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Recovery 2010
A few developers are forging ahead with plans for new residential communities on the Gulf Coast. They're counting on a rebound they say will begin to take hold in 2010.
HOMEBUILDING by Jean Gruss | Editor/Lee-Collier
Scratch 2009.
The year that developers once thought would be the turning point for the new-home market on the Gulf Coast has been pushed into to the next decade.
But that doesn't mean development and homebuilding have come to a complete stop. Fact is, it takes years to obtain the necessary permits to begin building new residential communities and developers are counting on the market to rebound when that happens.
A few examples: Newland Communities is developing the 6,400-home Waterset community in south Hillsborough County, Kitson Partners is moving ahead with plans for the 25,770-home Babcock Ranch development in Charlotte County and Bonita Bay Group is planning the 2,500-home North River Village in Lee County. In Collier County, Stock Development even plans to build speculative homes and is confident it can sell them during this winter season.
"You absolutely want to be catching it as you're coming out of a downturn," says Syd Kitson, chief executive officer of Kitson & Partners. He expects 2010 will be the bottom for development and homebuilding and a 2011 for a more normal market. But he's not alone in repeating a familiar refrain: "I don't think anyone really knows."
Whether 2010 will be the turnaround year or not, investors are banking on Florida's eventual recovery. Chicago-based private equity firm Evergreen Real Estate Partners recently committed $750 million for Kitson to acquire residential and retail developments in Florida. With leverage, Evergreen and Kitson could have more than $1 billion to invest. "It's great to have that kind of money available in a time like this," Kitson says. "We really believe in Florida."
Everyone agrees two things need to happen for the market to recover: demand for new homes needs to increase and the oversupply of current homes needs to shrink. Until this happens, homebuilding will remain soft.
At the current pace of sales, the supply of finished vacant homes is still higher than the two months considered normal. It's four months in the Tampa and Sarasota areas and 3.4 months in the Lee and Collier areas, according to housing tracker Metrostudy.
Meanwhile, there's an even bigger supply of vacant developed lots. In the Tampa area, there's a 66-month supply. In Manatee, it's 77 months. In Sarasota it's 73 months and in Collier, it's 58 months. In some areas, the supply is even greater. In Lee, there's a 10-year supply of lots and in Charlotte County there's 55 years' worth, according to Metrostudy's calculations.
"Anything a developer starts now has to be unique," says Bradley Hunter, who directs Metrostudy's operations in Southwest Florida.
Many signs on the Gulf Coast are pointing in the wrong direction. Job losses, foreclosures and a vast supply of existing homes for sale conspire to slow any recovery in new-home building. The second-home market could remain in a slump as long as the stock market continues its decline.
But there are glimpses of improvement that give credence to a recovery in 2010. People moving into new homes have exceeded housing starts for the last six quarters in Lee and Collier counties. In the Tampa Bay area, the three-month period ending in June was the fifth quarter that the supply of finished vacant inventory dropped and in the Sarasota-Bradenton area it was the sixth, according to Metrostudy.
"The market's not dead," says Marvin Rose, publisher of Rose Residential Reports in Tarpon Springs who has tracked housing markets in the Tampa area since 1979. "It has a pulse and people are still making sales."
Focus on 2010
Developers and industry observers on the Gulf Coast generally agree that inventory of both existing and new homes needs to decline in 2009 before a recovery can occur in 2010. "We still have a huge amount of foreclosures and that puts pressure on the inventory," says Michael Timmerman, senior associate with Fishkind & Associates in Naples.
"There is an oversupply of lots in the Tampa market," acknowledges Rick Harcrow, Newland's senior vice president of operations. He says there are 30,000 finished lots in the Tampa market now. Newland is the developer of Fishhawk Ranch, a residential development in east Hillsborough County. Still, the company is clearing land now in the southern part of the county for Waterset, banking on employment in two new commercial parks and a hospital planned nearby.
"These are very, very difficult times. That's clear for everyone who lives in Florida," says Kitson, whose firm is developing Babcock Ranch in Charlotte County with Morgan Stanley. Babcock Ranch will begin sales in 2011 and Kitson says "the timing could be good."
Developers typically sell lots to builders, but sales will remain slow as long as the existing inventory remains high. Financing for builders to build lots has dried up too. "We sold a lot of land before things got bad," says Kitty Green, president and chief executive officer of Bonita Bay Group in Bonita Springs. "The one deal we're working on right now, [the builder] is coming up with the money himself," she says.
WCI Communities' bankruptcy reorganization filing last month hasn't helped. The Bonita Springs-based developer has enough land primarily in Florida to build another 18,500 homes. Green says she's not sure the bankruptcy of Bonita Bay's major competitor will help her company's sales. "I think it makes everybody nervous," Green says.
Meanwhile, Bonita Bay's plans to develop inland communities in Hendry County east of Fort Myers have been pushed back. "If the market comes back in 2010, we're thinking 2015 for Hendry," she says.
But Bonita Bay Group is forging ahead with planning for North River Village nestled in a bend of the Caloosahatchee River north of Fort Myers. "This is the best time to proceed with entitlements," says Green. When the market turns, the company will be ready to sell lots to builders.
Sales pace picks up
So far, home sales in many communities have increased over last year as builders reduced prices by 25% or more. "We're trudging through the inventory," says Milt Flinn, president of LWR Communities, developer of Lakewood Ranch in Manatee County.
Lakewood Ranch had 634 homes on the market in February 2007 and that's now down to 362. "We've made some good progress," Flinn says. "We're absorbing 20 to 30 per month. Slowly we're getting closer and closer to equilibrium," he says.
Stock Development sold 212 homes at Lely Resort in Naples for all 2007 and so far this year it has sold 190 even as home prices at Lely have risen 10% since last year. "From our company's standpoint, we'll exceed our sales forecast for the year," says Brian Stock, chief executive officer of Stock Development.
Stock is so confident the upcoming winter selling season will be better than last year that 70 speculative homes will be built at Lely and Paseo, a new community in Fort Myers. "We're building inventory because we feel customers are going to react," he says.
Most agree that Collier County is better off than other areas of the Gulf Coast because there was less speculative development there than other areas. The number of sales at Bonita Bay Group's five communities during the winter season was double the same period in 2007, Green says. So far this year, for example, 13 model homes worth a total of $30 million sold at Bonita Bay Group's Mediterra community in Naples this year.
At Fishhawk Ranch in east Hillsborough, builders sold 130 homes so far this year. "We only did 106 total last year," says Harcrow. "We're on track for a 200-unit year." Granted, the company sold 400 to 500 homes a year during the boom, but the direction of sales is pointing back up. "The area builders have done a good job of working through the excess inventory," he says.
"The pricing has leveled off," says Fishkind's Timmerman. "Now it's a matter of increasing the sales to burn through the inventory."
While the supply is dwindling because builders have cut back, there are concerns that demand for new homes will continue to improve. Green says one of the biggest determinants of second-home demand is the stock market. When the stock market does well, buyers feel more confident about purchasing a second home in Bonita Bay Group communities. When the market falls as it has lately, buyers are more hesitant.
Meanwhile, job losses make first-home buyers skittish too. For the 12 months ending in June, the Tampa area lost 23,100 jobs, Metrostudy reports for example.
There's concern that resales and foreclosures of existing homes may keep a lid on new-home sales as buyers seek out bargains.
Still, most observers say there's enough pent-up demand from buyers who are waiting for prices to fall further, the presidential election to be over and the financial markets to stabilizes.
Once they start buying, the remaining inventory will be consumed faster. "It won't take much of an increase in demand to shrink that real fast," says Rose. Then developers worry that builders will have cut their operations so much that they won't be able to ramp up fast enough. But then that will be a nice problem to have.
REVIEW SUMMARY
Industry. Homebuilding
Trend. Developers are planning for a homebuilding rebound in 2010.
Key. The supply of existing homes needs to drop significantly before new construction can begin again.
BY THE NUMBERS
Where's the activity?
Here are the Gulf Coast's top communities in each area, ranked by annual new-home starts ending June 2008, according to Metrostudy.
Tampa area
Community Annual starts ending June 2008
South Fork (Hillsborough) 142
Meadow Pointe (Pasco) 134
Fishhawk Ranch (Hillsborough) 133
Cypress Creek (Hillsborough) 124
Watersedge (Pasco) 119
Asbel Estates (Hillsborough) 118
K-Bar Ranch (Hillsborough) 105
Trillium (Hernando) 102
Oak Creek (Hillsborough) 92
Panther Trace (Hillsborough) 89
Sarasota-Bradenton area
Community Annual starts ending June 2008
Rotonda (Charlotte) 151
Heritage Harbour (Manatee) 141
Harrison Ranch (Manatee) 129
Stoneybrook at Venice (Sarasota) 121
Burnt Store (Charlotte) 113
Copperstone (Manatee) 79
Pennington Place (Sarasota) 77
The Country Club (Manatee) 67
Venetian Golf & River Club (Sarasota) 60
Palmer Ranch (Sarasota) 53
Lee and Collier area
Community Annual starts ending June 2008
Ave Maria (Collier) 197
Tuscany Cove (Collier) 141
Bella Terra (Lee) 100
Madison Park (Collier) 87
Verona Walk (Collier) 73
Lely Resort (Collier) 63
Port of the Islands (Collier) 57
Villagewalk Bonita (Lee) 52
Vistas at Heritage Bay (Collier) 46
Bayshore Commons Townhomes (Lee) 42
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