Year End Report on Palm Coast Condos and Lots – 2007

Tidelands, Conservatory and financial problems for condo developers top stories

January 10, 2007 – Palm Coast, FL – A recent newsletter covering the single family home market in Palm Coast and Flagler County, FL had so much ground to cover that I did not include Palm Coast lots (as well as other Flagler building lots) and condominiums. This newsletter covers both.

Lot and condo buyers tend to be more discretionary than buyers of single family homes. They seldom have a need to purchase a lot or condo “today.” Many lot buyers during the price run-up were builders, buying building lots ahead of what they perceived to be an ever rising market. This component, with few exceptions, is gone. Builders are feverishly selling down both their inventory of spec homes, and over supply of building lots. SeaGate Homes recently purchased 51 lots from Masterpiece Homes for less than one half Masterpiece’s purchase price.

Condo buyers are comprised largely of those looking for second or vacation homes or investments. During the peak, many were speculators who never planned to occupy or rent their properties. They were simply going to flip.

Palm Coast Lots

Palm Coast Lots (PCLs) are a good indicator of local building lot market. They represent the 40,000 plus lots platted when Palm Coast was first planned. Nearly all are in the 10,000 square foot range. There are approximately 10,000 vacant PCLs. For purposes of analysis, I do not include salt water canal frontage PCLs. They are unique and carry a much higher value. Standard PCLs (non-golf and non-water frontage) were selling at prices between $4,000 and $12,000 in 2000. The following table shows the sales pattern for PCLs over the past three years as reported through MLS. They do not include “for sale by owner” or builder to builder transactions.

The median selling price for PCLs dropped both faster and further than those for single family residential homes. Only 6 transactions were reported in December. Over 2,200 were recorded in 2004. The number of transactions dropped to 400 in 2006, then to 170 last year. January 2006 posted the highest median price, $77,000. By December 2007, this measure had dropped 51 percent to $37,500. The number of PCLs listed for sale remains near 1,200.

I don’t expect the PCL market to turn until the housing inventory drops enough for builders to realize they need to start building spec homes again. We are a long way from that point now. There is still plenty of builder spec inventory on the market today.

Lots in The Conservatory represent a similar story. Bought primarily by speculative investors, the market is stagnant. There have been no transactions in 16 months. One bank owned lot listed for $209,900 remains unsold. The original purchaser paid $404,900 in 2005. The number of Conservatory lots for sale has dropped to 32. But demonstrating the irrational resistance owners have to accepting market conditions and adjusting their selling strategy accordingly, 12 of the available lots are listed at prices above their original price, one by as much as $100,000. The parcel next to the bank owned lot (the one listed at $209,900) remains on the market at $469,000.

But as long as there are sellers in distress, buyers will remain patient. And there are sellers in distress. Nearly 50 Conservatory lots carry delinquent 2006 property tax liens. Some face ARM adjustments or balloon payments this spring. No buyer wants to be the first one in the water, afraid that if they purchase a Conservatory lot for $209,900, someone else might get one the following month for less. Eventually, a brave (or astute) buyer will step in. Once a few get started, I believe activity will accelerate quickly, but those who expect to sell their lots for over $400,000 will wait a very long time.

Condominiums

The condominium market took its big hit in 2006 in terms of number of units selling. Last year was just a continuation of the market condition established by the end of 2006 but with price errosion. Although selling prices dropped, the more upscale and residentially oriented Hammock Dunes units faired better than condominiums with a higher investor component such as Cinnamon Beach, Surf Club, Canopy Walk, and Riverview (at Grand Haven) and Tidelands. The chart below shows what has happened to the established condos. It does not include Tidelands, which will be covered later in this newsletter.

The financial condition of developers building condominiums locally is very newsworthy.

• WCI Communities, developer of the condo towers at Hammock Dunes, is on a very tight credit leash. WCI’s credit facility had already extended twice, most recently for 30 days. Yesterday, it was extended for one more week. The results of their efforts to obtain continuing credit will have a big impact on the Hammock Dunes condo market.
• Centex, developer of Tidelands, faced a liquidity crisis, prompting them to suspend some construction while aggressively lowering prices on existing inventory.
• Cash strapped Whitehall Homes, the developer of Riverview in Grand Haven, has suspended construction of two buildings at mid-way while it seeks to get relief from its creditors and find new financing. If financing cannot be arranged, the half finished buildings will remain unfinished until someone else moves in to finish the project.

I’ve written much about Tidelands. For those who haven’t kept up with the story, Tidelands is a large condominium project along the Intracoastal Waterway in Palm Coast. All of the first 252 units were sold out at pre-construction prices. As buildings neared completion in mid and late 2006, the market had begun its decline. But in early 2007, with the market showing definite signs of a decline, some buyers went ahead and closed on their contracts. Others walked away from their deposits, leaving Centex with unsold inventory. Through the year, with aggressive pricing and attractive amenities incentives, they sold out the remaining units. In the last 18 months, Centex closed on all of Tidelands 252 units, more that 65 percent of them in 2007. That’s more than the total of all other Flagler County condos sold within the past three years.

Toby’s predictions for 2008

Here are some stories I expect to be writing about in the next year:

• Lots in The Conservatory will begin selling again. Homes will begin coming out of the ground there also. The PGA Fall Tour tournament will be successful, benefiting all of the Palm Coast area. The spring Ginn Champion Tournament at The Ocean Course at Hammock Beach will also highlight our area.
• A major hotel operator will be found to take over the stalled hotel/condo/marina project at the former Palm Harbor Resort site and the Palm Harbor Golf Course will be nearly ready to open as a municipal facility.
• Mortgage fraud will surface as a major component in the foreclosure crisis. Mortgage fraud will be exposed locally.
• Town Center and the SR 100 corridor will become more central to area development. Many projects will commence along that highway.
• The defeat of County Council members Darby and Hanns will remove the largest impediments to development of the Flagler County Airport as a commerce center. It will also facilitate necessary cooperative initiatives among local and regional governmental entities to solve county-wide and regional problems.
• Both Flagler County and the City of Palm Coast will pass future land use regulations. Both will result from efforts which properly included input from the public sector. No one group will get everything they want in the new regulations, but I expect a fair compromise.
• The amendment to reform the property tax system will pass. The Hometown Democracy initiative will not.
• City Walk, the commercial condominium project on Cypress Point Parkway, will be completed, but many contracts are not likely to close without renegotiated pricing or other concessions.
• Foreclosures will continue to feed inventory but inventory will drop. By the end of the year, a few builders will resume limited construction of spec homes.