High Stakes and Even Higher Aspirations: Navigating Opportunities in the Luxury Mansions of Pacific Palisades

I went over to the Pacific Palisades the other day, arguably the best single-family neighborhood in the entire world. Table stakes for a house is $25M there. Palisades is where you go if you want to live next door to A-list celebrities and billionaires. It’s also where your monthly property tax bill will approach the median annual income of an American household.

I was there on a scouting mission for my new business, Westward Loans. An investor was looking for some emergency capital to help finish a massive mega-mansion project and I was there to meet her and check out the property. ?

I love the Palisades but must admit that I had a kind of Tale of Two Cities reaction psychologically to the whole experience. On the one hand, I was inspired. There’s nothing quite like an ocean view ultra-lux estate in the Westside hills of Los Angeles. We’re talking about some peak real estate here. These estates are so nice they would make even the villa-owning Ancient Roman aristocracy blush a bit.

These homes (if you can even call them that) are living testaments to human creativity and the immense potential of the built environment.

Right now, you can live on the OJ Simpson Street for a cool $35M, or in this modern James Bond Villain Lair for $59M, or in this I’m not even sure what to call it but it’s $47M.

You get the idea here. These homes are next level.

While houses in the Palisades can be awe inspiring they are also a very stark reminder of just how wide the disparity has grown between the haves and the have-nots in this country. These homes are a mere 60x-100x the median-priced home in America after all.

As much as I’d love to solve this massive (existential) societal problem, that’s not why I’m sharing this story. No, this story is about business and entrepreneurship and two very important truths.

One of the things I love about real estate entrepreneurship is that it attracts a lot of rather interesting characters. Because it’s such an alluring and accessible entryway into entrepreneurial life, there’s often a rawness, realness, and grit to the people you come across in this world.

Our potential client for Westward that day was no exception. She’s an immigrant—the non-pet-eating kind of course—and quite a dynamic, creative, and bold individual. Hers is a true American success story. Operating in a historically male-dominated world, she’s making a living (killing) flipping $25M mega-mansions in the most competitive real estate market on planet Earth. Not bad!

Like all great real estate success stories her journey started with one property—one idea, one decision to take a calculated risk and go for it. That one deal turned into two, then a dozen, and then a dozen more.

Anyway, meeting her and doing some diligence on her projects and strategy reminded me of two important business truths:

1.?That people will pay for status

&

2.?That people will pay for design

Everyone knows that real estate is all about “location, location, location,” right? Well, what location is really about is status. People want to be in the right zip codes and most exclusive neighborhoods.? Period. Status is the perennial source of demand. On paper, they might be chasing things like good school districts and proximity to amenities, but, in truth, they are chasing status. They want it simply because everyone else wants it.

The celebrity thing adds a whole new dynamic to the equation. It’s like status on steroids. Turns out, people will gladly overpay for a house if it happens to be next door to the right famous person. This is why investing in a place like the Palisades is so appealing. There’s a higher probability for an outsized return.

Something similar happens with good design. We humans may love art and value beauty more than just about anything but very few of us are inclined to take a hands-on approach when it comes to home design. There are just way too many options and the industry too fragmented. Even just looking for the right piece of furniture can be overwhelming, let alone selecting bathroom tiles, faucets, door handles, light fixtures, window coverings…etc. As a result, people tend to appreciate and value a tastefully done finished product and if exceptional, will absolutely pay up for it.

Beyond aesthetic appeal, design-driven demand is also about status. People see design not only as a way to signal wealth but also as way to demonstrate their obviously exquisite sense of taste. And it doesn’t matter if this taste is real or just imagined. If you know, you know. That’s all the matters.

In markets like the Palisades, investors can make huge, outsized returns by taking advantage of this amped-up status calculation. Properties often trade with little or no relation to the true economics of the market because the price discovery function is essentially broken by the intensely emotional character of buyers’ decision calculus. What this means for investors is that margins can be huge.? A property that costs a $1000 per sf to build can be sold for $3000-$4000 per sf or more. We see a similar phenomenom in the designer jewelry and handbag market, except there things are even crazier. At least with a house, there’s the land and some actual lasting utility backing the value.

So, as you ideate on entrepreneurial ideas or consider investment opportunities, it’s worth keeping these two truths in mind. Strategies based on status and design don’t always work but tend to produce great results when they do. In real estate, at least, I’ve found way more success pursuing these strategies versus alternatives like trying to be the low-cost provider or operating somewhere in the middle. It’s not that you cannot make money there, it’s just that the return profile is so much better on the high-end. Plus, it just feels better to make big returns selling status dreams to the rich.

?

Profit+ Inspiration?

Poem: My Wage

Author: J.B. Rittenhouse

A beautiful reminder to go for what you want in life!

My Wage

I bargained with Life for a penny, And Life would pay no more, However I begged at evening When I counted my scanty store;

For Life is a just employer, He gives you what you ask, But once you have set the wages, Why, you must bear the task.

I worked for a menial's hire, Only to learn, dismayed, That any wage I had asked of Life, Life would have paid.

Like what you’re reading? Join us on our socials for more content throughout the week.

Thank you!