January 26, 2011
Behind The Sperling’s Shocking "Sale" Of 2323 Hyde For $9,000,000
A reader perusing Redfin is a bit shocked to come across the reported sale of 2323 Hyde Street for $9,000,000 two weeks ago, a nearly 9,000 square foot Russian Hill home that was listed for $18,700,000 for most of last year.
The least expensive of three big San Francisco properties accumulated by the Sperlings of University of Phoenix fame and fortune over the past decade, 2323 Hyde Street had been purchased by Peter and Stephanie Sperling in 2003. The home had been listed for $15,000,000 at the time.
And while we can’t confirm the exact purchase price in 2003, we will note a $15,420,495 tax assessed value in 2009 which would suggest a price around $14 million.
So was it really a $5,000,000 and 36 percent drop in value for the Hyde Street house as reported? Yes and no. While 2323 Hyde did in fact sell for $9,000,000 this past November with $225,000 in transfer taxes paid, the buyers were John and Peter Sperling, the co-trustees of a John Sperling Irrevocable Trust. We don’t believe their offer was countered.
Keep in mind that the difference between a $14,000,000 and $9,000,000 tax basis would be about $60,000 a year and transfer taxes for properties valued over $5 million in San Francisco increased at the beginning of this year with the passage of Proposition N.
∙ Save A Collective $21,700,000 On Hyde And Upper Broadway [SocketSite]
∙ The Day After: November 2 Real Estate Related Election Results [SocketSite]
First Published: January 26, 2011 3:45 PM
Comments from "Plugged In" Readers
The assessment value should stay at $15M+ for obvious fraud, for one thing.
By the way, I get a little under $13.7M when adjusted by 2% for 6 years.
Posted by: sfrenegade at January 26, 2011 3:54 PM
how is this legal?
Posted by: huh at January 26, 2011 3:55 PM
That's how the rich get richer - they have the spare $9 million + transaction costs to do the deal, and they save $60K per year and avoid higher transfer taxes on any future sale. But I wonder how the accounting works on this? If both were all cash deals, then it looks like they've actually paid a total of $24 million. If that's the case, then will the "previous owners" get to write off the "loss" and therefore come out ahead? How would it work if it was financed?
Posted by: katdip at January 26, 2011 4:14 PM
"We don't pay taxes. Only the little people pay taxes…" —Leona Helmsley, 1989.
Posted by: Brahma (incensed renter) at January 26, 2011 4:16 PM
I was just walking by the Sperling's other property at 3450 Washington and noticed the house is completely furnished (having sat empty for years except for the Designer Showcase phase). I was wondering if it had finally sold, but I think it must be staged (but even the attic rooms?). I spent some time house sitting there when Daisy Jerome owned the property and have always admired this house.
Posted by: Footie at January 26, 2011 4:24 PM
Sale to an irrevocable trust may be sufficient to be considered a "sale" and trigger a re-assessment (which will be at market value regardless of the sale price - they just usually are the same). But way out of my area of expertise on such a trust/tax question.
Posted by: A.T. at January 26, 2011 5:38 PM
36% under 2003 price for a prime property? tipster in heaven. Or not.
Posted by: lol at January 26, 2011 5:51 PM
I don't want to name any names (or list any addresses) but I have seen this happen quite a bit over the years and it seems like the county (I've seen it happen in both San Francisco and San Mateo County) does not notice and when the "sale" is recorded they just start charging property tax on the new "sale price"...
Posted by: FormerAptBroker at January 26, 2011 9:56 PM
How dare you report the names and addresses of the buyers and sellers of this property. Reader Eddie will be shocked, annoyed and disgusted. What kind of world are we living in? OUTRAGE!
Posted by: jaba at January 27, 2011 12:37 AM
I didn't know about this as a tax idea. I am going to discuss it with my accountant.
Don't begrudge anyone who is able to lower their taxes. They'll invest their money more wisely and productively, and hire people more efficiently, than the City.
Posted by: unwarrantedinlaw at January 27, 2011 8:41 AM
"I didn't know about this as a tax idea. I am going to discuss it with my accountant."
Check with your lawyer too. It'll be hard managing your wise investments from the slammer.
Posted by: steve at January 27, 2011 8:55 AM
"invest more wisely or productively"... these are people who bought 3 monster homes in SF that are sitting empty, who run a for-profit university that is under investigation for bilking poor people and the government (http://www.propublica.org/article/at-u-of-phoenix-allegations-of-enrollment-abuses-persist-1103), and are likely in the investing class that gave us toxic CDOs and the like. So while all of this is legal, I don't know that you could argue they are automatically spending money "more efficiently" than hiring nurses at SF General just because they are private citizens. This kind of knee-jerk fawning over the private sector is what put the economy in the dumper, and is why SF and the State are in such bad fiscal shape.
Posted by: katdip at January 27, 2011 9:03 AM
The Sperlings will pay more tax this year just on these houses than all the taxes you will pay in your lifetime.
Altogether, the Sperlings' taxes that go to SF General represent thousands of times what your taxes contribute, yet you are angry that they pay so little, as if they are somehow ripping you off.
Posted by: unwarrantedinlaw at January 27, 2011 10:08 AM
"yet you are angry that they pay so little, as if they are somehow ripping you off."
They ARE ripping us off by perpetrating this sleazy tax dodge. They are rolling in money like Scrooge McDuck, and they want more more more. Disgusting.
Posted by: steve at January 27, 2011 10:13 AM
"yet you are angry that they pay so little, as if they are somehow ripping you off."
Taking to its logical extreme, unwarrantedinlaw's argument is as if someone stated this about income tax: "everyone should have to pay $5K of taxes, no more, no less, in order to make things fair; therefore the rich are far paying more than their fair share of taxes."
The Sperlings own a much larger percentage of SF real estate valuation than us little people, and should be paying much much more in taxes than us little people.
Posted by: sfrenegade at January 27, 2011 10:31 AM
See, the first part of what katdip wrote is dead on. It's obvious to anyone but a hardcore libertarian that these folks have more money than they know what to productively do with, that's why they have multiple mansions which are depreciating in value rapidly sitting completely empty.
But, of course, hardcore libertarians can't accept, as a matter of dogma, that rich people can do anything wrong when it comes to finances, so they have to assert, in a completely unsupportable fashion, that these undeserving rich people will "invest their money more wisely and productively, and hire people more efficiently, than the City". Talk about your false consciousness.
Next up will be the sputtering assurances that The Sperlings are wonderful, hard working individuals who earned their wealth by hard-work, tenancity…pulled themselves up by their own bootstraps in true Horatio Alger fashion…"how dare you judge the decisions of true American heros of industry"…accusations that all the rest of us are just haters, etc.
Posted by: Brahma (incensed renter) at January 27, 2011 10:31 AM
I'm not sure the transfer here is for property tax purposes... It's a little strange, and I'm not quite smart enough to offer an opinion.
As I said in the previous thread, the Sperlings pay more property tax for private residences than any other family in SF. Reducing the tax on this home from 175k annually to 100k is significant, but not that significant in terms of what they currently pay.
I certainly don't think they're hurting in terms of money... I understand they bought a lot of the furnishings from last year's Decorator Showcase (something which almost NEVER happens).
Posted by: denis at January 27, 2011 10:36 AM
I know I am thinking of this in a very simplistic manner, but would someone please explain to me why they would purchase a current property at a loss, incur $9 million in additional debt just to save $60K on taxes annually? I can't see how that makes sense. But I know I have to be missing something somewhere. I'm assuming it's possibly added benefit putting it in the family trust?
Posted by: Lori at January 27, 2011 10:38 AM
Whatever. I'm sure they have good tax advice and experience in moving assets around. Thats said, they still have to live with at the intersection of Hyde and Lombard, with the unceasing traffic and tourists attracted by the "crooked-est street"
Posted by: rocco at January 27, 2011 11:12 AM
unwarranted - you don't know me or my tax situation, so don't guess. And I said nothing about them "ripping me off". What I object to is the automatic assumption that the wealthy/private sector NATURALLY will spend money more efficiently or effectively than government. Yet through their "efficiency" with the tax law they are starving the local services that the rich count on like the rest of us - e.g. they expect the fire department to put out a fire at any of their 3 houses, or the water department to deliver to their gold-plated toilets and remove their gold-plated poop. The "government is inefficient, so let's trust the private sector" attitude is what led us to give BILLIONs away to private insurers in the Medicare Advantage program, and give billions to banks to process student loans. Those same sectors cried FOUL when it became clear that the public sector could deliver the same services CHEAPER AND MORE EFFICIENTLY!
Posted by: katdip at January 27, 2011 11:35 AM
I believe that Prop 8 (1978, not the one dealing with marriage) allows for your tax basis to be reduced to market value.
So it seems that even without this transfer, if you could convince an assessor that the market had dropped since your purchase then your tax basis would be lowered.
Posted by: tc_sf at January 27, 2011 11:52 AM
Yes, the house's valuation has probably gone down, but certainly not by as much as this sham transaction.
Posted by: steve at January 27, 2011 12:03 PM
Well, even if this was for tax purposes, the city can be pleased the sale of 2600 Pacific for 15.5 million will compensate for any lost revenue. I guess everyone saw the WSJ article (linked below) which notes that 2600 was an actual sale setting a remarkable comp for view homes in Pacific Heights.
[Editor's Note: The Secretive Sale Of 2600 Pacific.]
Posted by: Denis at January 27, 2011 1:18 PM
A number of trust related transfers appear to be automatically excluded from causing a re-assesment: http://www.boe.ca.gov/proptaxes/faqs/changeinownership.htm#1
Posted by: tc_sf at January 27, 2011 1:39 PM
I need to find the accounting firm the Sperlings use.
Libertarians don't care what individuals do with their money. Libertarians care about what government does with their(confiscated)money.
Posted by: Sunny Jim at January 27, 2011 3:41 PM
Sunny Jim, thanks for the correction. I guess if Libertarians never avail themselves of government services (such as calling the police, fire department, expecting criminals to be housed in jail, etc.) then I could get close to, but not agree with, that point of view. But most do.
I don't know if the Sperlings are Libertarians, but I do believe that they would not be so anywhere near so rich if we lived the way Libertarians say we should and there were no government-subsidized and guaranteed student loans that people can't discharge in bankruptcy.
If I had enough money to be able to invest in FrontPoint Financial Services in order to bet against Apollo, I would.
Posted by: Brahma (incensed renter) at January 27, 2011 4:57 PM
The problem, Brahma, is that libertarian philosophy fails entirely in practice. Most libertarians aren't thinking about the greater good, but are thinking about their own shortcomings. They think that they personally would be better off because they are the creative, innovative, entrepreneurial geniuses who would be at the top of the pyramid if the government wasn't keeping them down.
Any libertarian who tells you that we've never tried libertarianism is lying. Feudalism is libertarianism embodied because everything is based on economic power. That means that everything gets run by thugs, warlords, and mafias. Do we really want to go back to that? These folks would have corporate mafias running everything in their "free market."
My favorite video on this topic:
Somalia: Libertarian Paradise.
To bring it back to SocketSite, I keep hearing that Satchel/LMRiM was the biggest former libertarian around here. Can someone point me to an old post about this?
Posted by: sfrenegade at January 27, 2011 5:09 PM
Kind of ironic that a libertarian keep-the-government-away-from-me-so-I-can-earn vibe got started on this thread. The Sperlings got really rich by sucking on the gubmint-backed student loan teat. They've done far, far better on the taxpayers' dime than their "students."
Posted by: A.T. at January 27, 2011 5:13 PM
sfrenegade - yes, satchel/lmrim definitely had libertarian leanings. Though I'm not aligned with his views I still found his posts to be interesting and useful just by factoring out the religious and political content. He writes well and thoughtfully though he was a little mean to fluj and other boosters in a back handed way.
You can find his old posts easily by typing the following search terms in the search box located in the upper right of the page :
"Posted by: LMRiM"
"Posted by: satchel"
You can easily find his posts just by rapidly scrolling and looking for the extra-long blurbs.
I would not be surprised if he reappears for another six month stint again especially since there's an opportunity to gloat that many of his predictions have come true.
Posted by: The Milkshake of Despair at January 27, 2011 5:35 PM
Consider the difference between the government regulating a market vs being an active participant. Or even, such as for student loans & housing, becoming nearly the entire market.
Posted by: tc_sf at January 27, 2011 5:39 PM
Ironic to say the least, A.T. Some misinformation here so I feel compelled to chime in even though it's off topic. Libertarians don't believe in a complete lack of government or authority. Those people are called anarchists. Somalia is an anarchy.
Most contemporary, mainstream libertarians believe that government should establish a framework in which society can function effectively. Provide for national defense, run the police force and fire department, build roads, maintain general order, etc. But government should have minimal intervention in people's personal lives or in the economy.
I find it ironic that, on one thread, many of you condemn financial sector bailouts and the zombie mortgage giants. Then, on another thread, you lash out at the archaic planning process, and how NIMBYs tell people what to build on their own land. Now here you rail against libertarianism?
Posted by: Legacy Dude at January 27, 2011 5:39 PM
"Most contemporary, mainstream libertarians believe that government should establish a framework in which society can function effectively. Provide for national defense, run the police force and fire department, build roads, maintain general order, etc. But government should have minimal intervention in people's personal lives or in the economy."
Yes, I've seen the modern stuff too that isn't as much anarcho-capitalism, which is libertarianism at its full extreme. Most of it tries to say that those countries with "free markets," as libertarians define based on a number of factors, are the best off.
However, libertarianism doesn't say much of anything about what to do ex ante in order to create free markets. They just say that government should be minimized and that free markets are better. However, that's not a coherent thought process: do exactly what we're doing to create free markets, but put less government in to make more free markets. Even in the modern framework, libertarianism would still result in warlords and mafias, only corporate warlords and mafias.
"I find it ironic that, on one thread...Now here you rail against libertarianism?"
It's a matter of degree. One can think that certain parts of our economy are too highly regulated without thinking that everything should be minimally regulated and just based on reputation. Why does it have to be all or nothing? Can't one find certain regulation good and other regulation bad? Isn't it possible that "free markets" (as defined above) require a certain amount of government intervention to ensure that they're "free markets"?
Posted by: sfrenegade at January 27, 2011 6:25 PM
Looks like ignorance is bliss! To all the rest, take the time to do some reading at mises.org
Good night, Mr.Satchel, where ever you are!
Posted by: Sunny Jim at January 27, 2011 9:08 PM
sfrenegade, I would agree that some level of market regulation or monitoring is beneficial to society. I'm glad that the FDA regulates the contents of soap. I'm glad that the State of California has strict emission standards. I'm glad that the law allows ownership and protects everything I've worked hard to achieve in life. But as tc_sf points out, I disagree when the government manipulates or directly annexes/nationalizes an entire market. Moreso when unelected officials strike back-room deals which (eventually) will increase the tax burden for all of us, or our progeny, with little input from the populace or elected representatives.
And to your comment about feudalism...feudalism has nothing to do with libertarianism. The root of libertarianism is liberty, denoting personal freedom. Under feudalist monarchies, power was generally transferred by blood or birthright rather than earned or freely traded. I'm sure you already knew that, though, so I'm surprised you threw up some mismatched extremist comparison to a tragically vigilantistic regime.
Posted by: Legacy Dude at January 28, 2011 8:58 AM
Thanks for the condescension, Sunny Jim. The next step is to explain to us why taxation is about people with guns taking our money and about principles of non-violence. :) There's a reason so few people follow the Austrian School.
If we are going to throw around links espousing our views like this, the best I've found for why libertarianism should be subject to derision is perhaps this one. These people have far more patience than I do in the explanation:
"Under feudalist monarchies, power was generally transferred by blood or birthright rather than earned or freely traded."
And why is corporate mafia-ism any different? Those feudal monarchies were created because someone had money and resources and lived on a hill and could exert influence on people, and any government that existed (a village council perhaps) was ineffective at keeping it in check.
Getting back to this house, which is the main topic here, 2 doors down from it is my favorite bubble poster-child: 1112 Lombard. Still on the market at September's price of $3.625, after the current owners paid just north of $3.06M and then tried to quickly flip it 6 months later for $5M and failed miserably. I'm not sure why they haven't lowered the price. Officially it's been on the market 133 days, but this house has really been on the market since late June 2009.
Posted by: sfrenegade at January 28, 2011 11:01 AM
I can't view the forum you linked to, nor am I here to defend libertarianism before people who obviously have preconceived notions (many of which appear to be based on extreme examples and, as a result, are generally incorrect) that they reflexively refuse to reconsider. Suffice it to say I think both you and Brahma are engaging in a fair amount of ideological contextomy here.
Posted by: Legacy Dude at January 28, 2011 11:49 AM
Legacy Dude, I've read and thought more about libertarianism than you might think. The forum loads just fine for me, I'm happy to discuss with you its contents at any time, if you choose to provide more context as you suggest.
Posted by: sfrenegade at January 28, 2011 12:24 PM
Sperling also owns Callwave.com - a company that scammed me recently. This company charged $7.95 a month on my credit card without my knowledge. When I discovered the charges and tried to cancel whatever service they are providing me, there is no way to cancel: their phone number is not working, their website is full of broken links and I ended staring at blank webpages. I am still struggling to get their charges reversed thru my credit card company. When I Googled the words "callwave scam", I found a lot of sad stories exactly similar to mine dating back several years ago. Clearly, they have been running this scam for years now.
Posted by: Pogo at January 28, 2011 10:38 PM
Another great thing about real estate trusts is that you can use them to dodge inheritance taxes, IIRC. A real estate trust in the name of Dad and Son, for instance, means that if Dad dies, Son does *not* have to go through probate. A wealth operation this size would have to go through probate in multiple states if the properties and other inheritances weren't in trust.
Knocking down the purchase price and thus possibly the tax assessment *or* other taxes on ownership of multiple properties (which also affect trusts differently IIRC) is a bonus.
(My parents moved the condo purchased for me into a trust a few years ago when Dad was dying; Mom wanted to make sure that I wouldn't lose my home if anything happened to her. Our family's value is orders of magnitude smaller than the Sperlings, natch. But we just moved it from Mom's name into a trust with both our names, and didn't try to fiddle the price.)
Posted by: wheelchairgirl at February 1, 2011 2:17 AM