Sunday, October 24, 2010
A luxury condo case study
I thought it would be interesting to review the luxury condo market in Cocoa Beach and Cape Canaveral as it stands in the last quarter of 2010. Some of my comments from one year ago about the same market segment are here. For my number-crunch, I chose the poster child of successful sales in a crappy market, the beautiful Meridian of Cocoa Beach pictured above. This complex was built and marketed by an experienced long-time developer in our area who has built 21 complexes in Cocoa Beach and Cape Canaveral since 1977. They were able to sell their last remaining unit out of 64 in December 2009 about two and a half years since the first unit closed, a remarkable feat in a horrible market while every other developer was floundering with few or no sales. Of the strategies they employed to sell their units, in addition to "decorator credits" paid back to buyers, they offered jacked-up commissions to buyers' agents. Of the last 13 developer units sold, all paid either 4% or 5% to the buyers' agents. A $30,000 plus potential payday is enough to set most agent's tails a wagging. This strategy along with exorbitant bonuses was employed by other developers in our area as the market tanked boosting buyers' brokers paydays on some sales over the $50,000 mark. For the record, I have always thought bribing buyer's agents a smelly practice and have commented frequently about it on this blog.
We have seen five total resales at the Meridian (all between $550,000 and $575,000). One other unit is under contract at the present, a short sale asking $500,000. The first resale happened in January 2008 just 17 months after it's purchase for $150,000 more than the short sale price of $550,000. The developer was able to move the remaining 13 unsold units after this short sale closed although by mid 2009 they were starting to drop prices of similar units below $550,000 in order to exit the project. The second resale happened a year and a half later in August 2009 and, although not a short sale, sold for over $100,000 less than the purchase price two years earlier. The last three resales all closed this year. None were short sales but all represented over $100,000 loss to each of the sellers.
As of this morning, October 24, there are six units offered for sale and one short sale under contract . Two of the six are asking slightly more than they paid (cuckoo) and the other four are asking below their purchase price, one more than $200,000 less. What are we to conclude from our research? To me, it seems that there will be more price drops in this complex and very likely more short sales. Excluding the resales, only four owners bought for less than $575,000, the highest of the resale prices. That means that there is likely a considerable number of underwater owners who have been blindsided by the resale prices since the developer's departure. How long do they hang on looking at a six-figure paper loss with fingers crossed hoping for a turnaround?
There is a level at which these units will sell and the market seems comfortable with the recent low to mid $500,000 range for the interior units although it's conceivable that it could inch lower. None of the corners have resold. We saw immediate sales recently at Ocean Paradise in south Cocoa Beach when the developer dropped prices significantly on the unsold units there and I expect, at or near the current lower asking prices, that the building should sell the remaining units. Buyers who have been waiting for deals on luxury condominium units have now and in the near future opportunities to be rewarded for their patience. There are other new luxury buildings with similar dynamics where deals have already been and will be happening as reality becomes manifest. There are two pending short sales at Sol y Mar for less than $450,000. These units sold as high as $900,000 four years ago. As units at Michelina have been offered in the high $400s and low to mid $500s recently they have sold.
Inventory of $500,000 plus units stands at 44 right now, half that of early 2009. Some of that is due to asking prices drifting below the half million dollar mark but a significant part of the reduction is because of sales. Meanwhile, the October weather continues to be perfect. I encourage beach time. The ocean water is at 80 degrees and the mullet run is still on and the beaches are deserted with the exception of the beach behind Coconuts where the annual Slater Brothers Surf Contest is happening this weekend. The boys were skating the big ramp set up on the beach under the full moon the last two nights.
What we don't know keeps the contracts alive an movin'
They don't gotta burn the books they just remove 'em
___________Rage Against the Machine