was made at auction following the federal government’s seizure of the property from fugitive financier Jho Low.
Both loans have five-year terms and are floating rate.
Apollo has been an active lender in L.A. real estate deals. The firm provided a $274.9 million mortgage for Silverstein Properties’ purchase of U.S. Bank Tower in Downtown. The acquisition closed in September.
Jumbo loans dominate major urban markets, where housing is more expensive. The median sale price of existing homes across the country was $311,000 in September, according to the National Association of Realtors, while the median sale price in Manhattan last quarter was $1.1 million, according to a Douglas Elliman report. 
Seems like you took a lot from your father. You now also have a business 
You stepped down as CEO of Zillow last year when co-founder 
