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CONDO BUST: Nightmare or Fantasy
The high-end condominium market is either in big trouble or holding steady. It depends on whom you ask.
By Sean McDonnell and Sean Roth
Staff Writers
Downtown Sarasota has given a new meaning to the term "real estate speculation." Rumors and innuendos abound in the city's property development industry, and even those in the know aren't sure what to believe.
Some whisper that the high-end condominium market is on the downswing, saying even the opulence of The Metropolitan project, with units priced from $1.8 million to almost $5 million, can't lure big spenders. They point to the recent withdrawal of The Boulevard project as evidence the boom of high-priced high-rise development is over. They wonder what project will be next: Alinari at the Renaissance or even the much-heralded Patrick Kelly's replacement for the Sarasota Quay?
The reality is far from the depressing scene that the rumor mill would suggest. Truth be told, aside from The Boulevard development, the only agreed upon negative trends continue to be in the more than $2 million market, which is far from a surprise.
"The over $2 million market is a little soft," says Michael Saunders, president of Sarasota-based Michael Saunders & Co. "That might explain some of the problems people are running into, but I think in a lot of ways those problems are isolated incidences."
The proliferation of development in Sarasota's downtown has resulted in a wealth of condominiums aimed at the highest price markets, but most builders and Realtors agree that the market is not yet overly saturated.
"We've never had a situation where we came out of the ground with as many units as we've seen," says Sue Louis, president of Coldwell Banker's Sarasota Bay Region.
Louis says any perceived surplus hasn't affected the bottom line. She says sales of expensive condominium properties have slowed as compared to earlier this year, but her company is still on pace to surpass sales projections for the month of June.
"Things are still selling," Louis says. "I think there are a lot of choices. It's competitive right now, but I don't think it's saturated."
Most of the newer condominium developments reported sales were fair to good.
WCI Communities Inc., the Bonita Springs-based developer behind the Tower Residences at the Ritz Carlton, reports having sold 68 of the 80 units at the Tower development. The units sold for an average price of $1.9 million.
"I think in what has been a relatively weak economy that is pretty impressive," says Bill Pappalardo, director of public relations for WCI's West Division.
Diane Lyons, project director with Michael Saunders & Co. reported that One Hundred Central is one unit shy of being sold out. There were a total of 95 units in the development, and units were priced from the low $300,000s to $1.6 million. The average sale price was about $650,000.
Robin Sabattini, director of real estate for the Columbus, Ga.-based Wynnton Group, says that after a year of selling, 87 of the 205 condominium units in the Alinari at the Renaissance of Sarasota are under contract. The units were priced from $255,000 to $1.8 million.
U.S. Assets Group has sold all but one unit in the Beau Ciel and about 44 of the 54 units in The Orchid Beach Club development on Lido Key. Units in the Orchid Beach Club development range from $1 million to more than $4.5 million.
One of the blips that does appear to be occurring is a slight confluence of multiple high-priced condominium units resales listed on the market at the same time. Cheryl Loeffler, a Realtor with Prudential Palms Realty, says currently there are 22 listings for resales in Beau Ciel along with another 21 units from the Tower Residences.
"It has been kind of mind boggling what has been going on there," Loeffler says. "It is a little stagnant. Most people are holding steady on price. I'm pretty sure things are going to get better soon."
Barbara Ackerman, a Realtor with the Longboat Key office of Coldwell Banker, says that overall the Sarasota market is improving. "The Sarasota demand is growing, not declining," Ackerman says. "We draw from all over the United States so we really have a range that is not limited at all. A lot of buyers from the Midwest and Northeast prefer the familiarity of the Gulf Coast to the East Coast, which has become saturated."
The European market is high on the wish list for Fort Lauderdale developer Richard Zipes and his The Metropolitan condominium, planned for the northwestern edge of U.S. 41 and Gulfstream Avenue. "This is not going to be an emotional sale," he says. "To be honest we never anticipated we would get a lot of buyers from the local market. There are only so many people locally who can afford the units. That's why it is being marketed nationally and internationally, especially with the euro up over the dollar. Europeans could actually buy these at a discount."
Although, sales for The Met have been slow following the end of Season, Zipes says rumors that the sales office has sold no units are fiction. "Reservations are things we don't give out," he says. "We respect the privacy of our customers. From the start we thought if we get two to four sales a month, that is great absorption. We are meeting that. It is so early in the game in Sarasota. Will we increase prices? Probably. Will we lower prices? Probably not. This is a marathon and we are only at the beginning. My approach to it has not changed one iota. We are there and the doors are open. I will say I have never had a discussion about closing or selling the property."
As GCBR previously reported, development of The Boulevard officially stalled several weeks ago. Atlanta businessman Wayne Morehead took the project off the market after netting only nine reservations in three months. A representative from The Boulevard cited a glut in the upper-end condo market.
"Everybody in town is having trouble selling anything over $1 million," says Louise Guido of Waterside Realty LLC of Sarasota, the project's brokerage company. "That's the real threshold, and past that it is becoming a tougher and tougher market unless the unit is in the perfect building. Realtors who deal in that really high-end market have no reason to tell you, but there is a glut in the high-end."
Others say the failure of The Boulevard appears to be more of an isolated case than the bellwether of a high-end surplus.
"I think the Boulevard project is a little different because there you have a developer who was a little inexperienced with that product," Chief City Planner Jane Robinson says. "Maybe he didn't market exactly the right way."
Guido contends it was the market and not the leadership that hurt The Boulevard.
"If I have a client willing to spend $2 million, I can show them 10 places. If I have a client willing to spend $400,000, maybe I can show him three and he won't like any of them," Guido says. "Why try to put a square peg into a round hole? It's not because (Morehead) didn't know how to do it. We would have sold that building eventually. I believe he made a smarter decision for the community and a smarter business decision. I think it took a lot of courage in this town."
Although most evidence suggests the exact point of market saturation has not been met, the prospect continues to loom large for some.
"There are only so many people that can purchase a property for two million dollars," says Scott Sosso, president of Sarasota's Prudential Palms Realty. "When everybody in downtown Sarasota is catering to that small group, there's a real possibility of saturating the market.
"People start wanting a lot more for their money. When everybody's trying to target a price range that's between $1.5 million and $2 million, it becomes really difficult to move anything. The Met has a great layout and it looks great, but it just might not be the right timing for this many new expensive properties."
"I think we've reached the point of absorption in the million dollar range," City Planner Karen Murphy says. "The penthouses used to always be the first thing to sell and now they are usually the last."
Increasing interest rates could reinforce any reluctance on the part of property buyers, although high-end property sales are usually the least affected by shifts in interest rates because prospective buyers can often pay up-front or finance using prime rates.
"When we brought in ERA to help us analyze some of this growth, they did say, 'When the interest rates come up in the fall, you're really going to see some saturation in the high-end market,' " Robinson says. "There are a lot of these new projects that won't ever make it past the planning stages."
Saunders was more optimistic about what increasing interest rates could mean for local property sellers, particularly in the short-term outlook.
"Interest rates always affect the market, at least psychologically, but we've got to remember everything is relative," Saunders says. "Even with an increase, interest rates will still be as low as they have been in recent history.
"People might give pause for thought, but I think if they're planning on buying that really won't stop them. In the short-term, it might cause more people to buy because they will want to get in before the rate gets bumped up again."
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