Investing in luxury
Luxury real estate is often purchased with the heart, not the head. Constance Gustke analyses how your dream home can also be a lucrative long-term investment
In California, the Hummingbird Nest ranch, which sells for $75 million in rural Simi Valley outside Los Angles, has laid dormant on the market for over a year. The 123-acre ranch comes with in-demand comfort features such as a helipad, solar panel field, water recycling, six guest houses, 10 staff houses, and a 17,000-square foot home. But real estate agents say the ranch won't sell anytime soon.
Forty miles away in the Los Angeles enclave of Beverly Hills, only a handful of luxury properties languish in the keenly sought-after $85 million to $100 million range. There, the market is hot. Homes that come with over an acre of land are especially coveted and are quickly snapped up, says Joe Cilic, who manages Sotheby's real estate office in Beverly Hills.
Although the Hummingbird Ranch boasts unparalleled luxury and features that far outweigh its Beverly Hills counterparts, it's unlikely that potential purchasers will view it as an investment opportunity.
Cilic points out that in Beverly Hills land is finite, making it much dearer. Wealthy families want this land so that they can have a pool, long curving driveway, garden and tennis court. "It's like having your own park, so you don't have to leave," says Cilic. He adds that owning property in prime areas also translates into less driving distance as Los Angeles expands.
Global splendour
It's not just in the US that location remains the golden key that locks up value ? it's the same situation across the world. Privacy, jaw-dropping views, comfort and rarity are the icing on the cake when looking for properties that hold their value over time.
In Europe Croatia, Montenegro and Switzerland are the hottest locations according to Dominic Seely, a real estate and hotel investment and development professional and director of acquisitions at Accerto. Prime areas in cities, such as the sixth arrondissement of Paris, are also very strong and likely to remain so. In country areas, especially in Europe and Japan, traditional homes in mint condition that lie outside quaint villages are in demand.
In France, house-seekers want the same features as everywhere else, but with a Gallic touch, says Antoine Garcin, a principal with his family-owned firm, Emile Garcin, which has 15 real estate offices throughout France.
He points out a house on the French Riviera that was built in the 1950s and measures 400m2 and is going for ?9 million. The coup de gras is its breathtaking view from the rooftop terrace ? a peninsula on top of a hill overlooking Villefranche.
A similar house in Provence lies at the foot of a small mountain with a stunning view. The stone house was built in the 18th century, but it's in perfect condition, explains Garcin, sporting air conditioning and fountains. "Even in a crisis, someone will buy these kinds of houses," he says. "People come here to enjoy the lifestyle of France."
Adding value
While location still seems to be dealmaker when it comes to making money from a luxury home, there are ever more ingenious ways to add value and make it an attractive investment opportunity.
"Features that are currently highly sought after include private moorings for boats, helipads and gated security or ski-in and out," says Seely. "In fact, anything that other people don't have, such as thermal water piped directly into one's home will always add value."
In the US, luxury properties are increasingly sports related. DPS Sporting Club Development Co offers a private residential club along the Snake River in Jackson Hole, Wyoming. Along with fly-fishing, it has a top-rated golf course, hot springs and an equestrian centre. "There are some amenities that stand the test of time," says DPS co-founder Steve Schram.
DPS also owns historic properties that are also highly desirable, such as the Ford Plantation in Savannah and the Greenbrier Sporting Club in West Virginia. Amenities include an Eastern-inspired spa, equestrian centre, and championship golf courses. "You can't recreate historic properties," adds Schram, alluding to their uniqueness. "It either is or it isn't."
In the UK, Candy & Candy, founded by brothers Christian and Nick Candy, dominates the luxury redevelopment niche in London's Knightsbridge and Chelsea areas. Their USP is to use intriguing custom details ? such as a 360-degree wardrobe mirror video with freeze-function, so that you can photograph yourself from all sides ? to differentiate themselves.
The brothers are currently developing One Hyde Park, located just a short walk from iconic department store Harrods. Here properties are selling at $10,000 a square foot for a penthouse, equipped with high-tech gadgets including automatic bath fillers, spas or a fur fridge that keeps your fur coats fresh.
David Rosen is managing director of LandVest, a property firm that has its roots in serving New England's high net worth families. He says that private islands are good from an investment point of view as they are always in demand ? especially along the US coasts of Maine or Georgia. A notable example is Sea Island, a luxury golfing and spa community. Rosen adds that rare properties that only come on the market once in a generation are especially prized. Raw timberland is also valuable, and one client of Rosen's bought hundreds of thousands of acres of timberland in Maine as an investment, he says.
New features have recently entered the minds of luxury property seekers, who are also increasingly looking at macro trends such as global warming and security. "My clients are trying to identify places that will be year-round destinations that hold their value," says Natasha Pearl, the CEO of the lifestyle management firm Aston Pearl in New York.
To assess global warming effects, she has put together a team of climatologists and real estate experts who vet hitherto popular areas for clients by examining changes in weather and sea levels. "In some parts of the Caribbean, the weather has become increasingly challenging. It may not be the same years from now and this will inevitably affect property prices," says Pearl.
As for safety and protection measures, some clients require extensive security assessments, which take a "full spectrum approach" she says. For example, when vetting a country property, are fencing systems adequate or are there quiet corners that could produce security risks? What are the socioeconomic demographics of surrounding villages? Are access roads properly maintained, with responsive police in the area? To assess city appartments, you are advised to find out who the previous tenants were, just in case something terrible happened there ? a murder or suicide, for example ? as that can seriously drag down values.
Families who are looking for luxury properties that protect against declining value will find it difficult, especially in the current economic climate, says Seely. However, medium to long term growth prospects in the European luxury real estate market look good. In the meantime, he advises families to evaluate carefully supply and demand. "Choosing a property in locations with little or no supply but great demand, ideally where there is a moratorium on building, is the best thing to do," he concludes.
When it comes to finding the right luxury property, what used to be a relatively simple decision has become ever more complex in a world where security, climate, and price has become just as important as location, comfort and style. But in the end, finding a property that satisfies both the heart and the mind is still achievable. It just takes a little more consideration than it once did.
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