New Statistics Confirm Tourism Slowdown

Statistics released by the Key West Chamber of Commerce confirm what many have been saying: Key West tourism is down.

Here are some highlights of the data:

• Over 20,000 less cruise ship passengers arrived in Key West in January 2007 compared to January 2006 - a 21.4% decline


• Over 12,000 less cruise ship passengers arrived in Key West in February 2007 compared to February 2006, a 14.6% decline


• Cruise ship port calls declined 18% for January 2007 and 13.6% for February 2007


• Number of tourists arriving by plane declined 8.1% for January 2007 and 9.2% for February 2007 (a total decline of 5000 fly-in tourists for the two months)


• Bed tax "3rd penny" collections were down 5.6% (approximately $20,000), the first decline in 5 years

The past few years tourism has faced many new challenges including the hotel to condo conversions, hundreds of hotel rooms offline, doubling of room rates, lack of affordable housing for workers, and a city leadership that looks mostly pleased that tourism is taking a backseat to luxury development.
The tourism industry here should recognize that their businesses (and much of the island economy) are in jeopardy.

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What Your Realtor Doesn't Want You to Know

There is an only saying on Wall Street: "When the doorman starts giving you stock tips, it's time to sell your portfolio."

I'm often reminded of that when I hear real estate agents' rational for why you can't lose buying real estate. A local advertisement from the realtor association gives many reasons why it is a great time to buy real estate (all of its reasons are incorrect - something deserving of a post all by itself). This mornings radio magazine had a mortgage salesman saying he couldn't understand the press stories about how bad the real estate market is. Over at Conchette's excellent blog an anonymous poster contributed:

"But over the long haul, more Americans have generated more wealth from home ownership than any of their pure investments."

As they say, "patriatism is the last refuge, to which a scoundral clings."

But lets look more closely at the facts.

I have included a now-famous chart of US home values from 1890 to last year (click on the chart to see a larger version). This chart is in real terms - meaning that inflation has been removed from the equation. Therefore, the chart is truly relecting the value of homes over the period studied.

According to the data, if you purchased a home in 1950, the value of that home had not increased until the turn of the century. Or maybe worse, if you bought at one of the peak periods in the 1950s, at the time a small housing boom, you were at a loss for the next 25 years. And there were plenty of other periods where housing was a bad investment - for example if you bought at the end of the 19th century. Then, you would have to wait 50 years before you could sell your house for an actual profit (again, in real terms). According to the chart, real estate values spend most of their time doing nothing - for decades at a time.

Maybe even more interesting is looking at each of the spikes that are on the chart - noting the huge price appreciations of short periods of time. Notice that the next move is down - nearly as sharply - then a long "sideways" period (often decades).

Also notice how large the housing boom of the past decade was. The gains are completely unprecedented. Therefore, I expect the fall will also be unprecedented in magnitude.

Don't believe you realtor into believing that real estate is a "can't lose" situation.


You most certainly can lose - and if this chart is any indication - the chances and effects will be signficant.

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Say Hooray for the Life of the Manatee!

Two days ago a friend phoned and said "You should see how many manatee are around my boat right now. I don't think I have ever seen this many." He had just returned to Garrison Bight after a morning of fishing and discovered a large group of manatee swimming around Garrison Bight Marina.

I headed over and saw at least 12 majestic manatee slowly swimming around the basin. There may have been as many as 15. One had noticeable boat-propeller scarring on its back, but otherwise they looked happy and healthy. I snapped a few photos and am posting them here to share with you.
Then yesterday it was announced that the manatee population in the state of Florida has improved to the point that the animal may be removed from the endangered list and instead put on the threatened list. This years manatee count numbered 2800 in Florida - a large improvement from just a few years ago.

No wake zones/manatee zones have no doubt improved the manatee population. I hope that the manatee continue to improve. Officials have claimed that downgrading the manatees designation will not remove protections - such as the Marine Mammal Protection Act. Lets hope so.

Above all, laws or no laws, it is humans that can do the most to protect manatees. Boat SLOWLY AND BE ON THE LOOKOUT in areas that manatees are likely - especially marinas and nearshore waters. And do not feed manatees water, lettuce, or anything else. Otherwise, you will be training them to visit the most dangerous places for them.

Say Hooray for the life of the manatee!

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Video: Global Warming Submerges Florida Keys

It has been said that Key West (and the Florida Keys) are on the front lines of the effects of global warming. Many are debating the causes of global warming, but few can deny that it is happening.

The National Environmental Trust, "a non-profit, non-partisan organization established in 1994 to inform citizens about environmental problems and how they affect our health and quality of life", has put together a video showing the effects in the Florida Keys & Key West of a 1 meter (3 foot) sea level rise.

The first part of the video shows what would happen to Key Largo and the Upper Keys: all would vanish.

The second part of the video focuses on Key West and shows two scenarios if our sea level rises 1 meter higher: 1) effect on Key West coastline, and 2) storm surge flooding in Key West caused by a Category 2 storm. The effects are just as devastating.

See for yourself by clicking on the play button on the youtube viewer I've installed into this post.

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Santa Maria Condos Raise Question of Fiduciary Responsibility

This week it was reported that the Santa Maria condominium developer and real estate agents are being sued for fraud.

The plaintiffs in the case are admitted "flippers" - purchased pre-development units while planning to sell them before closing. The plaintiffs had to put up close to a quarter-million dollars for a unit and now are about to lose their deposits since they are unwilling to close on the property.

The plaintiffs blame development delays and incomplete work for not being able to sell before closing. They feel they were defrauded by the real estate company and the Santa Maria developers who they allege promised them a huge return on their investment.

Most local reaction has been against the flippers - saying, as in today's Citizen's Voice, "I have no sympathy for those who bought the Santa Maria condos. Come on...a fool and their money are soon parted."

I'll admit, my initial reaction was the same.

But maybe we should look at what realtors in general have been saying, and questioning if they have been irresponsible in their "buy at no limits" pitch. I've pointed out more than once Regina Corcoran's (a realtor) foolish advice to load up a credit card to purchase a house.

There was a time in the US that purchasing stocks was considered a gamble, and if an investor lost his or her money then tough luck. But that attitude changed in the late 1980s - when courts, states, and regulators began to look at stock brokers as fiduciaries with a responsibility to the financial welfare of their clients. Maybe it is time for realtors to be treated as fiduciaries and not be allowed to bury a client in an investment. And what about the idea that the realtors and developer may have actually committed fraud by promising gains to these plaintiffs, knowing that these purchasers couldn't afford to close on the property?

So, how bad were the Santa Maria purchases? Apparently horrible.

It is no wonder why the plaintiffs cannot sell the units. They are priced at $1401 per square foot! With the crash in the condo market, these units are priced at more than twice what nearly any other condo costs.

Seriously, $1.3 million dollars for a 907 square foot condo? (and for another $200,000 you can own a "larger unit" with an extra 38 square feet. That works out to $5263 per square foot for the extra 38 square foot area).

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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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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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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 http://www.tampoa.com/ 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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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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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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