What Slowdown? Luxury Real Estate
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To find potential buyers for their luxury oceanfront condominiums starting at $6.2 million, the developers of Regalia on Sunny Isles Beach headed for Utah. In January, they sponsored a premier party at the Sundance Film Festival for the movie "King of California" starring Michael Douglas and Evan Rachel Wood that drew 300 guests and generated celebrity media buzz.
"We support creativity in every form -- from architecture to filmmaking and beyond," says Avra Jain, principal of Regalia Holdings, referring to the 42-story Regalia's curving design.
With Florida's residential real estate market stuck in slow gear for the past year, developers, brokers and agents are pulling out all the stops to catch the attention of luxury buyers.
And while developers have slowed their introductions of new homes and condos and resale inventories have grown dramatically since late 2005, the state's high-end market appears to be holding its own.
"While sales are off in other categories, the ultrahigh end is strong," says Budge Huskey, president and chief operating officer of Coldwell Banker Residential Real Estate in Sarasota. "These buyers are seeking trophy properties with something unique -- a pristine beachfront, historical element or 'star' element owned by someone famous. If there's a glamour or another unique appeal, price is no object."
Regalia Starting Price: $6.2 million Regalia has 40 single-floor residences that include more than 2,000 square feet of terrace space. The 42-story oceanfront condominium north of Miami Beach was designed by Arquitectonica and developed by Regalia Holdings (developers Jerry Kaufman, Avra Jain, Paul Cashman Murphy and Susanne Bak Mortensen). Amenities include an infinity-edge swimming pool, gardens and fountains, an oceanfront gazebo with poolside shower and spa, private beachfront cabanas and a fitness center overlooking the Atlantic. Regalia is expected to be completed in 2009. |
Research shows that the affluent members of the first wave of Baby Boomers -- as well as European and Latin American buyers -- are still buying million-plus second and third homes. And because 2006 was a profitable year for Wall Street, New York area brokers, bankers and financial managers are buying trophy properties in Florida.
Largely because of the status and location factors, Florida's superluxury market is concentrated primarily in Palm Beach, Boca Raton, Naples, Sarasota, Coral Gables and Miami Beach. Most of the superluxury single-family home sales are occurring in built-out golf course communities and prestigious non-golf communities, as well as on the handful of undeveloped lots remaining on the ocean, Gulf and Intracoastal Waterway. Older single-family homes are being substantially expanded or torn down and replaced with much larger homes. Because well-established communities offer a unique set of advantages -- from prestige and status to close-in locations -- the competition for these properties is great for primary as well as vacation homes.
As land prices escalate, vertical condominiums are the only option for developers of properties along the ocean, bay or Gulf. Those rising land costs are also fueling the spread of luxury development to new parts of the state, from the Panhandle to Flagler County and Fort Myers.
In Jacksonville, a new wave of urban high-rise development is sprouting up along the St. Johns River. "Our high-end market is probably 90% primary residents," says Missy DeKay, a top producer for Watson Realty's Ponte Vedra office near Jacksonville. "With the new condominiums, though, we are seeing more second-home buyers as well."
Moving down a notch from the $10-million penthouses and $20-million Palm Beach or Naples mansions, the $1-million to $2-million segment of the luxury market also appears to be fairly healthy.
Starting Price: $1.265 million Designed around a Greg Norman and Pete Dye signature golf course, Tuscany Reserve is a 460-acre WCI community. Approximately 110 single-family estate and villa homes are available in the first phase of the traditional "Old World" development. Buyers can purchase home sites or completed homes. Amenities include lakes, stone bridges and a spa/fitness center. Photo: Tuscany Reserve |
"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.
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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.