What Slowdown? Luxury Real Estate

"The million-dollar-plus market has held up very well in the last year, and we expect that to continue in 2007," says Phil Wood, president and CEO of John R. Wood Realtors in Naples. "In southwest Florida, our luxury market is largely second-home buyers. They may be successful executives or preretirees who enjoy golf, the water and boating. They tend to use their second homes more and more over the years and often trade up as well."

Other wealthy buyers are "underbuying" in Florida, especially when they own multiple properties. Rather than pay $3 million for a Sarasota estate that might be used only two or three months a year, these buyers might purchase a $1.5-million Gulf-view condominium instead or opt for a much less expensive fractional ownership of a Ritz-Carlton resort.

In the luxury market segment, sales appear to have suffered the most in the lowest tier of homes and condos -- those priced from $500,000 to $1 million depending on geographic area. Although this segment has the largest number of potential buyers, many are still sitting on the sidelines.

Higher property insurance premiums, especially for coastal properties, are a major financial concern, and the state's caps on annual property tax increases (except when residents move) are reducing move-up demand. And until prices appear to have stabilized, these potential buyers are delaying their decisions.

Buyer uncertainties have affected developers throughout the state, including Bonita Springs-based WCI Communities, which reported an 82% drop in third-quarter orders and a 73% decline in profit. Jerry Starkey, WCI's president and CEO, says cancellations in the company's single-family home division were twice the company's historic average, and defaults were up significantly in its condominium division. For 2007, WCI is projecting revenue of $1.3 billion to $1.7 billion, down from its 2006 estimate of $2.1 billion to $2.3 billion.

St. Joe Co. also reported disappointing 2006 results. The company owns 820,000 acres in northwest Florida and is developing high-end resorts, including WaterSound Beach and SummerCamp. "We continue to face challenging conditions in our Florida residential markets but particularly in resort markets," says Chairman and CEO Peter S. Rummell. "The inventory of new and existing homes in the marketplace remains high. We continue to believe it could take until 2008 before a supply-demand balance begins to return."

Even when sales begin to pick up again, it's unlikely that Florida's luxury market will enjoy the sales pace, rapid appreciation and overall returns of the 2001-05 boom period. With the frenzy of speculative investment, the next upturn is far more likely to resemble the slower growth era of the mid-1990s.
To succeed in this challenging market, luxury home developers will need to carefully target their potential buyers and offer something special, such as an unusual design, high-tech features and oversized clubhouses or spa/fitness centers. And above all else, they need to price their homes attractively for buyers.

Lewis M. Goodkin is president of Miami-based Goodkin Consulting.

Affluent members of the first wave of Baby Boomers are still buying million-plus second and third homes.

Old San Jose
Jacksonville

Starting Price: $475,000

Old San Jose, on the east side of the St. Johns River south of downtown Jacksonville, will have roughly 200 units in one of the city's well-established neighborhoods. Construction is scheduled to begin this month on the Mediterranean-style development, which will consist of 20 low and midrise buildings, including riverfront penthouses in the $2.5-million range. Old San Jose, developed by McGarvey Residential Communities, will feature a riverfront promenade, winding streets, a pool and lush landscaping.

Tags: Around Florida, Housing/Construction