Monday, June 18, 2007

Georgina!

No sooner did our $5.095M listing at 333 20th go into escrow than this house at 1221 Georgina was listed for $5.895M. Same 5 bedrooms and 6.5 baths. It's "Like-new!" Meaning it's not new. "Almost 6,000 sq ft on apx 9,680 sq ft lot on the best street north of Montana." Similar size to 20th.

Is the name "Georgina" (named for the wife of Senator John P. Jones, founder of the city of Santa Monica) that magical? Is its back yard - one lot from the traffic noise of San Vicente Blvd. - that special? Is its typical north-of-Montana stucco-and-tile that lovely?

23 comments:

War chest said...

Ok so lets be generous here...

Construction + Landscaping, etc = $2 million

Lot value = $2.5 million (being generous of course)

That comes to a total of $4.5 million. Granted, there should be a premium for the fact that someone else did the building and went through with it...however, how much premium should be given when you consider that this is NOT brand new AND construction costs were cheaper back then...the laws of depreciation/amortization tell us that the home itself should have gone down in value...so this means that the lot appreciated like crazy.

When I see this stuff I want to say, "What? Have you not gotten the memo that the country, state, and eventually city are in the midst of possibly the worst housing slump in decades if not history?"

People buying houses for close to $6 million in Santa Monica reminds me of foreign central banks buying loads of treasuries and housing agencies at stupidly low yields...its called being price incensitive. Fundamentals be dammned.

Fundamentals should come back and rule in the end; its just taking a while to get there...I noticed the new spec house on Yale (just south of Montana) cut its price by either $200K or $300K (can't remember offhand) to about $3.5 million. Is it worth an extra $2 - 2.5 million to be a few more blocks north. Its not like there is a different school district or ocean view or anything. Barf.

War Chest said...

Nothing too exciting in terms of loans...I see that it is a Persian couple who have had it since 98. Originally took an 80% loan and I see a little refinancing for about $500K in more recent times...These people seem to be just normal folks who bought at the right time and remodeled at the right time. They actually lived in the house and didn't treat it like a damn piggy bank.

Now as far as the sucker who buys this place...good luck buddy

Anonymous said...

war chest - pul up the map and get a clue before attempting to comment -- house on Georgina is 18 blocks east and 4 blocks west, not just "couple of blocks north" of 800 block on Yale (just in case you are not sure, west is towards the ocean) and Georgina is one of the best streets in SM.

Anonymous said...

Just to continue my previous post - yes it is in a different school district -- Roosevelt Elementary and not Franklin Elementary, however it is in the same Lincoln Middle School. Again, get your facts straight.

Anonymous said...

Anonymous- Wow. A house is both 18 blocks east AND 4 blocks west! Does that mean 14 blocks east? Be careful about casting stones lest you find your own house is glass.

Do you honestly believe that the premium should be so big for that location and school district. Besides, who has $6M for a house and uses public schools anyway???

war chest said...

Anon,

I have spent my entire life in Santa Monica. My parents bought before I was born and continue to live in the same house. I went to Franklin, Lincoln, and Santa Monica High. I know the area extremely well.

I am well aware that these two houses (this one and the one on Yale) are not that close to eachother. I don't think I expressed my point clearly though. What I am trying to get at is that while there should be a big premium for the Georgina house, both houses are in "good" neighborhoods. The house on Yale is actually right by the Brentwood country club so you could walk right on over and play golf (if you were a member). The house on Yale is brand new construction, whereas the house on Georgina is not. Both houses are close to busy streets...Montana vs San Vicente. So again, I appologize if I didn't make my point clear...I just wanted to say that the premium for being on Georgina in this case looks obscene. Neither have any type of view or anything "special" like that...

Oh yea, and as far as the schools go...I think you would be hard pressed to argue that Franklin and Roosevelt are very different (at least they weren't when I was younger). I remember people saying that Franklin was better...but maybe things have changed or maybe that was just bias. Either way, they are both great schools which lead to Lincoln which could be seen as arguably better than John Adams.

And why the hostility? Is it really so offensive to think that there isn't much difference between something north of Montana and something that isn't? And as far as pulling up a map...I pull up zillow to get past sales, square footage, etc and I pull up Nexis to get the loan info. So hopefully I am doing a service to this blog by providing such info.

war chest said...

Anon #2,

"who has $6M for a house and uses public schools anyway???"

I generally agree, however...

I had a friend who lived in a house on La Mesa...On the cliff, with a huge view of Riviara Country Club, huge backyard, pool, tennis court, etc...

I also had a good friend who lived on Palisades (just west of 7th and the Goose Egg Park).

In both cases, the parents sent their kids to public Santa Monica elementry and middle schools...but not highschool. Some siblings in these families went to Santa Monica High, but my friends did not. However, many of my friends lived north of Montana in obscene homes and went to Samo with me.

But I do still agree that if someone is coming in with the ability to buy something for almost $6 million, they most likely won't send their kids to public schools. Most of my friends who lived in big homes north of Montana had lived there for a while...long before the idea of $6 million homes. Public schooling seems too ordinary for someone extraordinary enough to afford such a home. Maybe I'm wrong.

dwr said...

"Lot value = $2.5 million (being generous of course)"

If a tear down on 7500 SF sells for $2.3, then you're not being too generous at 2.5 on Georgina with almost 10,000 SF.

war chest said...

dwr,

Yea I thought about that. Its odd because I remember looking at tear downs north of Montana less than a year ago for right around $2 or $2.1 or so. As this blog has shown, tear down values seem to have risen and the few that are currently available are asking $2.2-$2.4 or so...

So with more square footage and more premium for location, maybe it is closer to $2.7 or so? I don't know. I think when looking at this type of house in this location, all rationality goes out the window anyways so maybe it is futile to try and make sense of it all.

I am interested in watching tear down values though...The smaller lot listed on the 1000 block of 23rd was aking $1.5 and is apparently in escrow (don't know any further info). There was a house on it but a total tear down at that. The totally empty lot on the 900 block of 25th is still for sale at $1.8 million (with plans + permits).

long rates are coming down a bit here now...short rates actually fell during the recent run up. Maybe the Georgina house is a bargain...time to back up the truck

liquidgold said...

Anecdotal tales of absurd pricing will always exist- in up & down markets alike.

I have been actively looking at buying some apartment buildings in SM and find the expectations of future price appreciate just ridiculous. Sellers there are operating in a vacuum.

In the present instance, what we are witnessing quite simply is a very desirable house in a very desirable neighborhood in a very desirable city. I suspect that's exactly what the buyers were looking for when they offered in 5-mil+ for it. This transaction does not strike me as one that was hard bargained but rather a buyer who knew EXACTLY what they wanted and could probably afford much more if pushed. If there were 10 houses like this on the market I suspect we'd see a different sale price. My inartfully stated point is that these suckers...mmmmhhhhh....I mean buyers wanted their faux chateau and they got it. They would just as easily have paid 3 mil if that was ask or probably 8 mil. It's essentially a deal in a vacuum.

Notwithstanding their ignorance, the trend is very negative all around the town. I was FLOORED to learn that Redfin is no longer accepting new listings to the overwhelming demand. If that isn't a sure sign of panic selling I can't imagine what is.

War chest said...

liquidgold,

Can you give a bit more info about Redfin not taking any more listings? What areas is that for and how did you find that out?

Also, what types of apartment buildings are you looking (how many units, upgrades needed, etc)? What are cap rates out there looking like right now and what occupancy trends are you seeing?

Any answers are appreciated as I am curious.

Anonymous said...

Little typo -- 18 blocks west and 4 blocks north from Yale! Definetly not only few blocks north. So, honest mistake. When it comes to the price, the house is worth as much as someone is willing to pay for it, there is no exact sience! Not casting the stones just stating the facts!

Anonymous said...

war chest - Franklin is still considered a better school but not as much as it used to be. There is no hostility towards you just a clarification of facts.
The house was purchased in 10/98 at $1,045,000 immediately leased at $4,000 per month and in 2001 the old house was torn down and a new house was built and it wasn't remodeled as you state it. The house on Yale is not facing Montana and the house on Georgina is not facing San Vicente and is actually a block away from it, therefore busy street and noise is not really a factor.
Someone who doesn't know the area and can't look up the history of the property can be very misled by inaccuracies.

war chest said...

Anon,

Glad to hear that Franklin still reigns supreme. To clarify, I didn't say that the Georgina house was remodeled...I simply said that it is not new, which it is not because it was built in 01 and has been lived in since (right?).

You must have a very good memory to recall that the Georgina house was leased immeadiatly for $4K/month...either that or you are somehow connected to this house or are a realtor. Regardless, it doesn't matter to me but it is always helpful for those who have accurate firsthand knowledge of properties to post it. That way we can avoid having myself or someone else make "educated guesses" about what is going on when the facts would state otherwise.

No offense, but coming out guns blazing and defending Georgina like that gave you away...but then again, you can probably tell from my posts that I am a renter. Hooray!

liquidgold said...

"60 Minutes" Effect? Overwhelmed Redfin Stops Accepting New Listings

Redfin_logo_left_3 Redfin, the discount online real estate brokerage, announced tonight that it has stopped accepting new listings, saying it has been overwhelmed by an unexpected spike in listings in Los Angeles and San Francisco. The company was recently featured on the CBS news show "60 Minutes."

Redfin made the announcement on its corporate blog Friday in a post titled "A Crazy Decision": "From June 16 to July 8, Redfin is not accepting new listing customers. You can submit listing information now if you'd like, but we will not contact you or list your property until July 9. If Redfin has already committed to listing your property, you can be sure that we will continue to meet your highest expectations."

More: "But why are we turning away new business? In Southern California, new listing business increased by a factor of 10 in one month; in the Bay Area it tripled. Continuing to take new listings would strain our ability to offer customers great service. Since one of our core principles is putting customers before profits, we are focusing on the customers we already have."

More: "We will continue to represent buyers because our buyers' agents still have the capacity to serve an increasing number of new customers well. We will only resume listing properties when we can offer every new listing customer the same fanatical service that got us this far in the first place, which we expect will take us a few weeks."

Redfin attributes the sudden surge in listings in part to the "60 Minutes" story.

liquidgold said...

war, (what is it good for?)

I'm looking for 50+ suites in prime areas. Asking cap rates are under 5% across the board and stabilized yields rarely pass that mark.

From what I'm seen thus far occupancy rates are close to 100% and asking market rental prices are increasing faster than inflation.

Got any deals for me?

war chest said...

That redfin thing is very interesting...I checked the corporate blog but didn't see any announcement or anything on the main page (the blog posting said that there would be a notice on the main page very soon...and that was on the 15th). Maybe if you sign in and try to list a property it will give you the notice.

Sorry, liquidgold...I have no deals for you, but it is interesting to hear that cap rates are so damn low (even though this is what I expected to hear). One of the big wall stree firms downgraded REITS across the board today due to higher interest rates and record low cap rates.

Doesn't the rent control aspect of Santa Monica make it pretty hard to assume large rent increases every year? You have to figure some folks will be there many years with only small increases permitted. Am I right about that? Shouldn't cap rates then be a bit higher to compensate for this additional risk/uncertainty/pricing power constraint? I am no CRE expert but these are the questions that come to mind...also another question. Are cap rates every above loan rates (i.e. can you get a property to cash flow breakeven if you ignore maintenence, vacancies, etc)? I'm young and just don't know what normal means as far as CRE. Thanks

liquidgold said...

I've been in this business a long time. CAP RATES are ALWAYS higher than the cost of capital, ie positive leverage. That's the whole point of owning real estate- to be a risk-adjusted return in excess of risk-free bond yields!

SM cap rates are rightfully lower than most b/c it's a primo area and tenants are easy to come by. You can get slight increases every year but you cannot raise rents to market unless a tenant moves out.

I'd love to get into that market but the deals I've seen are too small and the return are basically geared for small-timers who (mistakenly) believe that values rise in perpetuity absent corresponding rise in income and ignorant of the cost of capital

Anonymous said...

war chest,
i recently came upon this blog and noticed that in one of your comments you mentioned getting the loan info for this property through nexis. i'm new to real estate and looked up nexis.com, is this the correct nexis or is some other nexis. also, do you get the loan info through nexis through subscription basis or is it readily available...
any info. would be appreciated..thanks

Chris said...

Liquidgold-If I am not mistaken Legacy at Jamboree and Main in Irvine recently sold for a 3.6% cap rate. That is a 294 unit property that is fairly recent construction. The buyer was an institutional player so it is unlikely that it was conversion. I am sure you cannot borrow below 5% on that property. So yes in 2007 it is possible to buy for a 140 bp discount to borrowing costs for a nonteardown and nonconversion property. Perhaps they expect to push rents hard with a housing slump?

war chest said...

Anon,

You are at the correct Nexis. You have to pay for a subscription...I get mine through work so I have no idea how much it is.

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Anonymous said...

i think it is perfectly fine for this house to go for close to six million. if someone has six million to pay for the house, price is not really an issue to them. it was probably the perfect house for them, and since they liked it, they bought it. they were probably willing to pay 2 million dollars for it or even 10 million,because it is the right house for them.