Amid a wider market slowdown, sellers are significantly reducing prices for high-end properties in the area, attributing this to the upcoming introduction of a new mansion tax and potential limitations on new construction.
Positioned within the magnificent hills of Bel-Air, this striking Modern Spanish-style megamansion embodies the epitome of lavish wealth. Sprawling across approximately 40,000 square feet, the property majestically ascends from the hillside, showcasing three-tier terraces, arched entrances, and a grand deck embellished with an infinity pool that cascades into a spectacular 20-foot waterfall. Internally, the mansion rivals the amenities of a luxury hotel, boasting a 75-foot pool, a movie theater, a basketball court, a wine cellar with a 1,200-bottle capacity, and an underground gallery with parking for over 20 vehicles.
However, this stunning mansion is lacking one critical element: a potential buyer. To entice one, the developers re-marketed the property for $59 million last month, a significant 41% drop from its initial $100 million asking price in 2018.
Shawn Elliott, of Nest Seekers International and one of the property’s listing agents, explained that the price cut was the result of discussions between the agents and developers, Ty Cueva and Dean Hallo. The conversation centered around finding an attractive price point for buyers that the developers would also find acceptable.
Substantial price reductions are becoming increasingly prevalent within the ultra-luxury real estate market, amidst a market deceleration in Los Angeles. The necessity to reduce prices is further driven by an urgency to sell before the implementation of a new luxury real estate sales transfer tax effective April 1. Moreover, a proposed local ordinance aiming to establish a designated wildlife conservation zone in the Santa Monica Mountains may limit future mega-mansion developments, consequently affecting site acquisitions by developers.
The top-tier luxury market, which represents the highest 10% of sales, witnessed a decline in deal volume by 51.9% in the final quarter of 2022 compared to the same period in 2021, as per a Douglas Elliman brokerage report. The time properties spent on the market also increased by 10.3% to 96 days.
These trends signal a notable departure from the previous year, where a surge in buyers dominated the luxury market. Elliman’s data reveals that the proportion of bidding wars diminished by half, settling at 24.5% in the final quarter from a 50.7% record set in the second quarter.
In contrast to retaining their properties, sellers appear more inclined to accept the evolving market conditions. Rayni Williams of Beverly Hills Estates commented, “No buyer at this stage wants to feel like they are paying 2021 or 2020 prices.”
Cueva, one of the developers of the Bel-Air property, repriced the mansion to attract a broader spectrum of potential buyers. He noted that the home’s $59 million asking price is considerably lower than its current replacement cost, considering the escalating construction material costs. Today, he estimates the construction cost of the house, completed in June 2020, would be approximately $80 million.
He expressed optimism that the price reduction would alleviate buyer concerns about increasing interest rates, noting a resurgence of foreign buyers in the market since the onset of the pandemic.
Cueva is among a series of sellers who have reduced their prices in recent months. In the upscale, gated community of Wallingford Estates located in the Beverly Hills post office area, developer Gala Asher reduced the price of a 38,000-square-foot mansion by around 12% to $74.995 million, Zillow reveals. The roughly 5-acre estate, complete with a basketball court, gym, and boxing ring, was initially listed in 2018 for $135 million and has since experienced several price cuts. Asher was unavailable for comment.
In Bel-Air, a mansion owned by Swiss aviation tycoon Thomas Flohr saw its price reduced in February by about 14% to $49.995 million. The property was first listed in May 2022 for $63.5 million, according to Zillow. Mauricio Umansky of The Agency, one of the listing agents, commented, “I think we’re at a proper price right now. It’s just a matter of this market stabilizing and finding buyers.”
A few months ago, a company associated with tech entrepreneur Farhad Mohit, the former CEO of video app maker Flipagram, also relisted a Bel-Air property. This approximately 14,000-square-foot, multi-tiered mansion, equipped with a 15-foot screening wall, a 320-bottle wine cellar, and a gym, was listed for $38.5 million, down $9.5 million from its initial asking price in May 2020, Zillow indicates.
Recent transactions demonstrate that buyers are willing to engage when sellers are prepared to reduce their prices, according to agents. In February, actor Mark Wahlberg and his wife, Rhea Durham, sold their upscale Beverly Park home to a Chinese billionaire for $55 million, a substantial decrease from the original $87.5 million asking price when they first listed the property in April 2022.
That same day, Villa Firenze, the adjacent 9-acre estate owned by the estate of Roy T. Eddleman, a manufacturer of biotech lab tools, sold for $52 million, significantly less than its original $120 million asking price in May 2022.
Tomer Fridman, a luxury agent with Compass, observed that initial pricing on some of the homes was excessive, so the reductions are a long-overdue adjustment. He said, “When you make a price adjustment at this level, the seller must make it impactful. You have to demonstrate you’re serious.”
Fridman also recently reduced the price of a newly constructed 17,000-square-foot mansion he is listing for the development company, Viewpoint Collection, to $36.95 million from $42.5 million; the house was originally listed at $47.5 million in April 2022. He remarked, “It’s a lot, but the seller wants to convey the message that we’re ready to make a deal.”
The adjustment in prices coincides with a general recalibration in the perceived value of some of LA’s most extravagant homes. Over the past year, several properties once aiming to set price records have traded for considerably less, sometimes under distressed circumstances. The infamous example is the 2022 sale of The One, the Bel-Air megamansion initially slated to list for $500 million, but eventually sold for $126 million at auction after its developer, Nile Niami, encountered issues with lenders due to cost overruns and delays.
In May 2022, a bankruptcy judge approved the $47.5 million sale of a Bel-Air megamansion constructed by celebrity Botox doctor Alex Khadavi, who had initially asked for $87 million. Dr. Khadavi relinquished control of the project after excessive spending on the mansion’s construction, which included a DJ booth, a Champagne tasting room, and an NFT art gallery.
Umansky from The Agency identified a combination of factors that have led to steeper price cuts over recent months. A tax, often referred to as the mansion tax and approved in November 2022, is intended to generate funds for the homeless. The tax will impose a 4% duty on property sales between $5 million and $10 million and a 5.5% tax on sales of properties above $10 million.
Umansky mentioned that buyers in the ultra-high end, like other market segments, have been deterred by higher interest rates, recession fears, and the war in Ukraine. He dispelled the misconception that ultra-wealthy individuals don’t borrow to purchase their homes.
However, not all sellers are willing to heavily discount to secure deals. Malibu developer Scott Gillen, who is marketing a collection of homes in the area, recently refused an offer from a buyer who tried to underbid for a home at The Case, his bluff-top development overlooking the Pacific Ocean. Gillen has only made one sale on the five homes in the under-construction project despite years of marketing efforts. The buyer offered $50 million for a house listed for $69.995 million. Gillen asserted, “We have to negotiate, but we’re not going to drop our price by $20 million. We’re not selling to the guy who is a bottom feeder.”