Florida Housing Bad - Predicted to Get Worse

According to a widely watched index, Florida leads the nation in falling home prices. And if forecasts are correct, 2008 will be even worse.

The S&P/Case Shiller Home-Price Index released yesterday showed Florida home prices have declined 12.4% over the past 12 months - worse than any other state in the country. Meanwhile, the Housing Predictor website yesterday released its forecast for Florida, predicting that in Miami "as Housing Predictor forecast last year, the market is falling and has become the epicenter of America’s housing crisis. Values have fallen by as much as 40% already and more deflation is in store for the market."

Here is a chart of their Florida housing predictions for 2008:


So things look bleak for the Florida housing market overall. Unfortunately, the data does not show the Florida Keys.

If you want to get an idea of what your house is worth in Key West, take a look at comparables - sales that have recently occurred in your neighborhood.

Here are the sales over the last 4 weeks in Key West:

• 1116 Whitehead St - Single Family - Old Town - Price Per Sq Ft. $302.30
• 1501 Olivia St - Single Family - Old Town - Price Per Sq Ft. $411.52
• 1116 Elgin Ln - Single Family - Old Town - Price Per Sq Ft. $629.95
• 1402 Olivia St 1 - Condo/Townhouse - Old Town - Price Per Sq Ft. $325.00
• 3708 Duck Ave - Single Family - New Town - Price Per Sq Ft. $275.16
• 1326 10th St - Single Family - New Town - Price Per Sq Ft. $351.44
• 2401 Harris Ave - Single Family - New Town - Price Per Sq Ft. $321.77
• 800 Georgia St - Single Family - Meadows - Price Per Sq Ft. $445.28
• 3930 Roosevelt Blvd W311 - Condo/Townhouse - New Town - Price Per Sq Ft. $390.82
• 1437 12th St - Condo/Townhouse - New Town - Price Per Sq Ft. $227.22
• 1328 Seminary St A - Condo/Townhouse - New Town - Price Per Sq Ft. $358.02
• 2601 Roosevelt Blvd 207C - Condo Townhouse - New Town - Price Per Sq Ft. $290.82
• 1445 Roosevelt Blvd 411 - Condo/Townhouse (with Transient License) - New Town - Price Per Sq Ft. $593.09

Multiply your home's square footage with a comparable sale's "price per sq. ft." and you'll get some sense of its current value.

And if you are looking at buying, hopefully you'll get a sense of where fair value is.

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Is Upscale Tourism the Next Bubble to Burst?

Upscale Tourism. Seems everyone is debating it these days.

But Key Westers should be asking themselves if it is for real - or is it another speculative bubble, ready to burst?

To answer this question, take look at where this Upscale Tourism Bubble came from.

The Upscale Tourism Bubble was built atop the Real Estate Bubble. As Key West real estate turned to mania, it propped up the idea that everything in Key West is now upscale.

During the Key West real estate bubble, speculation ran wild. It appeared that everyone was flipping properties. Money was easy to get as lenders, realtors, and mortgage brokers handed loans to everyone. House prices jumped from $150,000 to $300,000 to $600,000 to $1,200,000 - all in the span of 8 years.

And it was precisely at this time that the notion of Key West tourism going upscale was born. Speculators thought to themselves, "Heck, if people would pay $1 million for a Conch shack, why not make them pay $300-$500 for a Key West hotel room?"

Developers and speculators, drunk on real-estate-bubble-profit dreams, thought everything was going upscale - and bought up hotels, motels, and other property - thinking they'll get a huge return on their investment.

No doubt, hotel room rates in Key West have increased significantly over the past few years. But this is mainly due to a decrease in the supply of hotel rooms. At least 800 rooms have been offline over the past two years - and the room rates show it.

But can Key West become "upscale tourism" while the housing bubble bursts?

The answer is likely to be no - since one bubble was built atop the other.

As the real estate bubble bursts, the Upscale Tourism Bubble will burst as well.

Fortunately, since empty hotel rooms are like empty "for-sale" houses, room rates will fall - especially from the lofty levels many developers have been throwing around.

So, get ready for the next crash. As the hotel rooms come back online, rates will fall. This may not happen immediately - since the Spottswoods are planning to tear down 500+ hotel rooms in their effort to create a major Upscale hotel/timeshare/condotel/whatever out of 5 of the last affordable hotels left on the island.

Unfortunately, the Mayor of Key West appears to be painting the community into a corner - betting the ranch on upscaling and ignoring the bulk of our visitors - a base which took decades to build.

He's hanging onto a sinking ship - called the SS Real Estate Bubble, and has tied the tourism industry, along with the livelihood of everyone in Key West, to it.

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Is the Mayor Listening?

Few stories have raised such suspicion and anger than Key West Mayor Morgan McPherson's surprise move to oust the head of the Tourist Development Council, Harold Wheeler.

Wheeler is nearly unanimously appreciated for the work he has done during his 12 years at the helm of the Florida Keys marketing arm. As a matter of fact, he recently received a glowing review and a pay raise in recognition of all the good he has done for the Florida Keys.

Every Chamber of Commerce and tourist organization in the Florida Keys has spoken out strongly in favor of Wheeler. At yesterday's meeting to decide the fate of Wheeler, over 120 community members and business leaders showed up and supported him. Fortunately, for now, Wheeler kept his job. But is in no ways safe. Mayor McPherson still seems intent on getting rid of the well-liked TDC head.

So why is the Mayor of Key West looking to fire him?

The answer is likely in the tug-of-war between real estate developers and speculators who want to "upscale" Key West and the tourism industry which is the main economic engine of the county.

McPherson has a background in real estate and seems to be firmly in the upscale developer camp. McPherson wants to spend less of the Tourist Development Council money on advertising and more on infrastructure. The mayor has been vague about what direction he would like to see the TDC head - and that is partly why the whole situation is so perplexing.

The developers have laid huge bets - building hundreds of million dollar condos , McMansions, condotels, and dockominiums that are having a difficult time selling since real estate values in the Keys are deteriorating. Developers have purchased many Key West hotels - converting them to either expensive condos or expensive hotel rooms. No doubt these developers are sweating.

In short, the real estate bubble nearly consumed much of the tourist industry in the Florida Keys. It has made housing unaffordable for workers necessary to the tourist industry, and diminished room supply resulting in greatly increased room rates - pricing out much of the Keys traditional visitor. If not for the bubble bursting, who knows how many more hotel rooms would be taken off the market (by the way, this year over 500 hotel rooms will go "off line" as the Spottswood developers plan to rebuild 5 hotels into an upscale condo/timeshare/hotel.)

This week's Sunday edition of the local paper had a front page story asking if the Keys will be "Key Fancy or Key Funky".

It looks like the mayor is aiming for one thing: Key Fancy. And now that he has been re-elected by a very slim majority, he is behaving as if public input doesn't much matter. Aside from his move to oust Wheeler, the Mayor also ignored public outcry to help save the funky Waterfront Market and was the sole "no vote" to extend the market's lease.

But a word of caution to the Mayor: Your bet on upscale development at the expense of tourism has a good chance of backfiring. The real estate bubble has burst, the economy is arguably in recession, and the State of Florida is in a fiscal crisis. Don't bet the farm on overpriced real estate while sacrificing the charm of Key West and the main economic engine: tourism. You may find that tourism is built for the long run while real estate bubbles only arrive once in a generation. And it is not just tourism that is at risk. The families of the island will find it more and more difficult to live here, raise families, and succeed if there is not industry for them.

The Florida Keys and Key West are not Nantucket - nor do most people want it to become Nantucket. If the Mayor would like to change the direction of the marketing plan for the Keys, then he should attend the meetings and work with the experts and public.

At the very least, the Mayor needs to listen to the people, respect and represent them.

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Newbie Flippers Sue Real Estate Infomercial Guru [VIDEO]

We've all seen them: get-rich-quick real estate programs hawked on television infomercials promising an easy road to wealth.
Typically, some "real estate guru" loosely explains how they made fortunes, and now offers the program for sale - all the while chanting "No Money Down!" and citing huge payoffs.
One such program, from Russ Whitney and the Whitney Information Networks, is being sued by people who took their "classes" and subsequently buried themselves in the real estate market.
Here is a video detailing one woman's allegations: that she spent $30,000 on classes with Russ Whitney (amazing by itself), and then developed a house allegedly at the suggestion of the Whitney organization and which has little chance of making money.

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Key West Videos

Dreaming of Key West? Maybe your margarita machine broke?
If so, here is a selection of entertaining videos, thanks to YouTube, that are related to Key West and the Florida Keys.

Watch the latest videos on YouTube.com

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No Sunshine For Florida Real Estate

Data released today confirms that Florida's real estate meltdown is worsening.

The number of homes sold in Florida in October dropped 29% compared to the same period last year.

The median sales price in October for existing Florida single-family homes dropped 8% compared to the same period last year

The number of condos sold in Florida in October dropped 20% compared to the same period last year.

The median sales price in October for Florida condos dropped 8% compared to the year ago period.

Nationally, the real estate picture is bleak - despite assurances from realtors. The US inventory of unsold homes continues to increase - making a turnaround unlikely any time soon. In October, total housing inventory in the US rose 1.9% - equal to 10.8 months supply at the current sales pace.

Meanwhile, Key West real estate continues to suffer as the number of unsold properties remains at near record levels. Adding to the worry is the large number of developments underway and, for the most part, unrecorded in the local MLS. Price reductions in the 100s of thousands of dollars are not uncommon. (The November 25, 2007 chart from Zillow, above, illustrates the current state of the Key West market.)

Nearby neighbor Miami has seen home prices has drop 10% over the last 12 months.

But have we seen the worst of it?

Probably not. And here is why:

1. Too much supply. As the basic law of supply and demand states: When supply is greater than demand, prices fall.


2. Homes are still overpriced. In Key West, many properties are still listed at over $1000 per square foot while the few that sell are going for far less (often under $500 per square foot).


3. Banks, mortgage companies, and financial institutions are rapidly bleeding money from bad loans on overinflated properties. If you are looking to purchase with credit: GOOD LUCK. And if you are a subprime borrower (or are an investor/flipper/speculator reliant on "liar loans"), sorry - that market has evaporated.


4. Foreclosures continue to climb. When a bank ends up with a property, it typically sells at a 30% loss. This pressures surrounding properties' prices downward.


5. Appraisers are coming under fire from banks (and municipalities) for allegedly overstating the value of property. Banks have suddenly become very skeptical of appraisers - and this may lead to the next leg down in real estate pricing


6. Developers keep building - further glutting the market with properties

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Here Comes the EXCLUSIVE Neighborhood?

Key West is traditionally regarded as very inclusive - welcoming all walks of life.

Residents mingle - unaware of income strata, occupation, accolades, and sexual preference.

And that is why it is so strange that the new, uber-wealthy McCondos and McMansions currently being built here in Key West are usually marketed as EXCLUSIVE.

The Associated Press released a story this week about this new phenomenon - which was published in USA Today and the Orlando Sentinel.

Meanwhile, Key West is dealing with falling real estate prices, foreclosures, and a glut of properties on the market. Yet the building of EXCLUSIVE developments seems unabated. Developers are like steamships - they take a long time to change direction or stop.

Hundreds of $1 million+ properties are being offered, including King's Pointe, Beachside, Casa Marina Residences, Parrot Bay, Harbor House, Steamplant, and Key West Harbor Yacht Clubs (though they do not appear in the local multiple listing service).

Usually, these properties are offered for a cost in excess of $1000 per square foot. Yes, you read that right. And some are offered as high as $1350 per square foot! And these are CONDOS - not spacious houses with land.

But if recent Key West sale prices are any indication, properties are typically selling for below $600 per square foot.

Meanwhile, our nearest big-city neighbor, Miami, is having a real estate meltdown. Predictions are that prices there may drop 20% over the next 12 months. And Florida will likely have a $2 Billion shortfall next year due to declining property tax receipts.

So one has to wonder, what is the future of these EXCLUSIVE McDevelopments? Will they make it? And what will the character of Key West look like?

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[PICS] Key West Powerboat Races

The Key West World Championship powerboat races are underway this week.

This is the WORLD championship - the Superbowl of offshore racing.

According to tour promoters, Key West is the favorite venue for offshore powerboat races - allowing fans to watch the races from shore, mingle with the drivers and check out the boats in the nearby pits, and enjoy typically calm racing conditions.

Spectators lined the Key West harbor - from Fort Zachary Taylor State Park to Mallory Square.

Below are photos from one heat of the races. (click on them to see larger versions)

Seeing boats enter the tranquil harbor at over 100 mph, followed by a swarm of helicopters, was stunning. Congratulations to the winners and all the participants. We may never get the Superbowl, but Key West is happy to crown a world champion.

Race fans watching the action from Mallory Square

Fountain Marine, always a leader, roaring by.

Powerboats racing by Sunset Key in Key West's harbor.

The start of a race - the big (and LOUD) boats head offshore.

Speeding by the Westin Resort (formerly the Hilton) at over 100 mph.

Power boat race in Key West underway.

Looking like a spaceship, this power boat is nearly as fast.

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Luxury Condo Towers Over Lazy Lane in Key West

Traveling down Lazy Lane yesterday, one couldn't help but notice the large construction development in progress. Known as Harbor House, this 32-unit luxury condominium is under construction and will likely change the character of the Key West Bight.

The developers website offers "special pre-construction pricing starting at $1,866,750". With units "ranging in size from 1,900 to more than 2,300 square feet", that translates to nearly $1000 per square foot.

This development caused quite a bit of anxiety among Old Town residents, who thought the initial plans for over 100 condo units was too dense (and tall) for the area. After a long battle, the 32-unit version became the final plan. And now, the construction is under way.

While riding down Lazy Lane, adjacent to the Schooner Wharf Bar ("The Last Little Piece of Old Key West") and home to little shacks housing cottage industries, one can't help but notice the two-and-a-half-story building practically touching the funky Lane.

Notice the photo attached to this blog post (click the photo to see a larger version).

Aren't there set-back requirements that restrict building so close to the property line - especially for a building that is nearly 35 feet tall?

Or does Harbor House own Lazy Lane?

Or was this a part of the development agreement?

Will there be any landscaping between Lazy Lane and this building?

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Fantasy Fest 2008 Theme Announced

The theme has been announced for next year's Fantasy Fest!

The 2008 theme is: Pirates, Pundits and Political Party Animals

(I can already hear the head shaking)

I get the part about politics, given that Fantasy Fest 2008 will be near election time.

But the pirate part looks to be more of a nod to the uber-sponsor Captain Morgan.

Creativity is what I applaud, and I hope that next year's crop of costumed partiers does more than simply paint granny's body.

Either way, its a fun time to be here, and I highly recommend you leave the kids and spend the week here on a wild Key West vacation.

What are your good costume ideas?

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Fantasy Fest 2007 Photos - Body Paint on Duval - Friday

Fantasy Fest 2007 is well under way and Key West is hopping with partiers, body paint, and sexy costumes. This year's Alice in Wonderland theme is revealing itself (pun intented) with fun body art and creative costumes.

Here are a few photos from the Friday Street Fair:

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A Tale of Two Cay Clubs

A previous post on the Key West Chronicle blog, titled Has Cay Clubs Bitten Off More Than It Can Chew, has received more comments than any other post (148 comments as of now, and growing).

The post was published 5 months ago and questioned if Cay Clubs had a sound plan.

Late last night, two anonymous comments were submitted. One comment was attributed to "Crystal" (Dave Clark's wife? mistress? good friend?). The other comment was written by a former employee of Cay Clubs. Although there is no way to determine who wrote and submitted the comments, both comments seemed heartfelt and had quite a bit of information.

In the interest of keeping you informed, these comments are reprinted below:

Anonymous commenter submitted:

Didn't you know, I am his mistress ;)
-Cristal
I haven't been here in quite a while, months actually, but it's nice to see both sides still interested in discussing these matters. I'm sorry for all the investors to be in the
position to be financially devastated. I hope Dave can keep it together- he's not giving up. The Berman group (another big developer in the Keys) just went bankrupt. The company building "Playa Cristal" on the old America Outdoors just died (47 yrs old) in his sleep (most likely from stress). All of the publicly traded development companies' stock just recently went to "junk status" (within the last couple of months). Times are definitely not good in this industry and market. All we can do is keep trying and plow ahead (with everything we can, for as long as we can). That's what I see Dave trying to do. He is all-consumed with keeping things moving forward. The bad press never helps and that was the main reason the merger didn't work out. That hurts everyone. But there are relationships in the works as we speak. The A&B deal has a substantial down payment that would be hard to lose- from many months past (maybe even a year, I'm not 100% certain). Closing on it and running it is a better plan, according to my information. I appreciate all the kind and gracious people in the Keys who have shown me, Dave, and our kids respect, whenever we are out in the community.
It helps me remember that there are truly good and decent people still out there, no matter how black our eyes get during this economic downturn/nightmare. Given this is such a small town, I expected people to treat us with a much different demeanor- given the layoffs, leaseback issues, etc. But they haven't. They usually say hello, ask how we're doing and wish us the best. They share stories of their friends and associates who face similar circumstances- tellus about their business downturns, etc. I feel really badly for our employees down here, holding their breaths, hoping for a better day- worried every morning whether or not they'll have their jobs. Several have been offered positions with the company taking over some of the projects down here- unfathomably, most declined. It's unreal how much loyalty and dedication these people generously devote. I really thank you all. Drs. Blumenthal, I'm sorry for whatever your situation has been. I know you've sold many properties with us (not sure if you bought?) No matter what, we will always admire and respect you (I think that's the neighbor blogger?)...Re-the blogger who mentioned the "83 houseboat"- it's actually a '72 houseboat. It's not very marketable, given most '72 houseboats can't be given away (it was given to us). I guess we should try to sell that, though- you're right. I'll work on that this week. Most of our time and energies lately have gone to holding things together and coming up with a more feasible gameplan for today's market. Again, I appreciate all the supportive comments and I sincerely apologize for any and all of the people who are disappointed and angered by the fall-out. You have every right to feel the way you do and to speak your minds. I wish there were more forecasts to share, but I think everything is continuously up in the air- each day's circumstances change- sometimes for the better, sometimes for the worse. So any news or forecasts we post or share, may change in a moments notice. I wish I could tell you more- I wish I knew more. I'm sorry.

Another anonymous commenter submitted:

I was an employee of cay clubs. I noticed alot of problems in the company that i heard many people try and bring to attention but were just ignored. cay clubs violated many rules including many FREC rules. there was alot of misrepresentation rumors about ricky long before the market turned so poorly and they were ignored. they allowed him to continue becasue his sales were so high.
but the bigger problem is whomever was in charge of finances. its was like no one in any of the companies (cay clubs was divided into like 50 different ones) knew what the other comapny was doing. we didnt even have a CFO until the ending days. and yes the director of flight operations and his assistant are still employed along with at least one pilot. and there still is a plane. even if we do not own the planes we just borrow someones elses for the day (which is still pricey). many people that worked there were underqualified. many departments were a complete joke. its not just the owners who are struggling. the employees were let go with no warning, no pay, no vacation pay, etc. the sales agents are still owed lots in commission. barry graham owns over 20 units of his own at cay clubs and he hasn't been paid commissions or leasebacks. hes owed millions. there had just been a sales meeting about a month before the first layoffs where everyone was told the company was doing great only to be let go without warning. talking about lack of communication the hardest part for the owners and employees alike has been the lack of communication. even within the company it was all rumors and hearsay because dave was not talking to anyone. even other partners and directors had no idea what was going on. some of the employees were taking angry calls and could do nothing to help because they didn't know what was even going on. no bulletins saying for example "hey we aren't paying rental money, so here's why and here's what to say". Nope they just had to take all the angry calls and make it that much worse because the employees didnt even know. still communication has been horrible with was is left of cay clubs. gary and david schwarz have resigned. ever wonder why neither schwarz brother invested in even one unit? and if i recall most daves units were in his dads or cristals names and i dont even know if any of them ever even closed. food for thought. barry hasnt been in the picture for a while. they owe him so much money id bet they are avoiding him all together. ive heard that cristal and dave may not even be married so that if anything did happen daves not screwed. the last parts a rumor but the rest is fact.
dave-i dont think you intentionally meant for all this to happen so all i have to say is better communication is key. and manuals are a state law people work better and tend to follow rules better if there are manuals. and dont try and say there are cause they were quickly created at the very end after everything started going down. there was no organization or structure in that company and because of that you have hurt ALOT of people. There was even an owner who commited suicide because of his financial struggles due to cay clubs. forclosures and bankruptcies are huge dave. marriages get ruinied people lose everything they worked for. so everyone thats saying you are crook i dont believe that to be the case, but you definately need some business management classes before you start up another one.

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Pet Halloween Costume Contest in Key West

The annual Pet Masquerade Contest was held at a waterfront Key West hotel last night as part of the weeklong Fantasy Fest celebration.

Once again, the event did not disappoint.

Many contestants signed up with their dogs, cats, and other pets dressed up in imaginative and funny costumes. Being Key West, there was a whole menagerie of animals: lizards, Key West chickens, and even a LIVE lobster!

Enjoy these photos from the event:

The skateboarding Uncle Sam dog...cool!

The Plaid Hatters take the stage.

A skunky dog costume - ay chihuahua!

Santa's little helper is a crowd favorite.

Pirate dog and owner strutting onstage.

Another Pirate duo - overlooking the Key West harbor.

Watch out geckos! You too GEICO!

Representing the Key West Naval Air Station.

Miss Muffet (with map since she lost her "whey") with spider dog.

Lobster costume with real lobster "pet". Is that melted butter in his pale?

The luck of the Irish...times two!

The Key West Chicken Lady, Kathy Sheehan, with a Key West rooster.

Two ballerinas ready to go onstage.

Florida Seminole football fans.

Always classy, the weimaraner shines in tuxedo.

Playing on the Alice and Wonderland theme of this years Fantasy Fest.

I hope the bigger dogs don't get any ideas.

Tiny chihuahua cowboy and partner.

Nice costumes! Who's the pet?

Have you ever dressed your pet in a costume? What did it look like?

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No Bottom Yet for Key West Real Estate

Strange. Today's Key West Citizen editorial, titled "A Keys buyer's market offers opportunities," read as if written by a real estate broker. The editorial makes a case for why it is now a good time to buy.

No doubt, the Keys are a wonderful place. But market indicators show that Key West real estate has further to fall before bottoming.

Like it or not, the Citizen's editorial staff may have recommended catching the proverbial falling knife. It may be one thing for the editors to look the other way while the real estate pros continue to publish an erroneous and misleading advertisement. But I found this use of the editorial space to be a disservice - mainly because it overlooking the apparent problems with the real estate market.

Supply continues to heavily outweigh demand. Before a bottom in the market is achieved, supply and demand will need to find equilibrium. Although the bear market is into its second year, the technical indicators have not improved. In fact, they have deteriorated.
The number of properties for sale in Key West for the first three quarters of this year continued to swell higher.
Meanwhile, total sales, value of sales, and average sales price continued to fall. Further compounding the bear market in real estate, average days on the market swelled higher.
According to data recently published for residential Key West real estate, comparing the first 3/4 of 2006 versus 2007:

• total sales were down 0.5% to 366


• dollar value of sales dropped 15% to $305 million


• average sales price dropped 14% to $833,000


• average days on the market grew 29% to 174 days


• average list price was down 7% to $991,000


• the number of properties for sale increased 9% to 1394

Meanwhile, the demand side of the equation has been hobbled. Lenders have shut off the free flow of money, regulators are looking at legislation to further reign in the market, home prices are still very high, and taxes and hurricane insurance continue their burden.
We have likely not seen the bottom of the real estate market here. The Zillow chart attached to this post shows the Market Value change for Key West over the past 10 years. (Notice, on the chart, that a double bottom is trying to hold (the right side of the chart). But given the supply/demand numbers, prices are likely to continue to fall - thereby breaking the double bottom. When this happens, it is often referred to as the "other shoe dropping".)

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Cay Clubs Merger Terminated

It is now official.

The merger of Cay Clubs with Keys Hospitality Acquisition Corp has been terminated.

As a result, Cay Clubs may have extreme difficulty in avoiding bankruptcy - given they are already late on payments and near default on large loans.

According to filings with the Securities and Exchange Commission (SEC), the merger was terminated because of "The deterioration of Cay Clubs' market in Florida, the liquidity problems it is facing and the recent unavailability of jumbo mortgages for potential condo-hotel buyers have made it highly unlikely that certain closing conditions contained in the agreement could be met."

Cay Clubs is among the largest developers in the Florida Keys - having bought numerous properties at the peak of the real estate market.

Should Cay Clubs become enter bankruptcy, the implications for the Florida Keys could be significant.

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Sun Setting for Cay Clubs?

The future of Cay Clubs looks dependent upon the successful merger with Keys Hospitality Acquisition Corp - a shell company formed to acquire other businesses.

Shareholders of Keys Hospitality Acquisition will soon vote on whether to acquire Cay Clubs.

The merger has significant risks. Filings with the SEC detail those risk factors. These will be distributed to the voting shareholders. According to the filings, if 20% of IPO shareholders vote against the merger, the deal will not happen.

Cay Clubs is clearly in trouble - despite layoffs, cancelled fishing tournaments, and backing out of other deals. Currently, Cay Clubs is past due on payments - while much more coming due.

According to filings with Security and Exchange commission, "At March 31, 2007, Cay Clubs had approximately $91 million in long-term indebtedness, of which approximately $73.8 million matures within one year and the remainder matures within three years. Cay Clubs is presently past due on $1.0 million in payments on $54.3 million in underlying indebtedness, of which approximately $9.2 million has been declared in default by the lender."

Below are some of the most notable risk factors detailed in the SEC filing:

• Inability to renew or refinance indebtedness as it matures and to remedy a default and repay past due amounts on existing indebtedness could cause Cay Clubs to surrender the related asset and adversely impact its ability to continue executing its business plan.
• Cay Clubs’ inability to pay its property management and/or lease payments to previous buyers has impacted Cay Clubs’ credibility in the market.
• Cay Clubs is subject to the risks of the real estate market and the risks associated with real estate ownership and development, including the risks and uncertainties relating to the cost and availability of construction materials, services and land for new properties.
• Although Cay Clubs owns certain of its condominium resort facilities, certain properties are actually owned by Sunvest Communities U.S.A. L.C. or its affiliates and therefore Cay Clubs is forced to rely upon Sunvest or its affiliates in order to properly execute its business plan with respect to such properties, and if such business plan is unable to be properly executed, Cay Clubs’ revenues and earnings will be reduced.
• If Cay Clubs’ relationship with IMG Academies is terminated, then such event could prevent Cay Clubs from executing all or a portion of its existing business plan and therefore significantly reduce Cay Clubs’ revenues and earnings.
• Cay Clubs is vulnerable to the risk of unfavorable weather conditions and continued inclement weather could reduce Cay Clubs’ revenues and earnings.
• Cay Clubs faces significant competition.
• Cay Clubs’ future growth requires additional capital whose availability is not assured.
• Because Cay Clubs’ business depends on the acquisition of new land, the unavailability of desirable land could reduce Cay Clubs’ revenues or negatively affect its results of operations.

Amazingly, the board of directors of Keys Hospitality Acquisition "determined unanimously that the merger proposal is fair to, and in the best interests of, Key and its stockholders.

According to the filing:

"directors determined the fair market value of Cay Clubs by analyzing the value of each of Cay Clubs’ properties in the following manner: (i) valued the unsold condo-hotel units based on past sales of units at the property and in comparable Cay Clubs properties; (ii) valued the unsold wet and dry boat slips based on market comparables; (iii) valued any amenities, extra land or development rights in the property based on the price a developer would pay for the land in order to achieve a reasonable profit margin; and (iv) valued the potential cash flow from hotel/resort operation by using a multiple of eight times cash flow (derived from Cay Clubs’ financials and projections for the particular property). For each Cay Clubs’ property, an asset value was reached by adding the four sources of value described above (if applicable) and any debt associated with the property was subtracted from such amount to arrive at an equity value for each property. The board did not apply any discounts for time value of money or risks. These equity values for all of the Cay Clubs’ properties were then aggregated to yield a total equity number significantly in excess of the initial consideration to be paid to Cay Clubs’ members in the merger. In addition, Key’s board also reviewed projected sales and earnings that can be generated by Cay Clubs and compared these to public companies operating
in segments similar to Cay Clubs. Accordingly, Key’s board has unanimously approved and declared advisable the merger and unanimously recommends that you vote or instruct your vote to be cast “FOR” the approval of the merger proposal."

Notice part "(i) valued the unsold condo-hotel units based on past sales of units at the property and in comparable Cay Clubs properties."

This alone is a red flag and means that Keys Hospitality is not pricing the condo units based on post-crash prices, but on prices it received in the past.

Given the monumental crash in the South Florida condo market, Keys Hospitality Acquisition Corp. shareholders might want to do their own evaluation of the value of the Cay Clubs assets.

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Diesel Fumes and Your Heart

Occasionally, sad news is reported that a scuba diver has died - most often from an apparent heart attack.
And most people assume that the cause was an unfit diver suddenly exerting too much energy.

But a study published this week may point to another contributor to the problem.

According to a study by the University of Edinburgh, diesel exhaust can change the heart's electrical activity. The study looked at air pollution and its effect on physiology of the heart.

I bring this up since most dive boats have diesel engines, and breathing some of the exhaust fumes is often unavoidable. Could there be a link between dive deaths and diesel exhaust? Should those at risk avoid breathing those fumes?

Here is a reprint of that story to help you decide:

A study by the University of Edinburgh and Umeå University measured the effects of diesel exhaust on heart and blood vessel function in men who have previously experienced a heart attack.

The research, funded by the British Heart Foundation and published in the New England Journal of Medicine, found that inhalation of diesel exhaust caused changes in the heart's electrical activity, suggesting that air pollution reduces the amount of oxygen available to the heart during exercise.

Dr Nicholas Mills, of the University's Centre for Cardiovascular Sciences, said: "This study provides an explanation for why patients with heart disease are more likely to be admitted to hospital on days in which air pollution levels are increased. Most people tend to think of air pollution as having effects on the lungs but, as this study shows, it can also have a major impact on how our heart functions."

Twenty men who had suffered a previous heart attack were carefully screened to ensure they did not suffer from angina or heart rhythm problems and that their heart condition was stable and appropriately treated. The men were exposed for one hour to either filtered air or dilute diesel exhaust while intermittently riding a stationary bicycle in a carefully monitored exposure chamber in Umeå University. Heart function was monitored continuously and blood tests taken six hours after leaving the chamber.

Electrical monitoring of the heart showed that inhalation of diesel exhaust caused a three-fold increase in the stress of the heart during exercise. In addition, the body's ability to release a "guardian" protein known as t-PA (tissue plasminogen activator), which can prevent blood clots from forming, was also reduced by more than one third following exposure. The link between air pollution and heart disease is strongest for the fine exhaust particles produced by road traffic.

Researchers are particularly interested in diesel engines because they generate 10-100 times more pollutant particles than petrol engines. The number of diesel-powered automobiles is increasing in Europe and other parts of the world. "Diesel exhaust consists of a complex mixture of particles and gases. Before we can recommend the widespread use of particle traps in diesel engines, we need to show that particles are the responsible component," Dr Mills said. "If we do that, then it is likely that devices to filter particles from exhaust, will reduce exposure and benefit public health."

Professor Peter Weissberg, Medical Director of the British Heart Foundation (BHF), said: "There is already evidence that air pollution can make existing heart conditions worse. This research is helping us work out why. It shows that in patients with coronary heart disease, diesel exhaust can reduce the amount of oxygen available to the heart during exercise, which may increase the risk of a heart attack.

"Because of the overwhelming benefits of exercise on heart health, we would still encourage heart patients to exercise regularly, but preferably not when there is a lot of local traffic around. Heart patients can look out for pollution levels on their local weather forecasts."

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Waterfront Market To Stay Open?

News of the Waterfront Market closing has shocked most people in Key West.

Restaurants are stunned. Residents are in mourning.

I heard rumors that Buco was throwing in the towel two weeks ago after the last Bight Board meeting. I didn't want to believe it, and I didn't want to spread the rumor. If it were true, it was bad news. But if I was wrong, it would be an awful false rumor to spread.

Now that the news is out (and I won't be the shot messenger) let me offer some hope.

Key West Chronicle has learned that a "white knight" has stepped forward and may purchase the Waterfront Market from Buco and continue its operation. Also, employees have been instructed to no longer tell people that the market is closing at the end of September.

And this makes all the sense in the world. The business is a valuable business - and Buco would be far better off selling it than simply closing its doors.

Lets hope so.

But none of this diminishes the poor sighted city plan to get every last dollar from their tenants. I have said it before on this blog: The best tenant is not necessarily the highest paying tenant.

What the city is missing in its oversimplified method of looking at tenants is the value of GOODWILL - an intangible asset. (Goodwill is a term used to reflect the fact that an ongoing business had some "intrinsic value" beyond its assets, such as the reputation the firm enjoyed with its clients, community, and customers.)

Though the Waterfront/Buco situation is more complex than has been reported (and I won't go into any further detail), the City is foolishly squandering the quality of life enjoyed by its residents - all for a few dollars more, while ignoring the value of the Waterfront Market's goodwill.

Remember, the search for a highest-paying tenant usually takes months and months. And when finally found, that tenant is unproven - and with the enormous rent, possibly unstable.

The best tenant is the tenant that adds value to the community, is viable over the long run, and is a respectable partner. That is the definition of the Waterfront Market and Buco.

Above all, best wishes and high praises to Buco. You are the best.

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Record Foreclosures in Key West & Florida Keys

The number of defendants for foreclosure filings in both Key West and Monroe County (all of the Florida Keys) has hit an all-time high, according to the Monroe County Clerk of the Courts website.

Key West Chronicle searched the County Clerk’s website for foreclosure filings since 1989 for Key West and Monroe County.

Those searches reveal that the number of defendants in foreclosure filings for this year has shattered the all-time highs and is already 50% above last year’s record numbers.

Keep in mind these numbers show the number of defendants in these cases, and therefore overstate the number of actual properties since many properties have multiple owners/defendants. Also, many of the foreclosure filings are for timeshares – which begs the question: “Is there something wrong with buying a timeshare in Key West?” – but that topic may be for a future post.

Still, this is a useful view of the condition of the real estate market in the Florida Keys.

Year	“Foreclosure” defendants, Key West	“Foreclosure” defendants, Monroe County
2007 (so far)	1467	2000
2006	855	1305
2005	317	617
2004	271	587
2003	454	883
2002	568	1202
2001	512	1018
2000	450	870
1999	324	693
1998	373	723
1997	549	865
1996	170	310
1995	72	117
1994	16	64
1993	0	7
1992	3	5
1991	0	1
1990	0	0
1989	0	1

Some have lately blamed the press, media, and blogs like this for contributing to the demise of the real estate market.

Instead, they should blame:

1. Lenders – who lost all sense of reason while lending money with no equity and questionable credentials
2. Developers – as they overbuilt like mad, responding to a temporary surge in demand from the loose lenders (and who also continue to overbuild – I mean, who on earth is going to buy these ridiculously expensive projects like Harbor House, Steam Plant, Casa Marina Club, Cay Clubs, King’s Pointe, Parrot Singh ;-D, Swift’s Stuff, the Spottswood Hotelzone, or the countless other developments? And yet they keep building – further flooding the market with property for sale
3. Realtors – who were there throwing gas on the fire, convincing the public that they couldn’t lose
4. and Flippers - who saw the dollars and sucked up every crumb left over.

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Photos: Gloria Estefan Free Concert in Key West

Gloria Estefan treated Key West to a free concert as part of a television production for the Univision Network.
The grammy award winning singer sang on the waterfront of a local Key West hotel. Key West is closest point in the United States to her homeland of Cuba.
The concert was part of the debut of Gloria Estefan's new album "90 Millas" - a reference to Key West's nearby island neighbor.
She was backed by her impressive band - with a stage full of percussion - congas, bongos, timbales, and more.
It was a treat to see her, listen to her magnificent, and appreciate the beauty that is inherent in Cuban culture.
THANK YOU GLORIA!!! MUY BIEN!!!!
Here are photos from the event:

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