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In L.A. real estate, $10 million is the new $1 million

If you think that equity windfall will buy the house of your dreams, brace yourself.

August 29, 2004|Shawn Hubler | Times Staff Writer

To appreciate the new math of this Southern California real estate market, consider the $10-million home.

Tom and Michelle Rhodes did. Not that that's what they'd wanted. What they'd wanted was to trade up from the five-bedroom tract house they had bought eight years ago in one of Newport Beach's most family-oriented sectors.

When the home for which they'd paid $800,000 sold this year for a thrilling $2.36 million, the Rhodeses -- a 43-year-old contractor and pharmacist-turned-homemaker, respectively, and three school-aged children -- figured they'd soon be moving into the Taj Mahal bracket. Five million dollars, they proudly told their real estate agent, who promptly showed them a parade of lot-line-to-lot-line McMansions, most with no yard, some in neighborhoods that weren't even gated.

"I don't know what I was expecting," Tom Rhodes said, still mildly flummoxed. "Better views for sure. And bigger closets." It soon became clear that the dream house they'd pictured -- half-acre lot, great ocean views, wine cellar, home theater, elbowroom commensurate with the price tag -- was going to run them eight figures. And in fact, now that they have it, they say it was a bargain at $10.9 million.

"It's amazing," Tom Rhodes now marvels, "what that kind of money won't buy anymore."

Once upon a time, $10 million was the tippy-top of the housing market, even here, in one of the nation's most rarefied markets for real estate. Ten million bucks was, in the 1970s, about 10 times the then-record price of the Playboy Mansion. It was, in the 1980s, what Aaron Spelling paid for the 6-acre former Bing Crosby estate.

Even in the mid-1990s, even among rich folks, $10 million was freakishly big money; only a handful of homes each year sold in that range. Not Madonna, not Cher, not Arnold Schwarzenegger lived in $10-million houses, at least in those days.

Now, however, even with the market momentarily cooling, real estate agents say $10 million is your basic starter mansion. "In the high bracket," said Beverly Hills real estate broker Cecelia Waeschle, "$10 million is now almost the norm."

Waeschle should know. For almost 20 years cross-referencing public records and private sources on the industry grapevine, she has carefully tracked home sales in the Hollywood Hills-to-Malibu swath of Los Angeles County that encompasses the West Coast's highest concentration of $10-million-plus homes.

Among real estate professionals in Los Angeles, Waeschle's personal list has become a crucial point of reference, in part because discretion -- long a watchword in high-end real estate transactions -- has become a near-fetish in the current market. According to agents, appraisers and county officials, confidentiality agreements have spiked in popularity in the last three years, as has the use of mechanisms that keep home sales prices and the tax information from which they might be deduced out of the public record.

On or off the books, however, 2004 is shaping up to be a record year for $10-million-plus home sales. With the year scarcely half over, Waeschle says she has already counted 30 just on the Westside, the area's highest number ever. A similar list, maintained in southern Orange County by Bill Cote, a veteran Newport Beach agent, shows five such home sales, just two shy of the county's record, set last year.

Meanwhile, La Jolla-based DataQuick Information Systems, which relies exclusively on public records, has recorded 27 openly documented home sales of more than $10 million statewide this year. Because so many high-end sales prices are now shielded from the public, DataQuick's numbers are substantially lower than counts kept by agents, but even so, the firm, which compiles housing data, reports that this year has already matched the last statewide high mark, set four years ago.

DataQuick analyst John Karevoll says the high end of the housing market tends not to be driven by the same variables that affect most home buyers, such as mortgage rates. Sales over $10 million tend to be all-cash or complex asset swaps and rarely hinge on the availability of a conventional mortgage.

"Obviously," he said, "people who can buy a $10-million house have different issues in their lives, such as, 'Hmmm, where do I park this money I inherited or sold my company for or something -- stock market? Naaah. Bonds? Buy a jet? How about property?' "

Fueling the market

Thus, Karevoll said, the demand for high-end homes has risen in part because the doldrums on Wall Street have made real estate a comparatively more attractive investment. Indirectly, however, at least some of the $10 million-plus market has been fueled by current low interest rates.

Cheap mortgages, he said, have heightened demand for $1-million and $2-million houses, and as those owners have traded up, demand has shot up at the top of the market. In that sense, Karevoll said, "everybody's floating on the same rising tide."

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