Just Split 'Em

Posted by Dave Fratello on Tuesday, July 15th, 2008 at 6:19am.

Would you pay $8 million for a 1958 ranch house? Come on, even with granite counters?!?

How about $2.7m for a different rancher? It's 10 years older, part of the discount factor. Anyone?

You don't need the bed/bath/sq. ft. particulars on these... Of course you wouldn't go for these deals.

That's because these newer listings are selling lot size and, at least in one case, location. The deals only work if you split the lots or, alternatively, are so absolutely taken with the locations that you'll willfully pay a massive premium.

222 N. Poinsettia (pictured above; click address for more pics & details via Redfin) calls itself a Hill Section "trophy property." But they don't mean the house, they mean the dirt.

For your $7.9m, you'll get what is, essentially, a double lot (13,825 sq. ft.) with some ocean views partway up the hill in the Hill Section. It's got "an amazing 106' of ocean view frontage" (listing).

At about $8m, you've got 2 options. One is to build a $2m-$3m home, at which point you're in for $10m+, but then you might truly have a "trophy property" akin to 900 Pacific. That's a big project.

Or, you might split the lots and develop 2 separate homes (with a still-amazing 53' of ocean view frontage) valued at perhaps $6m each – you hope – upon completion. Any gamblers out there?

2900 Maple (click for details) is a Tree Section double-lot (9280 sq. ft.) purchased in Feb. 2007 by a prominent local builder for $2.555m. It's up now at $2.699m.

According to the current listing, the builder/owner has "started the process of splitting the lots." And yet, it is important for "buyer to verify potential for lot split."

Any bells ringing there? If the lot can be split (it would become 2 separate lots of 4640 sq. ft. – standard for parts of the Tree Section), it's worth whatever 2 lots are worth. Without a split, it's worth at least 40% less.

Are 2 smaller Tree Section lots north of Valley worth $1.35m each these days? We're skeptical.

A 4640 sq. ft. lot nearby (at 3009 Poinsettia) on one of our very favorite blocks, Poinsettia between Valley and 31st, recently went into escrow at $1.239m. (See "The Street Where Listings Don't Last.")

Interestingly, the builder/owner of 2900 Maple paid for an ad in the two neighborhood free-weeklies earlier this year arguing that prices in MB "will not and cannot come down another 10% this year." A point in support: builders buying lots in recent years had paid "in the ballpark of $1.3 million (cost to purchase an existing home as a construction site)," so new homes would generally need to go for $2.3m or so, the builders' "break even point." (See "A Builder's Take.")

In Feb. 2007, he did pay "in the ballpark of $1.3m" for 2900 Maple ($1.275m x 2). Can he get out now for that?
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