To get a sense of the real estate rebound in Naples, consider The Gables on 6th.
Adam Smith acquired land during the downturn with 30-year-old rundown apartments on it for $2.85 million and built seven single-family homes there. The average selling price: $2.2 million each. Now, only one home remains for sale at $2.7 million.
“We sold them in 12 months,” says Smith, principal with Naples Redevelopment Inc. “The market is phenomenal.”
Real estate observers who do business up and down the Gulf Coast say Naples came out stronger from the downturn. While many communities are just now starting to see a recovery in sales and pricing, Naples has recovered stronger and faster.
The market in the desirable Old Naples neighborhoods is now tight enough that builders such as Smith can make a handsome profit by building multimillion-dollar homes. “There's no inventory,” Smith says.
Buyers are executives and professionals seeking a second home in the area. “This is all cash buyers,” Smith says.
Because financing is still relatively difficult to obtain for real estate purchases, investors have largely stayed on the sidelines. “There's no flipping going on,” Smith. “It's not backed by funny money; that's the real difference.”
Smith has several other projects underway, including condos at 12th Avenue South near Third Street called the 382 Building. Another project is called Jumby Bay, and includes nine single-family homes on Sixth Street south of Central Avenue.
While Smith says he's getting multiple offers on the homes he's selling in Naples, he says there is a limit to what people will pay as memories of the recession linger. “We're still in the price range of $2 million to $2.4 million,” he says.
Smith says buyers who could afford a $5 million home now prefer to spend less than $3 million for a smaller home. For example, homes at The Gables range from 2,800 to 3,300 square feet. “I always thought there's a [price] limit to spec houses,” he says, citing $3 million as a threshold.
And buyers today want to see what they're buying, even from reputable builders. “We didn't sell anything until we had a model,” Smith says.
Certainly, Smith risked his own family's cash to buy property during the downturn. “People thought I was crazy at the time,” says the English native. But he figured he could recoup his investment because the land prices were low relative to home sales at the time and he arranged for a schedule of gradual purchases as he sold the homes.
Now, land prices have roared back in Old Naples. A prime lot that might have cost $800,000 a few years ago is now selling for $2 million. “Now it is getting risky,” Smith acknowledges.
So Smith is scouting sites for rental homes. The inventory is tight for those too, he says. For example, he's renting one townhome on 10th Avenue near the beach for $15,000 a month. “We're going after a different area of the market,” he says.
Smith is also developing commercial real estate as new restaurants and art galleries are seeking space to cater to the area's wealthy clientele. “We're getting calls for commercial,” he says.
He's developing a 30,000-square-foot center in three buildings on First Avenue North and U.S. 41 where rents are in the $30-per-square-foot range, net of expenses. “Commercial usually follows residential,” he says.
Once oversupplied with homes for sale, buyers may find that luxury homes are harder to find in Naples' upscale neighborhoods.
In July 2010, the beach areas of Naples that encompass three upscale zip codes had 771 single-family homes for sale. Last month, that inventory was down to 159 homes, according to data from the Naples Area Board of Realtors.
“All the trends would indicate that prices will continue to rise as long as we maintain the demand that we have,” says Coco Waldenmayer, managing broker for the Old Naples office of John R. Wood Realtors.
“You can see the demand exists,” says Cindy Carroll of Carroll & Carroll Appraisals in Naples. “Naples is the southernmost mainland beach; that drives the demand.”
Indeed, data from the Realtors association shows just five months of inventory in the Naples area based on the current sales pace. “If you have one year of inventory in any given neighborhood, then you have a balanced market,” Carroll says.
The tightening market is spurring homebuilding activity. “We have buyers that are purchasing tear-down homes and they're hiring a builder,” Waldenmayer says. “We now have to catch up with six or seven years of no building.”
Meanwhile, condo sales have picked up this year, too. There's some speculation that the lack of single-family homes is shifting sales to condos, but agents say buyers tend to prefer one or the other.
Homes that used to take 10 months to two years to sell in recent years are now spending fewer days on the market. “Today, those listings are turning and selling in four to six months,” says Judy Green, president and CEO of Premier Sotheby's International Realty in Naples.
Naples' residential real estate recovery occurred ahead of other communities on the Gulf Coast by a year or two, says Green, whose brokerage firm extends from Naples to Tampa. Sarasota is now catching up to Naples, she notes.
Now, commercial real estate is following the residential recovery, says Wes Kunkle, a commercial broker and president of Kunkle Realty. “Leasing has picked up in the last six to eight months,” he says.
Ground-level retail space on tony Fifth Avenue South in Naples ranges from $35 to $65 a square foot. If there's a vacancy on that street, the space is leased before it even hits the market, Kunkle says. “The commercial market is starting to come back,” he says.