Can The Ultrarich Pay Off The Multibillion-Dollar Bet On One Beverly Hills?

Built primarily for a thin slice of the global elite, a $10B, 17.5-acre mixed-use project called One Beverly Hills is expected to serve as an embodiment of the flight to luxury that has reshaped retail and hotel development. 

The project requires $5B in financing and it has been given a projected value of $10B, as reported by the Wall Street Journal. So far, $2.3B in financing has been publicly disclosed. And questions linger about whether the wealthy clientele pool is deep enough for the multibillion-dollar bet to pay off — and if the investments made to attract such patrons can also make it a destination for those without extreme bankrolls. 

“There’s risk here, right?” said JLL Managing Director Matthew Fainchtein, who oversees the firm's urban high street retail group. “If you build it, will they come? You can’t just depend on the people staying there or living there. You need to create a destination. Will this happen? No one knows until it opens.”

A long-gestating redevelopment of a former shopping center on Wilshire Boulevard by OKO Group and Cain set to open by the 2028 Olympics, the project will feature 28- and 31-story skyscrapers with nearly 200 luxury condos, a 78-suite Aman hotel and 200K SF of retail. 

Condos are expected to command an average of $7K per SF, and the retail section is gunning to be a more private and exclusive Rodeo Drive. Similar high-end developments combining luxe residences and hotels, like the renovation of the Waldorf Astoria in New York City that opened this summer, have similarly combined wellness, tourism and residential elements.

A 10-acre botanic garden and redesign of the adjacent Beverly Hilton rounds out the project, which has attracted funding from JPMorgan Chase and Vici Properties. Assembling this much land in Southern California’s lap of luxury may never happen again.

The development team sees One Beverly as a one-of-one development in Los Angeles and on the West Coast, as well as an indication of the larger direction high-end real estate is going, said Larry Green, head of development and managing director for Cain Development.

Green said the response so far is like nothing he has ever seen. That reaction so far includes $1B in condo sales and recent retail signings from Dolce & Gabbana, restaurant Los Mochis and Italian market Casa Tua Cucina.

The developers asked for and received approval for a $550M bond from the city, utilizing a tool called Mello-Roos that creates a special tax district to pay for utility and infrastructure upgrades. 

Green described the use of the bond tool as “standard operating procedure for a development of this size” to get a better rate and a tool a previous development group wasn’t aware of. He added that the development will generate $70M in annual revenues for the city. For context, the Beverly Hills public safety budget is roughly $175M annually.

Councilmember John Mirisch, who initially opposed the development, negotiated additional city benefits before contributing to the final unanimous vote in favor of the bond issue. Those benefits include a 4% environmental mitigation and sustainability fee on future condo sales, which will go into the city’s general fund.

“Ongoing, recurring revenue is the best kind of revenue for the city, and it allows us to share in the success of projects,” Mirisch said. “The negotiating committee initially got $100M upfront, and that sounds like a lot. It pales in comparison to the ongoing revenue we need.”

One Beverly Hills comes as Rodeo Drive has become even more elite and in-demand. Vacancy remains functionally zero, retail leases go for $1,100 per SF on average, and retailers such as LVMH have bought out substantial chunks of real estate, making it even harder for new brands to find a spot.

One Rodeo, which traded earlier this year for $211M, is the only other remotely comparable luxury address, Fainchtein said.

One Beverly Hills offers much-desired expansion space for high-end retail in the region. So far, just three tenants have been revealed publicly. But while there will be some new entrants in One Beverly Hills that aren’t on Rodeo Drive, from the deals and commitments Fainchtein is privy to so far, it appears many of the up to 45 retail tenants will be existing Rodeo brands seeking additional room. 

Likely, they will create more expensive showrooms with even higher-ticket merchandise that will allow shoppers to buy without the tourist traffic that can clog Rodeo. He predicted the space will go for $500 to $600 per SF — even One Beverly isn’t Rodeo — while Green only said leases would be “consistent with Beverly Hills rents.”

That general strategy fits with Green’s vision. He said One Beverly will “give retailers a chance to do a very curated experience tailored towards the luxury customer and the local luxury customer.” 

The same bid for the high end informs the hotel strategy of the project. The forthcoming Aman, the first on the West Coast, comes as the ultra-luxury market has exploded and driven a lot of the sector’s growth, CoStar Senior Director of Hospitality Analytics Michael Stathokostopoulos said. 

In 2019, the U.S. had 25 hotels charging an average of $1K per night. Today, that figure is near 100. And like most of these types of luxury hotel projects across the globe, they need to be co-developed with branded residences to make the numbers pencil, Stathokostopoulos said.

Deposits on luxury, often branded residences can help finance the completion of increasingly expensive hotel rooms in a challenging financial environment. 

He said that while there has been a dip in international demand in the LA market in particular, this project only contains a relative handful of units and offers a fairly unique experience, even compared to other luxury options in LA.

The condo sales also seek a very select clientele with a unique and pricey proposition.

The average second-quarter sales price of a Beverly Hills condo was $12M, Miller Samuel CEO Jonathan Miller said, and roughly 20 to 30 condos across all price ranges trade hands in the city every quarter. 

He said the One Beverly condos, being marketed starting at $20M to more than $40M, will “dominate” the local market and likely pull up prices citywide. Such pricey condos represent “the natural state of things,” which are skewing more expensive and catering to wealthy buyers.  

Miller said these sales are cementing the city and development as a high-end destination, with owners likely having more than one residence.

“We're seeing the wealth gap continue to expand, and the real estate market is simply responding to that,” he said. “It’ll be interesting to see how fast this can be absorbed, but it isn’t inconsistent with the baseline for Beverly Hills.” 

Many of the buyers so far are Los Angeles locals, Green said, adding that he is certain there will be international buyers, despite recent actions souring international residents’ views of the U.S. 

“Beverly Hills is a very well recognized safe harbor in the U.S.,” he said.

But even if the hotel and condo portion of the project work, the question that Fainchtein and others have is how the elite and expensive nature of the experience will make it an exclusive retail location — and can it become too exclusive?

The 10-acre gardens, partially open to the public and designed by Rios, will be a draw, but the development will be its own island, away from Beverly Hills' so-called Golden Triangle. Will the development be able to draw enough foot traffic to make it all work?

“To an extent, I'm guessing and thinking and hoping this is going to be a unicorn of sorts,” Mirisch said. 

CORRECTION, OCT. 23, 3:30 P.M. ET: The original headline and value of the One Beverly Hills project was listed as $10B. The project has $5B in financing and a gross development value — an estimated value upon completion — of $10B. We have updated the story and headline to more accurately reflect the financing and valuation.