High-End Home Sales and Prices May Be Softening

We are coming off a highly charged election cycle with the relative strength of the economy serving as a recurring storyline across the country.  Unemployment is at a low point and the gross domestic product for the country has been growing at a solid pace for a couple of quarters.  With this backdrop, it is surprising that home sales are slowing in Manhattan Beach, reversing a few year trend of increasing sales. Prices in the higher end of the market appear to be on the decline as well.  The year-over-year median sales price for homes selling for over $3 million has actually dropped.  Strand sales for both Manhattan Beach and Hermosa Beach are off as well.  The reasons for this are unclear, but there can be no doubt that something is causing a cooling off of the high end of the local market.

I have had a number of conversations with investors, agents and property owners in the beach cities over the past few weeks that have piqued my curiosity about the state of the market. I have been hearing expressions like “the big money is on the sidelines” and “many buyers are waiting to see what will happen with interest rates” and so  I wanted to find out first hand if something has changed in the local real estate market or if all the chatter is just speculation.  To determine this, I looked at Manhattan Beach home sales, including single family residences, townhomes and condos, for the first three quarters of each of the last four years based on MLS data.  This does not include private sales that are not tracked by the MLS, which I am told is an increasing percentage of sales transactions buyers and as sellers increasingly seek privacy.

The vast majority of areas in the beach cities have experienced greater than 7 percent annual appreciation for more than six years running with some exceeding 12 percent. The number of total home sales in Manhattan Beach has been growing for at least the past three years, but has dropped by over eight percent this year compared to last year.  The data appear to confirm that the pace of home sales is leveling off.

At the high end of the market, this may not be a total surprise given that we had a highly unusual and perhaps unsustainable 44 percent bump from 2016 to 2017 in the number of $3 million or higher homes that sold.  The market ramped up but is now finding a more stable grounding.

As for the total number of Manhattan Beach and Hermosa Beach strand single family residence sales, the number of closings is at a low point with only two reported closed deals in the first nine months of this year.  This is the lowest number in several years.

Whether it is the anticipation of rising interest rates, the uncertainty of the impact of new tax laws, or a decline in confidence in the direction of the economy there are signs that the tremendous ride that we have had in residential real estate may be easing up for now.

 

By Tony Cordi

Large restaurant group takes steps to sell their entire holdings

One of their units required special handling.

Challenge:

The ownership of a large restaurant group with 50 units up and running made the decision to sell their brands and their corporate-owned locations.  In advance of this they needed to sell off one of their LAX-area locations and approached us to help with this.  No restaurants had been sold before in the plaza where their restaurant was located and they were not sure it would be an option for them.

Success:

We listed the business for sale and found a buyer.  The ensuing negotiations led to some creative deal-making on both the business and the lease.  Shortly after the escrow closed, the restaurant group announced they were in negotiations with a Canadian-based group to sell all of their brands and corporate-owned locations.

East coast professors start remote retirement planning

Trying to beat the LA market from Florida.

Challenge:

Residential real estate prices in Los Angeles County are on a seven year roll and it is hard to predict if the trend will continue or not.  Two married professors both received their PhD’s from UCLA and really enjoyed there time in southern California; however, they both accepted teaching positions in Florida.  Though they are 15 years or more from retirement, they wanted to secure a home in the Los Angles area relatively close to the coast before they were completely priced out of the market.

Success:

We were approached to help them understand the current market pricing and sales trends.  After careful consideration, they set their sights on Pacific Palisades as their preferred location.  We showed them a number of suitable properties and eventually negotiated the purchase of one with partial ocean views.  We then set them up with a property management company so that they could explore their options for leasing the home out for the next 15 or so years.

Local group encountered surprise hurdles to get open

An experienced restaurant group needed just a little extra help.

Challenge:

An experienced and popular restaurateur had been planning his retirement strategy for his restaurants for some time.  Luckily for him, he had family willing and able take over control of them.  They made the decision to rebrand one of the restaurants in spite of 20 years of success.  Miscommunication with a consultant they hired put them in a bind with the health department as they got closer to their announced grand opening.

Success:

They presented their challenge with the health department to us and asked for our support resolving the open issues.  We were able to facilitate clearer communication with the health department and the development of a plan to satisfy the opening requirements.  The restaurant opened within a week of plan and has had tremendous success since.

Dentist relocates practice to larger office

Sold assets of first office to move on.

Challenge:

A dentist first approached us to help her take over a vacant dental office with three operatories on busy Pacific Coast Highway in a strip mall so that she could start her own practice.  In a few years she was able to build up her practice and approached us again to help her find a new space with more operatories with a non-strip mall location.

Success:

We were able to list her first practice for sale and managed to carve out a core list of patients that she could take with her to a new location we found for her on Hawthorne Blvd.  The new office was larger and had private offices and an additional operatory.  We negotiated the lease for her and, as the lease was set to expire, we helped with the negotiation of the option to extend the lease.  She has since added hundreds of new patients to her practice.

Popular chef wanted to find an ownership opportunity

One chef re-energizes local dining scene.

Challenge:

A growing trend in the Los Angeles dining scene is the chef-owned and operated restaurant.  One chef approached us to help him realize his dream of having ownership in a restaurant though he would need financial support to pull this off.  He wanted to find a second generation restaurant space with a low key money requirement and a favorable lease rate.

Success:

We showed the chef a handful of opportunities in the beach cities and identified one that met his search criteria.  This was no easy task given the huge demand for restaurant space and the increasingly high occupancy costs along the coast.  Once he keyed in on a particular location he was able to work with friends to finance the purchase.  We navigated the escrow process with them and led the lease negotiations.  Their restaurant has since become one of the highest rated and acclaimed restaurants in their beach community.

Las Vegas-based restaurant group wanted to find a local search partner

Restaurant group wants to expand to Orange County.

Challenge:

A popular restaurant group based in Las Vegas wanted a trusted partner to help them with their search for sites in Orange County.

Success:

We identified several candidate sites and scheduled showings for our out-of-state client.  They are now in a stronger position to raise capital for their expansion into California.

Navigating a perfect storm of complex challenges

Local fitness facility ultimately decides to close.

Challenge:

Starting a new business can be a daunting task, especially if partners are needed to round out the financing required to bring the new business to life.  While many partnerships may plan for success, very few are prepared for a business model that may not be working out as anticipated.  One local fitness facility with three partners continued to perpetuate an unprofitable business for several years before taking concrete steps to reverse course.  Unfortunately, by the time they agreed to make changes and possibly sell the business, their working relationships with each other had become hopelessly strained.  They initially brought us in to market the property for sale.

Success:

The partners were unwilling to put additional capital into the business and so efforts to improve cash flow were substantially limited.  In the meanwhile, they asked us to serve as interim general management for the club until an exit strategy was developed and executed.  We were able to maintain membership levels and keep the business operational for several months until the lease was set to expire.  Selling the business at any type of premium became impossible given the environment and operational losses; however, we were able to support the sale of the assets of the club and the final release of the location.

Bringing an old country food idea to life

Food executive at major resort opens his own restaurant.

Challenge:

An executive director for food and beverage of a highly popular and hugely successful southern California resort wanted to bring food from his native country to the beach cities.

He wanted to find a suitable location along the harbor within a short drive from his home.

Success:

Our client has an intense work schedule and did not want to leave his executive position to open a new restaurant.  On the other hand, he really wanted to offer the community a restaurant that would give locals a chance to enjoy the food of his native European country.  We helped him identify a location and negotiate the purchase of an existing restaurant adjacent to a pier.  He still retains his executive position while being able to enjoy the regional food at his restaurant.

Buying into a franchise and running with it

First time owner expands rapidly.

Challenge:

A local entrepreneur, who happened to be a professional athlete as well, wanted to hit reset with his career and venture into the restaurant industry.  He struggled with how to proceed until he had a chance meeting with a highly successful multi-restaurant owner who was on the verge of launching a new concept.  After a series of meetings, it was agreed that an opportunity would be given to create a franchise of the nascent concept. The challenge was to find a suitable location for this.

Success:

The franchise was having great success with their first couple of locations and decided to initially expand with franchisees.  We helped our client negotiate the purchase of an existing restaurant at his first location and later review the leases of his next few sites.  He now has six highly profitable locations in five different counties in California.

Seizing opportunity with a new concept

Restaurant group builds on their tremendous success.

Challenge:

A restaurant group with a 60 year track record of success contemplated building on this success with the launch of a new concept.   They brought us in to help them find ideal locations for their first few units.

Success:

Their flagship restaurant is considered to be one of the most popular restaurants in the entire country.  They asked their merchant services company to provide maps showing the mailing address locations of all credit cards used at the restaurant.   We met with the team along with their designers and consultants to use this information to develop search criteria for their first few locations.   We then tapped into our extensive commercial real estate network to identify the first two sites and to support lease negotiations for their new concept.  Their maiden location was an instant success.

Adding value to an underperforming asset

Perpetually vacant property revisited.

Challenge:

Our client had invested in the business of a tenant of a two-unit building in downtown San Pedro.  The business had been at the location for over 70 years, but the current owners eventually made the decision to abandon the space.  Our client managed to convert their interest in the business to a partial ownership of the building.  In the meanwhile, their new partner in the building had been attempting to open a new business in the other unit, but without success.  This left the now unfinished property completely vacant and unattended to for a few years.  Our client wanted to change this.

Success:

We were first approached to provide a cursory valuation of the property based on market comparables and the client used this information to make an offer for full ownership of the property.  After they had full control, we were then asked to find suitable tenants for the space, but with the catch that the tenants would be responsible for bringing the building to code with modest assistance from the landlord.  We marketed the property, screened multiple offers and prospective tenants for the two units, and successfully leased out both units.

Life’s surprises force abrupt transition

Owner resigns to sell restaurant in Los Angeles.

Challenge:

The owner of a small family-operated restaurant in the downtown Los Angeles area was forced to take over the management of the restaurant when her husband passed away unexpectedly a few years ago. She was able to keep the restaurant up and running with strong Yelp reviews, however, a health scare has recently prompted her to revisit her time commitment to the restaurant. She was referred to The Innate Group by an escrow company and a commercial agent based in Los Angeles.

Success:

The Innate Group discreetly listed the restaurant for sale across several platforms at a premium asking price. A few offers were entertained, but the final buyer paid 93 percent of the list price within a month of the listing. The seller was provided frequent updates and kept apprised of all developments in the escrow process.

Dining Evolves in Hermosa Beach

The dining scene in Hermosa Beach continues to evolve and, perhaps surprisingly, the pace of change appears to be accelerating. A record number of restaurants closed this past year and they are being replaced by new concepts that embrace chef-driven menus, professional management and provocative design. As a result, Hermosa may see the reversal of a long term trend of declining total eating and drinking revenues and, at the same time, the continued improvement in the quality of dining options.

There may not be a completely objective way to measure the quality of restaurants, but one positive sign of this comes from Yelp. An impressive 55 of the 89 restaurants in Hermosa now have a rating of four stars or higher, up from only 40 just five years ago.

While eating and drinking revenues in Hermosa are tracked by the city, they are not split out so it is hard to tell what is happening within each category. Nonetheless, a number of owners have confirmed that alcohol revenues have been dropping for years while dining revenues in general have actually been climbing. Last year the combined total revenues dropped by 2 percent from the prior year and remain below their peak back in 2000 just a few years after the opening of Pier Plaza.

In short, food revenues are increasing as the perceived quality of food improves and overall alcohol sales continue their descent.

Four relatively recent forces appear to be triggering the sudden ramp up in restaurant turnover: i) the upper Pier redevelopment project, which manifested in the repurposing of dozens of businesses and buildings; ii) six consecutive years of 9 percent annual home appreciation, which put Hermosa home values in the top 2 percent of the country and continues shifting the demographics of the city; iii) the doubling of commercial lease rates in the past four years, which has significantly impacted cash flow for restaurants negotiating new or extended leases; and iv) the maturing of a secondary market for the challenged restaurants, which has given operators a chance to recoup losses while moving on and, at the same time, limiting the newcomers to those prepared to take on the substantial investment required for success.

Over 30 of Hermosa’s 89 restaurant locations have changed hands and concepts in the past five years. Of these transitions, 10 occurred in the past year alone. Though increasing expenses and declining revenues prompted the vast majority of the recent closings, they were all precipitated in some way by one or all of the forces described in this article.

Upper Pier redevelopment project – The ribbon cutting ceremony for the redevelopment of upper Pier Avenue occurred many years ago in late 2010, but the impact has been far-reaching. First and foremost, the project triggered significant investment in both businesses and properties. A remarkable 60 to 70 businesses in downtown Hermosa had changed hands or rebranded in just the first 18 months that followed the ribbon cutting. This increased the demand for space there resulting in commercial lease rates on upper Pier now being commensurate with Hermosa Avenue after several years of significant gaps.

Strong annual home appreciation rates – Home appreciation rates in all of the beach cities are sizzling, which has helped make the area an even more attractive place to live. Since the beginning of 2011, there have been just under 1,500 homes sold in Hermosa alone, which is a significant percentage of the approximately 4,300 owner-occupied homes in the city. Rental rates typically rise when house prices rise and so there has likely been a similar turnover rate in rentals as well. The net of this is that the demographics of the city have been shifting quite a bit over the last several years with the growth in the city’s median income being just one example. It is not much of a stretch to conceive how dining preferences would have shifted as well.

Restaurants provide more than just food and drink and have, historically, helped shaped social relations. In essence, they fulfill a need for human connection. They also play an important role in helping shape local economies and the nature and makeup of cities. As home prices continue to rise at blistering rates in Hermosa and the city’s demographics change, the success of restaurants increasingly depends on the ability of operators to track shifts in what brings people out to eat in the first place. The inability of some owners to do this in a rapidly changing environment may be the primary reason why there has been such a significant jump in the number of restaurant closings over the past 12 months.

Higher commercial lease rates – The cost of restaurant space has doubled in the past four or so years and, if residential housing prices are a leading indicator of changes to come in the commercial real estate market, long term lease rates will continue to rise. As leases expire, landlords generally have the opportunity to adjust rent upward to fair market value and often do so.

One extreme example of this was a byproduct of the sale of the Mermaid property in 2013. The lease rates at the site were substantially below market value prior to the sale. All of the restaurants on the property had month-to-month leases so after the close of escrow, some restaurant groups on the property saw their rents triple almost overnight. For one of the groups, this resulted in an increase of over $100,000 in annual rent making it far more problematic to remain open at that location.

A maturing secondary market for restaurants – Demand for restaurant space in the beach cities is astounding. Listings for available locations garner dozens of calls. This manifests in interesting ways for both restaurant operators and landlords. New tenants are often more willing to pay higher rents to secure a location in the beach cities, an obvious benefit to landlords. At the same time, this high demand for space has afforded restaurant owners the chance to not only move on from their leases, but also to sell their assets for amounts well above the market value of the those assets. This helps take the sting out of the decision to transition out and move on. It also creates somewhat of a barrier to entry for underfinanced or inexperienced operators.

All but a couple of the restaurant transitions this year involved a buy-in by the new restaurant operator. The transitions that didn’t include money for the owners moving on had unusual circumstances such as highly unfavorable short lease terms of three years or less.
All of these changes have a plus side. As restaurants close, they make way for new concepts with big potential. We are seeing a number of unqualified success stories with many of the new restaurants that have been opened in the past few years.

Relative newcomers like Tower 12, Rabano, and Radici are joining the ranks of successful concepts like Baran’s 2239, Laurel Tavern, Greenbelt and Hook & Plow that are helping pave the way. Look for the opening of Slater’s 50/50, Decadence and Serve on 2nd this year to continue this favorable trend.

The convergence of changing social demographics with rising expenses has put an increasing number of Hermosa Beach restaurants at risk. On the other hand, this has created huge opportunities for well financed and experienced restaurant operators with a knack for addressing the elements of great food and social relevance. Change can be good and Hermosa will continue to see a positive transformation in dining in the months and years to come.

Manhattan Pair Pairs Couples

Several years ago, Manhattan Beach resident Linda Murad and her business partner Liz Murad Waters created The2ndDate, a matchmaking company.

The dating services industry has annual revenues in excess of $2.5 billion. This may not come as much of a surprise, given that there are an estimated 122 million unmarried adults in the U.S. and the number continues to grow. In 1960, the share of adults married peaked at 72 percent and has been steadily declining since. Today, roughly half of all adults are unmarried.

The three primary segments of the dating services industry are online dating websites, dating apps and traditional matchmakers and dating coaches. New evidence suggests that these efforts have been effective in bringing people together. Two independent university studies concluded that more than one-third of marriages now begin with online dating. This bodes well for the industry. However, some business analysts believe the existence of over 1,500 dating sites has resulted in saturation of the market and may lead to slower revenue growth.

Impediments to growth may be the fact that over half of online daters state that someone else seriously misrepresented themselves in their online profile. Additionally, a Pew Research Center study found that 28 percent of online daters have been contacted by someone who has harassed them or otherwise made them feel uncomfortable. Challenges facing the industry include the presence of fake online profiles, fraudulent traffic, database breaches, and privacy safeguards.

While the online sites and apps have grown with millions of users, so too have the number of traditional matchmakers and dating coaches. Manhattan Beach resident Linda Murad, along with her business partner Liz Murad Waters created a traditional matchmaking company, The2ndDate, a couple of years ago. I had a chance to speak to both of them about their unwavering passion of “helping people find love.”

Murad and Waters They both related rewarding experiences “helping people find love.” Murad worked in advertising and Waters is an attorney. They have known each other for over 20 years but were never able to pursue forming a business together until their children were in school.

They do not take on everyone. Their clients must be genuinely interested in getting into a relationship and must undergo background checks. They conduct all interviews in person and coordinate first dates. These are true blind dates. photos and last names are not shared. The woman receives the man’s number the day of the date so she can contact him at the venue where they are meeting.

Murad and waters provide coaching on everything from their client’s wardrobe to real-time texting to turn a date around that may not be going well. They solicit feedback on the date from both parties the next day and help facilitate second dates.

A nominal fee is charged for everyone in their database. However, there is a success fee charged to the man if he completes a three-month relationship. With their business model now proven, they are taking steps to grow their business through social media. For more information visit the2nddate.com.

 

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