Saturday, December 30, 2006

Condotels Becoming Condo-No-Sells?

It's old news that Key West's real estate market has a glut of properties available for sale. Maybe most notable is the huge number of condominiums that are available while even more are currently being developed. Many of these developments are hotels converting into million dollar "condotels".

The question everyone should be asking is: "Will they sell?"

If Miami is any indication, the Key West condo craze may be in serious trouble.
Miami is Key West's closest South Florida major city. There, the condo craze of the past few years is going from boom to bust.

As condo prices in Miami went through the roof over the past few year with wild speculation and flipping, developers responded by planning thousands of new condominiums. Much of that demand and speculation was driven by record low interest rates. Now, with rates higher, Miami is quickly realizing that many of those units don't have real buyers who actually want to occupy the pricey condos. As a result, many projects are unsold and quite a few are being scrapped.

According to Miami city officials, 15 condominium developments have been scrapped totalling nearly 2000 units. Still in construction is over 75,000 units among roughly 300 different condo projects.

This steep downturn in the condo market in Miami is showing up in their sales numbers. In October, sales of existing condos dropped 31% compared to the same month last year. Prices are also headed south, falling 2% that month.

Developers in Miami are likely to panic if things don't improve soon - which is unlikely. According to Lewis Goodkin, a Miami economist and real estate analyst, it may be 5-10 years before condo prices hit bottom and start to rise.

Should Key West be worried? Certainly if you bought a condo at the top of the market and were hoping to "flip it".

But there is probably a greater threat to Key West. Many of the condos being developed today are Key West hotels which have historically been a major part of our tourist economy. If these new condotels don't sell, will the Key West economy suffer? As a tourist based economy, it is hard enough on local businesses trying to survive with the current 700 rooms offline during their conversions/renovations.

Have the developers put us all at risk?
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Anonymous said...

One project that might be in some trouble is the conversion of the Holiday Inn by the Cow Key Channel Bridge. The Spottswoods are doing the conversion, which means the project is stable financially. But it's a very expensive project, I don't know how well they're selling, and I know one buyer who would like to back out of his deal because, at $1.5M, it's not looking quite as rosy as it died initially.

Some folks who are got in or are getting in a little too late are in some trouble.


Cayo Dave said...

The Spottswoods have bought up many other hotels on North Roosevelt Blvd. These represent much of the affordable hotels on the island. If the Spottswoods convert these to condos it have a profound effect for Key West tourism. First, the hotels will be offline. Second, theoretically they will become very expensive hotel rooms, which might price out our current visitor. If the market does not bear the much higher room rates, Key West tourism is in trouble.