It’s been about six years in the making. Perhaps watching the home just two doors away get torn down and then replaced with a stunning 8,000 sq ft manse was incentive enough. Or maybe it’s the $15.9 million price tag for this new home (shown to the left in the photo below). Whatever the reason, the home at 2806 The Strand in Hermosa Beach has been retired. It appears to have been owned by an investment holding company all this time. The actual purchase price is unknown, but the most expensive sale in Hermosa that year was $4.85 million for a home one block away on the strand, though on a slightly larger lot. There may be some small amount of risk in pumping a lot of money in to the property to transform it, but my guess is that if this is a spec build, the return on investment will be staggering.
It turns out that the lot at 2806 and the lot of the home near completion are exactly the same size. The $15.9 million home somehow squeezes 8,000 sq ft into this lot. If we assume a generous build-out cost of $400 per sq ft, the total investment jumps to about $8 million before carrying costs. Property taxes for 15 months, assuming this is how long it takes to build the home, would total $75,000 or so. Other payments may total over $300,000 during this time. At most, we’re now up to $8.5 million.
One of the reasons that I am so fascinated by homes on the strand, is that it truly is difficult to predict how well they will do on the market. It’s too bad you can’t really put a value on potential, otherwise, this home would generate a return of several million dollars to the seller. At this time there are eight homes on the Manhattan Beach and on the Hermosa Beach strands for sale that are priced over $10 million, with another seven listed there below this threshold. This is a lot of inventory, especially at a time when borrowing even a million dollars can be tough, let alone several million.
Interestingly, there have only been at most a dozen or so sales of homes in the entire South Bay, including all of Palos Verdes, for over $10 million. That’s not very many over the past 10 or 15 years. Given that it can be difficult raising cash to do these purchases and that to date there hasn’t been overwhelming demand for these homes, maybe the decision to tear down our subject home as part of an investment strategy may not be so obvious after all.
Our economy is no longer in a recession and the DJIA has topped 11,000 for the first time in a long time. Perhaps this will stimulate demand for the high end beach homes. Clearly there’s plenty of supply. Now we just need the buyers…
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Posted by Tony Cordi 
