Building Mansions For Billionaires Turns Out To Be A Bad Business

There are only so many foreign oligarchs who dont care about price.

While the garden-variety tech billionaire may actually have an opinion - about a lot of  things - like design. JL


Josh Barro reports in New York Magazine:

The struggles of spec mansion developers mirror the disappointing recent sales in supertall, ultraluxury condo towers in Manhattan. The Manhattan developers have aimed to sell to absentee foreign oligarchs who rarely use their condos and mostly want them as status symbols–slash–offshore financial assets. The problem is this market is not very deep, and you eventually have to start selling to garden-variety superrich people who are more exacting about both price and design, since they actually intend to use their apartments.

Los Angeles faces a glut of mansions built on spec and priced above $20 million. About 50 such houses are currently for sale, and there isn’t enough dumb money around to buy them all, so sellers are having to resort to both price cuts and absurd marketing techniques, such as open houses that are also literary Heaven-and-Hell theme parties with camels, or package deals that include items like Andy Warhol’s Rolls-Royce along with a house.

The article also describes an obligatory Great Gatsby–themed open house, where potential buyers were encouraged to imagine the Gatsby-like role they could play if they bought and threw parties in a $35.5 million spec home in Bel Air. Hopefully, they had never read the novel.

The idea behind the glut of spec megamansions is that there’s a substantial number of very rich people out there, and some of them would like to own a home in the hills above Los Angeles that is more extravagant than the many single-digit-million-dollar properties available, and some of them would especially like a house that is brand new and immediately available. A few such mansions sold at eye-popping prices in the last few years, encouraging more developers to get in on the action.

I get the theory. On the one hand, a billionaire might prefer a move-in-ready house for the same reason a middle-income person or an affluent person or a multimillionaire would: New construction is nice, but a home-construction project is a pain, and it’s probably even more of a pain when the home is 40,000 square feet or has a 300-gallon shark tank. On the other hand, if you are a billionaire, you not only have staff, but you have staff to oversee the staff, so it seems like you ought to be able to give your … properties manager, I guess? … some high-level notes on what kind of dream mansion you want and send him out to get the thing built.

What I find remarkable about the struggle to sell these homes is the eccentric notes the developers have struck in choosing home amenities. There is the home with the aforementioned shark tank. There is one with a “candy room.” A third has a hidden marijuana room (for growing and smoking marijuana, the article clarifies) that is accessed via a secret bookcase control, presumably similar to the one used by the Addams Family.

The 38,000-square-foot home with the candy room was originally priced at $250 million. In January, developer Bruce Makowsky cut the price to $150 million. He explained to Mansion Global at the time, “Today’s billionaire and mega wealthy homebuyer just isn’t ready to spend $200 million on a home at this current place in time so we’ve relisted it with a price tag that will open the door to a significantly larger audience.” The home is still available for purchase.

Isn’t the point of eccentric and frivolous billionaire mansion features supposed to be that they say something about you as a billionaire? You put in the shark tank because you dive with sharks; you construct a marijuana room because you are Elon Musk. Or, maybe you buy an old mansion from another eccentric billionaire, so you get to tell your guests what weird stuff Howard Hughes or William Randolph Hearst used to do in the home that is now yours.

But if all the quirky details in your home reveal is something about the personality of a spec home developer — or, worse, something about the assumptions about the tastes of billionaires held by a spec home developer — isn’t that less impressive? More broadly, if you have so much money that you can have essentially anything in the world you want, why wouldn’t you buy precisely the home you want? Why have the illusion of customization when actual customization is well within your reach?

The struggles of these spec mansion developers mirror the disappointing recent sales in supertall, ultraluxury condo towers in Manhattan. The Manhattan developers have aimed to sell to absentee foreign oligarchs who rarely use their condos and mostly want them as status symbols–slash–offshore financial assets. The problem is this market is not very deep, and you eventually have to start selling to garden-variety superrich people who are more exacting about both price and design, since they actually intend to use their apartments.

There are lots of those kinds of people who want homes in Los Angeles, too. But they may not shell out $27 million for a spec house.