Hard times in Paradise

The foreclosure crisis catches up with a wealthy, exclusive community in Arizona that once considered itself immune.
By Melinda Fulmer of MSN Real Estate


In 2008, it looked as if Paradise Valley, the wealthiest, most exclusive community in Arizona, had neatly side-stepped the foreclosure crisis.

Only 38 foreclosures were recorded in this 16-square-mile town that year. Indeed, the median home price for resale detached homes reached an all-time high of $2 million in mid-2008, according to MDA DataQuick, even as values plummeted elsewhere.

"People were buying up million-dollar homes, tearing them down and rebuilding them," says Jay Butler, director of the Arizona Real Estate Center at Arizona State University's W.P. Carey School of Business.

The fall
Last year, the bottom dropped out. Like many other luxury-home markets, Paradise Valley joined the foreclosure crisis late: As the economy worsened, companies lost clients and executives lost bonuses or jobs. Affluent residents ran through their savings and credit. And banks, once reluctant to foreclose on major depositors, started taking estates back.



By the end of 2009, the number of foreclosures had tripled to 114, with an additional 315 notices of trustee sale filed, according to the Information Market, a data provider. In most cities, this paltry number wouldn’t even cause a ripple in the real-estate market. But in this tiny town of about 7,700 homes — owned by celebrities, politicians and businessmen such as Muhammad Ali, Alice Cooper, Dan Quayle, Mike Tyson and Peter Sperling — these foreclosures landed with a thud.



Broker sale signs, once considered too gauche for this tony enclave, with its 12 high-end resorts, began sprouting like weeds, as overstretched borrowers began seeking short sales or letting their underwater custom homes go.

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The excess
Forget Beverly Hills. Some of the priciest foreclosures in RealtyTrac’s database were in tiny Paradise Valley, and all were recorded last year — such as this palatial property with private theater, walk-in wine cellar, indoor sport court and separate guest house with two-car garage, which was taken back by the bank when its owner defaulted on a $6.5 million note. It’s now listed at $3.5 million.

Spec homes, with up to 10,000 square feet of space and as many as eight bathrooms, continued to be built as late as last year.

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The attitude of most people — even those in the real-estate business — was that economic hardship "doesn’t happen here," says Jon Wall of JM Wall Development, a Phoenix custom homebuilder that was also building in less expensive parts of town.


He says he knew the market was in serious trouble when the list of 12 build-to-suit projects he had been contracted for in Paradise Valley all went up in smoke, as buyers couldn’t find financing. Suddenly, nothing was moving.

He sold his last spec home there in late 2008, taking a major price reduction and barely squeaking out a profit. Others weren’t so lucky.

"We were crying the blues," he says. "But a lot of (spec home builders) shut their doors and went under."

What was left
The remnants of this go-go building activity still litter the landscape — and the multiple listing service.

Many of the projects were left unfinished, such as this 8,000-square-foot Tuscan estate, which boasts a "guest casita," a master bedroom with separate sitting room and a "full Irish pub-style bar," but no flooring, landscaping or kitchen countertops.

"We’ve seen examples of where something that was listed for $10 million sold for $2 million," says luxury real-estate agent Walt Danley, who has sold homes in the area for nearly three decades. "The run-up did get a little out of control. It needed a correction, but this is an overcorrection."

Indeed, with a median per-square-foot price of around $289, according to real-estate Web site Trulia, these homes with their deluxe finishes are a relative bargain for those who can scrape together the financing.



A new nouveau riche?
For those with a steady income, it has meant a chance to finally move into the area that says, "You’ve arrived," Butler says.

Dick and Laurie Wheelock, who own a sprinkler-systems company, traded up from their house in nearby Squaw Peak to a larger 8,500-square-foot spec home built in the Preserve at Lincoln, a new gated community in Paradise Valley near the Arizona Biltmore Resort.

The home, with its wine storage, theater room and three fireplaces, had been originally priced close to $8 million, he said. The Wheelocks picked it up in February for $2.2 million.

"The market just fell apart, and (the builder) was trying to get whatever he could out of it," Dick Wheelock said. "We are enjoying it very much."

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A continued correction
Bargains like these should be around for a while, agents and economists say.

Even as local economists are predicting that the Phoenix market will bottom out this spring and that prices will start ticking back up, no one knows exactly when the price reductions will stop in Paradise Valley.