Flip that mansion: investors see riches in luxury US homes

LOS ANGELES: Jan Brzeski stands in a sun-filled, beautifully refurbished living room high in the Hollywood Hills, looking out at a swimming pool and, kilometres below, stunning views of Los Angeles.

Brzeski is a private money lender running an investment firm in Los Angeles that provides loans to house flippers — investors who buy a home, refurbish it, and sell it at a profit. Many flippers turn to money lenders because they cannot get banks to provide such short-term, quick financing.

Standing with Brzeski is Scott Ryan, the realtor who bought this four-bedroom, five-bathroom house in December 2012 for US$1.5 million (RM4.9 million) — with money lent by Brzeski — and has transformed it with another US$600,000. This week the property will go on the market at US$3.295 million.

“People will come in here and fall in love,” Ryan said, with a house flipper’s standard issue optimism. “This is an emotional sale. If it takes a week to sell, I will be surprised. There are a lot of young, wealthy people here, and a lot of money out there.”

Eighteen months ago Brzeski and his firm, Arixa Capital Advisors, were lending investor money to flippers on very different properties: US$250,000 single family homes in southern California’s up-and-coming lower- to middle-class blue-collar neighbourhoods. Most of the deals involved foreclosed homes that were totally refurbished, and then sold quickly.

No more. Brzeski now focuses on developers working on high-end flips of mansions and townhouses in exclusive neighbourhoods, such as the Hollywood Hills and Bel Air.

Brzeski said two main factors combined to send him upmarket in the projects he lends on.

Newly flush Wall Street investors moved into the mid-market with so much money that they bought nearly every foreclosure in sight, mostly to rent. The Blackstone Group, for example, spent US$5.5 billion on 32,000 homes across America, according to the firm. American Homes 4 Rent, the California-based real estate investment trust founded by self-storage billionaire Wayne Hughes, spent US$3.3 billion, on more than 19,000 houses.

“These Wall Street guys employed huge dollars,” Brzeski said. “These firms came to the courthouse steps and bought everything in sight. So the low- to mid-market dried up.”

Brzeski said he had originally been wary of the high-end market, because of the much bigger sums involved and thus greater risk. But then in 2011 he financed the purchase of a house in West Hollywood for US$1.425 million. Another US$1.175 million was spent on a total refurbishment. — Reuters


This article first appeared in The Edge Financial Daily, on August 13, 2013.