Shell Companies Rule Los Angeles Luxury Real Estate

Louise Story reports on the sordid tale of the "most notorious new house" in Los Angeles, located in the tony neighborhood of Bel Air:

"Outraged neighbors call it 'the Starship Enterprise,' and in truth it looks like nothing so much as an earthbound space station of curved glass and steel, draped in scaffolding and tarpaulin, roughly 30,000 square feet and nearly 70 feet high."

That height, notes Story, is about twice the legal limit—but it's just one of a "litany" of violations. "Yet for all that," writes Story, "over four years of violation notices, inspections and hearings, efforts to hold someone accountable for the mess at 901 Strada Vecchia have repeatedly hit a legal wall. It is, as a judge said during an October session where once again nothing got done, 'an extremely complicated case.'"

The complexity of the case stems from the home's ownership by a shell company called 901 Strada L.L.C.—one of the hidden but powerful forces behind the changes at the top end of the real estate market. And the Los Angeles market has proven particularly attractive to such development practices:

"Shell companies were used in three-quarters of purchases of over $5 million in Los Angeles over the last three years, a higher rate even than the roughly 55 percent in New York, according to a New York Times analysis of data from PropertyShark. What is more, in Los Angeles, where so many of the new palaces are spec houses — luxury magnets for global wealth — not only are the buyers shielded by shell companies, but the developers are, too."

The comparison to New York is an important one—as that city has also faced considerable consternation over foreign wealth flooding the real estate market.

The long read article goes into a lot more detail about the Los Angeles market, why it works for shell companies in the luxury market, specific examples from the market, and some of the adverse impacts this kind of development has on surrounding neighborhoods.