The Los Angeles-area estate that interior designer Morgan Brown styled as an experiential retreat sold Tuesday for $16.55 million, a West Hollywood record.
Ms. Brown, who is the longtime girlfriend of Scottish actor and film producer Gerard Butler, bought the estate for $3.325 million in 2015 and originally listed it in August 2020 for $18.995 million, according to records on Redfin, which shows that it is the highest-recorded sales price for a single-family residence in West Hollywood in at least the last five years.
The California compound is owned by a limited liability company that is named for one of her design projects, according to property records. Compass co-listing agents Alyson Richards and Carl Gambino confirmed that Ms. Brown is the seller in a statement when they relisted the property in August for $16.995 million.
The Mediterranean-style residence was built in 1924. It and three related buildings, totaling 9,495 square feet, occupy two-thirds of an acre. They are linked by a courtyard and a saltwater pool. The estate has eight bedrooms, seven bathrooms and three half bathrooms.
The primary home has two sitting rooms separated by a wood-beamed kitchen, according to the listing. Another features a large open-plan kitchen with three suites, one of which opens to a courtyard; a spiral staircase leading to a bar and a Moroccan-style home theater. A third building is an open-style casita that leads to the fourth, which has a private terrace.
Other features include an indoor-outdoor office, a swimming pool, games deck, a gym, a fire pit, a hot tub, fountains, a gazebo and a backyard skate ramp.
When the estate was listed, Ms. Richards said that double lots such as Ms. Brown’s are rare in West Hollywood.
“This property is one of my favorite homes in Los Angeles,” Ms. Richards said in August. “The moment you step through the gates, you feel as if you’ve been transported to a European countryside all the while you are in the heart of West Hollywood.”
Mr. Gambino, in a statement at the same time, added that “there is a specialness to the place that is hard to explain unless you visit. Everyone that walks in is blown away by what Morgan has done with the property.”
Ms. Brown, who took over her father’s commercial real estate business after his death in 2004, built her first house when she was 27 and since then has completed seven other estates, according to her website. The website also says that for the last several years, she has been focusing on “refurbishing historical trophy properties around Los Angeles.”
Her website describes the West Hollywood compound as the “first and largest” in the community. Besides her residential projects, in 2020, she bought 220 acres in Joshua Tree, California, where she is building a boutique hotel in the desert that has bungalows shaped like stars and crescent moons.
Mansion Global was not immediately able to identify the buyer, and the co-listing agents, who represented Ms. Brown as well as the buyer, were not available for comment.
This article originally appeared on Mansion Global.
Wonderful, wonderful news.
At least if you’re a creative money manager with a good line in blarney.
Nine out of 10 financial advisers say they plan to pour clients’ money into “alternative” investments over the next couple of years, including such lucrative high-fee vehicles as private equity, private credit, hedge funds, venture capital and the like.
Whether this will be such good news for the clients is another matter. But they, famously, are rarely the ones with yachts.
“As they face uncertain markets, nearly nine in 10 financial advisers (88%) surveyed plan to increase their allocation to alternatives over the next two years,” reports a new survey published by CAIS, which calls itself “the leading alternative investment marketplace for independent financial advisers,” and Mercer, an asset-management company. It adds that, “Of those, more than half (53%) estimate that their allocation to alternatives will make up more than 15% of their overall client portfolios. Meanwhile, more than 20% said they would allocate more than a quarter of their portfolio to alternatives.”
A mere 8% said that they do not plan to increase these allocations at all during the next couple of years.
Granted, this may not be a fully representative sample of the entire money management industry. CAIS and Mercer polled 200 financial advisers who had turned up to their Alternative Investment Summit last month at the Beverly Hilton Hotel in LA. Those attending were, naturally, more predisposed toward “alternatives.”
But there’s no reason to think this finding is directionally wrong. Institutional investors have been lured by the siren song of alternatives for several years. And the latest poll coincides with a moment of extreme revulsion—some might say, “capitulation”—toward the traditional assets of stocks and bonds because this year they have absolutely sucked.
So far this year, the S&P 500
stock index has lost 15% and the S&P U.S. Aggregate 13%. The bond market has had one of the worst, and possibly the absolute worst, performance on record. No wonder the latest BofA Securities survey of institutional investment managers worldwide show they are shunning both stocks and bonds, while holding more than usual levels of cash, alternatives and commodities.
There are multiple problems with most alternatives. There is the fallacy of composition: If private-equity managers and hedge-fund managers plan to outperform by “beating the market,” there is only so much money they can take in. Otherwise you end up in the situation where everyone is expecting to beat the market.
Then there is the Heraclitus problem, meaning that the future will not be the same as the past. Private-equity managers benefited enormously from the long-term collapse in interest rates from 1982 until, well, last year. They were able to buy companies with cheap debt and then flip them. What happens if rates continue to go back up? We shall see.
Then there are the liquidity and transparency problems. You know what your publicly traded stocks are doing, because you can see the prices in real time. Not so private funds, many of whom furthermore make their money on untraded assets. How do you properly “value” an untraded asset, like a small company in the middle of an uncertain, multiyear turnaround? You can’t, really.
But above all there is the “agency” problem. The people running these ventures generally make out very well, but that doesn’t always translate into big bucks for the investors, because of the fees.
It is mathematically implausible for hedge funds to beat the market over time. And business school professor Ludovic Phalippou at Oxford University calculates that overall private equity returns have been no better than the stock market since at least 2006.
Important note: That is especially astonishing because during that period, from 2006 to 2020, the interest rate on BBB-rated corporate bonds halved. So the private equity crowd, who make their money by purchasing undervalued companies with debt, should have been making out like bandits.
Some people argue that things like real-estate investment trusts (REITs), infrastructure investments and master limited partnerships (MLPs) count as “alternatives.” But they have suffered this year along with stocks and bonds.
The one standout so far in 2022 has been commodities. The S&P GSCI Commodity Index is up 30% so far this year.
A fascinating research paper by the number crunchers at AQR, a hedge fund firm in Greenwich, Conn., suggests that if anyone feels they need to add something else to their portfolio of stocks and bonds, they might not need look any further than commodities. The paper, using commodities data going back to the 1870s, finds that commodity futures have added value to a traditional portfolio over time, zigging when everything else zagged (like this year) while generating a positive overall return.
“We find that, over the entire sample, the optimal mean-variance portfolio allocates 17% to commodities, 29% to stocks and 54% to government bonds,” write the authors, Ari Levine and Yao Hua Ooi of AQR and professor Matthew Richardson of NYU’s Stern School of Business. “Moreover, a 54%/36%/10% portfolio of stocks, bonds and commodities consistently outperforms a 60%/40% allocation of just stocks and bonds.”
Doug Ramsey’s “All Asset No Authority” portfolio at Leuthold, arguably the ultimate all weather portfolio, includes the commodity index and gold as two of its seven components.
Those who want to own commodities can do so without dealing with high-fee investment managers. There are a variety of ETFs that invest in commodity futures, including the iShares S&P GSCI Commodity-Indexed Trust
among many others. (Thanks to the tricky nature of commodity futures, many perform slightly differently from each other. You need to check the data before buying.) Their fees aren’t low—GSG charges 0.75%, which is expensive compared with stock and bond ETFs, but a bargain compared with any private-equity fund or hedge fund.)
Naturally the best time to buy commodities was last year—or actually during the COVID-19 crash in 2020, but that’s another story—and not now, once they have already risen a long way. If we are heading into a recession the next move may be down. And when commodities go down, they can really, really go down. (The S&P GSCI Index fell two-thirds during the global financial crisis.)
It is dismally predictable that the global money managers who say they are shunning stocks and bonds are heavily into commodities.
But commodities can at least genuinely claim to be a third asset class, alongside stocks and bonds. And timing aside, there are worse ideas than, in general, including some alongside the others. It helped this year and it may help again in the future.
But hedge funds? Private equity? We shall see.
Home prices will fall next year by 8%, as mortgage rates and a recession will continue to hurt affordability, a new report says.
The report by Capital Economics, published this month, which outlines its outlook for housing over next year, warned that sales will slump and housing prices will fall.
With lending standards still tight, and affordability poised to worsen, expect purchasing power to deteriorate, and housing prices to fall by 8% by mid-2023, the group said.
“Given that we are unlikely to see an improvement in affordability anytime soon, many buyers will be priced out of the market, while others will simply be unwilling to make a purchase,” the group stated in their report.
“As bidders become scarcer, market power will shift further from sellers to buyers,” they added.
Sellers, currently sitting on homes enjoying ultra-low mortgage rates, will be forced to accept lower prices over the next year, Capital Economics said. After home prices fall 8% in mid-2023, compared to this year, expect price growth to recover to 2.5% by the end of 2024, they added.
“After home prices fall 8% in mid-2023, compared to this year, expect price growth to recover to 2.5% by the end of 2024.”
Capital Economics also expects mortgage rates to “hold close to 7% over the remainder of next year” which means affordability will be at its worst since 1985.
For a household with a median income buying a median-priced home, the mortgage payment as a share of income rose to 28.5% in October 2022 from 13.3% in May 2020, the group said.
(The median listing price for a home in the U.S. is currently $425,000, up 13% over the last 12 months, according to Realtor.com. Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.
Mortgage rates will go back down to 5.75% by the end of 2023, they forecasted.
The group also expects the U.S. economy to fall into a “mild recession” in 2023, and expects single-family sales to fall to the lowest level since 2011. It also expects single-family starts, or construction of single-family homes, to fall to the lowest level since 2014. The market will recover in 2024, they added.
Even though prices are expected to fall, people are likely to still find it hard to afford to buy a home, and more buyers will likely spill over into the rental market, Capital Economics added.
Some good news: Expect a surge in new supply next year as well, as builders complete construction on homes, which will prompt rents to fall 0.5% in 2023, they forecasted.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at firstname.lastname@example.org
Home prices will fall by 8% next year, but high mortgage rates and a possible recession will continue to hurt affordability, a new report says.
In a report published this month, independent research firm Capital Economics warned that sales will slump and housing prices will fall over the coming year.
With lending standards still tight and affordability poised to worsen, consumers should expect their purchasing power to deteriorate even as housing prices fall, the group said.
“Given that we are unlikely to see an improvement in affordability anytime soon, many buyers will be priced out of the market, while others will simply be unwilling to make a purchase,” the report stated. “As bidders become scarcer, market power will shift further from sellers to buyers.”
Sellers, many of whom now have mortgages with ultralow rates, will be forced to accept lower prices over the next year, the research firm said. After mid-2023, when Capital Economics forecasts home prices to fall by 8% compared with this year, consumers can expect price growth to recover to 2.5% by the end of 2024.
“ “As bidders become scarcer, market power will shift further from sellers to buyers.” ”
The group also expects mortgage rates to “hold close to 7% over the remainder of next year,” which means affordability will be at its worst since 1985.
For a median-income household buying a median-priced home, the mortgage payment as a share of income rose to 28.5% in October 2022 from 13.3% in May 2020, the group said.
The median listing price for a home in the U.S. is currently $425,000, up 13% over the last 12 months, according to Realtor.com. (Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.
Mortgage rates will go back down to 5.75% by the end of 2023, the Capital Economics researchers forecast in the report.
The group also expects that the U.S. economy will fall into a “mild recession” in 2023 and that sales of single-family homes will fall to the lowest level since 2011. It also expects single-family-home starts, or new construction, to fall to the lowest level since 2014. The market will recover in 2024, the report said.
Even though prices are expected to fall, people may still find it hard to afford to buy a home, meaning that more prospective buyers will likely move into the rental market, the report noted.
Some good news: Buyers can expect a surge in new supply next year as builders complete construction on homes, which will prompt rents to fall 0.5% in 2023, the report said.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at email@example.com
Realtors are turning bearish on commercial real estate.
Well, technically — the National Realtors Association (NAR) said it’s expecting the commercial real-estate market to experience a “slight decline in prices” in 2023.
“Nationwide, we are beginning to see some decline in commercial appraisal values,” Lawrence Yun, chief economist at NAR, said over the weekend.
“Cap rates simply cannot match up with higher borrowing costs, especially among people who need to refinance their properties,” he added. “However, strong job growth is supporting prices in many markets.”
Cap rate refers to the capitalization rate, which is used to calculate the expected rate of return for a property, be it residential or commercial. The cap rate is calculated by dividing a property’s net income by its asset value.
With interest rates rising sharply over the last few months, that’s increased borrowing costs, and in turn forced cap rates up, Yun explained, and pushed property values downwards as a result.
“Offices are the most vulnerable to these price decreases,” Yun said.
“We are seeing a rise in office vacancies in many cities, driven by a preference for remote work,” he added. Before the pandemic, San Francisco saw an office vacancy rate of just 6%, he noted. Now, it’s more than 15%.
According to Green Street’s commercial property-price index, rising rates have pushed property prices down by 13% from a peak this year.
“It’s a simple story: higher yields on Treasury bonds equals higher cap rates,” Peter Rothemund, co-head of strategic research at Green Street, said in a statement.
Offices saw a drop in prices of 17.5%, the company said in its report.
“And as large as the decline in pricing has been, I don’t think we’re out of the woods,” he added. “If the 10-year note stays above 4%, property prices are likely to keep falling.”
And while some bosses like Elon Musk are trying to get people back into the office, it’s unlikely that employees will return fully to the office like the days before the pandemic, the NAR said.
Employees will spend 25% to 35% less time in the office than they did before the pandemic, Matt Vance, senior director and Americas head of multifamily research and senior economist for CBRE, said.
That translates to about a day, to a day and a half less in the office, he estimated. And “we believe this will translate to a 15% reduction in office space demand per employee,” Vance said.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at firstname.lastname@example.org
Issuance of a newer breed of real estate bonds designed to finance riskier commercial properties for short stretches has tumbled 80% from a $16.5 billion first-quarter peak, according to DRBS Morningstar.
The bonds, called CRE CLOs, are considered a far tamer version of the subprime home-loan CDOs, or collateralized debt obligations, that flourished in the run-up to the 2007-08 global financial crisis and later caused global fallout from U.S. homeowner defaults. CRE CLO stands for commercial real-estate collateralized-loan obligation.
But instead of financing home flippers with questionable credit, the newer brand of debt mostly hinges on payments from landlords on pools of floating-rate loans for multifamily properties, a “favored asset class” that accounts for about 77% of the outstanding CRE CLO collateral, according to the report.
Loans on industrial buildings make up only about 7% of the collateral, followed by a smaller share of hotel loans at 6.4%, offices at 3.4% and retail properties at 2.1%, all of which have been vulnerable to shifts in the way people travel, work and shop.
While delinquencies have yet to become a key concern, the report says “unfettered inflation,” global market volatility and the Federal Reserve’s rapid pace of rate hikes have hampered new loan originations. Those factors and “weaker investor demand” for CRE CLOs led to a sharp drop in new issuance this year (see chart).
CRE CLOs have been in the spotlight recently due to their higher risk of running into trouble as rates rise. Spreads on CRE CLOs last week were pegged at their widest levels of the year, with BBB-rated bonds near 535 basis points above the floating-rate SOFR benchmark rate, according to BofA Global data.
Against the cloudier backdrop, issuance volume touched only $3.1 billion in the third quarter, according to DBRS Morningstar. As benchmark 10-year Treasury rates
have topped 4% this fall, concerns also have grown that borrowers with older fixed-rate loans coming due could struggle to refinance, especially if property prices fall.
Risks of payment shocks rise
Goldman Sachs analysts recently said the risks of a “payment shock” for borrowers in the roughly $3.5 trillion commercial-debt market would build if interest rates remain elevated at current levels, with the risks being the highest for floating-rate loans, a big part of the CRE CLO sector.
BofA Global analysts estimate that prices for commercial real estate could drop 20% to 30% over roughly the next year, tracing the roughly 27% drop of the Dow Jones Equity REIT Total Return Index
“The restrictive conditions may affect CRE CLO loan performance since borrower costs have increased quickly and underlying property cash flows may face similar difficulties,” said the DBRS Morningstar team, which is led by Steve Jellinek, head of CMBS research.
“Borrowers’ financial projections most likely didn’t assume 7%+ interest rates during the loan term,” the team said.
By James Glynn
SYDNEY–The Australian government’s budget for 2022-2023 reveals a solid bottom-line improvement as surging commodity prices and the strongest job market in half-a-century boost revenues, but the outlook remains grim as spending demands are expected to surge, while inflation stays higher for longer and global recession risks grow.
“The global economy teeters again, on the edge, with a war that isn’t ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing–some of them already in reverse,” Treasurer Jim Chalmers said in a speech to parliament on Tuesday.
Mr. Chalmers said the budget deficit in the current fiscal year will fall to 36.90 billion Australian dollars (US$23.30 billion), less than half of what was forecast in May, but also confirmed that gross government debt will balloon to around A$1.004 trillion, or 40.8% of national output in 2023-2024, before climbing to 43.1% of GDP in 2025-2026.
The short-term improvement in the budget has been helped by gains in a broad basket of commodity prices, including iron ore, which accounts for around one quarter of export earnings. The benchmark price of iron ore has averaged roughly US$125 a metric ton in the year to date, according to S&P Global Commodity Insights.
The budget faces growing spending pressures as costs in areas such as healthcare, defense and aged care spiral over the coming years. The budget’s cash balance will deteriorate in that time, peaking at a deficit of A$51.3 billion, or 2.0% of GDP in 2024-2025.
“While the temporary revenue boosts were are getting from higher employment and higher commodity prices will fade and fall, the profound and permanent spending pressures on the budget are forecast to grow and grow,” Mr. Chalmers said.
The budget is the Labor Party’s first since coming to power in May, with Mr. Chalmers focused on delivering election promises, easing living-cost pressures, while also acknowledging a rapidly deteriorating global economic environment that could drag Australia back into recession, its first since the start of the pandemic.
Still, the resource-rich economy is expected to avoid with recession as growth slows to 1.5% in 2023-2024 from 3.25% in 2022-2023.
“While we intend to avoid the worst of the turbulence from overseas, we cannot escape it completely,” Mr. Chalmers said.
Critically, inflation is expected to remain higher for longer, potentially challenging the Reserve Bank of Australia’s recent decision to slow the pace at which it is raising official interest rates.
The inflation rate is expected to peak at 7.75% in the fourth quarter of this year, but remain above the RBA’s 2% to 3% inflation target until 2024-25.
The RBA has been raising interest rates since May at the fastest pace since the mid-1990s, but chose to slow the speed at which it is tightening the policy screws this month amid accelerated falls in house prices.
If inflation lingers above the RBA’s target band until 2025, pressure could build on the central bank to keep raising rates for longer or even reaccelerate the pace of hikes.
A silver lining in the budget is in expectations for unemployment.
While the government expects the unemployment rate to rise to 4.5% in 2023-2024 from the current 3.5%, joblessness will still be at historically low levels, a key support for consumers facing spiraling living costs.
As pressure on government spending builds over the coming years, Labor looks set to come under increasing demands to reform the tax system.
“This is just the beginning of our budget repair work, and it’s just the beginning of the conversation we need to have as a country,” Mr. Chalmers said.
The government has retained income-tax cuts slated for mid-2024, despite widening calls for them to be abandoned on the grounds that they are too weighted toward the higher-paid and come with the budget still well short of repair following huge pandemic-related stimulus spending.
Mr. Chalmers was pressured to consider ditching the income-tax cuts given the backdrop of financial instability and political upheavals that followed the UK government’s ill-fated plans to boost growth by massively lowering taxes.
The budget directly targets rising cost of living pressures in the economy, directing funding toward cheaper child care, expanding paid parental leave, cheaper medicines, more affordable housing and efforts to boost wages growth.
Write to James Glynn at email@example.com; @JamesGlynnWSJ