Real Estate: Are Landmark Homes Worth the Investment?

California's housing market may be in a slump. But one prominent home recently offered for an unexpectedly high price. Richard Neutra's Kaufmann House, a five-bedroom modernist masterpiece in Palm Springs, was auctioned off by Christie's last month for $16.8 million. Auction houses have been selling real estate to their well-heeled clients for years. But the sale of the Neutra house was part of Christie's effort to establish name-brand modernist homes as a new asset class—homes that are valued as much for their architectural pedigree as they are for their number of bathrooms and the quantity and quality of marble therein. It's a bright idea given the climate, in which high-end art is selling briskly but high-end homes less so.

But will it work? Can historic modernist homes be treasured, shown, and monetized like Warhols and Gauguins? A recent visit to one of America's best-known and most successful modernist houses, Philip Johnson's Glass House, and a look at its business model, suggests the answer might be no.

The Glass House, which Johnson designed and built in the late 1940s, set on 47 acres of prime turf in New Canaan, Conn., is one of Johnson's most enduring achievements. Over the years he and his partner, David Whitney, constructed an art-filled compound—the Glass House is one of several structures on the property—and molded the landscape to their liking. When Johnson and Whitney died in 2005, the property was left to the National Trust for Historic Preservation and was opened to the public last spring.

There are plenty of historic homes/museums in the U.S: some 15,000, or four in every county of the U.S., notes Christy MacLear, executive director of Johnson's Glass House. Very few of them are retaining their value or generating positive cash flow. Some of the most famous, like Mark Twain's home in Hartford, Conn., or Edith Wharton's the Mount in the Berkshires, are struggling to keep their doors open. Too many historic homes revolve around recreating the life of the person who lived there, or freezing an era in aspic, notes MacLear, who is a Wharton MBA, not a preservationist. (She worked on Disney's Celebration project.) MacLear and her staff have pursued a strategy of limited access and scarcity, on the one hand, and of making the Glass House a center for scholarship and learning about modernism, on the other. "When we replaced the flat roof on the Glass House, we documented it with the idea that every modern homeowner wants to know how we're replacing a flat roof."

If any historic home could break even, or turn a profit, one might think it would be the Glass House. A stunning meditation on the box nestled into New Canaan's rolling hills, the place has been remarkably popular. Private tours (two a day) are available for $500 or $1,000 per person (the latter includes a picnic at the Glass House). Regular group tours (the season lasts from April to October) cost $25 a person and have been sold out for months. Admission fees generate about $450,000 annually, which covers the tour operating costs and the salaries for 12 full-time and 12 part-time employees. But the total cost of running the house runs about $1.7 million a year. The difference comes from fund-raising efforts, from an endowment that was created by Johnson and by sales of art from Whitney's personal collection, which generated $13 million.

Johnson was a commercial architect, but the Glass House doesn't easily lend itself to the sort of money-attracting branding opportunities that museums thrive on. Modernist houses, with their clean lines and lack of ornamentation, seem to defy easy commercialization. The site itself is largely unmarked. There are no plaques, plazas, or entryways where sponsors and patrons can buy placement. Nor is the Glass House available for weddings or overnights. (Those who live in Glass Houses should not throw catered parties.) "There's a lot of brand diligence about this site," as MacLear put it. You won't find Glass House Snow Globes in the gift shop at the visitor center. There is, however, a really cool guest book in which designers and artists have sketched designs inspired by their visits.

Successful as it is, the Glass House doesn't come close to making a profit. And since it's been left to the National Trust for Historic Preservation, it can't be sold. Which highlights the challenge for buyers, owners, and traders of such properties. Acquiring a painting from the 1940s obligates the owner to do a certain amount of upkeep: proper climate control, an excellent security system. Acquiring a house built in the 1940s obligates an owner to do a massive amount of annual upkeep just to preserve it. If you want to live in it and update it for contemporary luxury, you'll incur more costs—and risk altering the original in a way that harms its market value. When you want to let the public see a piece of art you've acquired, you can lend it to a museum for a few months. When you want to let the public see a piece of architectural art you've acquired, you have to let strangers into your home.

Finally, paintings have evolved into an asset class over the decades to the point where name-brand works of fine art can easily be sold into a rather liquid global market. Long track records and comparable data points assist buyers and sellers in assessing value. Dealers function as market makers, buying and selling art for their own account. By contrast, with modernist homes (or historically significant homes more generally) the universe of potential buyers is small.

In the end, it's a real estate transaction, and as such it's subject to all the whims and characteristics of that market. (The Kaufmann house was placed on the market, as many homes are, because the owners were getting divorced.) After all the hoopla surrounding the $16.8 million bid for the Neutra house, the deal, like so many other housing deals these days, fell through.