Prepared by Leonards Norvelis un Ādams Taranda

Exclusive parties, luxury cars, expensive art, infinity pools, personal gyms and spa centres, all encapsulated in the home of Bel Air. It is a place of competition among rich housewives and divorced millionaires for the most extravagant estate. This raises a question – which is the most lavish home and is it worth the investment?

Welcome Nile Niami, a former Hollywood film producer and now a luxury home developer who likes to talk about his ex Argentinian wife. In 2012, he bought a land plot at the summit of Bel Air hills for $28 Million. Right after, Niami started the construction of what would become “The One” Bel Air: a 100’005 square feet, 7 pool, nightclub, 50 car garage, 42 bathrooms, 21 bedrooms, 30 seat theater, 4 lane bowling alley giga-mansion. Requiring 600 workers and 12 years to complete, “The One” is for sale with a price tag of a whopping $500’000’000 (Architectural Digest, 2021). Dubbed the most expensive and largest residential home in the modern world. Unsurprisingly, very few people can afford the house let alone want to buy it; thus, Niami has been struggling to find a resident for the house. Furthermore, having borrowed $110 million to build the estate, creditors of Nile Niami are rushing to get their money back by threatening foreclosure and pressuring the sale of the property well under the $500 million price tag if Niami won’t come up with the money within 90 days. Ironically, default notices are nothing new to the quick tempered developer. In 2020, he received two for his other luxury developments totaling $33.4 million. Niami is scrambling to get some money leading him to sell his other properties with massive discounts. For example, “Opus” originally a $100 million house sold for $38.3 million (Flemming, J., 2021). Has Bel Air lost its Midas touch and is no longer the hub for property investment?

The premise behind this project aims at changing the world for the better, not just from an engineering standpoint, but for the welfare of society. However, these claims appear to be shortsighted and, as stated by the developer in an interview, “changing the world” means organizing lavish events such as championship boxing matches in the front yard of the house, which can allegedly host 900 guests following all the covid safety measures, and providing an exclusive venue for art galleries and holographic concerts (ProducerMichael, 2021). Yet, it is hard to ignore the underlying intention behind such motives, which is to make as much money as humanly possible from a single property, even going as far as issuing equity shares of the “house”, meaning the public would be able to invest in a corporation responsible for this project and watch their wealth grow as “The One” establishes itself as the mecca for hollywood celebrity high life – a creative way of repaying crushing developer debts and utilising a property that has long been struggling to find its right owner. Contradictingly to its set out objective, the house is further elevating the gap between the wealthy and poor at a time of already high social disparity, with this colossal structure serving as pinnacle of ostentatious luxury.

Regarding the housing market, the timing of this project might fuel further claims of a bubble in the US economy. According to Fitch, home prices in a quarter of the country’s metropolitan areas are more than 10% overvalued with average prices rising the fastest since the Great Recession (up 15.8% YoY) (Taylor, L. P, 2021). Pair that with historically low mortgage rates (2.30% 15Y FRM) (Freddie Mac, 2021) and you have a recipe for an overheating disaster. Perhaps a great opportunity to squeeze in one more giga-mansion just before the bust.

Interestingly enough, an influx of new, exclusive and luxurious residential real estate projects can also be observed in Riga, Latvia, yet it is hard to argue whether the demand is there to match. Latvia has seen a diminishing number and value of apartment transactions since the Q3 of 2019, falling from roughly 190m to 90m EUR (Latio, 2020) as of most recent measures. In addition, some reports show that with current demand for luxurious estates, it would require 10 years to sell out the stock of vacant grandeur homes. Furthermore, as an aggregate measure, the market price of Pro Kapital Grupp, the leading real estate development company with focus on distinctive buildings in the Baltic States and operating a portfolio of 180m EUR across residential and commercial premises, has seen a drastic 54% decline in share prices from the highs of 2014 (Nasdaq Baltic, n.d.).

We suppose one should treat such projects as art, given that economically it makes little sense both from consumer and developer perspectives, posing dangers of high credit and market risk exposure. As long as there will be someone who values art and exclusivity above all economic metrics, the supply will follow.

Reference list

ProducerMichael. (2021, April 13). THE BIGGEST AND MOST EXPENSIVE HOUSE IN THE WORLD “THE ONE” – ITS VISION & FUTURE EXPLAINED [Video file]. Retrieved from https://www.youtube.com/watch?v=SboPC9btIWM&list=RDCMUCP0ok1nSEenuz-e_ulNAJjg&index=5

Latio. (2020). Residential Market Report. Retrieved May 8, 2021 from. http://latio.lv/en/services/market-analysis-and-review-1/housing-market/176/majoklu-tirgus-parskats-2020-h1-en.pdf

Architectural Digest. (January 12, 2021). The World’s Largest—and America’s Priciest—Home Is Ready for Its Close-up. Retrieved May 8, 2021 from. https://www.architecturaldigest.com/story/the-worlds-largest-and-priciest-home-is-ready-for-its-close-up#:~:text=There%20are%2042%20bathrooms%2C%2021,Angeles%2C%20a%2010%2C000%2Dsquare%2D

Passy, J. (May 3, 2021). Is the U.S. housing market heading for a crash? Here’s what the experts say. Retrieved May 8, 2021 from. https://www.marketwatch.com/story/is-the-u-s-housing-market-heading-for-a-crash-heres-what-the-experts-say-11619023745

Freddie Mac. (2021, May 6). Mortgage Rates Decrease. Retrieved May 8, 2021 from http://www.freddiemac.com/pmms/

Taylor, L. P. (April 18, 2021). America’s Housing Market Is Officially Over-Heating Everywhere. How Long Will It Last? Retrieved May 8, 2021 from. https://www.forbes.com/sites/petertaylor/2021/04/18/yes-americas-housing-market-is-officially-over-heating-everywhere-how-long-can-it-last/?sh=6bd2652f4437

Nasdaq Baltic. (n.d.). Pro Kapital Grupp. Retrieved May 8, 2021 from https://nasdaqbaltic.com/statistics/lv/instrument/EE3100006040/trading?date=2021-05-07

Flemming, J. (March 8, 2021). Foreclosure looms for Nile Niami’s infamous mega-mansion ‘The One’. Retrieved May 8, 2021 from. https://www.latimes.com/business/real-estate/story/2021-03-08/foreclosure-looms-for-nile-niamis-infamous-mega-mansion-the-one#:~:text=For%20years%2C%20spec%20developer%20Nile,to%20sell%20for%20%24500%20million.&text=Niami%2C%20known%20for%20his%20brazen,to%20build%20the%20extravagant%20home