If you really want to get a read on how “the 1%” are faring these days, take a ski vacation to the tony hamlet of Incline Village on the pristine shores of Nevada’s Lake Tahoe.
Each morning, I trekked to Starbucks, one of the few local sources for the Wall Street Journal and the New York Times. There, trophy wives line up to buy their chai tea lattes, all tall, thin, and blonde, wearing designer sunglasses and snow boots, as if produced from a Gucci cookie cutter. The parking lot is jammed with Range Rovers and Cadillac Escalades.
Keeping up with the Jones’s here on fabled Lakeshore Drive can be quite a task, especially when they are populated by such names as Oracle’s Larry Ellison, casino mogul, Steve Wynn, and Saudi arms dealer, Adnan Kashoggi. Ellison alone is thought to have poured $200 million into his mountain retreat. Some of these compounds offer private beach lodgings for bodyguards and dog groomers. Junk bond king, Michael Milken, springs for the cost of the town’s annual Fourth of July fireworks display as it coincides with his birthday.
In the ultimate feat of hubris one upsmanship, one billionaire is converting the profits from his check cashing business to build a $150 million, 36,000 square foot residence that looks like a convention center. He has ruffled the feathers of locals by chopping down every ancient pine and cedar tree on the property to max out the square footage, violating multiple town ordinances. Who knew that cashing checks was so profitable?
In fact, lakefront Incline boasts one of the few neighborhoods in the US that has held up reasonably well during the real estate crash, with six properties changing hands at $1,000 a square foot in the last year. I guess they’re just not making beachfront property any more. Current listings include a 3 bedroom, 2 bath bungalow for $49.9 million and a 8,694 square foot palace for $43 million. If you are looking for a real bargain, check out the five bedroom French castle at www.inclinecastle.com for $22.85 million. As with the large diamond shortage I have written about previously, this is further evidence that the rich are getting richer at an accelerating rate.
The land here was originally owned by one of the Comstock silver barons of the 1860’s. You may recall it as the location of the TV series “Bonanza” and I’m sure that every female reader will remember “Little Joe”. A development company subdivided the land during the 1950’s with the intention of creating a Palm Springs in the mountains, spurred on by the completion of Interstate 80 as part of the infrastructure demanded by the 1960 winter Olympics at nearby Squaw Valley.
Devoid by edict of the down market fast food chains that afflict most of America, Incline boasts two municipal golf courses, where at 6,300 feet, the air is so thin that your drive travels an extra 50 yards. If you want a Big Mac, you have to travel down the road to California-- if the road isn't blocked by snow.
Incline is also a Mecca for libertarian millionaires drawn by the absence of a state income tax. Unfortunately, they also possessed the financial sophistication to buy gorgeous mountainside homes, extract cash-out refi's all the way up, invest the proceeds in the stock market, and lose it all in the subsequent crash.
The result has been a meltdown of Biblical proportions in the housing market. Of the 8,000 homes in the village, 400 are for sale at distressed prices and another 400 or more discouraged sellers hang over the market. Brokers report a brisk business in bank owned short sales, foreclosures, and sales on the Washoe County Court House steps for homes worth less than $800,000 at prices down 60%-70% from the 2006 peak.
Jumbo financing is now an extinct species, unless you're happy to pay a 200 basis point premium over conventional loans. So the middle market, where homes are priced from $1 million to $4 million, has ceased to exist. Only cold, hard cash talks here. But high net worth individuals hate tying up capital in an illiquid asset when more attractive options abound. Precious metal coins are especially popular in the Silver State.
I am sad to report that antidepressant addiction among realtors in Incline Village is at epidemic proportions, since they don’t have anything to sell to the 1%. Some of their properties have been on the market so long that snow drifts have collapsed balconies, the local wildlife have moved in, and prospective buyers are scared away by offensive odors. Break-ins by black bears have become a serious problem, leaving basketball sized poops on the living room floor.
Abandoned homes see their pipes freeze and burst, causing irreparable damage. In Las Vegas, foreclosed homes can be easily spotted from the air by their dead lawns and green swimming pools. In Incline the 'tells' are the ten foot high mountains of frozen snow dumped there by snow plows, blocking entry. I guess all real estate markets really are local.
Owners used to be able to cover half their annual carrying costs by renting out their properties during Christmas and New Year's, and for a few weeks in the summer. Unfortunately, that market has collapsed also. There are not a lot of high rollers willing to fork out $10,000 a week for a vacation rental in a recession.
If you are one of the 99%, I’d think again before buying a vacation home any time soon. The only consolation is that conditions are much worse in Las Vegas. The optimists concede that prices could stay down for another decade. The pessimists can already be found at the bottom of the lake with the Godfather's Fredo Corleone, another former resident of Incline Village.