Archive for the ‘The Luxury Insider’ Category

The Luxury Insider: The Price Per Square Foot Fallacy

By Alain Pinel | February 22nd, 2012 0 Comments

I never ceased to be amazed at the fact that many Realtors are judging the value of a luxury home on the basis of its square footage. For a bank appraiser or a home builder to think that way, I can understand, it can indeed be part of the valuation methodology, but for Realtors?

In the high end, not two homes are the same, even when they are….or they appear to be. Take two identical penthouses in New York, both brand new; same top floor, same square footage, same layout, and same amenities. I guarantee that one is worth more than the other, often a lot more. Perhaps one has a better sun exposure, or a nicer view, or sits next to another beautiful residential building while the other one has a service station for a neighbor, or one is further away from a noisy school yard, etc. Are these two properties identical? Of course not.

I remember looking at fancy real estate while in the South of France, a few years back. One town got my interest, and yours too, probably, given the opportunity: Cannes, the site of the international film festival, stretching beautifully along the crystal blue Mediterranean sea. Right in the middle of “La Croisette”, Heaven’s local version of a boardwalk, there is a nice white building where, every so often, condos are “offered” for sale. I saw one I liked –of course I am easy to please. Third floor, bay windows and a balcony open to the ocean, the harbor full of the most amazing yachts, and a full view of the street action underneath, at the level of Cartier, Hermes, Prada…You see what I mean. That little pad was available for the taking at over $10,000 per square foot. No, I did not buy it. In the back of the building, another condo was unofficially on the market. Bigger and on a higher floor, but the asking price was not even half that of the first. The view was nice but who wants to overlook a pool, a garden and a bunch of rooftops when the alternative –for only twice as much- is a panoramic piece of the Mediterranean?

Square footage is largely irrelevant in the high end. Buyers buy benefits, real or perceived. Bigger is not necessarily better. Depends what you really want, or what you really need. It’s OK to want to live in a 20,000 square foot  home. It might even be pleasurable. But please understand that if & when you decide to sell it, it may fetch only what a nearby property of similar quality but smaller size will obtain in the open market. Size usually needs to serve a purpose to be worth the money it costs to build. For example, you can get your money back and sometimes make a little more if you put a home theater in your home, or a library, or a wine cellar, or an indoor pool, or a racket-ball court and perhaps even a ballroom, why not? However, if you have a huge house just to have huge rooms, square footage could be more a handicap than an added value.

Having said that, if you want a huge home because you like the feel, the space and have no concern about an eventual resale, don’t listen to me. What do I know, for the time being I live in a condo! A nice one though.

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Luxury Insider: TSUNAMI WARNING!… IT’S OK!

By Alain Pinel | February 15th, 2012 0 Comments

Have you been watching the Nasdaq lately? Of course you have. So have I, like a hawk, particularly over the last couple of months. What do we see? We see the late 90’s all over again!

2011 was not too bad for the Nasdaq. It played the little train that could, grinding most of the year, an inch at- a -time. The tempo accelerated a bit mid-December and that train now looks like nothing is going to stop it. There is no better bellwether of things to come in the Valley than the Nasdaq. Sure we are still far from the March 2000 peak of 5134 but the uphill direction in which the tech heavy index is headed and the pace at which it is moving make a statement: happy days are ahead.

There are some differences though between, say, 1998 and today. For one, we had plenty of homes to sell back then; today we have little inventory where the demand is hot, particularly on the mid-Peninsula. Also, mortgage money is still hard to get today while it was flowing during the dotcom boom. Finally, the escalation of Bay Area real estate prices in 98, 99 & the first half of 2000 was mirroring almost perfectly the progression of the Nasdaq; today, they are still slow to warm up and the thawing process is likely to be very spotty on the regional map for a while.

The barometer, irrespective of the above concerns, is indicating sunny & dry tomorrows. The “Facebook effect” you might say. Hundreds of employees and paper millionaires are already counting their money, waiting for pay-day. It might take months before the lucky jackpot winners free their cash, but they will, and just as surely, that cash is going to turn a lot of California real estate into gold. We have been there before, when regional tech IPO’s were hitting the market every week in the late 90’s. The Facebook phenomenon is going to change the Bay Area real estate landscape in a hurry.

Yes, the tsunami is coming. We don’t see the wave from shore just yet but we can already hear & feel the vibrations. Other IPO’s are lined up through the year to keep the momentum going. Looks like there is enough on the horizon to bring wealth or at least financial comfort and security to many.

The Silicon Valley, as it is often said, is the land of fear and greed. Greed is winning again. Considering the alternative, it is a very good thing. We may thank for that the genius of local visionaries, from Steve Jobs to Mark Zuckerberg, but also the background actors & directors without whom the Silicon Valley may only be another valley: the VC people. They have been using their brain cells and risking their money for nearly two decades to guarantee that the sun would keep on shining in Northern California and beyond.

In fact, they may be the true engine of growth. Obviously innovation is the necessary ingredient to produce economic success, but, by itself, it is rarely enough to leverage & multiply the opportunities and considerably accelerate & amplify the resulting benefits. By discerning the right ideas and bringing them to market, the VC companies are fueling innovation. In a way, they are “manufacturing” growth. We sincerely appreciate it. After years of bad news, we will happily reap the benefits of their good work.

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The Luxury Insider: The future of the luxury market

By Alain Pinel | January 25th, 2012 0 Comments

Dear readers –

As you may have heard, recently industry icon and good friend Alain Pinel joined our Intero family. To further share with our readers his tremendous knowledge on luxury real estate, you will receive a Luxury Insider – A weekly glimpse of the high-end real estate market blog written by Alain. Hope you enjoy this valuable information. And thank you Alain for your insight on the luxury market.

- Gino Blefari

2011 is gone. Thank you. Don’t know too many home sellers and home buyers who will remember it fondly. I will venture to say that most Realtors share that sentiment. Actually, the best thing that can be said about last year in the real estate business is that… It did not get worse. We’ll take it. After some four years of nasty economic news and agonizing uncertainty, a flat year is a welcome transition. Real estate values have stabilized in the Silicon Valley. The ground is firmer. We now have a more stable foundation to build on. The business climate also is changing: the many “For Lease” signs that we used to see in the hi tech districts have disappeared from the curbs and the job situation has improved considerably. We still have to jump a few hurdles such as a tight credit but, together with low mortgage rates, a decent inventory of homes, attractive prices and a growing pent up demand, today’s picture calls for optimism.

The segment of the market most likely to benefit from the above is the luxury market, the “high end of the high end.” In a way, it was to be expected since it is the segment of the market that suffered the most over the last 12 years or so. Since the dotcom hay-days of 1999 and 2000, prices and number of sales have been cut significantly.

Case in point, let’s take a look at Atherton, the perfect “high end market,” during that stretch of time.

In 2000, 28 sales over $5,000,000 were posted on the MLS for an overall market average price of $3.8M. From that point on, the number of transactions shrunk and ended up at 10 last year, roughly a third of the 2000 high mark. The stats for 2004 came close (21 sales), but no cigar.  In terms of price, the overall Atherton market average last year was $3.4M, still 10% below the price achieved in 2000.

At a time when cash is coming back to the valley, fed by new IPO’s, a new wave of  buyers in the $ million range anxious to move their equity to higher grounds and foreign investors looking for a safer refuge for their money, things are looking up in the luxury market. I bet the high end is going to be again the market locomotive it used to be. Happy New Year!

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