- April 15, 2024
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REVIEW SUMMARY
Company. The Lutgert Cos.
Industry. Residential real estate
Key. Not all condo markets are the same.
This is a tale of two condo markets.
Just 30 miles separates Fort Myers and Bonita Springs, but they're two condo worlds apart.
A highly publicized auction of condos in downtown Fort Myers failed to meet the developer's expectations, suggesting that the condo market isn't anywhere near recovery.
Although the auction sales of the Oasis condos in Fort Myers haven't yet been recorded, a few sales leading up to the auction revealed investors paid as little as $175 per square foot for condos overlooking the Caloosahatchee River. That is far from the $300 break-even point it cost the developers to build the towers.
But Bonita Springs, a half-hour drive south on U.S. 41 from Fort Myers, could prove to be an entirely different market.
Todd Kendall, president of Strateca, a division of Naples-based The Lutgert Cos., is betting that limited supply and rising demand will sustain condo prices in the $450- to $500-per-square-foot range at a Bonita Springs tower called Tavira.
Judging by distressed sales in Fort Myers and glutted areas such as Orlando and Miami, a casual observer might overlook the fact that condos in certain pockets in Naples and Bonita Springs might be more robust. When the economy recovers, these pockets could be the first to see new development.
Property records show the few recent sales at Tavira have been over the $500-per-square-foot mark and Kendall points to multiple-listing-service data showing 252 condo sales in the Bonita Springs-Naples area over $750,000 through Nov. 20 of this year. In that same period, the average selling price per square foot was $489 for the area stretching from Bonita Springs to Naples in condos priced $750,000 or higher. By itself, the Naples luxury condo market commanded $590 per square foot.
While the data showing rising demand and limited supply may favor Kendall's outlook, he warns that developers and builders still face the same challenges that have bedeviled all Florida builders through the downturn. Consumers have retrenched, they're reluctant to buy real estate that may continue to decline in value and they're in no rush to buy.
Real estate investors will be watching closely to see how the Lutgert strategy plays out. Its success could embolden a market starved for good news.
Scratch 2009
Because condo towers take years to design and build, developers have to anticipate the market in advance. Lutgert had planned Tavira in 2006 in Bonita Bay, a 2,400-acre residential development started by General Nutrition Corp. founder David Shakarian in 1980. Shakarian's heirs, under the Bonita Bay Group company and its chairman, David Lucas, built out the development as the town of Bonita Springs grew from a sleepy fishing village to a new urban center.
The parcels of land with the most sweeping views of Estero Bay had been saved for last as the community neared build-out. In 2006, Lutgert drew up plans for Tavira, a stunning 26-story tower with just 90 condos, its sixth tower there.
Lutgert, which had developed the tony Park Shore stretch of luxurious condos in Naples, spared no expense for Tavira. Details ranged from gas fireplaces to private elevator entries, automated car rinses in the garage, summer kitchens on the terraces, climate-controlled storage areas and a 10-seat movie theater. The condos are spacious even by single-family-home standards, ranging from 3,517 to 4,428 square feet. Prices range from $1.5 million to $2.7 million.
But because of the long time it takes to design and build, the timing of Tavira's delivery fell victim to the market crash in 2009. What's more, the Bonita Bay Group's future was clouded by a run on memberships in its community club. Because members clamored for a return on their deposits, the club's uncertain future made sales all but impossible in 2009.
Marketing urgency
Lutgert's strategy for selling condos during this winter season could confirm a turn in the market.
As bad as 2009 was, the situation improved in 2010. For one thing, the stock market rebounded and helped investors recover some of the losses they suffered in the downturn. About 75% of Lutgert's condo buyers pay in cash.
Locally, the members of the Bonita Bay Club bought the club for $11.5 million in cash from developer Bonita Bay Group in March 2010. That removed the uncertainty over the future of the development.
But buyers' perceptions of the market have changed because of the downturn. “They want to buy at the bottom of the market,” says Kendall. “No one wants to be first.”
What's more, uncertainty in the general economy has made buyers skittish. “The news has been repeatedly difficult,” Kendall says. “People are definitely going to downscale.”
The fact is builders can't sell based on recent sales and prices, even if the evidence clearly reveals limited supply and rising demand. Instead, the marketing now has to be subtler. For example, images of grandparents playing with their grandchildren in the sand or on the putting green suggest that time is fleeting. “The grandkids aren't going to be 7 [years old] forever,” Kendall explains.
To attract buyers, Lutgert quadrupled its marketing budget for Tavira. Although Kendall declines to say what that budget totals, he says 70% of the buyers come through real-estate brokers.
Another source of buyers could come from residents of the surrounding community. In fact, about 20% to 25% of buyers are somehow linked to Bonita Bay and its residents. “We invite everyone to a nice party,” Kendall says.
Lutgert also plans to boost advertising in glossy magazines locally and in the Wall Street Journal. Because 80% of new-home buyers research using the Internet, Kendall says electronic marketing has to be part of the plan, even at the luxury end of the market.
Reasons for optimism
Lutgert has to sell about 80 condos at Tavira, but Kendall says he's not banking on a surge of buyers to suddenly materialize. “If we do 35 sales, I'll be a happy man,” he says. “We need to capture 20% of the market.”
But peoples' choice of new condos is limited because of the lack of new construction since the downturn began in earnest in the fall of 2008. Kendall is certain of this: Buyers are there.
“There's an enormous amount of wealth in America,” he says.
Bonita Springs itself has changed. In the last five years, a new airport terminal opened, Florida Gulf Coast University's enrollment has surged beyond 10,000 students and two new malls were built. Both north-south arteries Interstate 75 and U.S. 41 were widened.
“This town looks a lot different than it did four or five years ago,” Kendall says.
While no one knows for sure when the economy will rebound, it could happen quickly. “When sales start happening, it will be a snowball effect,” Kendall says.
