As the high end of the market collapses, you will see a race to the bottom among similar properties. Today’s featured property is one of three North Korean Tower penthouses competing for buyers who probably are not there.
Asking Price: $1,699,000
Address: 3141 Michelson #1704, Irvine, CA 92612
{book1}
Desperado, why don’t you come to your senses
You’ve been out ridin’ fences,
for so long – now.
Ohh you’re a hard one.
I know that you’ve got your reasons.
These things that are pleasin’you
Can hurt you somehow.
Don’t you draw the queen of diamonds boy
She’ll beat you if she’s able.
Desperado — The Eagles
Many of us here have been riding fences for a very long time, and most of us “on the fence” will probably stay there for another year or three. We have our reasons; prices are going down, and they will continue to do so. Many others pursued the Queen of Diamonds during the bubble, and she beat them, took their money, took their property, and left them broken.
I have documented other cases of similar properties racing downward to find the few available buyers. One of the more notable cases was back in 2007 in Quail Hill in a post called Stepping Down. Today’s featured properties are all penthouse units in the North Korean Towers at the corner of Jamboree and the 405. All three are high-end properties on the cusp of a calamity. Prices in this building are more than 50% off, and there is no bottom in sight. All three of these units will likely drop 65%-70% before prices stabilize. Right now, they are all priced near what the owners paid; that will change.
There are no buyers for these units, but just in case, these three properties are positioning themselves to capture a knife catcher before prices fall off a cliff. I recently documented this phenomenon in the post School of Hard Knocks on Scholarship, Jamboree Corridor, Irvine. Once prices start falling in these condo towers, there simply isn’t any support beneath prices. Cashflow valuations are a third of asking prices. Someone, somewhere is going to lose a great deal of money.
Asking Price: $1,699,000
Income Requirement: $424,750
Downpayment Needed: $339,800
Purchase Price: $1,647,000
Purchase Date: 8/7/2006
Address: 3141 Michelson #1704, Irvine, CA 92612
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 2,062 |
| $/Sq. Ft.: | $824 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Art Deco |
| Stories: | 1 |
| Floor: | 1 |
| View: | City Lights, City, Hills, Mountain |
| Year Built: | 2006 |
| Community: | Airport Area |
| County: | Orange |
| MLS#: | P650535 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 317 days |
panoramic mountain views & city lights. Luxury appliances,
fireplace, granite counters, wood & travertine flooring in living
room, kitchen, and baths; office, 24-hr guard & concierge, billiard
room, pool, spa, media room, fitness center. Entertainer’s dream,
Walking distance to shopping / restaurants.
This unit is owned by the optimist of the group. He actually thinks he can sell it for more than he paid. He will still lose a little bit with the commission, but he really believes he will escape this unscathed.
Asking Price: $1,648,000
Income Requirement: $412,000
Downpayment Needed: $329,600
Purchase Price: $1,752,500
Purchase Date: 2/17/2006
Address: 3131 Michelson #1702, Irvine, CA 92612
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,984 |
| $/Sq. Ft.: | $831 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Hi-Rise/Mid-Rise Condominimum |
| Stories: | 1 |
| Floor: | 1 |
| View: | City Lights, City, Mountain, Panoramic, Has View |
| Year Built: | 2006 |
| Community: | Airport Area |
| County: | Orange |
| MLS#: | S569441 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 79 days |
Location, Panoramic Views, An Unsurpassed Lifestyle. With 24 Hour
Concierge, Gated & Guarded Entry And First Class Facilities To Work
And Play. Spacious Interior: Floor To Ceiling Glass Walls, Automated
Window Shade, Gourmet Kitchen, Quality Wood Cabinet With Granite
Countertops, Professional Quality Stainless Steel Appliances, Hardwood
Flooring, Marble Baths and Heater Travertine Floors In Bathrooms…
This second property is nearly identical to the first. It is in the other tower, but the owner paid $100,000 more for this unit, and they are asking $50,000 less. If this one sells for its asking price, and if a 6% commission is paid, the total loss will be $203,800. Unfortunately, it will probably not sell for that much because…
Asking Price: $1,499,000
Income Requirement: $374,750
Downpayment Needed: $299,800
Purchase Price: $1,561,500
Purchase Date: 2/14/2006
Address: 3131 Michelson #1803, Irvine, CA 92612
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 2,000 |
| $/Sq. Ft.: | $750 |
| Lot Size: | – |
| Property Type: | Attached, Condominium |
| Style: | Contemporary |
| Stories: | 1 |
| View: | City Lights |
| Year Built: | 2006 |
| Community: | Airport Area |
| County: | Orange |
| MLS#: | H09038904 |
| Source: | MRMLS |
| Status: | Active |
| On Redfin: | 77 days |
floor plan with 2 bedrooms plus den. Floor-to-ceiling windows boast
expansive city lights and mountain views. Top-Of-The-Line Amenities ,
First-Class Services and Facilities all within a exquisite
Resort-Styled atmosphere. Experience the finest in penthouse living.
Also for lease with furniture at $5,500.
The oil painting effect on Photoshop must be the new rage in MLS photos.
This last property is comparable to the first two, and it is $200,000 less expensive than the first and $150,000 less expensive than the second. It may not be quite as nice as the second one as it did sell for less originally, but the discount is such that a knife catcher may pick it instead.
If this one sells for its asking price, and if a 6% commission is paid, the total loss will be $152,440.
The owners of these three units are praying for a knife catcher. If they are lucky, perhaps one of them will find one; probably not. These three will continue to race downward until they either give up and go into foreclosure or find someone else willing to endure the big upcoming drop.
Say you really wanted to live in the third one. Why would you buy when you could rent for far less than what it would cost to own? What is the break even buy price vs a 5500/mo rent?
This is almost a game of chicken. There will be a first buyer and will one ‘owner’ blink first and drop their price to get that buyer? That comp would probably set the ceiling for the others, and I would guess that the each sale price will be lower than the prior.
Let’s see: $5,500 rent bargained down to $5,000. $5,000 less HOA $1,150 less taxes $1,500 – insurance $300 = net rent $2,050. And you pay the mortgage HOW with a net of two grand?
You don’t, which means that you take the rent, don’t pay the mortgage, don’t pay the HOA, don’t pay the taxes, keep the security deposit and laugh your butt off when the tenant gets evicted by the foreclosure.
What also gets me is that once most of the residents vacate, the property owners would rather leave it empty for years or even decades than drop their prices. I remember a similar highrise condo property here in Dallas, along I-35, that was built back at the absolute beginning of the oil boom back in 1978. By 1983, it was completely empty, but the owners figured they were getting more of a tax cut by leaving it empty than what they’d make off lowering the sale or rent prices. Finally, by the time new owners figured that they were stuck with a white elephant, the place had decayed to the point where repairs would have run for more than what the property was worth.
The real irony wasn’t that it was finally demolished, after only holding residents for three years in the last thirty. It’s that the property was finally converted into assisted living condos, with the help of a gigantic grant from the State of Texas. Never believe anyone who tells you that socialism doesn’t exist in Texas: the screaming starts only when someone tries to apply it to anyone other than the rich and powerful.
The city of Arlington put up a big chunk of the money to build the Rangers’ Ballpark at Arlington, which brought serious financial gain to some guy from TX…
Don’t forget the 8 years as well.
But then I can’t complain either…..I didn’t do badly after the dot bomb đ
Trust me: that was still peanuts compared to the money spent, and the property stolen through eminent domain, to build the new Cowboys Stadium. I won’t even go into the city-financed American Airlines Stadium in Dallas, which both guaranteed that Tom Hicks, owner of the Dallas Stars, got a free stadium and helped a close friend of Hicks’s to sell off property that was previously a chemical dump. And now Robert Dechard, the CEO of A.H. Belo, is trying to finalize a deal where Dallas buys Belo-owned land to build a new convention center hotel with…wait for it…city funds.
How many penthouses can there be in two towers? I was under the impression that only the top floor is the penthouse.
Are there two penthouse-units per tower?
Just curious….but I bet we see a low-floor unit at some point being described as a penthouse as well.
In my experience the word “penthouse” has been about as carefully and meaningfully used as “oceanview”.
A “peek-a-boo penthouse”???
đ
Love the freeway shots in the first one. “Great balconies for entertaining”–only if it’s entertaining when everyone’s shouting to be heard about the noise from the 405.
I dunno-does said noise carry 17 stories up?
Not that these things make any sense whatsoever at prices above a quarter million dollars or so. A monthly $1,150 HOA should make everybody (except potential renters) run for cover.
Yes, sound travels up very well (it’s common for people in balloons several hundred feet in the air to hear conversations from the ground). 17 stories is approximately 200 feet, so I’d bet the freeway noise can be pretty deafening.
Apparently the view of the parking garage and another parking lot behind that is so good that they post it twice. Different taste for different folks, but unless I’m looking at my Ferrari collection down there (baking in the sun? well perhaps not so great after all), it wouldn’t do it for me.
Excellent post on reform of the financial industry from Calculated Risk:
Martin Wolf on Finanical Reform and Incentives
Reform of regulation has to start by altering incentives
“At the heart of the financial industry are highly leveraged businesses. Their central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state. This is a licence to gamble with taxpayersâ money. The mystery is that crises erupt so rarely…. The unpleasant truth is that, today, the incentive to behave in this risky way is, if anything, even bigger than it was before the crisis.
Regulatory reform cannot end with incentives. But it has to start from incentives. A business that is too big to fail cannot be run in the interests of shareholders, since it is no longer part of the market. Either it must be possible to close it down or it has to be run in a different way. It is as simple â and brutal â as that.”
I know it’s very easy for people like me to throw stones at the morons behind this debacle … but I can’t help myself. I call it the way I see it. We need more simplified reason and logic, and less sophisticated financial experimentation.
I would think after the disaster of the last 2 years, we would have learned our lessons. But it seems like the regulators are more concerned with removing the mark to market & uptick rules.
Why has the SEC not changed the leverage rules with these gawd damn banks? Why has the gov’t not spent more time trying to reinstate a new form of The Glass Steagall Act? Or is it that our national economy is so dependent on expanding debt, that any type of reform, and/or returning the old rules, would cause too much pain in the system? I think we know the answer to that question.
It is ridiculous when you think about it. As a society, we now have to master the art of speculation. People must learn to buy distressed assets when nobody wants them and part with these same assets when everyone wants one. Those that can learn to buy and sell counter to the crowd will prosper.
Investment is not supposed to work that way. In a world awash in cheap money and Ponzi Schemes, there is no cashflow investment only speculation.
Damn right on that last paragraph. Now with ZIRP, we’re forced to either go back to the Ponzi scheme or let our safe money die from inflation.
Leverage is essentially meaningless (at least in terms of your classic thoughts) in a fiat currency system such as the US dollar has. To fix the leverage ratios, instead of lending less, the country can print money, and buy mortgage (GSE) debt, as it is doing right now. It can just increase the money supply as it has been doing, until the debt issued is a small fraction of its “assets.”
Most countries couldn’t get away with this – the US can, as long as it can export its inflation to China, which is more than happy to buy US debt to subsidize US outsourcing of the American dream and jobs.
1971 – that’s when the gold standard was abolished and simultaneously, the market of derivatives was born in the US. Real money has been in the hands of those who know the derivatives market. And the derivatives market has penetrated the US housing asset class – there’s no stopping its manipulation by traders. Homes are just another commodity, just as the American workforce has become, just as oil and energy are.
The people are left to squawk and squeal about the new order of the markets.
The cost to maintain one of these gaudy condos, is enough to make any potential buyer pause. But let’s assume for a moment, you’re in the market to pay cash for something like this … why, oh why, would you select one of these freeway towers instead of a condo overlooking the Pacific?!? Answer … you wouldn’t, therefore these towers will rot on the vine until they reach what economists call “opportunity cost”, or what would my home rent for if I were to move out. And that sends us right back to the basic evaluation of rental parody.
This isn’t going to end well.
“Gaudy” is too weak. Love the Zebra (!!) skin rug in the second unit. “Zebra skin rug” is to staging as “needs more cowbell!” is to music.
“Rental parody” is a good term for these. Assuming these would rent for $3k, the HOA and utilities would eat almost half the rental income. I don’t see anyone falling so much in love with these that they would rent for a significant premium over a 2000 sqft house in Irvine or smaller condo near the beach.
Towers in the middle of suburbia. They have none of the nearby opportunities of urban living and none of the outdoor space of a suburban tract home.
HA!!!
Rental parody… that’s a good’n intentional or not-
The market nationally may be getting close to the bottom. When you read sentiment articles like this one, you know we are getting closer:
âNo Thanks, Iâll Rentâ: Shifting Attitudes Toward Homeownership
“Nearly half of those surveyed no longer think owning a home is a realistic tool to build wealth.”
When everyone believes it is better to rent, it will be time to buy.
Note: this is national. Our local market has yet to feel real pain.
Those pictures are really sad and depressing. I almost feel sorry for the owners…..almost. Do you think any of these units would sell for $900,000?
Dano
Wait until the HOA collapses. Prices will be crushed at that point.
One may as well post a picture of a little girl, hands on the floor to ceiling windows with a whispery voice saying “get….out….” AKA Poltergeist.
My .02
Soylent Green Is People
Does the HOA’s expenses really run $1,150 a month per tenant? I don’t carry how much fancy stuff they provide-I bet they have a hefty cash reserve. Or at least probably had one at one point-maybe it’s already gone. Is there a way to track how many units are behind in their HOA dues?
“These three will continue to race downward until they either give up and go into foreclosure or find someone else willing to endure the big upcoming drop.”
Sorry IR, CA just went into 3 months moratorium on foreclosure. After that, another 3 months extension. After that, a Fed extension……..
The game goes on.
The new California foreclosure moratorium is a joke. All a bank has to do to be exempt is to have a foreclosure modification plan in place-it doesn’t even have to apply to the borrower/property being foreclosed upon.
If that’s the case, then the race is on.
Destination: bottom đ
FHFA Data May Signal False Bottom in Housing
“Ivy Zelman, chief executive of Zelman & Associates, a research firm, is less sanguine. She says in a new report that the low end of the market âappears to be approaching stabilization given improved affordability for first-time home buyers and the willingness of investors to absorb distressed home sales.â But she expects prices of higher-end homes to fall swiftly in the months ahead as sellers become more desperate.”
Ivy Zelman is the woman responsible for the Credit Suisse reports showing the ARM reset/recast problem. She has been at the forefront of calling the housing bubble.
I saw this gem in the comments:
“Manhattan real estate is just going to keep going up and up in value. Everyone wants to live here. And there is no place left to buildâManhattan is an island. These people donât understand how golden an apartment in Manhattan is. Even Brooklyn and Queens are on an Island (Long Island) and all the good building areas are taken. Europeans and Asians are flying in each day to buy an apartment or two in New York. Donât count us out. $2,000 a sqare foot is not too much to be at the center or the world, or to have an investment rental condo at the center of the world.”
The purpose of New York is to make California look less stupid.
> Europeans and Asians are flying in each day to buy an apartment or two in New York.
Has the “foreigners will save us” line of reasoning ever beed valid in a downturn?
Places like Vancouver, Croatia, and Spain were all lifted higher by foreign investors buying vacation homes or rental properties during the worldwide hysteria, but even Vancouver, with its huge pool of cash-carrying Chinese buyers, is crashing.
A friend in Morocco reports that there are obvious spec condo towers here and there.
But when the crash comes, the foreign money is useless to support the market, right? Or is there some shining example to give us hope?
I’ve been thinking this whole ‘green shoots’ in the economy thing is just us being in the eye of the hurricane.
If you look at the original IMF chart (updated) you can see why I think that theres a false sense of stability in the general economy.
If the next round is anywhere near as potent as the last one, the US could be hurting for quite some time.
I’m sure people with $1.7M to spend would opt for that awesome view (and smell) of the 405 from an overstaged apartment rather than a house overlooking the ocean.
Apparently the condo markets are still crashing. Barney Frank wants Fannie and Freddie to ease up on the new condo rules.
http://www.reuters.com/article/GCA-Housing/idUSTRE55L39120090622
‘The rules have “had a real chill on the ability to get these condos sold,” at a time when prices of condos have fallen enough to attract potential buyers.’
Speculators are willing to buy some of these crappy condos, but no bank is willing to lend the money without a government guarantee. What does that say about the state of the condo market?
If no one is willing to loan you the money to buy these condos, then either: 1) the condo is not worthy of the investment; or 2) the borrower is not worth the investment.
In either case, in no way should the government be backstopping these loans.
Dan is absolutely right. For once, governmental criteria serve as a valid warning on condos purchases. Just ask the officers of the HOAs that don’t have sufficient cash flow from hoa fees to cover fixed costs – and how many units are either short sales or REO.
These places are still way overvalued. With the insane HOA, I would think about 700K might be a fair price…that would require a 50%+ price reduction.
I actually don’t feel sorry for the stupid owners. I remember when the OC Register had an article on the buyers of the North Korean Towers during the peak of the bubble. All were speculators who had a smug attitude about their great real estate investment. If I remember correctly, they featured a CEO of a local company who bought one of the penthouse units. If anybody can dig up this article…I think it would be worth the chucke reading it. These people were so drunk on the kool-aid, they had no idea their house of cards would get vaporized.
I believe this is the article you are looking for:
http://www.ocregister.com/ocregister/business/yourcounty/article_1105287.php
Great, thanks for posting the link. This is a must read for people who haven’t seen it before…the date is April 15, 2006. This was very close to the peak of the bubble. The kool-aid was stronger than heroin at that point.
These towers will be long lasting scars of the great OC housing bubble. Schadenfreude at its best.
“David S. is asking $2.195 million for his penthouse unit at 3131 Michelson Drive. He paid $1.56 million.
Agents of other owners have called his agent asking him to raise his asking price, David said. His price is right for now, David said, since high-rise living is new and will take a while to catch on. And there are too many units for sale to ask more, he said.”
Bwahahaha.
The sad part is many think the only way to make money is to flip. You see continued bidding on REO homes as in the Huntington beach home that was gutted and sold in a bidding war. What I would like to see is how this property fairs after the repairs and it’s put back on the market. It was valued at 2 million sold for 1.39 The reported 300k profit was too much for the flippers to leave. So many make a living this way and it appears they are still trying.
Those who bought the condo’s expected to flip them as well and got caught. Some expected to live there for two years and bank the tax free profit. The HOA is really the problem –way too high. They need to do something about this if they expect to sell them.
All this does is point to the money machine that RE has become—and still continues to be.
Off Topic
My Mom just sent this over to me.
Creative Definitions – Part 1
The following is from the Washington Post’s Mensa Invitational which once again asked readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition. Here are the winners:
1. Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.
2. Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.
3. Reintarnation: Coming back to life as a hillbilly.
4. Bozone (n.): The substance surrounding stupid people that stops bright ideas from penetrating. The bozone layer, unfortunately, shows little sign of breaking down in the near future.
5.Giraffiti: Vandalism spray-painted very, very high
Source Unknown
IR,
It possible that the owners can come way ahead in the game. Say owner occupied with negative downpayment of -2% and come on single Opt-ARM of 1% until now (non-recourse purchase loan). Now stop paying for 1 to 2 years before foreclosure. That will be 2 to 3 years of subsidized rent plus 1 to 2 year of free rent plus the negative downpayment of $32,000. It will be poor credit for 5 years, but one can rent a nice place with the $32,000 plus money from low to fee rent. They also need a bailout.
govt paying large bank is called preventing a global meltdown
govt paying large corp is called stimulating the economy
govt paying large corporate farmers is called farm subsidies
govt paying small companies is called seed money
govt paying pension and SSI is called entitlements
govt paying middle class is called welfare
govt paying the poor is called paying for a welfare queen
It is amazing to see the different ways one can be roiled in fraud and how so many think it’s totally ok to steal from the government. We have become a nation of fraud.
I think the average American is against these bailout and fraud. It’s the voting blocks, news media, business, and paid politicians that want the govt grant system to continue on taxpayer expense. During the 2008, the polls had the majority from both parties against the bailout. Third party were over the top against the bailout (That’s why the third parties were marginalized by the media.) BO even said that he would not have the bailout if elected. It doubled after he was in office. The news media is portraying the loan abusers as victims of the lenders. The taxpayers are the victim of the borrowers, the lenders, local govt, state govt and fed govt. The RE and prior group has jacked up the price to make home ownership a form of indentured servitude for new owners through debt services and taxes.
Irvine bottom seekers, here’s the news from professional economists: homes in the county will go up 1.6% next year (not the high-priced ones, however; they will be paraded on this blog for months to come as loser investments):
http://www.ocbj.com/enews_article.asp?aID=120553802.3442447.1795911.85239802.4450504.266&aID2=138138&lid=46&sid;=&cID=Z
Thanks for the info Nancy.
It’s great to know that homes in OC will go up in price next year.
I kinda regret not listening to Cramer last year in regards to Bear Stearns. Should have bought BSC when it was in its $60.
Who’s a bigger loser: the people who see homes as the same class as equity investments, or the people who actually rent thinking they’d save and invest the difference in equities, except they don’t, they end up spending more than they earn, or the ones who did actually invest in equities and when they asked where went my money, were told “well, the money was never really there, it wasn’t real, so it just vanished.”
I’m so glad to hear the professional economists are projecting a rise in prices. We’ve seen over the past few years how good their crystal balls are. I’m sure they’ll be dead on with this forecast as well.
Actually the source of this prediction is Esmael Adibi; Google his name… you’ll find he was one of the few local economists who predicted the recession in advance; it doesn’t take much to do due diligence before opining.
But then, only hopeless are attracted to permanent pessimism.
Anyone who lives in OC knows the market clearly has cycles.
The most recent report by Deutsche Bank that I saw projected another price drop of 30% in this metropolitan area. Chapman University or Deutsche Bank…hmm, I think I go with Deutsche Bank. Drop, prices, drop.
The same economist is on record saying that the Inland Empire will be getting new waves of foreclosures.
Does anyone pick up the extensive blank-and-while mentality on this blog???
Dude, all round fruits are not oranges.
What happens to the HOA when people stop paying their dues? Will it go up for those who are still paying? Will those who are still paying get hit with a special assessment? The need to maintain certain minimums in the HOA reserve, right? Can someone explain this stuff for me? What happens when the money coming into the HOA is insufficent to maintain the structure and grounds? In the absense of me having a firm understanding of the various contigencies with HOA’s and non paying owners I would be afraid of large unforseen future expenses if I were to purchase in a building like this.
Jim Jones: here’s a link to an answer to your quesion. HOA can be individual home or condo assns.
http://www.sacbee.com/827/story/1938966.html?ref=patrick.net
Somewhere in one of the forums on IHB, someone posted some info regarding the HOA on these units. I read this at least a year ago. A significant portion (1/3?) is an easement cost for the original, or adjacent property owner. I searched for this and couldn’t find it. Can anyone enlighten us on this?
Anyone have the link for that forum with the disgruntled homeowners and the association? I can’t seem to find it…wanted to check in and see how things were “on the inside.”