Wednesday, May 07, 2008

No Big Mystery: Still $1000+ Per Sq. Foot & Still Not Selling

In January, the Key West Chronicle blog reported that the Harbor House luxury condominium project was not having much success finding buyers.

The local MLS, at that time, showed 29 of 32 units available and priced at approximately $1000+ per square foot.

Another post questioned if these projects were viable - asking "Will they make it?".

A regular and respected commenter erroneously computed the condo-tel investment potential when he wrote:

"It's my guess that most of these EXCLUSIVE properties have a large exclusivity premium built in and that even if it's necessary to reduce selling prices by 20% (or throw in incentives), there's still a substantial profit in these units, most of which, after all, include a transient rental license that can help to pay the mortgage. The developers talk about these as $500 a night and more rentals. I'll do the math: $500 per night at 80% occupancy = 292 days X $500 = $1,460,000. Take away another 20% for management fees and condominium charges, that leaves a paltry $1,168,000 to cover mortgage and taxes."

The correct math, using his assumptions, would be 292 days x $500 = $146,000. Taking away another 20% for mgmt. fees and condo charges leaves $116,800.

However, Key West hotels are at $500 per night only a few weeks of the year. For the rest of the year, these condos will likely rent for much less. If you hope to hit 80% occupancy, the average rate may be closer to $300 or less. Also, the income a buyer would receive is TAXABLE income - so take another 25% off for that.

Here is the correct math: 292 (80% occupancy) x $300 (per night average) = $87,600. Take away a 20% mgmt/condo fee = $70,080. And remove the 25% taxes = $52,560 in income. That equals $4380 per month - less than half what a mortgage will cost, at 6% with 20% down, on the least expensive unit in the MLS.

And this is if everything goes "right".

Today, over 4 months later - and beyond the traditional real estate selling season - there are still 29 of 32 units available and "active" on the MLS. Amazingly, the prices listed are still stratospheric: $1,965,000 to $3,120,000. The developer, Keys Caribbean, is offering a "Special pre-construction pricing starting at $1,710,000" on their website.

The developer has built a model home that towers over Lazy Way Lane and plans to build more as buyers come forward.

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9 comments:

Anonymous said...

No one is buying these homes nor are they buying the new monstrocity called the Steamplant or Parrot Key or the old Holiday Inn Beachside and I seriously doubt they will buy where Atlantic Shores used to stand.

People are not buying high end homes here. That market is dead. Plain and simple. No, you aren't buying a home here unless you are buying up all the foreclosed and bank owned properties scattered around the island. A Realtor tells me that several millionaires are buying up everything they can, sight unseen, all the short sale and bank owned properties they can and are low balling bids to see if they get a response. I can only imagine where this will take the Key West housing market in the next few months or years.

No, real estate here and everywhere has tanked. Add that with the price of food, fuel and gasoline at record levels and see how many tourists will still flock here. Travel is becoming too expensive and for what you get in the Florida Keys you can go somewhere else cheaper and better. The budget tourist can't afford to travel when they have skyrocketing costs on everything else in their lives and the millionaires won't come here when we have no service workers or businesses left open. The charm and quirkiness are slowly fading away with each new development.

Locals aren't buying these homes; they are losing their jobs and heading out of town at an alarming rate. Nope, I don't see anyone buying these homes anyway soon.

Want some comic relief? Check to see if the developers of any of these projects are on the new delinquent tax roles - that is a great read this week.

Cayo Dave said...

Want some comic relief? Check to see if the developers of any of these projects are on the new delinquent tax roles - that is a great read this week.

Thanks for the suggestion! Here is what is owed in the delinquint tax report for Caroline Street Partners - the owners/developers of the Harbor House condo (formerly Jabors Trailer Park):
$208.49
$22,703.27
$16,284.09
$29,985.34
$13,976.66
$21,158.96
$2,249.84
$24,227.61
-----------
total owed = $130,794.26

JOHNinKEYWEST said...

If you think about all the people that tried and did make money in Key West they all had one thing in common they never worked a real job,well they will be grabbing a shovel soon enough.Now when a guy that worked real hard physically is able to buy a house in KW for 300 k you know thats karma.Hey Realtor make that medium rare SON :)I have no mercy on all those over extended GOOFs and as far as calculating illegal rentals as an investment thats played out and as all these people get more desperate they will snitch you OUT Thanks
A reversal of Fortune.
GREAT writng by the way Thanks

David Lybrand said...

One small correction to the first response above, where it says:

I seriously doubt they will buy where Atlantic Shores used to stand.

That building on that propery is an expansion of the "Southernmost On The Beach" Hotel next door. It's not a condo development. They saw the handwriting on the wall and decided to replace the hotel with more hotel rooms (more expensive ones, undoubtably).

Anonymous said...

This letter was sent to all the realtors in Key West by the association today. Wish I could send the pdf file. but you can see it in the Key West Citizen Sunday's paper for May 18. It is the full page ad promoting 'Key West Real Estate Market is Doing Fine' stating 122 properties sold in the last 133 days (most short sale or being foreclosed), and an active listing inventory of 10% less than 2007.

Here is their propaganda email:

Dear KWAR Members:

You may have seen the full page ad that KWAR ran this Sunday in the Key West Citizen.

This ad is the launch of a strategy approved by the KWAR Board of Directors to promote our marketplace and counteract the negative press we have been
seeing lately. The ads will run in several publications over the next
several weeks. A press release about the campaign has been prepared and will be sent out today which will hopefully hit the internet and promote a positive picture of our market. The Board would like to thank Needham-Fatica Advertising for donating the design work for this campaign.

We have attached a pdf of the ad. You may want to send it to customers and clients who might be on the fence about buying thus reminding them that "it is a good time to buy".

Together we can change the message and show the world that although the market has changed, that Key West Real Estate is alive and well; indeed it's doing just fine!

KWAR Board of Directors

Anonymous said...

And yet another email from the Key West Association of Realtors sent to all members. Any comments Cayo Dave? Love to know what you think of all this!

FLORIDA REAL ESTATE GROUP FIGHTS NEGATIVE PRESS WITH FACTS!

The Key West Real Estate market is doing just fine, according to a
professional association of Realtors in Key West, Florida. They have had enough of negative news stories and are mounting a campaign to let people know that their market is beginning to recover, using the slogan

"Key West Real Estate- It's Doing Just Fine!"

"Over the past year, the national news media continues to paint a grim picture of real estate and in our community, our local paper recently published a very negative article about our market that did not present the whole picture of our market today" says Rudy Molinet, Board Member of the Key West Association of Realtors.

"The headline was sensationalized and did not reflect what is really
happening here, said Molinet. "So I went to our board and asked them to approve a marketing campaign so we can educate the public on what is really happening. The fact is that in Key West, while our market has changed, we are doing much better than in other parts of Florida and are beginning to see signs of recovery; indeed, we're doing just fine."

Jimmy Lane, President of the Key West Association of Realtors, says "Our real estate market is beginning to recover. Since January 2008 we have sold 129 properties in 137 days just in Key West; that is almost one property per day. This does not count the many properties also sold in the Lower Florida Keys. While in some parts of town our prices have come down, in the historic district our prices are stable and in some cases increasing. Another important factor, according to Lane, is the amount of properties on the market. "Our inventory levels are way down from last year," said Lane. "We currently have approximately 877 properties on the market, last year we had almost 1100 at this time."

Lane attributes this lower inventory and stabilizing of the market to several factors. Realtors are working hard to educate sellers. They are encouraging them to list their properties based on what they are worth, not on some inflated number that they may be thinking the property is worth.

And buyers are responding.

"The town is really busy with showing activity this year" says Karen Lane, (no relation to Jimmy Lane) the President-elect of the Association. "We are seeing people come to Key West, enamored by our island lifestyle and understanding the long term value of this place we call paradise.

Lane says Key West really sells itself, which helps the Real Estate market on the island continue to grow. "Where else in the USA can you wear shorts in February, watch drag queens working with church groups to help out the local Boys and Girls Club? We are still a unique Island Paradise and the message is out there.

Come to Key West and be yourself, everyone is welcome."

"I've been looking at the market in Key West for a long time and I realized that is was a good time to buy" says George Mentonis, who with his wife Pat, just recently purchased their dream home in Old Town Key West. "The time was right as properties are being priced in proportion to what they are worth. The numbers made sense to me so we went for it. I think people are realizing that this is the time to buy in Key West and that they may miss the boat if they wait too much longer."

Richie Spada just recently sold his house on Fleming Street after only 44 days on the market. "When I first met with my realtor, he did a market analysis and showed me what similar homes sold for. Of course I wanted a higher price but the analysis was thorough and the numbers don't lie. I went with my realtor's recommendation and voila, I sold my house at 94% of the asking price. The buyer was happy because he got a great house at the right price and I was happy because the house sold in the period of time that I wanted it to sell."

These stories are repeated all over Key West lately.

"We will be running ads over the next several months showing the facts to people that our real estate market is experiencing a comeback. It is hard to argue with a full page of pictures of houses with SOLD banners on them" says Bascom Grooms, Past President of the Association; just like that old TV program taught us; we are going to give them "the facts, just the facts."

The Key West Association of Realtors is the professional association of Realtors in Key West Florida with nearly 400 members. The mission of the Key West Association of Realtors is to provide members with support, education, and services that will enhance the practice of real estate, elevate ethical standards, promote diversity and integrity and advocate for home ownership and property rights in the lower Florida Keys

Cayo Dave said...

I really don't know how anyone thinks the Key West real estate market is "doing just fine."

According to statistics from the the Coldwell Banker Schmidtt spring 2008 newsletter comparing January to March 2008 to 2007, for Key West (Key West to Shark Key):

Total Number of Sales: 30% less

$ Value of Sales: 33% less

Avg. Days to Sell: 10% less (144 days)

Avg. Sales Price: 5% less

Original List Price: 5% less

New Properties Listed: 8% less

Avg. List Price Properties "For Sale": 6% less

Months of Inventory: 23% more (54 months)

Number of Properties "For Sale": 1% more

I don't blame the realtors for trying to sell houses. But they are not doing anything to increase confidence in their prognostications. It hasn't been forgotten that for the past two-plus years their mantra has been "Its a great time to buy".

David Lybrand said...

Back to the original topic (Harbor House).... Did you see the big "40% off through June!" ads in the paper for Harbor House and their "Key West Harbor" development on Stock Island? Could that have anything to do with the subsequent story about how Cortex has defaulted on $40,000,000 in loans?

I'd be VERY wary of putting up any money on any of those units now -- could turn into another Cay Clubs scenario....

Anonymous said...

It's really interesting to read these posts/comments today, in 2010. I'm fairly new to Key West and each time I ride my bike by Harbor House I just laugh and what a bad idea it was.