Saturday, March 31, 2007

Flop: Today's Real Estate Auction

Today's well-advertised real estate auction was a flop - a sign of how much the local real estate market has downturned.

Up for auction were six residential and three commercial Key West properties. Most properties didn't receive more than one bid. Some did not receive any.

The few bids that were made for the residential properties were "opening bids" - made prior to the start of the auction and, in the words of the auctioneer, "way off", "not going to sell", and "too far off."

There were no second bids for any of the residential properties.

Sellers reserved the right to sell at a minimum price (which were not disclosed) and it is unlikely that any of the residential properties sold. The auctioneer was so disheartened by the meager bidding that he skipped and didn't bother auctioning off two of the eight residential properties.

Many in the small crowd of approximately 65 people were there for the commercial properties. Most notably was the Harpoon Harry's Restaurant auction which included a liquor license. More than a couple big name local restaurateurs were there - but none were willing to bid more than the opening bid of $2 million. The property received one other bid, for $2.1 million. Unless the seller agrees to that low price, it will not have sold.

Also up for auction was 606 Duval Street and a commercial property on North Roosevelt Blvd. Those properties also received bids that were likely too low for the sellers.

Prices are clearly still too high in the Key West real estate market for where buyers are at. Also, the effects of the liquidity sqeeze may be appearing.

Even the auctioneer commented that there was a lot of property for sale in Key West. No wonder he began the auction with a prayer.
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Monday, March 26, 2007

Florida Forclosures Now Highest in the US

New statistics released by RealtyTrac, an internet real estate foreclosure specialist, reveal that the Florida real estate market may be in the most trouble in the nation.

According to those statistics, more than 19,144 Florida properties were in some stage of foreclosure in February. The foreclosure rate for Florida jumped over sixty-three percent from the prior month and nearly double the number from February 2006. This equates to a rate of 1 foreclosure filing for every 382 Florida households - more than double the national average of 1 foreclosure filing per 884 US households.

The true panic does not seem to have hit the Florida market yet, but with billions of dollars of adjustable rate mortgages resetting this year in the United States, the panic may not be far off.
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Thursday, March 22, 2007

Truman Annex & the Rising Tide of Conformity

Truman Annex, embroiled in a fight with the City of Key West over gating Southard Street and further isolating themselves from the rest of the island community, is in my free-spirited opinion a strange place.

Strange because Key West is generally a live-and-let-live place - open to creativity, individual expression, and freedom from conformity. Yet Truman Annex goes the other way, at least according to their "Rules and Regulations." From children to curtains, holiday decorations to eating an ice cream on the sidewalk, Truman Annex has rules.

Upon reading the Truman Annex Master Property Associations rules (posted on the website), I couldn't help but think about the movie "The Truman Show" and it's striking similarity to Truman Annex. That film is set in a community that is completely controlled and fabricated, albeit for the benefit of a "reality" TV show.

Here a few of the Rules and Regulations for Truman Annex:
  • Children shall not be permitted to play on sidewalks or other Common Areas and shall be supervised by their parents at all times. (also, "Playing shall not be permitted in any of the lobbies, hallways, stairways, elevators and lobby areas and loud noises will not be tolerated.")
  • No towels, clothing, linens, rugs, etc. shall be hung from balcony rails, windows or doors.
  • (Pet) leashes are to be no longer than six (6) feet in length.
  • All personal items, including but not limited to bicycles and patio furniture, are likewise to be kept in an orderly and maintained fashion as to not cause a visual nuisance.
  • Holiday decorations are allow during the month of December only and such decorations must be approved by the Association. Approved decorations include: conservatively installed non-blinking small white lights, limited red bows and pine garland, and a conservative wreath
  • The Association may retain a pass-key to all Units.
  • Food and beverages may not be consumed on the Common Properties, except in connection with approved uses of the Commercial Property, or as other wise approved by the Board or the Master Association. No barbecuing shall be permitted on the Common Properties.
  • Curtains and drapes (or linings thereof) which face on exterior windows or glass doors of Units shall be subject to disapproval by the Board, in which case they shall be removed and replaced with acceptable items.

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Tuesday, March 20, 2007

More Key West Hotels Going Offline

Tough days are ahead for Key West tourism.

It is no secret on the island of Key West that tourism is changing. Hotels have been bought up by developers seeking to transform them into condos, time-shares, and higher priced hotels. Most of the properties targeted by developers have been the moderately priced hotel rooms - the bulk of Key West's typical-tourist accomodation.

Many businesses in Key West have been suffering due to nearly 1000 hotel rooms being "off-line" during their reconstruction. It remains to be seen if these projects will be a success, whether tourists of the future will spend $350+ night to stay in Key West, whether "condotels" are a smart investment (I have my doubts), and whether the island will seriously suffer by pricing out the majority of our visitors. It is a risky gamble on the part of developers - rolling the dice with the livelihood and character of Key West.

Unfortunately, things are looking tougher for the future.

One of the largets property owners and developers on the island, the Spottswoods, have announced a massive redevelopment at the west end of Key West - near the entrance from U.S. 1.

The Spottswoods have bought up one of the last remaining stretches of moderately priced Key West hotel rooms and plan to replace it with new expensive hotel rooms & time-share units (along with restaurants, retail, bar, and a huge conference center. Oh, and they'll build 50 affordable housing units on the property.

The hotels that are due to close are the Days Inn (with 133 hotel rooms), the Comfort Inn (with 100 rooms), the Holiday Inn (with 144 hotel rooms) and the Radisson Inn (with 145 rooms). This is a total of 522 hotel rooms that will close. When it reopens, the new hotel will have 417 hotel rooms - a loss of 105 hotel rooms. Even if you add in the time share properties, there is still a loss of 72 hotel rooms!

Maybe most worrying is that the hotels' closings are some of the last moderately priced hotels on the island. So the big question for the future is, will there be enough tourists willing to pay $350+ per night to stay in Key West? My guess is "probably not". In any market, when you double the price of anything, you can expect to receive less buyers. What is yet to be determined is the "price elasticity of demand" - which shows how much demand drops when prices change.

Either way, the difficult times for Key West's tourist businesses are surely not over.
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Tuesday, March 13, 2007

The Glut of Key West Residential Properties Continues to Grow

Last month 2% more residential properties were offered for sale in Key West - further depressing the falling prices.

According to local Key West realtor Bascom Grooms, 1070 residential properties are now on the market in Key West - a huge number in historic terms.

Speculators, many of which are responsible for the ridiculous housing bubble, are now sweating and slashing prices hoping to avoid financial ruin.

On top of the local housing "crash" is the bleak national picture. Massive losses are working their way through the mortgage market - especially subprime lenders (there is a real and growing fear that the subprime meltdown is spreading to higher quality borrowers). In response, banks and lenders are cutting back on subprime and no document loans. This will remove many buyers from the real estate market - many who would have never been able to buy property if not for the lax and irresponsible easy lending practices of the mortgage industry. As a reminder, more sellers than buyers equals lower prices.

Further national problems for the real estate industry are evident in new home sales and the companies in that business. According to DR Horton, one of many suffering builders, the upcoming year will "suck". Their sales, cancellations and defaults have spiked higher.

With plenty more units under construction in Key West and due to enter the market, the bad times for the Key West real estate market are far from over.
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