Supply and Demand

Real estate prices in the beach cities have been appreciating at astounding rates for several years now. This holds true for both residential and commercial properties. It all starts with the growing popularity of living here. Our schools, beaches, and business districts have been attracting an increasing number of people to the area, which in turn increases the appeal to retailers and other businesses to be in our communities as well.

The theory of supply and demand postulates that in a competitive and open market, the unit price for any good will eventually settle at a point where the quantity demanded equals the quantity supplied at current prices. Stated another way, the price of something tends to reflect the demand for it and how much of it is available to satisfy the amount of demand for it. Our limited supply of housing doesn’t match the increasing demand for it and so prices keep rising.

Since 1970, the number of housing units available locally has remained relatively flat based on the stabilization of the population since then. The current Manhattan Beach population has hardly changed in the past 50 years. Also, our housing turnover rates are way below the national average of 7.5 percent. In Hermosa Beach there were 199 reported sales of all housing types last year, which represents maybe 2 percent of all households there. The bottom line is that the supply of housing is very limited whereas the demand for space here continues to grow, which subsequently drives up prices. This is evident in the impressive appreciation rates in all of the local areas that have been sustained for the past six years.

Given that in 2015 there were 16,507 Los Angeles County tax filers with incomes of over $1 million, it may be some time before affordability of exclusive homes becomes an issue. These fortunate earners had an average income of $3.38 million each and thus could easily qualify to buy the 13 reported homes sold on the strand in Hermosa Beach and Manhattan Beach in 2017 at an average price of $11.8 million if so inclined.

As housing prices rise so too do the qualifying incomes required to purchase the homes here. More retailers and other businesses want to be here to cash in on this. As a result, the demand for limited commercial space parallels what has been happening with residential home prices. Buyers of commercial properties here, if they can find them, have been willing to accept lower capitalization rates. In other words, they will take on an investment with a return on their investment now at about half the national average. Similarly, lease rates have blown through their record highs. In downtown Manhattan, we are seeing $10 per square foot lease rates, which is double the average in downtown Hermosa.

This manifests in an interesting way for restaurants in particular. We have one of the few markets in the country where restaurant space can command what might be loosely referred to as “key money” regardless of the success of the departing tenant. Most new tenants have to pay substantial upfront fees to get in. We are seeing these fees exceed $400,000 in the Riviera Village and $1 million in downtown Manhattan for space that includes access to a full liquor license. This coupled with high rent puts tremendous pressure on restaurant operators to hit their revenue targets if they want to recoup their investments within a short timeframe. This unrelenting pressure is likely to limit commercial lease rate increases, at least in Manhattan Beach, moving forward.

Redondo Divide Extends to Home Prices

Redondo Beach has an odd shape on the map for a city that has been around since 1892. A pinch point exists along the summit of Anita Street and 190th Street that creates a natural division between the north and south. By the time the zip code system was introduced in the U.S. in 1963, which formally split Redondo into two codes, the characteristics of these two distinct areas were already taking hold.

The South Bay Center (now the South Bay Galleria) opened in 1959 and Space Park followed suit two years later, cementing the North Redondo as a commercial and industrial stronghold. In 1964, State Route 1 became Pacific Coast Highway and a gateway to Hollywood Riviera and the Riviera Village. The coast has had several iterations of a pier over the past century and King Harbor was dedicated in 1966.  As might be expected, the housing market in each area tended to reflect the needs of residents based on the commercial and recreational attributes of the two areas.

Perhaps by happenstance, the two sections have close to the same number of housing units with the south having a slight edge. However, the number of sales transactions in 90278 to the north, has consistently been greater over the years.  In 2006, before the national financial crisis took hold, close to 1,000 homes were sold in Redondo with more than 560 being in the north. As it turns out, the same ratio applies this year as well. This may be an artifact of North Redondo having a higher percentage of owner-occupied homes and households with children.

In 2006 and again in 2011, as housing prices started to gain ground on pre-crisis levels, median home prices in the north were approximately 85 percent of the median prices in the south. However, in the six years since, the south has experienced average annual appreciation rates of just over 10 percent while the north has been holding at under 8 percent.

The South Redondo median home price for all housing types was $860,000 before the financial crisis hit in 2006 and only $715,000 five years later. This year the median price has topped $1.2 million. In the north, the median price hit $750,000 in 2006 before falling to $610,000 in 2011. This year the number is approaching $1 million.

Back in 2006, both areas had roughly the same percentage of single-family homes sell with respect to overall sales, but this has been gradually shifting since. While the south has held steady at close to half of all housing sales coming from single-family homes, the north has seen a decline as a result of an increase in townhome sales. Over 14 percent of home sales in the north this year were for new build-outs with a median price of over $1.2 million and the vast majority of them were new townhomes.

There have been far fewer new build-outs in 90277 this year, but their median price was just under $1.6 million. Nonetheless, this alone is not enough to explain the widening gap between home prices in the south compared to the north of Redondo.  Turnover rates may also contribute to this as there are fewer homes as a percentage of the total on the market in the south, but with higher demand.  Finally, it’s possible that an increase in the number of high-performing new restaurants and Shade Hotel in the south have had an impact on interest levels there as well.

 

As seen in Easy Reader

Beach Travel – Bags Checked, Plans Unchecked

I can’t recall how it all started though it may have been just a passing suggestion by our then eight-year old daughter, Isabella. It sounded daunting at the time, but for whatever reason, we relented and embarked on a journey that would take us to all 50 states. Had we thought through just what this would have entailed, we probably would have backed off, but it turned out to be an absolutely incredible and unforgettable experience. Breaking from our pattern of over-planning created enough of a shift in our behavior to enable the great gift of thoroughly engaging in all of the magical moments we would encounter along the way.

In an 18 month period, we made it to all of the states we hadn’t been to before. It took seven separate trips and by the time we finished, we would log over 13,000 miles by car and close to 30,000 in the air. We would see over 30 major colleges or universities, 25 state capitols, and several National Forests, Parks or Monuments. Our only rule was that we needed to either spend the night or have a full meal for the visit to count. In all, we spent a total of two months away from home. We never anticipated how remarkable the journey would be or the impact it would have on our lives.

Tony, Isabella, and Janeth in South Dakota, celebrating the completion of their 50-state tour. Photo courtesy of the Cordi Family

It began in Hermosa Beach with a road trip to several southwestern states in December 2014. We spent substantial time planning every hour of the first trip. We knew where we wanted to be and when we wanted to be there. We even mapped out our food and researched restaurants in advance. As we would soon learn, this amount of structure inhibited us from really being present and embracing the adventures as they unfolded. The southwest provided a fortuitous first trip for this as there are countless ways to interrupt the comfortable familiarity of living by the ocean.

Our first epiphany on the benefits of unscripted travel hit us in Saguaro National Park. We arrived in a valley completely surrounded by thousands of tall saguaro cacti standing sentry to the majesty of the desert. We realized that trying to adhere to our tight travel plans would rob us of rare moments like this. We were struck by the stillness and serenity of the air, something we don’t experience often at the beach. It would be a recurring experience in the southwest in places like White Sands National Monument and the Arches and Canyonlands National Parks.

To interrupt Isabella’s increasing dependency on her iPad during our drives, we began to make random stops to get her active. These respites paid off and provided us with fantastic memories. In White Sands National Monument she would roll down the glistening hills while laughing hysterically the whole way down. The same thing happened on the slopes of Vail and sledding down Y Mountain in Provo. Spontaneous activity and fun can definitely transform the travel experience.

While on this trip we committed to eating local food and witnessing the culture as much as possible. We couldn’t get enough of Southwestern cuisine, especially in New Mexico. Santa Fe had fantastic food and offered opportunities to visit enchanting places like the pueblos of Nambe and Taos and to shop the Native American vendors at the Palace of the Governors. The uniqueness of El Paso, Denver and Las Vegas would add to the mix.

In the spring of 2015, we set out to visit family and friends in the Gulf States before venturing off to several adjacent states. Experiencing unfamiliar places with people we enjoy who happen to know the area well greatly enhanced our travel and would become a mainstay for our trips moving forward.

There were a couple of stops that we made that stand out above many other amazing places on this trip. Ruby Falls, outside Chattanooga, has an underground 145-foot high waterfall every bit worth the effort getting to it. Likewise, we will never forget digging for diamonds in the world’s only diamond-producing site where the public can do this at Crater of Diamonds State Park outside Murfreesboro, Arkansas. We spent a couple of hours, mostly in mud, not even caring if we made a discovery.

We were also able to enjoy some excellent Southern-style cuisine in Alabama and Florida in addition to old school ribs in Memphis. Of course, we had to try gumbo, jambalaya and even beignets in New Orleans. We also lucked out with some great food close to the Grand Ole Opry, the Gateway Arch, and in Mississippi.

We thought it would be fun to go to the District of Columbia and Philadelphia over Memorial Day weekend that year and it turned out to be a great decision. We didn’t need an iPad for Isabella much at all on this trip. Because of timing issues, we had to consolidate the D.C. trip and opted to use a bus tour for this, which worked out perfectly. We covered many monuments and had the opportunity to walk around most of them. It was fun for her to see the White House and I had a chance to meet up with a former college classmate after the tour.

We had great food in Reading Terminal Market in Philadelphia, but missed out on seeing Liberty Bell Center because the line had at least 300 people in it. We grabbed Philly cheesesteaks to go instead before meeting up with friends for dinner in Cape May, New Jersey. Our shortest stay in a state would be in Delaware with a stop for cheesecake and we would only end up spending a couple of hours in Harper’s Ferry in West Virginia. Baltimore offered fantastic soft-shell crab, cannoli in Little Italy, and a chance to burn it off paddle-boating in the Inner Harbor.

Later in the summer after Isabella turned nine, we would visit the Pacific Northwest and bring our travel to another level. We had an exceptional trip to Idaho, Wyoming, Montana, Washington and Alaska. Everything about these states made it easier and more enjoyable to be spontaneous. From swimming in a sink hole off the Snake River by Shoeshone Falls to watching the Jackson Hole Rodeo in Wyoming to swimming in the West Thumb of Yellowstone Lake, we had a blast. It helped that we had warm weather and got to see bison roaming up close, eruptions from Old Faithful Geyser, and the beauty of Big Sky while hiking.

Stops in Coeur D’Alene, Spokane and Seattle all added to the adventure. We got our Idaho potato fix in, a chance for Isabella to get on rides, and a fantastic ferry ride at night to view Seattle.

I could write volumes about our time in Alaska with friends. We were able to go dog-sledding with Iditarod competitors, raft in a Glacier river, tour Denali National Park, eat incredible salmon, and stay on military bases. I can’t overstate how special our time in Alaska was every day we were there. The signature moment occurred on the way back from a dinner cruise to Fox Island in the Kenai Fjords. We stopped in Emerald Cove and were blown away by the sight of countless moon jellyfish, sea lions trying to scramble up a tiny island to escape four approaching orcas, eagles on the side of a bluff not far from common murres, cormorants, puffins, and a random mountain goat. Definitely not something we see every day.

Over Labor Day, we flew round trip to Boston to capture the pageantry of the change of seasons and see all of New England. An hour drive can change everything there. We went to Pemaquid Point Light to scramble on the cliffs and tour the lighthouse before eating lobster rolls in Boothbay Harbor. Having Italian food was a must in Boston before spending the night in Cape Cod. Whether swimming at the beaches of Nantucket Island or just walking around the island, it left an indelible impression.

Isabella had a chance to scope out both Harvard and Brown on this trip and to see my childhood home in upstate New York. We swam in Lake George and would enjoy the company of one set of friends in Burlington and another set in Montreal.

It wouldn’t be until spring break in 2016 before our next trip to Michigan, three of the Great Lakes, the Rock and Roll Museum, and Notre Dame. This trip would mark another turning point in that Isabella became far more proactive in planning our activities. Her level of engagement ramped up and it hasn’t changed as we plan new trips.

She had us at the incredible Henry Ford Museum in Dearborn, an indoor water park in Sandusky, the play Matilda in Chicago, the Wizard of Oz Museum in Wamego, Kansas and later the Little House on the Prairie site in Independence. She even managed to get a horse ride in when we were in Lincoln, Nebraska. We were encouraged to visit Woolaroc and it turned out to captivate all of us between the free-roaming wildlife and the extensive museum.

Food was a big part of this trip as well and we had brats with friends in Milwaukee, baked goods in the Czech Village outside Cedar Rapids, and steaks in Omaha. We even enjoyed a diner in Tulsa and great Thai food in Dallas.

On our last night, we pampered ourselves at the Westin Galleria which gave Isabella an opportunity to swim in the morning and ice skate later in the mall.

This left us with just three states to visit. We flew into Minneapolis just before Isabella’s 10th birthday and enjoyed the city before checking out the expansive Mall of America. Not surprisingly, Isabella loved Nickelodeon Universe and we would make it back a couple more times. We ventured off to Fargo and then spent the night in Bismarck. The next day we achieved our goal of hitting our 50th and final state when we made it to Ludlow, South Dakota without any signs of civilization in sight.

South Dakota proved to be another big surprise for us with Mt. Rushmore, Jewel Cave National Monument, Crazy Horse Monument and later Badlands and Sioux Falls. We would punctuate our last night of our last trip on this journey with a spontaneous stop at Bingham Lake in Minnesota for a swim.

Our quest had come to an end and it would prove to be nothing short of life-changing. We have been on a number of trips since and Isabella now actively participates in the planning process as little as there might be of it. We can’t help but smile when we recount the hundreds of stops we made for food or other activities to accomplish this incredibly gratifying goal.

When invariably asked what her favorite places are, Isabella offers New York City and the big island of Hawaii. We have been to Manhattan a number of times and to Hawaii before our quest to visit all 50 states began in earnest. She has vivid memories from both areas. Our travel has been an incredible blessing thanks to making the shift from a heavily-scripted approach to a mindset of just embracing the opportunities as they come.

Veggie Grill Owner Linked into Fellow Beach City Residents

The Beach Cities have become a hotbed for business creativity and execution, especially in the food industry. Over the past few years, we have seen an increasing number of new and exciting concepts begin here before expanding to multiple locations in other states. However, very few of these concepts truly break new ground or innovate the way Veggie Grill has with its 28 locations. I spoke with co-founder T.K. Pillan to discuss the genesis of the brand, the role the Beach Cities has had in their success, and on expanding nationwide with their Chicago and Boston units opening up soon.

A menu based on vegetables and plant-based food may have sounded risky when the first Veggie Grill opened in Irvine 11 years ago. In 2008, Vegetarian Times published a study suggesting that just 3.2 percent of Americans or 7.3 million people considered themselves to be vegetarians. These numbers were not particularly compelling, but Pillan and his partners were ahead of a related trend. According to a recent study, over 40 percent of people surveyed are trying to eat healthier and reduce meat and other animal-based food consumption. This is particularly true in “progressive metropolitan areas,” which became the target for Veggie Grill’s expansion in the near term.

While they may have started with the intention to expand nationally over time, Pillan recognized that the “first one had to work.” They had a lot of kinks to work out. Along the way, Pillan, an 18 year resident of Manhattan Beach, discovered that the beach cities are home to “many successful business people” with a penchant for sharing ideas.

There is no doubt “this was definitely helpful,” not just with idea-sharing, but also testing early versions of the menu and brand, and even bringing on board members. He has made great connections in unexpected ways, including going downtown for coffee, talking to other parents of children in the local schools, and even walking his dogs through the neighborhood.

He also lives within a few blocks and has developed friendships with industry leaders like Chris Simms of Lazy Dog Café, Adam Goldberg of Fresh Brothers and Michael Zislis of Shade Hotel and Rock & Brews. Each of them has established successful brands with multiple units across several cities and have been open to sharing their perspectives.

In 2015, Pillan formed an investment fund, Powerplant Ventures, to support “visionary food companies leveraging the power of plants.” They recognized that there is an increasing number of pioneering companies developing innovative proteins. In fact, revenues for the plant-based food industry topped $4.9 billion last year and continue to grow.

The community again was a valuable source of contacts in the fund management and investment world. And of course, one company they have invested in was Beyond Meat, co-founded by Manhattan Beach resident Brent Taylor. Business leaders in the beach cities are increasingly proving to be an important resource for local entrepreneurs hoping to create dynamic new companies or to expand on early successes.

 

As seen in the Easy Reader / Photo by Photo by Ciley Carrington
Photo: Veggie Grill co-founder T.K. Pillan at his restaurant in Rolling Hills Plaza.

Shade Owner Credits Collaboration with Downtown MB Improvements

Through the many Manhattan Beach businesses Manhattan Beach resident Michael Zislis has founded over the past 26 years, he has both contributed to and benefited from Manhattan’s growing popularity. During a recent interview, he talked about what he thinks accounts for Manhattan Beach’s dramatic rise in status.

Zislis grew up in Palos Verdes and studied economics at USC. He was grounded at a young age in business principles by mentor and neighbor Arthur Laffer, the Reagan economic adviser whose Laffer Curve became the foundation for Republican tax policy. In the early 1990s, he coupled his education with his passion for brewing when he and his brother David bought a “pies and burgers place at the beach” and opened Brewco, down by the Manhattan Beach Pier. In 2000, the brothers took over the former Hibachi restaurant next door and opened the immensely popular Rock’N Fish.

At the time, there were a number of locally popular restaurants in downtown Manhattan, however, few of them drew from outside the area. Zislis set out to change this. Today highly-acclaimed restaurants fill downtown. Zislis believes these restaurants have played an important role in the burgeoning popularity of the city.

Other factors that have contributed to the downtown’s momentum, Zislis said, include the opening of Skechers’ flagship store and the arrival of high profile residents such as the King’s Marty McSorley, soccer gold medalist Mia Hamm and her husband and Dodger Nomar Garciaparra. In addition, he credited “strong pro-business city managers” with contributing to the downtown momentum.

Another significant contributor was the opening of Metlox Plaza 12 years ago. The addition of Zislis’ Shade Hotel and 400 new parking spaces would contribute to a 25 percent increase in downtown sales tax revenue. Ironically, the original Metlox plans had a restaurant where Shade Hotel now stands. Zislis became involved when the group selected to replace the restaurant with a hotel backed out.

Finally, Zislis said, “Manhattan, as a town, is the king of giving back.”

He and fellow business owners, including Mike Simms of Simmzy’s and The Arthur J, often collaborate on community events for the downtown and on policies to improve downtown business. These relationships have indirectly created a platform for launching franchises such as Rock & Brews and other, successful, multi-unit restaurant brands.

Jon Mesko, owner of Manhattan Denim and five Rock and Brews restaurants, described Zislis as someone who “genuinely wants to help others.” He said the mentoring he offers fellow business leaders ensure that Manhattan’s stature will continue to grow.

 

As seen in Easy Reader / Photo © Easy Reader

El Segundo’s Home Turnover Rate Half the National Average

Shake Shack in El Segundo opened up to very long lines a couple of weeks ago.  This auspicious start for the new Apollo Landing development is yet another example of the increasing diversification of the business base in El Segundo.There have been substantial investments made in development projects over the past few years that have solidly propelled the city into a new era that some businessmen and even professional writers are classifying as “trendy” and “cool.” Both The Point and the new Lakers executive offices with a world-class training facility were $80 million investments. Elevon, which is adjacent to the Lakers compound, came in closer to $100 million. Many investors and residents may be wondering what, if any, impact all of this growth might have on the residential real estate prices here.

The housing market has been turbo-charged for a while now, with average annual appreciation rates of over 7 percent for the past six years. The 2016 Forbes annual study of the most expensive zip codes in the country places El Segundo in the top 1.6 percent of all zip codes nationwide. In El Segundo, what makes this growth particularly interesting is that median sales prices are not skewed by newly-built homes. Only a couple of homes that have been sold this year were new buildouts.  In parts of Manhattan Beach, we are seeing as many as 20 percent of home sales coming from recently built homes, which can skew the median sales prices up.

The S&P Corelogic Case-Shiller national home price index shows a year-over-year gain of close to 6 percent for their 20-city composite annual increase. For the other areas of the beach cities, the increases have been between 5 percent to 10 percent.  El Segundo is consistent with both the national and local numbers, suggesting that the commercial investments in the city have probably not had much impact yet.

While there have been a few noticeable changes to the downtown area, they have been limited. Most of the commercial investment has been on Sepulveda Blvd., Rosecrans Blvd., and what is often loosely referred to as east El Segundo. In the downtown areas of Manhattan Beach and Hermosa Beach, we have seen more activity with respect to new retail and restaurant offerings. Residential appreciation rates in the sand sections of these cities have been much higher than the average for the area and there continues to be substantial new buildout activity.

There are currently 14 homes for sale in El Segundo at a median listing price of over $1.3 million. This is a very low level of inventory for El Segundo and highlights a surprising finding about the housing market here.  It turns out that the turnover rate of homes is exceptionally low, about half the national average rate.

We may or may not see much impact on appreciation rates in El Segundo from the tremendous development success in the city outside the residential areas. Bill Simone, the President of Custom Design & Construction, which has been based in El Segundo for 31 years, “Our South Bay area has enjoyed solid economic growth, ongoing quarterly job gains, and rising household formations, which fuel local housing demand. Tight inventories and the looming threat of mortgage interest rate increases through 2018 will keep home prices on a steady inclining path.”

A leading indicator to watch would be permits pulled for new buildouts of custom homes, something we have been seeing in Manhattan and Hermosa for a while now.

 

As seen in the Easy Reader

Proposed Property Tax Changes Probably Won’t Affect Local Home Prices

Last week, House Republicans released their proposed Tax Cuts and Jobs Act. The bill is intended to cut taxes for the middle-class, simplify the tax code and create jobs. Release of the Senate version is expected this week.

Of particular interest to Beach City residents is the impact on local home prices, resulting from potential changes to certain deductions. Like the current tax code, the answer to this is complex and depends on a number of factors.

Two proposed modifications that would affect homeowners are the caps on both the mortgage interest and property tax deductions. What is presented here is in no way comprehensive, but rather summarizes how some homeowners might be affected.

Currently, homeowners can deduct interest payments on their first $1 million of home loans. The proposed tax plan drops this cap to $500,000 on new home purchases. (Existing homeowners would not be affected.) This change translates to about $20,000 in interest that will not be deductible. Additionally, the plan calls for a $10,000 limit on the amount of property tax that can be deducted, which would impact homes valued at over $800,000.

The impact on homeowners will depend on the amount of their loans and the purchase price of their homes. The average home sales price in Redondo Beach over the past five years was $1.2 million and so it is possible that the majority of the more than 4,100 homes that changed hands involved loans of $500,000 or more. Given that 56 percent of housing units in Redondo are owner-occupied, this represents an approximate turnover of 25 percent in five years.

If we use a sale price of $1.2 million to illustrate the impact of the new deduction caps, a buyer would lose about $20,000 of interest deductibility, depending on the down payment amount. The buyer would also lose about $4,400 in property tax benefit. This translates to a net income loss of approximately $600 monthly, depending on individual or household tax brackets. As a result, a buyer might lose  $20,000 in home purchasing power under this scenario, an amount that probably isn’t sufficient to impact future home sale prices.

Manhattan Beach sales would feel the impact more. In the past five years, close to 2,000 homes were sold at an average price of $2.4 million. The effective drop in income for a buyer of a $2.4 million home because of the tax changes would be about $950 monthly. This might impact home buyers’ purchasing power by $50,000.

Of course, there are other considerations in the proposed tax bill such as the change in tax rates that could offset some of this net tax increase. John Chuka, the owner of NW Real Estate Brokers in Manhattan Beach, with a total of 80 agents, said that “any cap on mortgage loan deductibility is a negative.” However, he added, “Many of our beach cities clients rely secondarily on the current deduction.”  When coupled with the incredible appreciation rates that we have been experiencing here, Chuka added, “I think most coastal area buyers will consider this loss of deductibility a less than important issue in the grand scheme of buying while others will consider the deduction gap a greater negative when buying in other areas with loans exceeding $500,000.”

 

As seen in the Easy Reader

New Homes in Tree Section Buoys Neighboring Homes

The multiple listing services for the beach cities carves up Manhattan Beach into six distinct areas. The tree section generally has a higher percentage of homes for sale that is new buildouts and makes for an interesting study on the effects of the building activity on home prices here. Not surprisingly, the number of new buildouts has had a significant impact on median home prices for this area. The national financial crisis of 10 years ago practically shut down the new building and, as a result, lengthened the recovery time of home prices here to pre-crisis levels.

In 2000, there were 167 home sales in the tree section with a median sales price of $820,000. Of these transactions, 24 were for homes that were built within the prior two years. Over the next several years, this pattern of buildout activity would increase slightly and in 2006, before the financial crisis took hold, close to 22 percent of homes sold had been recently built. At $1.7 million, median prices were double what they were back in 2000, while at the same time the sales volume had fallen off by about 28 percent.

Prices would hit a pre-recovery peak the next year in 2007 at $1.9 million on declining sales volume. It would not be until 2014 that median sales prices returned to these levels. For several years, prices would decline and steady before hitting a low point of about $1.42 million, which represents a 24 percent drop from the peak back in 2007. The run-up in prices through 2007 had triggered a rise in building activity that would manifest in 31 sales of newly-built homes in 2008. Without these new home sales, there might have been an even sharper decline in sales prices over the ensuing years.

In 2009, the number of transactions fell to only 75, a sharp drop from 2000 and a level not seen since before 1995. The number of recently-built home sales dropped from 31 down to 18. In 2010, the number of newly-built homes would drop in half from the previous year and in 2011 only one new home was sold.

The financial crisis took its toll on housing and on real estate prices throughout the country. In the tree section, developers would move to the sidelines as seen with the near complete fall off of new buildouts in 2011, from a high of 31 in 2007. From 2012 through 2015, there would only be seven to eight new buildouts sold annually.

Last year the number of new homes built had tripled from the prior year. It is noteworthy that if the new home sales were stripped from the analysis, the median home price in 2016 matched the price in 2015. It was the 22 newer homes that were sold at a median price of $3.3 million that lifted prices to the tune of over 12 percent from 2015. New building activity propels the market.

The sales volume levels thus far this year are tracking last year’s though with a modest increase in the price of about 5 percent. There have already been 20 recently built homes sold this year at a median price of $3.49 million.

The number of current listings in the tree section represents about two months of inventory with the newer homes listed at $3.6 million. While year-to-date sales of older homes were just under $2.2 million, similar homes today are listed at $2.45 million. Building activity in the tree section has returned to healthy levels and with this has come stronger prices.

 

As seen in Easy Reader

Five New Upscale Restaurants Hope to Follow Recent Beach Successes

Baran’s 2239, Tower 12, Rabano’s, and a re-energized “modern old school” Bottle Inn are the latest examples of new beach city restaurants experiencing tremendous success. More are coming.

Radici, Decadence, Serve Kitchen, Sister’s Barn, and Gabi are all in various stages of development and will contribute unique offerings to our evolving dining scene.  The owners of each of these restaurants are making substantial investments in design and all have committed to hiring top chefs to turbocharge their menus.

Laura Francisco, with the help of her family and award-winning designers, is nearing completion of Radici in the former Cali Cantina space on Hermosa Avenue. They “are taking their time to make it the way they want it,” including a menu that will have “food that comes from the heart” without any “compromises on ingredients.”  The menu will have a number of dishes that have origins in her mother’s hometown of Pacentro in the region of Abruzzo, Italy. They are selecting boutique wines and creating craft drinks to complement the food. They are targeting a December opening.

A few blocks away, Skylar Tourigny is close to starting her build-out for Decadence at the former Establishment location. She will “open up the space with an inviting patio.”  She wants to create a “fun place to go out” and is working with a top design firm for an “industrial sexy” vibe.  She is also bringing in a “well-known chef in LA” to help her realize her vision of “fresh, rustic California food with Asian influences.”  She hopes to open in early 2018.

Jon Mesko, the owner of five Rock & Brews locations, is opening Serve Kitchen at the former Tammie’s Corner House Café location on at Second Street and Hermosa Ave.  He has teamed up with a design partner to create a space that “feels like home.”  It will be “comfortable and welcoming” and feature patios and a firepit.  They visited several favorite restaurants for design ideas. Mesko said he is bringing in “the best chef he has ever met” to create a menu with “fresh sharable fusion foods” and “old school comfort classic dishes.”

Sister’s Barn owner, Barbara Reger, is nearing completion on her remodel of the former Snow Zone along with an adjacent space on PCH in South Redondo for her “crafted barbeque eatery and market.”  She will have “chef-inspired seasonal menus” and their market will offer food and retail products that complement the restaurant. They plan to open early next year.

In the Riviera Village, Sara Gabriele is creating Gabi in the former Zazou space, which was opened by her father Guy over 20 years ago. They are working with a consulting chef to come up with a menu that will feature “Spanish fare with flavors of our family in the South of France with a South Bay twist.” They also have an “amazing design and build team.”  Gabriele is a sommelier and her husband Adam Aro is an authority on beer.  They are bringing in Vincenzo Marianella for signature cocktails. They hope to open in December.

 

As seen in the Easy Reader / Photo by Brad Jacobson (CivicCouch.com)
Photo: Skylar Tourigny, former owner of Marine St. Cafe in Manhattan Beach, is opening Decadence in downtown Hermosa Beach in the former Establishment location on Hermosa Avenue.

Beach Food – Here Comes Hermosa

Hermosa Beach’s rising incomes over the past 20 years, combined with advances in social media, changing dining habits, city regulations and risk-taking by well-funded restaurateurs have had a profound impact on the city’s dining scene.

Pier Plaza came to life in August 1997 when Pier Avenue was closed to automobiles from Hermosa Avenue to The Strand in what one city official characterized as a “social experiment.” It propelled city sales tax revenues to an all-time high in 2000. Revenues for businesses that collect sales tax were just shy of $300 million, with about 40 percent of this coming from eating and drinking establishments.

Michael Santomieri, owner of Greenbelt on Pier Plaza, was the manager of the popular Sangria restaurant during this period. He recalled the plaza being “packed with people, shoulder-to-shoulder. Justin Timberlake, Britney Spears and Scottie Pippen all showed up and sometimes the entire Lakers team would hit up the plaza after a game,” Santomieri said.

With few exceptions, the downtown dining scene was more about bars and entertainment than about food.

Unfortunately, not all the results were positive. With crowds come problems, among them public urination and fighting. Residents living near the plaza pressed the City Council to address the problems through stricter regulations.

The city regulates businesses with Conditional Use Permits (CUPs). CUPs are location-specific and can be used to curtail hours of operation, limit entertainment, and increase enforcement of the so-called “50-50” rule. This latter rule requires an equal balance between alcohol sales and food sales, and may have been a factor in some bars closings.

Greg Newman, co-owner of Tower 12, Palmilla and Sharkeez on Pier Plaza, said, “From about 1997 to 2004, the crowds were upwardly mobile locals and tourists.” This shifted when the rules changed. “It became less fun for people who lived here to go out here.” Business started falling off, which hit city sales tax revenues. These revenues have stayed below the peak of 2000 for 16 consecutive years.

The early business successes after the plaza opened and the subsequent shake-out of bars from new city regulations through 2007 prompted a number of new restaurant openings. Alfredo’s, Passport, Martinique, Blue Pacific, Sabor Brazil, Hama Restaurant, Dragon, Eat at Joe’s, Los Muchachos, and several others would all come and go. Among the few still open from that period are Poulet du Jour, Crème de la Crêpe, Fritto Misto, Ocean Diner, Oki Doki Sushi and Chef Melba’s.

Surprisingly, as the financial crisis started pummeling the country in 2007, a significant number of brave restaurateurs tested the Hermosa market. Zane’s, Barnacle’s, Silvio’s Brazilian BBQ, Gum Tree, Chelsea, Rok Sushi, and Waterman’s would all hit the scene and make it. However, at least a dozen others would open and close over the next few years, including Hibachi, Jitter’s, and Brix.

Tyler Gugliotta, the former chef of Brix and now the executive chef of Baran’s 2239, said of that period, “The food scene in Hermosa was pretty abysmal. Most places offered only tacos, burgers and bar food.”

The re-opening of Upper Pier Plaza in October 2010, after an impressive redevelopment, coincided with the beginning of a recovery in home prices and triggered a renaissance in the dining scene. Gugliotta singled out a handful of restaurants that continue to shake things up, including Abigaile, Greenbelt, Tower 12, Hook & Plow, and his own Baran’s 2239.

The Upper Pier project quite possibly has had more of an impact on downtown Hermosa than any other development. With the opening of the 200 Pier Avenue retail and office complex and the completion of the redevelopment project, more than 50 new businesses would gain a presence on Pier Avenue and another 50 or more would rebrand, remodel or be replaced.

There have been other forces at play during this time, as well. Home prices in Hermosa have sustained a blistering average annual appreciation rate of 8.5 percent. Forbes’ 2016 list of most expensive zip codes ranks Hermosa 119th, with a median home sales price of $2.2 million, up from $540,000 in 2000. Hermosa Beach homes are more expensive than over 99.5 percent of zip codes, nationwide. Median household incomes have also outpaced the rise of incomes nationally.

Easy Reader food critic Richard Foss, noted, “Social change has magnified the importance of dining well. Those who live in affluent areas can exercise their food and drink experimentation more frequently than those who have to scrape together rent, but the food is such a part of aspirational California living that it is part of the caricature of our state.”

People, in general, are eating out more. Restaurant related expenditures recently exceeded groceries expenses for the first time. People also like to eat close to home and there is an increasing awareness of the benefits of organic, locally-sourced, and sustainably-farmed food. Even cocktails and beers have become crafted.

The Newman family took risks with both Palmilla and Tower 12 because they reasoned there were “enough bars already” and they could see what was going on with the increasing number of upscale restaurants in Manhattan Beach.

Jed Sanford, owner of the downtown Hermosa Abigaile, followed a similar line of thinking when he opened the upscale Dia de Campo and S&W restaurants.

“The demographics here are changing. More families want to make Hermosa their home,” he said.

Baran’s 2239 is relatively new on the scene but has already garnered 4-1/2 stars on Yelp and countless accolades. Los Angeles magazine listed it as one of LA’s 10 best new restaurants. Only one other South Bay restaurant has achieved this in the past several years.

“We wanted to do fine dining in a casual atmosphere and offer a menu with strong global influences. Ingredients are local and seasonal,” Gugliotta said,

Greenbelt’s Santomieri said he wanted to create a menu “with fresh ingredients coming daily from local farmers market produce.” They also wanted to offer items favored by women, who now make up 65 percent of their patrons.

Other notable Hermosa restaurants that have opened since 2010 include Source Café, Locale 90, The Standing Room and Hook & Plow.

With minimum wage hikes, rising lease rates, and high acquisition costs, restaurant owners are going to find it increasingly more difficult to bring new concepts to the market. Seasonality is a another issue. It takes more work in Hermosa to fill the seats during the winter months, especially since Hermosa has two to three times more restaurant seating capacity per capita than Manhattan Beach.

The consequences of Hermosa’s “social experiment” on Pier Plaza, though unforeseen, have been a significant plus for local diners. Chef-driven and professionally-managed restaurants with high quality ingredients are becoming the norm. Tower 12, Playa Hermosa, Rabano’s, Casa Vincenzo and Laurel Tavern are the latest examples of this and soon we will see Decadence, Radici and Serve Kitchen hit the scene with the same mindset. The opening of at least two hotels over the next several years will no doubt reinforce these trends.

 

As seen in Easy Reader / Photo by Kevin Cody
Photo: Greenbelt owner Michael Santomieri has seen Pier Plaza transform from an “elbow-to-elbow” bar destination to upscale dining.

Manhattan Sand Section, South Redondo Lead Home Appreciation

The gap between the average home price in the beach cities and the national average has grown significantly since 2000. In 2000 you could buy a home in most parts of the country for $120,000 compared to $532,000 for the three beach cities and El Segundo. Since then, our blistering appreciation rates have resulted in a substantially higher gap. The National Association of Realtors estimates that the selling price of a home in the country is about $250,000 while here the average home price for all home types exceeds $1.4 million. This has had a huge impact on local businesses and on property tax revenues for the cities.

In 2016, the total sales volume of single family home, condo and townhome sales topped $2.4 billion from 1,601 sales. Assuming that the total cost of all transactions related to a sale is 6 percent, this sales volume represents $142 million in broker fees, escrow costs, and other expenses. An additional $71 million makes its way to the four cities in the form of property tax revenue.

The numbers were quite different here back in 2000. For starters, the total number of transactions was 34 percent higher at 2,421. Total sales volume came in around $1.3 billion, which when adjusted for inflation would be about $1.8 billion in today’s dollars.

With respect to the number of transactions, we would hit a post-2000 peak in 2002 with about 2,600 sales. Not surprisingly, the number of homes sold would plummet to just under 1,200 in 2008 when the national financial crisis had a firm grip on the economy. The number of annual sales has held steady at about 1,600 for the past five years. Affordability and a fall-off in turnover probably explain why we haven’t seen over 2,400 home sales in many years and may not for years to come.

At the city level, average annual appreciation rates have ranged from 4.5 percent to close to 7 percent for the four cities since 2000. The local Multiple Listing Service (MLS) for the South Bay further breaks down the cities into 17 total different areas in El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach. Every single area has had average annual appreciation of at least 5.6 percent to 6.9 percent with one exception, the Manhattan sand section. Median sales prices in the Manhattan sand section have increased an average of 9 percent per year every year since 2000. This can be partly explained by the fact that 26 percent of homes sold near the beach in this section during the first six months of this year were built within the past two years and sold for a median price of $4.5 million.

All 17 areas were hit hard in 2007 and 2008 during the credit crisis and median sales prices took a big hit. With the benefit of hindsight, we now know that the market would start to recover a few years later. Average annual appreciation rates become far more impressive from 2011 through the first half of this year for every area with a range of 5.6 percent up to an incredible 13.6 percent.

Of the 17 areas, six have experienced average annual appreciation rates over 10 percent. The Manhattan sand section leads the pack at 13.6 percent. South Redondo west of PCH came in at 13 percent. The others include the tree section of Manhattan, both areas in east Manhattan, and the area in south Redondo Beach north of Torrance Blvd.

In spite of a few tough years since 2000, homeowners here have enjoyed a tremendous ride with respect to home appreciation rates.

 

As seen in Easy Reader

Manhattan Beach Developer, Matt Morris

The Joint Center for Housing Studies of Harvard University tracks leading indicators in the remodeling industry.  In just the past two years, national spending on improvements and repairs have increased 19 percent and are projected to increase another 6 percent over the next year. Drive down any street in Manhattan Beach and you can see this trend of personalization playing out in a significant way.

This year the Manhattan Beach Community Development Department will issue about 170 new housing permits and an additional 980 remodel permits. They handle about 80 visits to their counter daily. Some of these visits are from architects and developers who team up to build spec homes,, a trend we have seen here for several years but that has been recently slowing down.

The number of full build-outs peaked in 2007, when 27 percent of all homes sold in Manhattan were developed within the previous two years, compared to just 18 percent of homes sold in 2000. Last year the number dropped off to 12 percent.

Matt Morris of Christie’s Strand Hill Properties and Matt Morris Development has had an impact on local custom-building for over 20 years. What started as a desire to do “something totally different in development” has led to a spirit of “taking risks” and creating some of the area’s more innovative homes.

Morris grew up in Dallas, Texas and knew “since junior high school” that he wanted to be a builder. His father was a commercial developer and his brother would become one as well. He went to University of Arizona to play football and after graduation moved back to Dallas to build homes for close to 18 months. In this time he went from doing mundane errands to becoming the top builder for the company.

His brother needed help after relocating to the South Bay and so Morris moved to the beach cities to work with him for what he planned to be a brief time. He recalls being 24 years old and living by the Galleria. Those early years here were tough to the point that “he was barely scraping by.”

He felt compelled to do make a shift and teamed up with some investors to do custom build-outs. They had some early successes. He rolled his profits into the next deal and the pattern continued until he made it. Along the way, he got a real estate license to make it easier to find potential lots to develop. He attributes a lot of his success to being “lucky in terms of timing.”

Over the years, Morris refined his “eye for looking for detail” as part of his process to capture his “client’s taste and personality in the design.” Long-lasting bonds have been formed as a result of this.

Morris collaborates with architects and designers to produce the best fit for a given property. He recognizes that every lot offers unique design opportunities. Each design begins with “letting the property dictate what to do” and a “lot of things are worked out in the field.” A recent example is a development on the corner of 1st Street and Manhattan Avenue in Manhattan. He took a risk with “a different look with a lot of glass to maximize the views,” among other unique design features.

Our community “wants more personality and sophistication in their homes and not cookie-cutter designs,” he said.

 

As seen in Easy Reader
Photo: Matt Morris, Matt Morris Development. Photo by Brad Jacobson (CivicCouch.com)

Blackhouse’s Jed Sanford Cast Wide Net

Nearly half of the 85 full-service restaurants in the Riviera Village and the downtown areas of Manhattan and Hermosa Beach are part of locally-based restaurant groups. Though a few of these groups started out over 40 years ago, the majority of the group-owned restaurants have been on the scene for fewer than six years. This trend has had a big impact on beach cities dining.

It is not surprising that these groups are better-financed and tend to have more efficient operations. What is a surprise, however, is that these generally financially conservative groups often lead the way when it comes to taking the biggest risks with respect to untested concepts.

Blackhouse Hospitality Management, created by Palos Verdes native Jed Sanford, has pushed the envelope with each of their several concepts. They are one of only two groups that have locations in the Village and in downtown Manhattan Beach  and Hermosa Beach. If you live in the beach cities, you have no doubt eaten at one of their innovative restaurants.

Sanford, like so many other successful restaurateurs, did not start his career thinking that he would one day own a restaurant. He became a CPA after graduating from college and later parlayed an MBA from USC into management consulting.  It would be several years before he partnered with his brother Allen to establish Union Cattle in Hermosa as a “fun project.” It worked out well and led to the opening of Saint Rocke.

Spin forward a few years and the brothers decided to “do their own things.”  Sanford had an unexpected itch “to push things” and converted Union Cattle into Abigaile, which was about “getting people in Hermosa to think about food in new ways.” He took a huge risk with the concept, brought in a strong culinary chef partner in UCLA graduate Tin Vuong, and arguably reset the course of the dining experience in Hermosa.

The duo of Sanford and Vuong knew they had a hit and wasted little time bringing other edgy concepts to the market. Blackhouse now has restaurants in Los Angeles, Culver City, Manhattan, Hermosa, Redondo and Huntington Beach. Of their eight restaurants, seven are original concepts. Abigaile, Little Sister, Suburbia, Dia de Campo and S&W are their beach cities brands. They chose Culver City and Huntington Beach for Wildcraft and Bluegold & LSXO, respectively, and added a Little Sister to downtown Los Angeles to great success. After much introspection, Sanford concedes that concentrating on one to two brands may simplify their business model and be the path forward for them. With this in mind, Sanford says “they will continue to focus on expanding the Little Sister brand outside the beach cities.”

What began as a side project for Sanford to energize the dining experience here became a fever to really make an impact. As the dust has settled with their rapid local expansion, he has had an opportunity to contemplate where to go from here.  It appears this path just might be to join the select few local groups, including Rock and Brews and Veggie Grill, who have crossed state borders and taken steps to become nationally-recognized brands.

His advice for restaurant owners considering expansion is to “focus on your specialization and pick your second location carefully.”  He adds it is imperative to “be thoughtful about your growth and really understand your concept.”  As for financing, he suggests a good starting point is with “friends and family funding with limited debt.”

Risk-taking restaurant groups such as Blackhouse have enhanced the local dining experience here and helped forge the identity of the downtowns.

 

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Photo: Jed Sanford by Lanewood Studio

Sackley’s Sepulveda Blvd. and the Fun of the Deal

Most beach cities neighborhoods have median home prices at or near all-time highs. Many are in the top 1 percent for homes, nationwide. Not surprisingly, commercial properties here have become increasingly valuable, as well. Lease rates have doubled in just five years. It stands to reason that investing in local property, especially in commercial and in multi-family units, makes great business sense.  However, good luck getting in on the action.

At this writing, there are only six commercial properties being marketed online for sale in the beach cities. A market rarely gets much tighter than this. Clearly, the vast majority of property owners are holding on to their properties for the long haul.

Manhattan Beach resident, Stuart Sackley said he “definitely takes a buy and hold approach.” He has been engaged in both residential and commercial properties here for over 40 years. He speaks passionately about living and investing here. “I was lucky to find the El Torito property on Sepulveda Boulevard this year after selling a property in Orange County. Nowhere out there would be better to buy than in Manhattan or Hermosa,” he said.

Sackley owns over 200,000 square feet of property on Sepulveda Boulevard. In addition, he has properties and related investments in Las Vegas and Daytona Beach. But the true treasure may very well be in the lessons that he has learned along the way.

It started in 1974 with $3,000 and the desire to live on the Strand.”  He started competing for probate deals in Hollywood and in one transaction former soap star Richard Mulligan paid him $10,000 to walk away from a deal worth $80,000. He parlayed this into a multi-family unit in Hermosa Beach, which ignited his passion for real estate. It also got him on The Strand, where he retains three of the five homes he has accumulated over the years.

Forty years and countless deals later, Sackley relies on instinct and reflex more than spreadsheets or computer models to make a buy and sell decision. He classifies himself as “a value-add buyer.”  By this, he means properties with “low rents, low vacancies or an opportunity to improve operating expenses.” Over the years, he has also managed to develop lasting relationships with First Choice Bank and key real estate agents.

He has made costly mistakes but laughs them off. He sold off properties in 2005 thinking it was the peak of the market and bought properties in Florida and Indiana.  He thought,“If it didn’t go up there it couldn’t go down. I should have just paid my taxes”.

Sometimes the asking price of a coveted property might be higher than what he wants to pay. Rather than retreat, Sackley gets creative. His property on 10th and Sepulveda in Manhattan was priced at $2.9 million, but his limit was $2.1 million.  When he offered to throw in a gold Cartier Panthere watch and a Jaguar XKE V12 Roadster, the deal was closed. Likewise, he stopped the foreclosure of a note on a property by accepting a 23 window VW bus for back interest and property tax payments.”

When asked how long prices for properties here will keep rising, he offered, “It really depends on interest rates. If they go up, there will be a big impact on the market”.

Sackley shows no signs of slowing down.

“I have never wanted to get out of real estate. I will probably be making deals on my deathbed. It’s all about making deals.”

 

As seen in Easy Reader / Photo by Brad Jacobson (civic couch.com)
Photo: Manhattan Beach Strand resident advocates a buy and hold strategy for real estate investments.

Manhattan Village Remodel May Produce $500,000 in New Manhattan Beach Revenue

By virtually every measure, the beach cities offer retailers compelling reasons to have a presence here. Whether looking at home values or median household incomes, which are two to three times the national average, the beach cities are a sweet spot for retailers.

Manhattan Village owner RREEF clearly recognizes this and, after overcoming legal and other challenges, has launched a wave of enhancements, which include offering more retailers the opportunity to establish a presence here.

The demand for retail space is so strong that the addition over the years of new development projects such as El Segundo Plaza, The Point, and the upcoming Apollo Landing has actually yielded higher lease rates. The benefits to local residents have been several noteworthy restaurants and other shopping options as well as major popular brands such as Whole Foods and Best Buy.

RREEF’s plans to enhance the mall may seem counterintuitive at a time when both the number of retail stores and mall visits across the country have been on the decline. A Cushman and Wakefield study concluded that mall visits dropped by 50 percent between 2010 to 2013. Credit Suisse estimates that 8,600 stores will close nationwide this year, significantly more than the record 6,200 stores that closed in 2008. Additionally, online sales continue to accelerate, but they still only account for about 8 percent of all retail sales.

Nonetheless, the International Center of Shopping Centers emphasizes that the occupancy rate for regional malls stands at a healthy 93 percent. Part of the reason for this is that many malls have been repositioned or have adapted to changing consumer interests. Phil Friedl, Senior Vice President for JLL, the Manhattan Village development manager, said, “In today’s shopping center environment, it’s all about getting the experience right. Today’s premium shopping centers borrow from the hospitality industry to help create the experience”. Restaurants are an example. Restaurant sales are increasing at a much faster pace than retail sales. “Restaurants bring energy and activity to a shopping center,” Friedl said. For a similar reason, malls are adding fitness centers, movie theaters, and other specialty retail outlets.

Manhattan Village enhancements are already underway. The buildings with Ralph’s and the former Coco’s space are being remodeled and updated. The Macy’s expansion has started development of the northeast parking deck. The interior center court of the main mall is also undergoing an impressive transformation. These changes will all be completed within a year.

The biggest changes will come with the addition of the Village Shops, which will add approximately 65,000 square feet. The Mall Plaza area will become an open-air environment with several fountains open spaces. Construction has been started on a new CPK. The first phase will be completed in 2019.

Seven of the top 25 sales tax producers in Manhattan Beach reside in the mall. The enhancement efforts might add upwards of $500,000 in additional annual sales tax revenue for the city.

“We’re working hard to complete the construction as quickly so we can to deliver the premium quality shopping center the community deserves,” Friedl said.

 

As seen in Easy Reader
Photo: The N Manhattan Village Plaza area will have fountains and public gathering places.