Luxury Real Estate Investment Fails

By Josefin Gatsby on 11/21/2023.
Reviewed by Michelle Clardie .
You may know Bel Air as an elite Los Angeles neighborhood, one that has been home to stars like Beyoncé, Michael Jackson, Taylor Swift, and Lady Gaga. And the Fresh Prince, of course (can you still sing the theme song?).

Residential development in Bel Air has made millions for tuned-in real estate investors. But in recent years, there has been a string of luxury real estate investment fails in Bel Air. Three deals in particular have been making headlines. They were each projected to be worth over $85 million upon completion. Now this is a story all about how these deals got flip-turned upside down…

Let’s take a look at the results of these disaster deals, analyze what went wrong, and help you avoid making the same mistakes in luxury real estate. 

Hadid Mansion - Bel Air, CA

Of the fails on this list, this is the only one that had to be demolished by court order. 

Mohamed Hadid, established real estate developer (and father to models Gigi and Bella Hadid) was granted city approval to build a 15,000-square-foot mansion on a 1.2-acre lot he purchased in Bel Air in 2011. Instead, he began constructing a 30,000-square-foot behemoth that also exceeded height restrictions for the area. The structure included a massive wine cellar and a 70-seat IMAX theater that were not in the approved plans. 

Hadid was criminally charged in 2017 for this construction stunt. He pleaded “no contest,” paying nominal fees of around $3,000 and being ordered to serve 200 hours of community service. This stopped construction, but it wasn’t the end of the saga. Concerned neighbors sued in 2018 over worries that the oversized structure was compromising the integrity of the hillside on which it was being built. The judge agreed that the property posed a risk to the area. The neighbors were awarded nearly $3 million, and a judge ordered the property to be demolished. 

The property was expected to be worth around $100,000 million when complete. Instead, it sold for $5 million at auction in December 2021, with the agreement that the buyer would demolish the property within nine months of closing because Hadid claimed to be unable to cover the cost. The demolition reportedly cost around $5 million, but it may pay off for the current owners as the razed site is now on the market for $18 million. 

The lesson: Respect the permit process.

777 Sarbonne - Bel Air, CA

Alex Khadavi, a local cosmetic doctor and speculative real estate investor purchased the property at 777 Sarbonne Road in Bel Air for $16 million in 2013. After investing an estimated $30 million in developing an over-the-top luxury estate, using mostly debt financing from multiple creditors, Khadavi was forced to file bankruptcy and sell the asset in 2021.

The contemporary mansion, with its “extra gold” Calcutta marble, hydraulic-lifted DJ booth, and NFT art gallery, generated zero interest at the list price of $87.78 million. So it went to auction with a reserve of $50 million. 

Interestingly, the reserve was not met, with the high bid coming in just under $45.8 million. Typically, when the reserve is not met, the bid is not accepted, and the owner retains possession. However, with Khadavi having filed bankruptcy, the bid was approved by a bankruptcy judge, despite failure to meet the reserve. Records from the LA County Tax Assessor’s office confirm that the deal was finalized on June 1, 2022, with an official sales price of $45,760,450.

The lessons: Don’t over improve, and be cautious with financing. 

The One - Bel Air, CA

A 105,000-square-foot mega mansion, dubbed “The One” recently sold for $126 million at auction. According to Sotheby’s Concierge Auctions, this price was "more than double the highest US sale at auction and nearly 50% higher than the world record." And yet, it is widely considered to be a local real estate fail…

Widely considered to be the largest modern single-family residence in the US, The One is an impressive feat of construction, developed by film producer/real estate developer Nile Niami. With 26 bedrooms, 42 bathrooms, a 10,000-square-foot sky deck, cigar lounge, wine cellar, full-service spa, bowling alley, movie theatre, nightclub, tennis court, putting green, and five (yes, five) swimming pools, this is more of a resort than a home.

The One was designed and built to be the most expensive property ever sold, with an estimated after-construction value of $500 million. But the scope of this ambitious project created difficulties, with multiple delays in permitting and construction and unsustainable cost overruns. In 2021, after nearly 10 years of construction, the property was placed in court-ordered receivership, and bankruptcy was filed shortly after.  

In 2022, the property was listed for $295 millions, which would have still made it the most expensive sale in history, just passing the $250 million record-holder in Manhattan. But, ultimately, The One was sold at auction for a deeply disappointing $126 million. 

Niami estimated his losses on the deal at $44 million “and 10 years of my life.”    

The lesson: Make sure there is adequate demand for your finished product.

Investment opportunities