As if it needed one, Beverly Hills got another stamp of approval as a global wealth destination this month with the sale of an eight-acre development site for $500 million.
If that price seems stiff, consider this: The buyer, a fraternal pair of thirtysomething Brits named Christian and Nicholas Candy, won't even build out the site to its full zoning capacity. That's because they have pledged to hew to the development vision of the seller, private investor group New Pacific Realty.
New Pacific determined to keep some two-thirds of the site as open space in a bid to build a residential project that would be certified LEED (Leadership in Energy and Environmental Design) Gold. It also committed to local residents that it would build out just two-thirds of the allowable residential units. And in case anyone wanted to question its intent, the company hired Pritzker Prize laureate Richard Meier to design the 252-unit project.
Outstanding Price, Return
The $500 million sale price is a windfall for New Pacific, which bought the site for some $33.5 million in 2002. The firm, led by principals David Margulies and Arnold Rosenstein, has spent the past few years teeing up to build its super-luxury residential development, but permits from this notoriously tough community are still at least two to three years away -- meaning completion of the project could take as many as five years.
Nonetheless, says Jeff Hyland, co-owner of the high-flying Beverly Hills real estate brokerage Hilton & Hyland, "My feeling is that they could very well have underpaid." After all, notes Hyland, the Candy brothers "are buying in euros, so this is more like $300 million for them." The deal "shows the confidence they have in this market," especially because it has "some element of risk in that the there are no entitlements" for the site yet.
If the local boys at Beverly Hills-based New Pacific have faced their own predictable share of community opposition to new development -- on issues such as density, usage and traffic -- then what can the Candy brothers expect? To start, there will be questions about their financial backers, whom they have not identified, other than to say that the funds are coming from overseas and that
is financing the deal on behalf of investors.
Sources say some powerful local interests are concerned that the money may be coming from Qatar, where funding for the brothers' other most visible project, a superluxury London condominium called One Hyde Park, is said to have originated.
of London reported that Sheikh Hamad, the foreign minister of Qatar, is "behind" the $200 million purchase of the penthouse at One Hyde Park, which was designed by Richard Rogers and will have 86 residences when it is completed. The flats are being marketed at roughly $9,000 a square foot, according to
The paper also reported last August that Candy & Candy Group, the brothers' parent company, has been under investigation by U.K. tax authorities for two years.
Still, concerns over funding sources and unconfirmed tax shenanigans are not likely to derail the Candys' ambitious development agenda; the Beverly Hills project would be a fitting U.S. complement to One Hyde Park.
The property, the last large-scale development site in Beverly Hills, which is now known as 9900 Wilshire, sits at the intersection of Wilshire and Santa Monica boulevards. It's bounded by the Beverly Hilton Hotel on one side and is across from the Los Angeles Country Club -- and forms a western edge to the wealthy district, making it a highly desirable gateway location.
It has long been known as the Robinson-May site, after the department store that occupied it from the mid-1950s until its demolition a few years ago. "It was a piece of real estate with a troubled structure that was continuing to decline," Margulies recently recalled. After New Pacific bought the site, Robinson-May merged with
Federated Department Stores
, and there followed more than a year of searching for a flagship retail design that would "elevate the site." In the end, Federated chose to close the store.
Margulies turned to Richard Meier, who, he says, has "a great working knowledge of California light and culture" -- Meier designed the Getty Museum complex in L.A. -- and to Meier's landscape architect collaborator, Laurie Olin.
Richard Meier called his former client "very much unlike other developers I've worked with. They're interested in doing it right and well." Perhaps it had something to do with their confidence in the project: "They know there's going be a market for this kind of apartment."
Exploiting what he calls "the spaces in between," Meier's design makes ample use of the Southern California light and air -- two of his favorite structural elements -- to meld indoor and outdoor spaces in the apartments. Still he does have one particular bone to pick: "From my point of view, it could have been taller," he says, referring to local concerns about the building's height. "It's just a question of perception. What I think is tall."
Margulies, whose firm bought a site that was "fully encumbered" with a 24-year lease, says he is both "proud and disappointed" over the sale to Candy & Candy. "It's very painful," he insists of having to walk away from his development plans, although he notes that the new owners are "contractually committed to remaining green -- it was a precondition of the sale."
Certainly, New Pacific's whopping return on investment will go a long way toward soothing Margulies' pain. And sources say that New Pacific has actually been shopping the site around for some time -- for a mere $250 million. After all, Margulies himself called it "the last developable eight acres in the city of Beverly Hills." But he also calls the shopping-it-around rumor "completely false," noting that New Pacific refinanced the project in 2006 for $285 million.
"Over the decades," says Margulies, "every major name in U.S. real estate has gone after this site." Instead, he says, he learned that the Candy brothers were interested, met with them, and the deal was done. "We never discussed a sale," declares Margulies, "or put it on the market."
At the time of publication, Peter Slatin had no positions in stocks mentioned.
Slatin publishes the independent real estate newsletter theslatinreport.com. He has written extensively about real estate and architecture for publications ranging from Barron's to The New York Times, and is on the editorial board of Real Estate Portfolio, published by the National Association of Real Estate Investment Trusts. He was the founder and editor of Grid, an award-winning real estate business magazine.