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Commercial Real Estate
Business Observer Friday, Apr. 20, 2018 5 months ago

The Return of the Condo

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Sarasota has had ample hotel and apartment development this growth cycle, but condos are now back in favor.
by: Kevin McQuaid Commercial Real Estate Editor
The 157-unit The Mark from developer The Kolter Group represents a new wave of condo development in Sarasota

For years, development in Sarasota meant condominiums.

The “highest and best use,” as the reasoning went, was almost always fee-simple residential.

Even the vaunted Ritz-Carlton Sarasota hotel, for all its panache, came into existence in 2001 primarily on the back of condo sales associated with the luxury Marriott International brand.

It helped that Sarasota’s business base of users occupying office space was relatively scant, of course, and that selling a downtown condo once was a lot easier for a developer than the arduous process of renting a hotel room 365 nights a year or an apartment annually.

But since Southwest Florida slowly emerged from the past decade’s economic recession beginning in 2013, development has been decidedly different.

In place of condo towers, developers have built a handful of new lodging properties containing nearly 1,000 keys, and upwards of 2,000 new apartment units — fueled largely by a city overlay district that boosted density to encourage multifamily rentals.

By comparison, and by historical average, condos were nonexistent. The few projects that were conceived or delivered between 2012 and 2017 contained less than 25 units.

“What we’ve seen this cycle has been very unusual,” says John Harshman, president of Harshman & Co. Inc., a Sarasota commercial real estate brokerage firm.

“What’s been unique this recovery is that apartments have been first to be developed in this cycle,” Harshman adds. “That was largely the result of financing; there were more funds available from lenders, and condo developers couldn’t get financing.”

John Harshman is founder and president of Harshman & Co. Inc., a Sarasota commercial real estate brokerage firm

Now, however, thanks to a combination of availability of financing, supply constraints — especially for newer product with more modern amenities — and buyers from previously untapped geographic areas, Sarasota is experiencing a condo renaissance for the first time in more than a decade.

In all, new for sale projects completed within the past year, under construction or approved and ready to commence could add nearly 1,000 new residential units to the city’s downtown and surrounding area, according to a city report issued in early April.

By comparison, just 250 new condo units were completed during the past four quarters in downtown, city data shows — and more than half of those units were contained in a single project.

But unlike previous cycles, the new condo developments being built or planned today are trending toward smaller projects, largely the result of zoning rules that dictate unit numbers.

The 18-story Jewel condo tower at 1301 Main St., for instance, which largely kickstarted the current wave of condo development downtown, contains just 20 residential units, according to city information.

Echelon, another 18-story tower at 624 S. Palm Ave. being developed by Naples-based Ronto Group, contains just 17 residences.

“Sarasota is running out of quality sites for condo projects, especially those with 18 stories,” says Kevin Daves, president of Core Development Inc., which plans to break ground next month on the 18-story BLVD condo tower, on North Tamiami Trail just north of downtown. “That’s why we’re seeing a lot of projects with fewer units.”

Daves says believes another, larger shift is occurring, as well, a re-urbanization that is driving residents off barrier islands like Siesta Key and Longboat Key — both traditional hot spots for condo development — to Sarasota.

“We’re seeing this movement occur downtown because of traffic congestion and because downtown has more services and amenities to offer,” Daves says. “Sarasota has become a more walkable community over the past decade, too.”

At the same time, Daves and others note that Sarasota condos are today attracting buyers from New England, New York and Mid-Atlantic states. Historically, Southwest Florida buyers migrated from the Midwest.

Core Development Inc.'s planned BLVD condo tower will contain 49 upscale residences. To date, 24 have been pre sold.

“We never had those buyers before, from New York or Boston,” Daves says. “I think it’s a combination of tourism marketing, the impact of Baltimore Orioles Spring Training (in Sarasota) and air traffic routes we hadn’t had previously.”

“New England has really discovered Southwest Florida,” says Bob Vail, president of Kolter Urban LLC, a division of the West Palm Beach-based firm that earlier this year completed the 141-unit Vue Sarasota Bay condo tower together with a 255-room Westin Hotel downtown.

Kolter also has begun work on a 157-unit, mixed-use condo, retail and office complex downtown called The Mark that is slated for completion at the end of next year, and is selling units in a 73-unit, luxury condo tower connected to the Ritz-Carlton brand on a one-acre tract within the Sarasota Quay adjacent to the luxury hotel.

Quay master developer GreenPointe Communities also has received city approvals to build an additional 622 residences within its 15-acre project, though some of those units may ultimately be rented apartments.

Vail and Harshman say that buyers represent a considerable difference between the condo developments being proposed and built this cycle as compared to those of a decade ago.

Unlike in 2007 and 2008, when banks provided flimsy loans to prospective buyers or investors who often aimed to “flip” contracted units for profit, today’s buyers tend to be owner/occupants.

That lack of speculation, in turn, has kept the number of developments in check.

“We’ve not seen overheating,” Vail says. “The condo market in Sarasota in an St. Petersburg has been steady, and consistent.”

Moreover, well-planned and positioned condo projects are banking reservations and converting them to sales.

At The Strand on Whitaker Bayou, a two-building, waterfront project being built north of downtown, developer Jebco Ventures has 58 pre-sales out of 152 units, says Jebco President Jim Bridges.

BLVD has two dozen of its 49 units committed, Daves says, and Kolter’s Vail says reservations are in the “high nineties” for the 157 residences within the 11-story Mark project.

At its Ritz-Carlton Residences tower, the one-acre tract for which Kolter paid $19.3 million and where units will cost upwards of $5 million each, Vail says 43 of the total 73 units have been reserved.

Kolter Group says 43 of the 73 planned units in the Ritz-Carlton Residences Sarasota condo tower have been reserved to date

“Sarasota has experienced pent-up demand from the recession of the last decade, and changes in zoning that promoted apartment development and the development of projects with a mix of uses, such as the One Palm apartment and hotel project, and the Vue,” says Steve Horn, a partner in the Sarasota commercial real estate brokerage firm Ian Black Real Estate.

“Added to that, I think we’re rewriting the definition of what a cycle is in Sarasota now,” Horn adds. “It shows the strength of our market now, and the demand by those who want to live and work and visit here.”

Steve Horn is a partner in Sarasota commercial real estate brokerage firm Ian Black Real Estate

 

 

 

 

 

 

 

 

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