The Bravest Developer
real estate by Jean Gruss | Editor/Lee-Collier
Building a condo-hotel in Southwest Florida takes, well, fortitude. Robert Hensley's got plenty of it.
Who's crazy enough to start construction today on a $150-million condo hotel in Cape Coral, one of the areas of the state hardest hit by the residential downturn?
Meet Robert Hensley, arguably the bravest developer in Lee County.
Hensley's company, Grosse Pointe Development, recently started construction on a 184-room resort-style condo hotel called Marina Village at Tarpon Point with two waterfront restaurants, 45,000 square feet of shops and offices, a spa and fitness center with a resort pool, and a deep-water marina with 175 slips for boats up to 75 feet long. Sales will start in January and the building will open in December 2009.
Hensley is building Marina Village in Cape Coral, where some economists say it could take as long as four years before all the inventory of homes that were built are absorbed by population growth. Permits for new construction have almost completely stopped.
But don't underestimate Hensley. He's certainly not crazy.
In June 2001, Hensley bought the Tarpon Point marina and 150 surrounding acres at the mouth of the Caloosahatchee River in Cape Coral for $29 million in cash from Allete Properties. Three months later, he sold 44 waterfront lots on the property for a total of $23.4 million.
"It was the start of the boom," Hensley remembers.
Subsequent residential and condo projects on the site were equally successful. "Timing always seemed to be on our side," Hensley says.
Hensley agrees there's little chance any lender would finance this project today. But he's well capitalized from earlier successes and has backing from a large Dutch real estate investment firm. "We're extremely well funded and we understand business cycles," he says.
The condo hotel was a particularly popular real estate deal with investors during the boom. A buyer purchases a condo within a hotel and then puts it into the hotel-rental program when he's away. The buyer then splits the condo's revenues with the hotel management company. Although an owner gets a deed to the condo, the appeal to investors is that it's located in a hotel resort and the hotel management takes care of cleaning, maintenance and rentals.
But investors have largely disappeared from the real estate market, spooked by declining values and abandoned by lenders. The days of "flipping" property by reselling homes quickly for a profit are long gone.
Hensley says there is a deep pool of second-home buyers who want to live in Southwest Florida but they are sitting on the fence because they don't want to overpay for real estate. He knows because he has 15,000 prospective buyers in his database who keep coming back and choose to remain on the list to receive promotional literature. "Traffic is down, but our Internet site is up 50%," he says.
Hensley is confident that buyers will return once the steady drumbeat of bad news about real estate subsides. He cites well-known statistics that 77 million baby boomers on the path to retirement control 70% of the wealth in this country. Many of them have been visiting Southwest Florida for years and dream of owning property here.
Hensley, who moved to Southwest Florida from Grosse Pointe, Mich., in 1980, has seen two real estate downturns. This one is different because it has the tailwinds of low interest rates, job creation and a relatively healthy national economy.
Hensley is quick to remind you that things looked bleaker after the terrorist attacks of Sept. 11, 2001 when Tarpon Point's sales center was deserted. "You could fire a cannon through our sales center in 2001," Hensley says.
Another plus for Hensley's condo hotel: There are just 394 hotel rooms in Cape Coral, a city with 161,000 residents. "And nothing on the water," he says. The poshest place is a Hampton Inn. Because there's so little competition, Hensley says he didn't need to sign an expensive deal with a hotel chain such as Marriott or Hyatt to flag it. A Fort Myers-based company that manages seven other local hotels, Sunstream Hotels & Resorts, will manage Marina Village.
What's more, the cost of construction has come down dramatically. When Hensley solicited bids for Marina Village 10 months ago, prices came in $12.5 million over budget. Prices came down so fast in subsequent months that the project will now come in $15 million under budget, reflecting the sudden downturn in commercial construction in Southwest Florida. BBL Florida is the contractor building Marina Village.
Still, Grosse Pointe has tweaked the sales pitch. Hensley will sell fractional ownership in the condo-hotel where buyers can buy one-twelfth of a condo. He says that will appeal to European buyers who prefer to spend a month in the U.S. but don't want to buy full ownership of a condo. Every year, for example, about 86,000 Germans visit Southwest Florida. The strong euro currency means their money can buy 50% more today than just a few years ago.
When is it going to be over?
The current state of affairs in real estate, Hensley says, is due to this: "We have to pay for violating the supply and demand rule."
It will take about two to three years for the supply of homes for sale to come into equilibrium with the demand for housing, he estimates. The condo hotel will open at about that time, in December 2009.
Once that balance returns to the market, there are other projects in the works: Tarpon View, which will consist of 464 condos in three 27-story buildings, and Tarpon Island, the crown jewel of the property that will feature 132 ultra-luxury condos in three mid-rise buildings.
Hensley can afford to wait.
He and his Dutch partner, Joop Koster, bought Tarpon Point in June 2001 for $29 million, which at the time was the highest price paid for land in Cape Coral. There was plenty of competition for the 150-acre parcel and marina, but Hensley had been tracking the property through the previous owner's rezoning process. He closed on the property in 45 days, beating out competitors who were scrambling for financing.
Hensley had met Koster by chance when he was developing another project nearby during the mid 1990s. Koster was a Dutch real estate developer who was scouting for opportunities in the U.S. and brought financing from Amsterdam-based Bouwfonds. "They're an equity partner in all our ventures," Hensley says.
After selling the 44 waterfront lots for $23.4 million within three months of closing on the property, Grosse Pointe started selling another project called Tarpon Gardens in February 2002. People camped out for two days to get a chance to buy one of 120 coach homes. Gross Pointe sold 90% of them in about five hours and grossed $48 million in sales.
Within six months, Gross Pointe had sold more property than it had paid for the entire 150 acres. Then, in January 2004, Gross Pointe sold all 210 condos in three buildings at Tarpon Landings for an average price of $1 million per unit. One of the buildings sold in just over two hours.
By the time Tarpon Landings was completed in August 2007, 30% of the condo buyers refused to close and walked away from their 20% deposits figuring the decline in value exceeded the deposit. Hensley marvels at how quickly these speculators left their $200,000 deposits. With that money, he says, "I can carry those units for three-and-a-half years."
Hensley says he can afford to wait for the eventual real estate recovery, which he estimates is two or three years away. Unlike so many homebuilders in Southwest Florida, you won't find any discounts for the condos at Tarpon Point. "I have a reputation for pricing my product fairly and I don't discount," he says.
What if the residential real estate market doesn't rebound as forecast? "If the market is not back in three years, we're all in trouble," he says.
Grosse Pointe in SW Florida
Grosse Pointe Development founder and CEO Robert Hensley has developed more than $1 billion worth of commercial and residential real estate in Southwest Florida since he moved here from Michigan in the early 1980s.
Besides Tarpon Point, the firm has developed condos at Palmas Del Sol in Gulf Harbour Yacht & Country Club in Fort Myers, homes at The Residences at Bell Tower Park in Fort Myers, and the master-planned residential and commercial development called Summerlake in Orange County.
Grosse Pointe also is co-owner and operator of Bonita Grand Aggregates, a 1,280-acre limestone rock mine in Bonita Springs that will eventually be developed into a gated residential community called The Lakes at Bonita Grande in 2015.
Company. Grosse Pointe Development Co.
Industry. Real estate development
Key. Well-capitalized developers will survive the current real estate downturn.