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With Inventory Tight, Speculative Luxury Homebuilding Heats Up

This article is more than 9 years old.

Three years ago, Alessandro Cajrati Crivelli, an Italian who founded commercial developer Est4te Four, purchased a 1.3-acre parcel in Holmby Hills, one of Los Angeles’ most exclusive neighborhoods. The lot was right next door to the Singleton Estate (listed at $75 million and currently in escrow) in the heart of L.A.'s prestigious Platinum Triangle—the perfect location, Crivelli decided, to build his first single-family home. This week the result, a 16,000-square-foot Modernist mansion, is being quietly offered off the MLS for $48 million--making it the most expensive speculative home for sale in Los Angeles.

Crivelli says the wealth flooding from places like Russia and China into the U.S. attracted him to the gamble of building homes on speculation, without a buyer lined up. “It was not exactly a strong interest in doing single houses, it was just an opportunity that we decided to embrace,” he says. “With the configuration of Los Angeles, in the nicest areas, you can only build single family--so the supply is extremely, extremely limited.”

Crivelli is part of a comeback in speculative building of luxury homes in centers of wealth across the country. While speculative building helped create the housing bubble, it ground to a halt after the housing crash. As the market recovers, more high-end speculative properties are coming to the market. "The appearance of spec homes in the upper price range is an indication of the maturation of the housing cycle," says Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA. "It’s an indication of increasing levels of confidence on the part of home builders." The latest evidence underscoring the demand for high-end properties: Fleur de Lys, an estate on and off the market for seven years (always at $125 million), recently closed after a sudden bidding war that resulted in a $102 million sale, according to the Los Angeles Times.

It's not just Los Angeles. Three thousand miles away on Long Island, East Hampton-based spec builder Jeffrey Collé recently sold his first spec home since the housing crash, and is currently working on three others. Bridgehampton-based Farrell Building Company has some 40 spec homes in the pipeline, priced from just under $2 million to $10 million. The company is also building six speculative houses homes in Florida, priced from $4.3 million to $32.5 million. “We’re busier than ever at the moment. It’s a little bit of a wow factor, even for us," says Travis Tinker, assistant operations manger. "This year is an all-time high.”

In Aspen, developers Austin Lawrence Partners completed renovation of an historic cottage in February and are reportedly asking nearly $18 million for the property, which includes a new modern wing. In Vail, a handful of spec properties are being developed at the higher end of the market, where buyers reportedly want something "new" or "refreshed.". In Chicago, too, real estate reporters are noting a similar trend.

Builders can look to relatively quick sales to boost their hopes that their speculative homes will quickly find buyers once they are completed. In South Florida., a contemporary-style spec home at 2068 North Bay Road in Miami Beach sold for $20.5 million in March, six months after it was completed--and quite shortly after it was made to look more like a home. “It was very recently before it was sold that it was staged,” explains power broker Jill Eber, of The Jills. (Property records show the buyer only as 2068 North Bay LLC; the mailing address matches that of Raptor Group Holdings. Chairman James Pallotta, president of the A.S. Roma professional soccer team in Italy, is the rumored buyer.)

Another luxury spec--800 S. Ocean Boulevard in Manalpan--listed for $45 million in August but has not yet found a buyer, and recently dropped the price to $39 million. “It really depends on how everything is priced,” says Eber. Still, its developer, Pat Carney, offloaded two other spec homes last year, one in Ft. Lauderdale for $6 million and another, also in Manalpan, for $24.75 million to motivational speaker Tony Robbins.

Many of the new luxury spec homes—in Los Angeles and Miami, certainly, and also to some extent in the traditional Hamptons as well--are being built in a contemporary style, with lots of glass, open floor plans, modern elements and light. "They’re being bought by a lot of younger people, foreigners--the English, Chinese, Russians--and by entertainment people," says Rick Hilton, chairman of luxury brokerage firm Hilton & Hyland.

Crivelli's seven-bedroom Holmby Hills home, designed by Laurence Quinn of Quinn Architects in London, features a clean, modern L-shaped layout, with 22-foot-celings and a wall of glass overlooking the backyard and infinity pool.  Other luxury treatments: a master suite with his and hers bathrooms, guest bedrooms with their own private terraces, a wine cellar, a movie theater, and a sunken tennis court on AstroTurf. The home also features a 900-square-foot gym with a separate massage room, as well as a terrace that expands the living space by 4,000 additional square feet. A privacy hedge protects it from neighbors' peering eyes.

Of course, speculative building for the luxury market has a very real downside. "It strikes me as very risky since I would expect luxury buyers to want more design control than can be afforded them if the house is mostly complete when they make their purchase," says Dana Kuhn, of the Corky McMillin Center for Real Estate at San Diego State University.

In Crivelli's case, that problem is addressed via a final bit of luxury that targets a buyer too busy to bother with such involvement: the home has been staged with furniture that can be negotiated into a deal. “It’s a turn-key solution for an international buyer,” says James Harris, who together with David Parnes and Mauricio Umansky of the Agency, has the listing. “We want to make this something they can move in to and just unpack.”