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15th February 2014

Singapore Real Estate

DBS sees home prices falling by 10-15% this year

But this decline will not make a material impact on the bank's portfolio: CEO

Source: Business Times / Top Stories

DBS Bank chief executive Piyush Gupta expects home prices to fall by 10-15 per cent this year - more than the 10 per cent forecast by property consultants - but says that this decline would not make a material impact on the bank's loan book. Speaking at DBS's Q4 results briefing, he said it is likely that the prices of high-end homes will slide 15 per cent, and that for lower-end ones, by 10 per cent.

As for the higher interest rates expected with the shrinking of monetary stimulus policy by the US, he said he was not expecting it to have any effect on DBS. "The Singapore portfolio is really driven on income considerations . . . As I've said before, the pressure will likely start coming when unemployment rises - more than when property prices change." Singapore's unemployment rate is now at a low 1.8 per cent.

Mr Gupta said: "All our stress tests in the past have shown that we can easily withstand a 20 per cent reduction in Singapore property prices without material impact on our portfolio. We stress-test (for a) 20 (per cent fall in property prices), but don't expect it to happen; our stress tests are always calibrated to go off the charts. My own sense is that there will be a correction of 10-15 per cent."

He noted that the market was already stabilising and that the froth was running off, but that if this continued, the government would roll back some of the macro prudential measures. Sales of new mortgages have plunged 30-35 per cent at DBS, and by 40-50 per cent at OCBC Bank as a result of the stricter loan rules.

Mr Gupta likened the Singapore property market to that of New York and London, where prices held up even during the financial crisis between 2008 and 2012. While prices in the rest of the US fell by about a third, prices in New York slipped by only 10 per cent. It was a similar situation in London, another city where the demand is not dependent on the state of the domestic economy.

Mr Gupta said he expects regional money buying properties here to also put a floor under prices. With the slower sales, DBS's $49.1 billion mortgage book is likely to grow by $2 billion to $2.5 billion this year, down from $3.5 billion last year and $5 billion the year before that, said Mr Gupta.

OCBC Bank chief operating officer Ching Wei Hong said of the new mortgage sales having declined across the board: "That's expected, given all the cooling measures that have been imposed. We've built up a healthy inventory level. The inventory drives the growth of (the loan) book, going into 2014 and 2015. Beyond 2015 H2 and 2016, if conditions remain the same, we'll see a bit of tapering in that period."

-By Siow Li Sen

More than 200 Riverbank units snapped up

UOL Development spokesman reports strong take-up for one, two-bedroom and loft units

Source: Business Times / Wealth

MORE than 200 units at Riverbank @ Fernvale in Sengkang were sold when 250 units of the 555-unit condominium project were released for sale yesterday.

Hundreds of potential customers packed the showflat in its first day of launch and the buyers include both investors and owner-occupiers.

"We have a strong take-up for one, two-bedroom and loft units," said a spokesmanfrom UOL Development. "There was also a strong interest for bigger units. Of the 17 five-bedroom units, 10 units were snapped up.

Doris Ong, senior vice-president of ERA Realty, the marketing agent for this project, also told BT that the one to two-bedroom units that were released yesterday were sold out.

"This weekend, we will be releasing more three-bedroom units which are ideal for owner-occupiers, with prices starting from $870,000," UOL spokesman said. Units at Riverbank @ Fernvale are sold for an average of slightly over $1,000 per sq ft (psf). The project comprises one to five-bedroom apartments ranging from 495 sq ft to 1,389 sq ft while the Cabana units, which are ground-floor apartments with sun lounger and private carpark lots are going for about 1,200 sq ft each.

Located right next door is a competing 495-unit project known as Rivertrees Residence, jointly developed by Frasers Centrepoint, Far East Orchard and Sekisui House. Slated for launch on Feb 22, the average price for units sold in the initial phase will be in the range of $950-$1,150 psf.

Both projects are nestled in the north-east region earmarked under the Draft Master Plan as a new centre for growth. Analysts say that they expect strong buying interests from both owner-occupiers and investors for these projects. But they note it is early days to tell whether this location will deliver the expected returns for investors.

"The location is shaping up to be an appealing residential enclave . . . especially for HDB upgraders," said R'ST Research director Ong Kah Seng. "This is a promising area but for those buying to invest, it is not a certainty if the investment potential will pick up eventually."

Mr Ong explained that rental yields would be challenged by substantial new completions of non-landed residential units in suburban areas in 2014 and 2015. At the same time, Western expatriates tend to prefer projects of a smaller scale, compared to 300-500 unit projects.

"Investors are hopeful but it is unclear if it can provide the expected rental yield," Mr Ong added. But for those who can afford to stay in the units if they do not rent them out, "there will also be some resale value in terms of price appreciation".

Jones Lang LaSalle Singapore research director Ong Teck Hui noted that there have been more tenants looking for units in the Seletar area in recent years given the development of the Seletar Aerospace Hub. "It is hard to say if rental yields would be attractive but if the Seletar Hub grows strongly in the future, the prospects might be better," he said.

David Tan, a father of two, was among HDB-upgraders who bought units at Riverbank @ Fernvale yesterday. "It was quite worrisome because there were so many people. I was so afraid I would not get the unit I wanted," he said.

Mr Tan eventually got his top choice - a three-bedroom loft unit on the first floor - for close to $1,050 psf. He said the unit offers "an unobstructed view of the Sungei Punggol river and new year countdown fireworks".

-By Lynette Khoo

New projects liven up Sengkang district

Source: Straits Times

A surge of new launches this month has brought Sengkang's quiet Fernvale district into the limelight. The area - on the west side of Sengkang, near Seletar - is dominated by fairly young families living in new public flats, but the mix is changing fast.

3Gen flats in Yishun going fast

Source: Straits Times

The first batch of three-generation (3Gen) flats in Yishun has seen a "strong reception" with 94 per cent of the flats having been booked, National Development Minister Khaw Boon Wan said in a blog post yesterday. Successful applicants took up 79 of the 84 3Gen flats in Yishun Avenue 1. These flats are spread across several blocks in Saraca Breeze@Yishun, a Build-To-Order project that was launched in September last year.

Estate agents plan to form national association

Source: Straits Times 

Several major real estate agencies plan to band together to create a national industry association in a bid for greater representation, as home sales thin after multiple rounds of property curbs. The 20 agencies behind the proposal together account for around two-thirds of the roughly 32,000 licensed real estate agents islandwide, industry sources said.

Real Estate Companies' Brief

Croesus Retail Trust posts DPU of 2.02 cents for Q2

Source: Business Times / Companies

CROESUS Retail Trust (CRT), with a portfolio of four retail properties across Japan, posted a distribution per unit (DPU) of 2.02 cents for the second quarter of FY2014 ended Dec 31, 2013, 1.8 per cent higher than its IPO forecast of 1.98.

Gross revenue for Q2 was 1.29 billion yen, which is 1.2 per cent higher than the IPO forecast. Net property income was 805.87 million yen, 2.4 per cent higher than the IPO forecast.

The main positive variance was from property management expenses. This was offset by increased sales and promotion expenses at suburban shopping centre Mallage Shobu. However, overall property expenses were lower than forecast by 0.8 per cent.

-By Vivien Shiao

GLP Q3 profit jumps 56.3%

Source: Business Times / Companies

GLOBAL Logistic Properties' (GLP) third-quarter net profit grew 56.3 per cent year on year despite a slight dip in revenue.

Net profit for the three months ended Dec 31, 2013, rose to US$176.2 million, or 3.53 cents per share, from US$112.8 million a year, or 2.23 cents per share, a year earlier.

The improved bottom line was largely due to a higher contribution from jointly controlled entities and lower foreign exchange losses, but this was partially offset by lower fair value gains compared with a year ago.

-By Raphael Lim

Views, Reviews & Forums

He takes the sting out of productivity push by tapping schemes

Source: Straits Times

Building firm boss Sin Soon Teng has felt the pain of the Government's push for productivity but he has taken a lot of the sting out by tapping the various industry schemes on offer. Mr Sin, chief executive of Sysma Holdings, knows that the campaign to lift output is here to stay so he figured the best approach was to get on with the programme in every way.

Global Economy & Global Real Estate

Malaysia to plough $115m into low-cost housing scheme

Source: Straits Times

Malaysia's government will subsidise by up to RM30,000 (S$11,500) per unit the properties purchased under its upcoming scheme for first-time home buyers, in a move to shore up support among blue-collar workers amid complaints of high living costs and rising home prices.

China’s Record New Credit Boosts Outlook for Economic Growth

Source: Bloomberg / News

Record new credit in China in January will help the economy maintain momentum while highlighting challenges for officials trying to limit the risk of financial turbulence from defaults and bad loans.

Aggregate financing, the broadest measure of credit, was 2.58 trillion yuan ($425 billion), the People’s Bank of China said in a Feb. 15 statement. New local-currency lending was 1.32 trillion yuan, the highest level since 2010. Trust loans, under scrutiny because of default risks, were about half the level of a year earlier.

The data add to better-than-forecast trade numbers, suggesting that China can limit the scale of any slowdown from last year’s 7.7 percent expansion in gross domestic product. At the same time, the figures contrast with a central bank call in mid-January for lenders to control surging loans and highlight diminishing economic returns from credit growth.

“These numbers show that the firming up of the central bank’s monetary stance is going to be a gradual, balanced exercise, not an aggressive one,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong. “The authorities want to slow down the pace of credit growth and contain financial risks but they also want to ensure that sufficient credit continues to come online to support economic growth.”

The benchmark Shanghai Composite Index (SHCOMP) rose 0.9 percent, extending gains after the biggest weekly increase since September.

Annual Meeting

Aggregate financing exceeded the 1.9 trillion yuan median estimate in a Bloomberg News survey and the previous high of 2.54 trillion yuan in January 2013. Credit growth slowed for a 10th month to a 17-month low of 17.5 percent from a year earlier, according to Societe Generale SA.

As China’s Communist Party leaders prepare for next month’s annual meeting of the legislature, the National People’s Congress, officials are grappling with swelling local-government debt, volatility in money markets and risks from shadow banking, highlighted by a bailout that last month averted the nation’s first trust default in at least a decade.

A 10.6 percent jump in exports in January may help Premier Li Keqiang achieve annual economic growth of at least 7.2 percent, the level that he says is needed to protect jobs. The premier usually presents the government’s expansion target for the year in his annual work report to the NPC. The goal was 7.5 percent for 2013.

GDP may increase 7.4 percent this year, according to the median estimate in a Bloomberg survey last month. That would be the weakest pace in 24 years.

Credit Warning

“Banks are still extending a lot of credit and this will somewhat cool down fears that China is slowing dramatically,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Liquidity is plentiful and able to support growth.”

The jump in loans contrasts with the central bank’s January warning that bank credit was increasing rapidly and also its statement in November that the economy may face long-term deleveraging. Each $1 of credit added the equivalent of 17 cents in GDP in the first quarter of 2013, down from 29 cents the previous year and 83 cents in 2007, according to data compiled by Bloomberg.

Economists’ estimates for aggregate financing, which includes bank lending, corporate bond issuance and shadow-banking products like entrusted loans, ranged from 1.5 trillion yuan to 2.39 trillion yuan. January’s figure compared with a previously reported 1.23 trillion yuan in December.

Worries Exaggerated

New local-currency loans compared with the median economist estimate for 1.1 trillion yuan and 1.07 trillion yuan a year earlier. New loans were 482.5 billion yuan in December.

“Worries about policy being too tight or that rate increases are hurting credit and economic growth are exaggerated,” said Wang Tao, chief China economist at UBS AG in Hong Kong.

The weighted average lending rate in China was 7.2 percent in December, up from 6.22 percent a year earlier, PBOC data released earlier this month show. In December, 63.4 percent of loans had interest rates above benchmarks, up from 59.7 percent a year earlier, according to the central bank.

Money-market rates have also increased. The benchmark seven-day repurchase rate, a gauge of interbank funding availability, averaged 4.7 percent in January, up from 3.08 percent a year earlier.

Bond Issuance

“High interest rates prompted companies to reduce bond issuance and turn to bank loans,” Peng Wensheng and Zhao Yang, economists with China International Capital Corp. in Beijing, wrote in a note today. With financial risks rising, officials are unlikely to loosen monetary policy in the short term and “pressure to tighten regulation is increasing.”

Bank lending usually surges in January as financial institutions receive new quotas and offer credit at the start of the year to earn more interest, according to economists at ANZ, Citigroup Inc. and Mizuho Securities Asia Ltd. Last month’s figure may also have been boosted as loans postponed from December were handed out.

Banks may have pushed out credit even more aggressively in January than usual because of the timing of the Lunar New Year holiday, said RBS’s Kuijs. The week-long festival started on Jan. 31 this year and Feb. 9 last year. That could mean “substantially more modest credit numbers in February,” he said.

Money Supply

M2, China’s broadest measure of money supply, rose 13.2 percent from a year earlier in January, the Beijing-based central bank said. That matched the median economist estimate and compared with 13.6 percent in December. The growth in outstanding local-currency loans slowed to 14.3 percent in January from 15.4 percent a year earlier.

New trust loans issued in January were 106.8 billion yuan, the PBOC said, down from 210.8 billion yuan a year ago.

“There could be a demand issue here,” said ANZ’s Liu. “Investors have been hearing scary stories about trust loans so maybe they are finally starting to realize the risks in this sector.”

-By Bloomberg News

LA luxury homes are like safe deposit boxes

Wealthy global investors see them as secure investments, market hedges

Source: Business Times / Wealth

BLUE JAY Way, a street that inspired a Beatles song, snakes above Los Angeles, lined with glassy mansions that jut like diving boards from earthquake-prone cliffs.

One of the houses, a mid-century bungalow with an oval pool and a panoramic vista of the Los Angeles basin, rents for US$27,000 a month. The owner, who lives in London, paid US$2.25 million, or US$835 a square foot, two years ago for the three-bedroom, three-bath home.

"This is a very safe investment," Tyrone McKillen, an agent with Beverly Hills, California-based brokerage Hilton & Hyland Real Estate Inc, said as he walked through 1505 Blue Jay Way. 

"It's all about the view." While the cliffside properties seem perfectly perched for a Hollywood disaster movie, they're the equivalent of "safety deposit boxes" for wealthy global investors, according to Jonathan Miller, president of appraiser Miller Samuel Inc.

-From Los Angeles, US

Blackstone-Fueled Single-Family Home Boom Lifts Chicago

Source: Bloomberg / Personal Finance

The tan, three-bedroom house on Chicago’s North Side sits half a block from a Family Dollar store and a pawn shop -- an unlikely patch of gold to mine for Blackstone Group LP (BX) in the single-family rental market.

The world’s largest alternative-asset manager is among investors buying distressed properties in the Chicago area after private-equity and hedge-fund firms helped send property values surging in hard-hit markets such as Phoenix and Atlanta. That demand, along with low mortgage rates and a growing economy, is now fueling a recovery in the third-biggest U.S. city as it joins the housing resurgence that already has bolstered much of the country.

Chicago home prices climbed 11 percent in November from a year earlier, the biggest jump in almost a quarter century, according to S&P/Case-Shiller data. While gains are slowing across the country, the Windy City was one of nine areas in the group’s 20-city index to show a year-over-year increase in housing values.

“They flocked in the early recovery to places such as Phoenix and Las Vegas and parts of California, and Chicago and some other markets lagged behind a little bit,” said Lance Ramella, a senior vice president at John Burns Real Estate Consulting in Naperville, Illinois. “Chicago just wasn’t providing that yet and now it is.”

National Purchases

Institutional investors, led by companies such as Blackstone’s Invitation Homes and American Homes 4 Rent (AMH), have bought as many as 200,000 U.S. properties in the last two years, taking advantage of real estate prices that fell as much as a third from the 2006 peak, and rising demand for rentals among Americans who lost their houses in the foreclosure crisis. Their reach has stretched from the hard-hit regions of California to small Ohio towns to the sprawling suburbs of Atlanta.

Chicago trailed some other markets for attracting investor interest because Illinois is a judicial foreclosure state, meaning home repossessions require approval by a court, slowing down the process, and there were fewer opportunities to buy distressed real estate in bulk, Ramella said. Prices in other cities fell further than in Chicago, making them more appealing.

Now that values in other areas have bounced back so much, buying there isn’t as attractive and investors have turned to other areas, such as Chicago, for better pricing, Ramella said.

“They’re looking for distressed property and a lot of runway for appreciation,” Ramella said. “We’ve got a lot more room to appreciate here.”

Investor Purchases

In Chicago, investors accounted for about 20 percent of purchases in the first half of last year, according to Geoff Smith, executive director of the Institute for Housing Studies at DePaul University in Chicago.

Like the portfolios of other investors, Invitation Homes’ Chicago-area holdings are mostly filled with properties in suburbs such as Barrington and Oak Park. The smattering of houses they own in the city itself is evidence that the rebound is starting to broaden. Even in some neighborhoods where prices fell more than the rest of Chicago during the foreclosure crisis, values are climbing.

“Those hard-hit areas are seeing some improvement recently,” Smith said. “But they have a ways to go and they’re in a really big hole.”

Invitation has a reddish-brick, four-bedroom, 1,147-square-foot home for rent on tree-lined Moody Avenue for rent for $1,850 per month. The house is about 10 blocks west of Chicago Midway International Airport and about 15 miles from the Chicago home of President Barack Obama.

Chicago Trailing

Chicago has trailed the rebound of the majority of metropolitan areas in the S&P/Case-Shiller index, including Phoenix, Las Vegas, Atlanta, Los Angeles, San Francisco, Minneapolis, Miami, and even Detroit, which is mired in the largest municipal bankruptcy in U.S. history. Its 11 percent gain in November prices, while the city’s biggest since December 1988, was still less than the national average of 13.8 percent.

High unemployment and an overhang of foreclosed homes have helped contribute to Chicago lagging behind the housing recovery, said Brad Hunter, the chief economist at housing-research firm Metrostudy. The area’s jobless rate was 8.3 percent in December, the latest available figures, and reached as high as 11.9 percent in January 2010. The U.S. rate was 6.6 percent in January, according to the Labor Department.

Areas such as Phoenix and Las Vegas were among the first markets to come back after the housing bust as private-equity funds and other buyers sought bargain prices. In the Chicago region, investors weren’t a big part of the buying market in 2012 and the early part of 2013, Smith said.

Invitation Homes

Invitation Homes entered the market in September 2012, according to Andrew Gallina, a spokesman for the Dallas-based company. Its house near the Family Dollar (FDO) on North Central Park Avenue on the North Side is in the Albany Park neighborhood. It sold for $380,000 last year, according to a warranty deed filed with the Cook County Recorder of Deeds in November. Invitation Homes’ website earlier this year listed the monthly rent as $2,800.

For competitive reasons, Invitation Homes doesn’t disclose specific data such as number of homes owned or occupancy rates, said Gallina, a spokesman for the company.

“We enjoy healthy occupancy in Chicago, as we do in all of our markets,” Gallina said.

Highest Incomes

American Homes 4 Rent, the largest single-family rental company after Blackstone, owned 1,443 homes in the Chicago region, valued at $211 million, in the third quarter. The average annual rental income from the properties is $19,171, the highest of the Agoura Hills, California-based company’s markets.

The publicly-traded company, founded by B. Wayne Hughes, has acquired more than 21,000 rental homes across at least 22 states in the U.S. The shares have returned 5.1 percent since the July initial public offering, including reinvested dividends.

The Chicago area’s real estate swings have been less severe than in other locales. Phoenix home prices fell 56 percent from their peak in June 2006 to their trough in September 2011, according to S&P/Case-Shiller indexes. Since that bottom, prices rose 45 percent. In Las Vegas, which peaked in August 2006, prices dropped 62 percent until bottoming in March 2012. They’ve since climbed 42 percent.

By comparison, Chicago home prices declined 39 percent from the peak to their trough in March 2012. Since then, they’ve risen 23 percent.

Demand Rebounding

Sales demand is rebounding as buyers take advantage of low mortgage rates before expected increases as the Federal Reserve unwinds its stimulus program aimed at reducing borrowing costs. The average rate for a 30-year fixed mortgage was 4.23 percent last week, up from a near-record low of 3.35 percent in May, while still below the historical average of more than 6 percent over the past 20 years, according to Freddie Mac.

Home sales rose 8 percent to 8,126 in December from a year earlier in the Chicago metropolitan area, the Illinois Association of Realtors said Jan. 23. The median sales price jumped 18 percent to $177,000. Across the U.S., the annual pace of transactions declined from a year earlier.

In the city itself, sales climbed 12.5 percent from a year earlier, and prices rose 13.5 percent to $210,000, according to the Realtors group.

Investor purchases play “a real role” in boosting the market, said Jim McClelland Jr., a partner and chief operating officer at MACK Cos., which owns about 1,100 rental units in the Chicago area, mainly in the south suburbs, 95 percent of which are single-family homes.

Business Backbone

McClelland said MACK buys about 30 houses a month and that plenty of supply remains for the company to expand. Single-family home rental is the “backbone of our business,” he said.

Home prices are still down 25 percent from their peak in September 2006, according to S&P/Case-Shiller data. Foreclosures and short sales accounted for 31 percent of home sales in December in the Chicago area, compared with a national average of 14 percent, according to Lanny Baker, chief executive officer of ZipRealty Inc., based in Emeryville, California.

The relatively high number of foreclosures remain a scourge for the market, said Dory Rand, president of the Woodstock Institute, a Chicago-based nonprofit research group that studies foreclosures and housing.

“Too often, people read the headlines and hear the news about the economic recovery, the housing recovery,” she said. And “they think it’s happening everywhere, when in reality it’s not.”

For all the interest from investors, they might not be enough to maintain the recovery if prices rise too much, said Smith of DePaul. In that case, the question becomes if there will be enough owner-occupiers to fill the gap.

“That’s kind of the big question in terms of how sustainable the recent price gains in the housing market are,” he said. For investors, “they see opportunity, but if prices go up then the math so to speak might not work as well for them.”

-By Brian Louis

Chinese Join Winklevosses in L.A. Luxury Home Hedges

Source: Bloomberg / Luxury

Blue Jay Way, a street that inspired a Beatles song, snakes above Los Angeles, lined with glassy mansions that jut like diving boards from earthquake-prone cliffs.

One of the houses, a mid-century bungalow with an oval pool and a panoramic vista of the Los Angeles basin, rents for $27,000 a month. The owner, who lives in London, paid $2.25 million, or $835 a square foot, two years ago for the three-bedroom, three-bath home.

“This is a very safe investment,” Tyrone McKillen, an agent with Beverly Hills, California-based brokerage Hilton & Hyland Real Estate Inc., said as he walked through 1505 Blue Jay Way. “It’s all about the view.”

While the cliffside properties seem perfectly perched for a Hollywood disaster movie, they’re the equivalent of “safety deposit boxes” for wealthy global investors, according to Jonathan Miller, president of appraiser Miller Samuel Inc. Like luxury London homes or Manhattan trophy apartments, California mansions are being bought by Chinese families, foreign tycoons and U.S. celebrities as a hedge against currency and stock market disasters or the vicissitudes of politics. Many investors pay in cash and don’t live in the homes themselves.

“The money is flowing here,” Jeff Hyland, president of Hilton & Hyland, an affiliate of Christie’s International Real Estate that completed sales on $1.9 billion in homes last year, said in a telephone interview. “London’s a place to park your money and grow your business. L.A. they look at as a year-round playground because of the weather and the beach and Hollywood.”

Record Sales

As many buyers struggle to get a mortgage or save for a down payment, investors are pushing real estate prices to new heights in some of the world’s most costly markets.

While trophy homes often sell for cash, lenders are also more willing to advance money for high-cost homes. The value of jumbo loans, those exceeding more than $625,500 in high cost areas, jumped 34 percent in the first nine months of last year to $216 billion, according to Inside Mortgage Finance. Tyler and Cameron Winklevoss, the twins famous for suing Facebook Inc. co-founder Mark Zuckerberg over the social network’s origins, got a $9 million loan from Deutsche Bank AG (DBK) to buy an $18 million house near Blue Jay Way.

A record number of California homes sold for $2 million or more last year, up 33 percent from 2012 to at least 7,383 deals, DataQuick reported last month. While new wealth from initial public offerings such as Facebook and Twitter Inc. propelled multimillion dollar sales in Silicon Valley and San Francisco, absentee investors accounted for much of the increase around Los Angeles, according to DataQuick.

‘Different Drivers’

“The multimillion-dollar buyers have different drivers and concerns than buyers in the lower-price categories,” said Andrew LePage, a senior analyst for San Diego-based DataQuick. “When you get to $2 million or above, it has more to do with IPOs and where the wealthy want to park their excess cash.”

Absentee owners bought 27 percent of California’s $1 million-plus homes last year, according to DataQuick. They represented 39 percent in Beverly Hills, 42 percent in Los Angeles’s Bel Air neighborhood and 45 percent in the hills of West Hollywood.

Los Angeles Mayor Eric Garcetti said those types of investors are buying in “a completely different stratosphere” than the area’s middle-class residents who face a dearth of affordable housing. So he welcomes their contribution to the city’s economy and reputation.

“For too long, L.A. has not been in the global conversation,” Garcetti said in a Feb. 7 interview at Bloomberg LP’s Los Angeles office. “I want those people to come here. I want those people to talk about L.A. when they go back.”

Less Expensive

Los Angeles luxury housing has typically been less expensive than in other major cities, according to London-based Knight Frank LLP. High-end homes sold in 2012 for $5,920 a square foot in Monaco, $5,050 in Hong Kong, $4,300 in London and $2,240 in New York, compared with $1,340 in Los Angeles, the property-consulting firm said in a March report.

In Manhattan, the median sale price of condominiums reached a record $1.32 million in the fourth quarter, according to a report by New York-based Miller Samuel and brokerage Douglas Elliman Real Estate. Luxury properties, the top 10 percent, sold for a median of $4.9 million, up 10 percent from a year earlier. According to data from, a real estate website owned by Zillow Inc., there were 145 Manhattan residences listed for more than $20 million last year, the most in records dating to 2005.

London Neighborhoods

Values in prime central London, including the affluent Mayfair and Knightsbridge neighborhoods, rose for a 39th consecutive month in January, gaining 7.8 percent from a year earlier and 135 percent over the past decade, according to Knight Frank. Foreigners bought 49 percent of all central London homes that sold for more than 1 million pounds ($1.66 million) in the 12 months through June, Knight Frank reported.

In the West Hollywood enclave known as the Bird Streets, where Blue Jay Way is located, buyers have included the Winklevoss twins, producer Megan Ellison and Leonardo DiCaprio, a best-actor Oscar nominee for his role in “The Wolf of Wall Street,” who has owned a house on Oriole Way since 1999.

The Winklevosses, who competed on the 2008 U.S. Olympic rowing team and whose current ventures include an exchange-traded fund investing in the virtual currency Bitcoin, bought a remodeled home on Tanager Way with an infinity pool, screening room and gym in August 2012.

Winklevoss’ Mortgage

The property is listed under Heraclean Holdings LLC. In July, they refinanced their $9 million adjustable-rate loan on the house through the private wealth unit of Deutsche Bank, according to public records. The loan starts with a 3 percent interest rate that adjusts based on the London Interbank Offered Rate. The twins and their attorney, David Lehn, didn’t reply to e-mails and voice messages left at their offices.

Deutsche Bank doesn’t comment on individual transactions and maintains strict confidentiality on its clients. In general, investors can use mortgages to their advantage in today’s low-interest rate environment.

“The residential mortgage is one of many tools financially sophisticated clients use in their overall investment strategy,” said Peter Ferrara, managing director of real estate products at Deutsche Asset & Wealth Management. “A client may finance a home purchase immediately due to attractive interest rates. They also may look to that home as a source of financing for other investments later on.”

American Hustle

Ellison, co-producer of “American Hustle” and daughter of Oracle Corp. co-founder Larry Ellison, sold three adjacent homes on Nightingale Drive last year for a combined $46.8 million, according to property records. In December, she paid $30 million for a hilltop estate on 8 acres east of Laurel Canyon Boulevard, with a view that sweeps from downtown Los Angeles to the Pacific Ocean. The deal was seen by real estate agents as opening new territory for high-end investors.

“The house in question is probably a teardown,” said Aaron Kirman, an agent with the John Aaroe Group who co-represented the property’s seller along with Hilton & Hyland. “The views are outrageous.”

An e-mail and phone message left for Bebe Lerner, a spokeswoman for Ellison’s Annapurna Pictures, weren’t returned.

Prices in high-end Los Angeles County communities, such as Beverly Hills, Malibu and Hollywood Hills, rose 7 percent last year to an average $825 a square foot for single-family homes, according to a report by the Agency, a Beverly Hills-based brokerage. The average is just 3.6 percent below its 2008 peak.

Broader Market

For the broader Los Angeles market, prices are still 22 percent below their September 2006 apex, even after climbing 35 percent from the post-bubble low in 2009, the S&P/Case-Shiller index shows.

Cash-bearing foreign investors account for the majority of high-end buyers in Los Angeles’ most expensive areas, said Kirman, who showed homes this year to visitors from countries such as China, Indonesia and Tunisia.

“Many of these buyers give you a six-hour window before they fly off home,” Kirman said. “If they don’t buy here, they’ll buy in London, New York or the South of France.”

Christian Candy, the British developer who helped create London’s One Hyde Park luxury condo with his brother Nick, paid $24 million in August for a rebuilt mansion in Los Angeles’s Holmby Hills neighborhood. The home is “an investment,” Jessica Patrick, a spokeswoman for Candy & Candy Ltd., said in an e-mail from London.

The builder of that house, Kristoffer Winters, closed this month on the purchase of a hillside lot “a golf drive shot” from Ellison’s new estate, where he plans to build a 12,500-square-foot home to sell for at least $25 million, probably to an overseas investor.

Foreign Buyers

“Most of the buyers now are foreigners,” Winters said in a telephone interview. “I’m designing it as if someone is coming over with staff or with guests.”

International buyers are extending their influence into middle-class neighborhoods on the outskirts of Los Angeles. East Asians bought 53 percent of new homes sold last year in Irvine, a city 40 miles (64 kilometers) southeast of Los Angeles with a reputation for low crime and high-achieving schools, according to John Burns Real Estate Consulting Inc.

At least one builder worries about becoming too dependent on money from China, which may stop flowing if there’s a government crackdown or as a result of the economic downturn there.

Chinese Concern

It may be a risk for builders to become too dependent on buyers coming from China, Bert Selva, chief executive officer of Shea Homes, a closely held builder based in Walnut, California, said at an industry conference in January.

“You start to feel one group that’s inelastic, and that concerns me,” he said.

Los Angeles was the No. 2 city after New York searched by Chinese real estate shoppers on the website, with a growing number seeking knock-down and rebuild opportunities, according to Dave Platter, a spokesman for the Hong Kong-based company.

“Chinese buyers take up this trend because in Los Angeles, at the moment, stock is limited and prices are low,” Platter said in an e-mail. “They find it easier to knock down an existing house than to find one that meets their needs.”

Not all of the highest-priced homes find buyers. The Beverly House, a 3.7-acre Beverly Hills compound originally built for William Randolph Hearst and Marion Davies, failed to sell after a year with an asking price of $115 million. The owner, Beverly Hills attorney Leonard M. Ross, pulled it off the market this month because he expects better offers in the future. It’s still available for rent at $600,000 a month.

Local Investors

“Considering the current world economic and political situation, I expect values to rise,” Ross said in an e-mail. “I do not believe that this is the time for the fabled, incomparable estate to be sold.”

Local investors are scouring the priciest areas of Los Angeles for lots with aging homes that can be replaced by higher-value rebuilds.

Bob Etebar, a Beverly Hills developer and principal of family-owned Etco Homes Inc., intends to build a 10,500-square-foot residence on a Blue Jay Way lot he bought in October for $3.7 million. Etebar and his brother Afshin expect to sell the new residence for more than $20 million. Another property on Blue Jay Way sold for $5.25 million on Dec. 31 to an investor who plans a rebuild on the lot, according to Robin Plunket, an agent with Keller Williams Realty Inc. who represented the seller, hair stylist Christophe Schatteman.

Lowest Cost

“It’s a $5.25 million teardown,” said Plunket, a London native who has lived in Los Angeles for 30 years. “L.A. is still the lowest cost of any major city. Compared with London, L.A.’s cheap.”

Los Angeles also has a benevolent climate and a glamorous reputation. Marilyn Monroe posed in a Blue Jay Way home in 1962, one of her last photo shoots before her death. George Harrison, the late Beatle, wrote a 1967 psychedelic song called “Blue Jay Way” about waiting for friends lost in “a fog upon L.A.”

It was clear and 72 degrees Fahrenheit (22 degrees Celsius) last week when McMillen stood poolside at 1505 Blue Jay Way, the sun-splashed city spread at his feet, a scene that transforms to a carpet of starry lights at night.

A renovated house across the street sold in November for $15.6 million, or $2,219 a square foot. A neighboring property is on the market for $16 million, or $50,000 a month to lease.

“It’s a very in-demand street,” McKillen said. “The celebrity status has an effect. But the only reason they’re here is because of the views.”

-By John Gittelsohn

TPG Seeks $2 Billion for Multi-Investor Real Estate Fund

Source: Bloomberg / News

TPG Capital, the private-equity firm that formed a real estate division after the credit crisis, is trying to raise as much as $2 billion for its first multi-investor property fund.

The firm, whose real estate unit was founded by Kelvin Davis, a senior partner, has begun soliciting pledges for the new fund, according to investor presentation documents and two people with knowledge of the situation. They asked not to be identified because the fundraising is private.

TPG is among private-equity firms that have been chasing distressed real estate assets since the U.S. housing collapse and Europe’s economic crisis depressed commercial property values worldwide. The Fort Worth, Texas-based company is seeking to capitalize on investor appetite for real estate at a time of low rates on fixed-income assets.

TPG’s property investments since late 2009 were ultimately bundled into an investment vehicle called TPG Real Estate I, and the new fund is known as TPGRE II, according to the 60-page presentation to prospective investors. TPGRE I contains 10 deals representing $2.3 billion of equity that came from the firm’s main buyout funds and separate accounts with institutional clients such as New Jersey’s state pension fund and Ivanhoe Cambridge, the real estate arm of the Canadian pension fund Caisse de Depot et Placement du Quebec.

Deals in TPGRE I include stakes in North American homebuilder Taylor Morrison Home Corp. (TMHC), Catellus Development Corp., office landlord Parkway Properties Inc. (PKY) and European warehouses. The firm also owns office buildings in London and Silicon Valley.

Value Discount

TPG seeks to buy property assets and companies at discounts to underlying net asset values, according to the presentation. The firm has 16 people devoted to real estate in San Francisco, New York and London. Davis, who has worked at TPG for 14 years, is a co-founder of Colony Capital LLC, led by Tom Barrack. He and Avi Banyasz are co-heads of TPG Real Estate.

Owen Blicksilver, a spokesman for TPG, declined to comment on the fundraising.

TPG’s new fund would be among the largest opportunistic real estate funds after two pools for Europe and Asia-Pacific being raised by Blackstone Group LP, according to Preqin Ltd. Many investors last year moved away from focusing on low-risk real estate and are looking for exposure to higher-risk, higher-return strategies, the London-based research company said.

Gaining Momentum

“There are clear signs of more momentum in the fundraising market,” Preqin said in its 2014 global real estate report. A total of 451 funds targeting a combined $150 billion of investor capital are out raising money as of last month, the firm said. “It remains very difficult for managers to stand out from the crowd.”

A total of 162 private real estate funds raised a combined $76 billion last year, compared with 224 funds that gathered $67 billion in 2012. Last year’s total money raised was the most since $141 billion was raised in 2008, according to Preqin.

TPG’s hiring of Robert Weaver as a senior executive in October 2011 had spurred speculation that the firm would start a real estate fund. Weaver was previously at Morgan Stanley, where his specialty was raising money from investors. Morgan Stanley’s property-funds unit was the biggest real estate investor among Wall Street firms until the 2008 credit crisis.

Last year, TPG acquired Assisted Living Concepts Inc., which operates a chain of residences for seniors. In 2009, TPG teamed with Barry Sternlicht’s Starwood Capital Group to invest in bankrupt lender Corus Bankshares Inc., gaining assets including apartments in Florida that it’s been selling amid a recovery in the residential rental market.

Other TPG real estate investments include Merin, a Dutch office and industrial-property landlord, and a minority stake in AV Homes Inc. (AVHI), a Scottsdale, Arizona-based homebuilder.

-By Hui-yong Yu

Kennedy Wilson Europe to Raise $1.2 Billion in Property IPO

Source: Bloomberg / Luxury

Kennedy Wilson Europe Real Estate Plc plans to raise about 750 million pounds ($1.25 billion) selling shares on the London Stock Exchange (LSE), and will use some of the proceeds to buy European properties.

Kennedy Wilson will sell shares in an initial public offering at 10 pounds each, it said in a statement today. The company has agreed to buy two portfolios with 40 office, industrial and retail properties in the U.K., valued at about 223 million pounds, it said.

“The establishment of Kennedy Wilson Europe Real Estate Plc provides a unique opportunity for public market investors to access the highly attractive real estate markets of the U.K., Ireland and Spain,” Chairman Charlotte Valeur said in the statement.

The European subsidiary of Beverly Hills, California-based Kennedy-Wilson Holdings (KW), owns assets on the continent valued at about 2.5 billion pounds. In September, the company said it bought eight shopping centers out of administration valued at about 250 million pounds.

Investors have already agreed to buy about 685 million pounds worth of the shares to be sold, according to the statement. The listed company will invest primarily in property and real estate loans in Europe, it said.

Deutsche Bank AG (DBK) and Bank of America Corp. advised on the deal, according to the statement.

-By Dalia Fahmy