It can be hard to grasp the wealth of Jeff Bezos, the planet’s richest man. Thankfully his decision to spend $165 million on a Beverly Hills mansion last week — a California record — offers some clarity.
For starters, there’s this easy calculation. Amazon’s stock, the source of Bezos’ fortune, bounces around daily, but as of the close of markets last week, Bloomberg’s Billionaires Index calculated his net worth at $130 billion despite a $833 million stock market hit Friday. That means the nine figure sum he’s shelling out for the former estate of movie mogul Jack Warner amounts to only 0.13% of his net worth, rounded up ever so slightly.
Not too many Angelenos could spend such a small fraction of their net worth and buy something they wouldn’t be embarrassed to show off to their friends. Consider the median household income in L.A. County — just $68,093, according to U.S. Census data. Now sock away 0.13% of that and see what that $88 buys. You might go for an eight-person tent at Walmart, barely leaving enough change for drinks at your house warming.
Getting a bit more real world, what would your net worth have to be to spend just 0.13% of it on the median priced house in L.A. County? With the median sales price surging to $628,250 in December it turns out, quite a lot: a fortune approaching $500 million. Which says a fair amount about the L.A. housing market and the kind of people who can afford to live in its upper reaches, both literally and figuratively.
The nine-acre Warner estate was built in the 1930s and was acquired by record industry titan David Geffen in 1990 for $47.5 million, at the time the highest price known to be paid for a home in the country. And, yes, it’s a step up from Bezos’ other local real estate acquisitions.
In 2007, he spent $24.45 million for a Spanish-style estate on two acres in Beverly Hills, and a decade later bought the 1950s house next door for $12.9 million. Bezos also owns homes in Seattle, Texas and Washington, D.C. Last year, he reportedly spent about $80 million on a trio of adjoining apartments in New York City, with his cumulative holdings making him one of the country’s 100 largest landowners by acreage, according to the 2019 Land Report.
But this latest purchase shattered the California home price sales record, which was just set in December when Rupert Murdoch’s son Lachlan dropped $150-million on Bel-Air’s Chartwell, also known as the “Beverly Hillbillies” mansion for its setting as the home of the fictional Clampetts. And that sale broke an L.A. County record set only last summer when Petra Ecclestone, daughter of Formula One billionaire Bernie Ecclestone, sold the Manor in Holmby Hills for $119.75 million … which broke a $110 million sale record in 2018 … which topped the region’s first nine-figure sale, of the Playboy mansion in 2016.
The Los Angeles housing market is notoriously expensive and has recovered fully from its lows at the depths of the financial crisis. In the past 10 years, L.A. County home values grew about 60% but the median value of the top 2% of homes nearly doubled to about $5 million, according to Zillow. It’s the tippy top of the market, however, that has been going berserk.
“What’s driving it is people with a lot of money,” said high-end real estate broker Stephen Shapiro, co-founder of Westside Estate Agency, with offices in Beverly Hills, Malibu and Miami. “You would think that that is a lot of money for Bezos but in reality it’s not. The more expensive the house, the lower percentage of net worth it is (for the buyer.) A million or two million, you are probably talking about the vast majority of someone’s net worth.”
Or take the typical home buyer trying to afford the median-priced L.A. County house. That requires a household income probably no lower than, say, $120,000, which means nearly the entire net worth of the buyer will likely be wrapped up in the home.
Shapiro said that when Geffen paid $47.5 million for the Warner estate 30 years ago “everybody thought that was a crazy number.” But sales in the tens of millions of dollars are now almost commonplace in Beverly Hills and other exclusive L.A. hillside neighborhoods, reflecting the huge growth in wealth that has been created in the past several decades.
The U.S. gross domestic product when Geffen bought the Warner estate in 1990 was a little under $6 trillion. Last year, the GDP hit $21.4 trillion, but that wealth has not been shared equally, giving birth to the 99% movement and calls for higher taxes on the wealthy, which were lowered by President Trump in 2017. Democratic presidential candidates Bernie Sanders and Elizabeth Warren have made raising taxes on billionaires central to their campaigns and have both called for breaking up large tech companies such as Amazon.
The wealthiest 1% of Americans have seen their portion of national income rise from a little under 10% in 1980 to more than 20% in 2016. At the same time, the bottom 50% has seen their slice fall from more than 20% to about 13%, according to the World Inequality Database.
“The share of wealth going to the U.S. billionaire class has exploded in recent decades. Therefore, they can bid up the prices on the fanciest mansions in the country as Jeff Bezos just did with the Beverly Hills mansion,” Berkeley economist Emmanuel Saez, who has advised both Sanders and Warren on their tax plans, said in an email.
Indeed, Shapiro said that the very wealthiest buyers aren’t even interested in new mansions built by developers on a speculative basis and priced in the tens of millions. Instead, they want the finest “well architectured classical houses that are irreplaceable” and aren’t going to let “$5, or $10 or $20 million stand in their way.”
Bezos’ ambitions include being a dominant force in Hollywood through his Amazon Studios, and he has certainly made a statement with his purchase. But there is no guarantee that the record will stand the test of time.
In October, financier Gary Winnick put his Casa Encantada on the market for $225 million. The home — a 40,000-square-foot 1930s-era trophy perched above the Bel-Air Country Club — has twice set the record for highest price of a residential real estate sale in the U.S.
Jeff Hyland, Casa Encantada listing agent with Beverly Hills-based Hilton & Hyland, said he was thrilled to see Bezos shell out what he did for the Warner estate.
“L.A. is the hottest market on the planet right now. I thought we would have a market correction two years ago. We never had it and on the very top we may never have one only because the tax laws and the rich are getting so much richer,” said Hyland, who confidently predicted Casa Encantada would go for more than what Bezos paid.