In a bear housing market, developers have to cut costs and streamline processes in order to turn a profit. Sometimes they even hibernate.
Daniel Khakshouri hasn’t gone into hibernation. He’s concentrating on new approaches to keep business going.
Khakshouri’s company, Westwood-based Pacific Realty Ventures Corp. converts rental apartment buildings into midrange condominium properties. Khakshouri has tailored his business to allow first-time homebuyers to purchase affordable condos at a time when the residential market has been rocked by the subprime mortgage meltdown.
Three aspects of Pacific Realty’s business set the company apart. First, the company does bulk-purchasing of high-quality material and furnishings when other developers in the game prefer to offer plainer units.
Second, Khakshouri uses his own construction crews for the projects a cost-saving measure. When projects aren’t going full bore, the company’s crews are used for preventative maintenance at the condo buildings.
Those steps result in lower costs for higher-grade condos.
Finally, Khakshouri has a high degree of expertise in aiding homebuyers with financing a crucial factor now that borrowing money has gotten dicier.
Khakshouri, 29, created Pacific Realty Ventures in 2001, the same year he graduated from UCLA. Khakshouri is of Iranian descent, grew up in Germany and moved here to attend the Westwood university.
Khakshouri turned to his father, Mayer Khakshouri, a real estate investor based in Hamburg, Germany, to help launch his business. Hid dad’s loan of $164,000 helped with the financing and renovation of a nine-unit apartment building in Santa Monica. He remodeled it and flipped it 18 months later for $1.85 million, making $570,000 on the sale.
Khakshouri’s father now lives in Los Angeles and is a consultant to Pacific Realty.
The company markets buildings under the name Condo West in submarkets including Sherman Oaks, Koreatown and Westwood.
Getting Started
More recently, Khakshouri began focusing on the first-time homebuyer. That meant he had to lower costs, which he did by renovating his buildings with his own construction crews and design teams, and buying raw material such as Italian marble for bathrooms in bulk. He also buys granite for kitchens in bulk and completed bathroom assemblies. The bulk-buying allows Khakshouri to sell condos in the $500,000 range, often below the price of comparable new units.
“Before I did that, I’d work with outside contractors and shopped around,” said Khakshouri. “I knew what people were charging. I looked at what it costs. A typical contractor charges 20 percent over cost.”
After paying for salaries and benefits, and paying to warehouse his bulk materials, Khakshouri said he still saves 30 percent from what he otherwise would pay.
Some others have taken a different approach. Nate Walker, who heads Investors Management Co., which has done two large condo conversion projects in the L.A. area, says that while he has used his own construction crews in the past, he prefers to hire outside contractors because of liability concerns.
What’s more, Walker said that he is not interested in providing buyers with fancier furnishings such as marble bathrooms because buyers tend to be picky when it comes to finishes.
Since the residential downturn began a year ago, Pacific Realty Ventures has begun work on the conversion of about 70 units, which are at varying stages of completion.
Pacific Realty focuses on submarkets where opportunities are available to first-time buyers, such as Canoga Park and Paramount. And Khakshouri has created a comprehensive financing presentation for prospective buyers to help move units. Open-house attendees are usually greeted by a third-party loan officer from an unaffiliated company such as Countrywide Financial Corp. Khakshouri works with these brokers to highlight the variety of programs available to buyers.
“Three Sundays a month I go to other peoples’ open houses and I go to see what the competition is doing in terms of finishes, sales teams and financing. In doing so, I can tell you I haven’t seen a single other person offer these programs,” Khakshouri said.
While Countrywide has sustained serious damage from the subprime crisis, the company still makes loans even in the subprime realm. The loans require more documentation than they did in the boom years, however.
“He comes with us to seminars and fact-finding missions and says, ‘Let’s go explore,’ ” said Alan Pezeshkian, a local branch manager for Countrywide who often attends Pacific Realty Ventures’ open houses. “Any program that is out there that could remotely benefit the homeowner is being explored.”
Some government-sponsored programs include Federal Housing Administration loans for first-time buyers and down-payment assistance from the city of Los Angeles.
While these programs are available to the public at large, Khakshouri says he has cut through some of the red tape and confusion associated with these mortgage tools.
“Any time you want to apply for a government-sponsored program, the process tends to be a little bit more cumbersome. But once you go through the process once and figure out what needs to be done and lay the groundwork, it becomes easier,” Pezeshkian said.
More affordable
An eight-unit Pacific Realty project in Westwood, a four-story Italianate building called Malcolm Regency, is set to open in a few weeks. Units top out in the $500,000-$600,000 range. Those numbers appear to fall in line with Khakshouri’s plan to make his properties more affordable than comparable new construction. In January, the median price of a new condo unit sold in the Westwood 90024 ZIP code was $640,000.
But what may be troubling to Pacific Realty Ventures is information on condo sales in that same ZIP code. In January, just six units were sold, a 60 percent slide from January 2007.
Khakshouri believes the company is insulated from the downturn because of its concentration on entry-level properties, as there will always be a market for first-time homebuyers.
Again, others often take a different view. Walker said that in the current market he would not embark on a condo conversion because of the risks involved with working on an older building.
“Taking an older product and doing the conversion and marketing it, you seem to be opening yourself up to a whole new set of issues,” said Walker.
Syd Leibovitch, president of Rodeo Realty Inc., said Khakshouri’s approach has some noteworthy aspects, such as sourcing materials from Europe.
Leibovitch said that typically condo builders import raw material from Mexico or China.
“Maybe this is more up-market,” Leibovitch said. “It’s good that he’s innovative. I think that’s a great idea.”
But he believes profits will be scarce in a down market.
“Obviously they will have to eke them out a little more,” Leibovitch said, “because prices are lower. But these guys have always been maximizing profits with their own crews.”
Pacific Realty Ventures Corp.
Year Founded: 2001
Core Business: Real estate
Employees in 2006: 5
Employees in 2007: 13
Goal: To become a leader in repositioning underutilized properties in Los Angeles County
Driving Force: Demand for affordable real estate in the region
