Wealth Takes a Hit

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To get a sense of the utter destructiveness of this recession, one need look no further than Sumner Redstone.

As recently as the middle of last year, the media mogul was the second wealthiest person in Los Angeles with $7 billion to his name. His major holdings, CBS Corp. and Viacom Inc., were stable.

Then, seemingly overnight, everything fell apart: Shares of the media companies collapsed, violating the covenants of a loan owed by his family company, National Amusements Inc., and forcing Redstone to unload huge blocks of the depressed stocks.

The Business Journal calculates he? now worth just $1.8 billion ?and he still owes creditors nearly $1.5 billion, which could mean breaking up his media empire.

When a wily tycoon takes it in the shins like that, you know it? bad.

Most previous downturns were concentrated in a handful of industries, giving savvy and ultrawealthy investors at least a few safe havens. But not this time.

Real estate values have shriveled. The stock market has been a house of horrors. Even fine art prices have plummeted in value. While the upper crust in Los Angeles is still a long way from the poorhouse, the losses among many have been monumental.

?n absolute terms, some of the biggest losers have been rich people,?said Robert Frank, a Cornell University professor of economics and author of ?uxury Fever: Money and Happiness in an Era of Excess.??hey?e still not poor, but they?e way below where they were a year ago.?p>Indeed, the Business Journal calculates that L.A.? 50 wealthiest people cumulatively lost $32 billion in the last year, and their net worth now stands at just $81.7 billion ?the lowest point in five years. The number of billionaires fell from 39 to 29 in the past year.

That kind of carnage shuffled the Wealthiest Angelenos list, though a fortunate few grew their wealth, including biotech entrepreneur Patrick Soon-Shiong. The former surgeon sold his APP Pharmaceuticals LLC in July, allowing him to pass his peers to the very top of the rankings.

Yet most people, rich and super-rich alike, lost vast sums, including entertainment mogul Haim Saban, investor Charles Munger and retail developer Peter Lowy. Redstone fell to 14th place.

Despite having access to the most sophisticated investment services, millionaires lost on average one-fifth of their income and investable assets in the past year, according to a recent study by Fidelity Investments. The kicker: Nearly half of the respondents said they do not even feel wealthy.

Some may shrug off multimillion- and even billion-dollar losses, but for those whose status depends significantly on their wealth, this can be a devastating turn.

?eople do have identities that depend on their place in the wealth hierarchy,?Frank said. ?here is evidence that people get profoundly disoriented when the props to their identity crumble. The ones who now can? do what people in their circle are accustomed to doing, that? a pretty serious blow.?p>


Inconspicuous consumption

Even those faring relatively well have changed their habits as a new sense of frugality has cropped up among the well-to-do. In a city renowned for its glitz and glamour, many rich people are now shying away from over-the-top displays of wealth.

?here? a psychological change that? taking place. Everybody ?and I? talking about virtually everybody ?has been impacted by what has transpired over the last 12 to 18 months,?said Lon Morton, chief executive of investment adviser Morton Capital Management. ? see people of wealth saying we?e not going to take this vacation, we?e not going to take this world cruise, not because they can? afford it, but because it just doesn? feel right to do it.?p>Eli Broad, the most recognized philanthropist and arts patron in Los Angeles, wouldn? disagree. He likes to think his lifestyle was never really ostentatious, but in this recession, even the second wealthiest Angeleno ?known to spend $10 million on a painting without blinking an eye ?has pulled back.

Broad, who lost an estimated $1.5 billion in the past year in part due to the decline in his holdings in American International Group Inc., still has more than $5 billion to his name. But, he said, he and his family have become more aware of how lavish spending is perceived.

?e don? want to be conspicuous in anything that we do during these tough times,?Broad said.

Jeffrey Greene, a newly minted billionaire who owns homes in the Hollywood Hills and Malibu, has a front-row seat to the changes taking place in the affluent community.

The real estate mogul, who placed No. 18 on this year? list with an estimated net worth of $1.6 billion, said his rich friends have been more focused on their financial situations than ever before, and more than a few are cutting back where they can.

Greene is one of the few people to actually increase his wealth, after cashing in on the housing bust through a sophisticated investment play.

But his friends are, for the most part, not in the same yacht, and at parties, meetings, lunches and just about everywhere else the topic of conversation inevitably turns to the strained economy.

?t? definitely on the minds of everyone,?Greene said. ? never in my life have seen so much conversation about the economy. People are legitimately somewhere between concerned and panicked about their financial situations.?p>



Hunting for deals

Observers across a variety of industries have noticed that buyers are trying to be more calculated with their dollars.

Matthew Vazana, general manager of O?ara Coach Co. in Beverly Hills, the world? largest dealer of Bentleys and other exotic rides, said business has been relatively steady ?but not because new cars are flying off the lot.

?n the last couple of months, we?e actually seen an increase in the used-car business,?he said.

Auctions, where the wealthy often turn for high-end art and other rare items, have been struggling. Fine wine auctions held late last year were a disaster. At two auctions in October held by Christie? in Los Angeles, more than one-third of the wines didn? even sell.

So the auction house recently decided to pack up its L.A. wine operations and move all 2009 U.S. wine sales to its New York office.

As prices have come down, there has been a noticeable shift in buyers, said Scott Torrence, the lead wine specialist for Christie?. More are actually pulling out the corks.

?ast year you would have seen a lot of investment buying because a lot of the sales we were putting forth were investment grade wines,?Torrence said. ?e?e starting to see the consumer who wants to drink what he purchases. (A reduced price) brings in the guys that say, ?ey, I?l drink for that price.?


At a standstill

Perhaps no sector saw such an immediate and severe drop-off, however, than the housing market.

Home prices, even at the high end, have dropped dramatically, leading many sellers to pull their homes off the market, said Stephen Shapiro, chairman of Westside Estate Agency Inc., a Beverly Hills brokerage.

What? more, Shapiro said an unusually large number of sellers ?as much as 10 percent ?have turned their multimillion-dollar estates into rentals while they wait for the market to recover.

?e?e had quite a few properties that either have been pulled off the market because of what they can get for them or they have decided to rent them instead of selling them,?he said. ?f you don? need to sell, why would you sell??p>New homes, though, are still being built. Alec Gores, the private equity mogul who ranks No. 16 on this year? list with $1.65 billion, completed homes this past year in Beverly Hills and Malibu.

John Finton, who builds multimillion-dollar homes for some of L.A.? wealthiest residents, said his company, Finton Construction Inc. in Arcadia, has stayed busy by dropping rates by as much as 25 percent.

?rom our business strategy standpoint, it? just part of the new economy. You need to be competitive,?said Finton, who is working on a dozen projects in Beverly Hills and Bel Air. ?t the end of the day, I? rather stay busy and productive and keep my business intact and work for slightly less than not work at all.?p>With signs that the economy could be stabilizing, some bold investors are already looking to take advantage of opportunities in the depressed market.

Robert Maguire, the real estate entrepreneur who headed downtown L.A.? largest office landlord before being ousted last year, said his private aviation company has taken advantage of market distress and captured a major slice of the pie at Van Nuys Airport, the country? biggest general aviation airport. It? a move he figures will position him well for the inevitable economic recovery.

?here are real opportunities,?said Maguire, who placed No. 29 on this year? list with an estimated net worth of $1 billion. ?t will be a tough year in ?9 and part of ?0, but things are cyclical and not linear, and when things start to recover, they recover abruptly.?p>

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