A small Gulf Coast city was the scene of a surprise surge in condo sales last year. The success gives hope that a full-blown rebound could be on the way.
Business. Michael Saunders & Co., Sarasota, Palmetto
Industry. Residential real estate
Key. The right mix of price cuts and risks can deliver condo sales success, even in a down market.
Amy Drake, a residential Realtor with one of the Gulf Coast's most prominent firms, was quietly skeptical after her first phone call with Peter Wells in late 2009.
Wells, an executive with a firm in Colorado that buys distressed properties nationwide, sought out Drake for some market research on Palmetto.
Drake, however, head of new homes and condo sales for Michael Saunders & Co., was skeptical primarily because Palmetto has long been the second-class citizen in Sarasota-Manatee residential real estate, especially in condos. It isn't downtown Sarasota, for example, with its bevy of cultural amenities within walking distance. And it isn't one of the barrier islands, like Longboat Key or Siesta Key, where properties always get a premium.
Even worse, this particular swath of Palmetto, made up of three boom-time developments called Riviera Dunes, could have been renamed Default City in 2009. The bulk of the units in the separate projects — Bel Mare, Laguna and Palms — were unsold, in foreclosure or in some type of distress.
Says Drake: “There was a complete lack of confidence in the Riviera Dunes marketplace.”
That dearth of confidence, however, has turned into a rare success story in how to sell condos, fast, in a depressed market. In fact, Drake and a team of Realtors at Michael Saunders & Co. sold 103 out of a possible 104 condos in Riviera Dunes from February through December 2010. The sales, half in Bel Mare and half in Laguna, totaled $28 million.
“We were so busy and crazy,” says Nell Leffel, a Michael Saunders & Co. Realtor who ran the sales in Bel Mare and Laguna. “I don't think we totally understood what was happening.”
Adds Drake: “It was just like back in the day. That was the kind of the fervor we created.”
Massive price cuts certainly played a key role in the success. Prices that once ranged from the mid-$400s to $2.2 million were slashed to a range of $129,000 to $750,000.
But it was more than mere price breaks that led to the surge, say local real estate brokers and Michael Saunders & Co. executives. It also took some savvy decisions, a few risks in how to show off properties and significant follow-through and diligence.
“We have a system we have spent years putting in place,” says Drake. “That translated perfectly to this market reality.”
Wells' firm, Louisville, Colo.-based Real Capital Solutions, was the first entity at Riviera Dunes to realize that reality. The firm, with 25 years in projects from Wyoming to Texas to Florida, bought 53 foreclosed units in Bel Mare from Huntington Bank for $6.4 million in a deal that closed in January 2010. The firm hired Drake and her team at Michael Saunders & Co. to sell the units, which vary in size from 1,847 to 3, 871 square feet.
Drake's team sold 52 of the 53 Bel Mare units Real Capital bought in 11 months. As of late January, the only unsold unit was a 4,715-square-foot penthouse listed at $725,000.
“We were pleasantly surprised at how rapidly things sold,” Wells says. “We think Amy and her team did an excellent job.”
Drake didn't stop with Bel Mare. Indeed, lenders with unsold units in Laguna approached Michael Saunders & Co. while Drake was in the early stages of developing a sales strategy for Bel Mare. Those banks, PNC and M&I, hired the firm and Drake's team to sell 51 foreclosed units in Laguna at Riviera Dunes.
That sales effort was 100% successful.
A pocket of recession-era condo sales like what happened at Riviera Dunes is unusual, but not unheard of on the Gulf Coast.
For example, The Lutgert Cos., a Naples-based real estate firm, recently increased its marketing and advertising budget for Tavira, a 26-story tower with 90 luxury condos in the Bonita Bay development in Bonita Springs. The company hopes the investment turns into at least 35 sales in coming years. (See Business Review, Dec. 10.)
A sales resurgence is also underway at Water's Edge, the tallest condo building in downtown Clearwater. Developers of the 26-story, 153-unit building, with views of Tampa Bay and the Gulf of Mexico, say a new price structure announced last summer has been a catalyst for 60 closings.
“I am pleased to have seen Water's Edge rebound so well during a down economy,” says Grant Wood, who oversees sales for the building's owner, a California real estate investment firm. “The building has managed to go from barely occupied to swiftly and surely filling up.”
Putting on the Ritz
It's no surprise then, that the first step in the Riviera Dunes sales strategy, says Drake, was to jump on the recession mantra of the day: Value.
At Bel Mare, for instance, bottomed out prices made the luxury attainable. “The project was so thoroughly deluxe,” says Drake, “that it ultimately attracted buyers from downtown Sarasota who probably would never have considered the option of living outside of Sarasota except for the opportunity to own one of these units.”
Michael Saunders herself, at a sales launch event at Bel Mare, called the development “the Ritz-Carlton of Manatee County.”
That was the idea for Rivera Dunes when a trio of development firms first conceived the project in the early stages of the boom, to bring luxury to Palmetto. Condos in most of the towers went on sale in 2004 and 2005 and buyers moved fast. They citied the high amount of luxury amenities, from designer cabinet tops and appliances to the fully equipped gym and 10-acre botanical garden.
But the market began to slide in lockstep with construction. And when the work was done, so too was the market. That left a deep hole of defaults and lawsuits. Columbus, Ohio-based Huntington National Bank was one of the first lenders to make a move, when it bought back the Bel Mare units from Palmetto-based developer Corvus International in November 2009.
Other foreclosures soon followed, from the likes of PNC and M&I.
Drake, who ran operations at the Longboat Key Club for nearly two decades before she joined Michael Saunders & Co. in 2008, spent the early part of 2010 in regular contact with Wells and PNC officials. Drake says all of her contacts “got it” when it came to setting prices in a market saturated with foreclosures.
The pricing strategy, however, wasn't stagnant. First off, Drake held firm to the base prices, despite the temptation to bargain. “We didn't get into the downward spiral negotiation game,” Drake says.
But once some sales momentum began to build, Drake raised the prices at least 10% for every three to five condo sales.
Drake also took the atypical step of furnishing a penthouse at Bel Mare, spending thousands of dollars to do it. Drake believed that was the best way to showoff the property and it make it more than just a fire sale.
Leffel, the fulltime Realtor for Michael Saunders & Co. at Riviera Dunes, then set up a series of tours for area Realtors and brokers. That move, despite the Disney feel, was a big key to the sales success. The tours were so popular, in fact, that in the spring Leffel ran hour-long packed showings of the properties every afternoon. Says Leffel: “We pulled out every tool we have to get the job done.”
Still, another important move to goose sales came from lenders. Real Capital Solutions, for example, paid Bel Mare's homeowner's association fees for the units it bought, then added another $50,000 to the fund. Other lenders made similar moves in an effort to ease some potential buyers' worries.
The final result of the strategy was an influx of buyers, including 60% who paid in cash, says Drake. They came from a variety of places; one penthouse buyer in Bel Mare was from Australia, while another was from Longboat Key.
Drake says the strategy was a success, in total, because each element was executed properly, from price points to marketing to homeowner's association fees.
“It takes a lot of discipline,” says Drake, “You have to be very strict to the system.”