A Wilshire Corridor development that made a splash last year when it started building condos that it said would average about $2,000 a square foot is now up for sale even though the property is still under construction.
Developer Fifield Cos. of Chicago has hired a brokerage team from CB Richard Ellis Group Inc. to market its Club View property on Wilshire Boulevard next to the Los Angeles Country Club. CB Richard Ellis also is marketing two other California condo developments Fifield owns.
It is abnormal for a sizeable development especially such a prominent West Los Angeles development to be put on the market in the midst of construction. The turn of events, coupled with the recent sale of another Wilshire Corridor condo project also under construction, has led some industry experts to suggest that L.A.'s recent surge of high-end condo construction may be approaching its peak.
"The L.A. condo market is at a historical high and it has been strong for some time. It's quite doubtful it is going to go up from here in the shorter term," said Paul Habibi, a lecturer at the UCLA Anderson School of Management and a co-founder and principal of Habibi Properties LLC, a multifamily developer. "Construction prices have risen and the margins for these deals have shrunk from when (developers) went into them."
With at least seven ultra high-end condo developments slated to open in West L.A. in the next few years, some say that the market could become over saturated.
"Whenever you have as many units in one market at the same time as you will have, there may be problems," said Stephen Shapiro, chairman of Westside Estate Agency Inc., a high-end residential brokerage. "You have a town where people are used to buying homes and living out as opposed to living up."
Club View, which is located just west of the Los Angeles Country Club at 1200 S. Club View Dr., will include a maximum of 35 units, including a penthouse that is said to be for sale in the $18 million range unusually pricey in a city where top condos in the past went for $9 million or so. The $2,000 a foot average is much higher than the $1,000 a foot standard for upper end condos. The top five floors of the 21-story building, which is being co-developed by Raleigh Enterprises Inc., will be penthouses, with just one unit per floor.
But after the Club View development was unveiled last fall, a flurry of ultra-high-end condo construction was announced. Some of those newer units were planned to be priced at $25 million or more, and some for $4,000 a foot or more.
In addition to concerns about market saturation, some say that future increased interest rates could make financing the purchases of those multi-million dollar units more costly another possible reason to try to unload a property now.
"Upward pressure on interest rates could slow down sales and (the developer's) own loan costs could be going up," said Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate. "We are still seeing higher prices, but the market is definitely in a corrective phase. There is uncertainty out there."
The possible sale of the building and the two other assets calls into question Fifield's status regarding residential development in California. Steve Fifield, president and founder of the company, moved his family from Chicago to Los Angeles in 2005 to head up local efforts. Fifield was on vacation last week and could not be reached for comment.
But Tim O'Brien, senior vice president and principal at Fifield, says that the buildings are on the market simply because the company has an opportunity to make a handsome return on its investments.
"If you are selling something for a lesser value to just get out, that would be a different story," O'Brien said. "We have the ability to monetize our position and make as much or more on an after-tax basis as the result of a disposition. If we can achieve that goal we are first and foremost in business."
According to the CB Richard Ellis Group offering memorandum, Club View is valued at $95.8 million.
The condo tower is still scheduled to open in early 2009 and the company is continuing to build at the site. Some of the units at the building have already been pre-sold.
In July 2006 Fifield completed and sold another condo project on Wilshire Boulevard the 23-story Californian on Wilshire the company's first condo project in California.
Neighbors weigh in
Just up the street from Club View at 10776 Wilshire Blvd., New York-based developer Elad Group paid about $140 million for Carlyle. The 23-story building was sold by Woodridge Capital LLC in a deal that closed two weeks ago. It, too, is under construction.
Elad, a national developer that controls the Plaza brand and plans a major expansion of it worldwide, purchased the Carlyle because it wanted to get into the Los Angeles market.
Miki Naftali, president and chief executive of Elad, said that the Wilshire Corridor offers a unique opportunity in Los Angeles, which he says has limited development opportunities and a lack of high-end product when compared to other world-class cities.
"What we are very excited about is that we are approved to go and we are already under construction," Naftali said. The project is expected to be completed in mid-2009.
The Carlyle was not for sale when Naftali made an offer for the property, said Michael Rosenfeld, president of Woodridge.
"Everything comes down to a cost-benefit analysis," said Rosenfeld, who noted that risks for a development like the Carlyle include "execution risk, construction risk and marketing risk."
Similarly, Club View was only put on the market once Fifield began receiving offers on the project that were too enticing to ignore.
"Fifield was getting unsolicited offer activity while they were building the foundation of the property and we felt they might be interested to see if there were any other developers out there that might be interested in the property," said Laurie Lustig-Bower, executive vice president at CB Richard Ellis Group, who is marketing the sale of the three-property Fifield portfolio that also includes San Francisco's Californian on Rincon Hill and Costa Mesa's Californian at Town Center.
Lustig-Bower said Fifield has received "compelling" offers and a buyer could be chosen "in the next couple of weeks." The three properties in the portfolio could be sold piecemeal.
Naftali said that his company was offered the Club View project "at least two months ago." Elad declined to purchase the building because the Carlyle was a better fit for the company, Naftali said.
Naftali added that Elad valued the Club View project at less than the $95.8 million cited in the offering memorandum.
There is another group of neighbors that Fifield has had contact with the local homeowners associations that include the Holmby-Westwood Property Owners Association and the Westwood Homeowners Association.
Sandy Brown, president of the Holmby-Westwood group, said that her association has doggedly followed the progress of Club View and has "been a thorn in the side" of Fifield.
But O'Brien says that construction continues as planned, on schedule. The site has been excavated and now the parking garage is being built, he said. Charles Pankow Builders Ltd. is handling construction at the site and Lehman Brothers Holdings Inc. and Fremont Capital Inc. are financing it.
Others involved in the local high-end condo market say they expect it to be robust when multiple projects open in the next few years. Those developments include the Century, a development by Related Cos. in Century City, the Montage Hotel and condo development by the Athens Group and Candy & Candy's 9900 Wilshire Blvd. project, among others.
Many of the developers and brokers associated with these projects say that there is a great deal of interest in these developments from condo buyers.
"People who are coming internationally and domestically are recognizing that Beverly Hills and the West L.A. luxury real estate market is undervalued," said Jay Newman, chief operating officer for Athens Group, whose project will include just 20 condo units atop the Montage Hotel.
But Newman did acknowledge that Fifield's sale of a building in the midst of construction is "not the norm," adding that by selling, Fifield avoids "market and construction risk."
O'Brien said Fifield is still committed to the California market and residential development in general, citing a project that is underway in Hawaii and a partnership with Pacific Life Insurance Co. to build apartment buildings.
"Our goal is to have a balanced development program and platform on the West Coast," he said.
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