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  • | 10:30 p.m. August 25, 2011
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REVIEW SUMMARY
Industry. Real estate
Trend. Residential land transactions
Key. Developers are seeing increased demand and dwindling supply for residential land.

Could the new-home market in the Fort Myers and Naples areas be poised for a recovery?

Recent land sales to developers suggest the worst may be behind us, says Randy Thibaut, president and CEO of Land Solutions, a brokerage firm in Fort Myers.

To be sure, the land sales that have occurred have been for deeply discounted prices. But even at distressed levels, the sales reflect developers' growing perception that supply of well-located lots in desirable subdivisions is shrinking and demand is growing.

According to market tracker Metrostudy, there is a 2.1-month supply of finished vacant homes in subdivisions in Lee County, within the range of a healthy market. In fact, the supply is the lowest since the first quarter of 2006.

In Collier County, the supply is 2.7 months. That's also the lowest since the first quarter of 2006, Metrostudy reports.

New-home sales in well-established developments improved this year over 2010. For example, Naples-based Stock Development sold 200 new homes in the first seven months of this year compared with 143 in the same period in 2010, a nearly 40% increase.

Rivals will be watching closely how developers and builders fare this winter. “This season is where the rubber will meet the road,” says Thibaut. “Now you've got to sell homes and permits.”

First movers
Recent land transactions have occurred despite the lack of traditional bank financing. Commercial banks, many of them beset by problem loans from the bust and cramped by regulators, aren't willing to finance residential development projects even at current low land prices.

Meanwhile, hedge funds seeking 20% annualized returns or better may be disappointed if the market doesn't recover meaningfully. And many sellers remain confident that the market will rebound and they're holding out for better prices.

Complicating deals is the bond market. Many developers financed costly infrastructure such as roads and sewer using community development district bonds, which they sold to investors scattered all over the world. Negotiating with bondholders and persuading them to take losses is no small feat.

Still, some groups have been successful making deals. For example, Naples-based Ronto Group, backed by New York City real estate investment firm Angelo, Gordon & Co., made two large acquisitions recently. For example, it bought the 1,115-acre TwinEagles development on Immokalee Road in Naples from Bonita Bay Group for $11 million and is spending another $5 million on amenities. “We're hoping to go into next season with about 10 furnished models,” says Anthony Solomon, who manages the family-owned company with his father, Jack Solomon.

Further north, on the Lee-Collier border, Ronto acquired 690 acres on Bonita Beach Road east of Interstate 75 for $18 million where it plans to develop a golf-course community. “The thinking behind that is we see builders and developers having success in the North Naples market with the bundled golf course,” says Solomon. Golf course communities are “bundled” when all homebuyers buy into the golf amenities as part of their home purchase, spreading the cost over a larger base.

“We think we made a good land buy,” says Solomon, who hopes to break ground on the yet-unnamed community next year. “We have the right basis.”

Scouting deals
Two other significant deals include Lennar's acquisition of Treviso Bay in Naples via a note sale and Toll Brothers' acquisition of 122 acres in South Lee County for $7 million. “It's going to be difficult to compete with that,” says Thibaut. “The good stuff's been creamed off.”

Meanwhile, Kitson & Partners acquired Tuscany Reserve, a 450-acre parcel of residential land on Livingston Road in North Naples for $31 million. “Fundamentally, not only do we think the market will strengthen over time, there's also going to be a lack of good, well-located home sites in the Naples market,” says Syd Kitson, chairman and CEO of Kitson & Partners, based in Palm Beach Gardens.

Kitson is scouting other deals, but he says sellers continue to be reluctant to sell in a down market. Because of the losses they'd likely sustain, lenders aren't pressuring quick sales either. “CDD debt absolutely complicates it,” says Kitson.

“You know what resolves all?” Thibaut asks. “New home sales.”

This year, Thibaut estimates builders will pull about 3,500 permits for new homes in the three-county area of Charlotte, Collier and Lee counties. “We're far from where we were in 2000,” Thibaut says, when builders pulled 10,000 permits for new homes. During the boom in 2005, builders pulled about 40,000 permits.

Barring an unforeseen calamity, many signs are pointing to improvement. Air traffic through Southwest Florida International Airport has picked up, hotel rooms are filling up, foreclosures are dropping and population growth is rebounding. “We're going to get there,” says Thibaut.

 

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