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Why Savvy Investors Are Buying Right Now
By Clayton Wallace
In the real estate frenzy earlier this decade, demand for condos was much greater than supply, leading to a seller’s market. Many units were bought and sold several times before being built, with each subsequent buyer paying much more than the original presale price. Times have changed, but the appetite for resort area condos is still strong. In today’s economy, the staggering prices have come back into line, and savvy investors now find gulf coast condo units selling for many thousands of dollars less than they were just a couple years ago.

In A Buyer’s Market, Price Is The Key
Kaiser Realty Director of Real Estate Sales Steve Jones of Gulf Shores, Ala., said in an MLS search it is not uncommon to see sales prices of condos come in sometimes tens of thousands of dollars under the listing price. “I was looking through the MLS the other day and found one owner who came $75,000 off the listing price to make a sale,” he said.

Jones said there is a demand for resort area condos, and his agents are busy scoping out properties for prospective buyers. “We’re running around trying to put together deals,” he said. “Some condo owners who bought at the height of the bubble are now realizing they’re not going to make money in the near future on a sale, and they’re coming off their prices.”

Ginger Lundstrom, owner and broker of Ginger’s Destin Connection, said she has seen a surge in the number of people looking for condos in recent months. “They know if they don’t buy now they won’t see another market like this for another 20 years.”

Some Markets Are Not Saturated
The condo market along the northern gulf coast is generally perceived to be overly saturated with new condo developments. However, some argue that this is more of a reality in Panama City Beach than along the Alabama Gulf Coast.

“I get sick and tired of looking in the newspaper every week and reading that there are more than 2,000 condos for sale in Baldwin County, Ala.,” said Paul Wesch, a vice president for real estate conglomerate The Mitchell Company. “It doesn’t paint a true picture of the condo market.”

Wesch, speaking at the Condo Owner Educational Symposium sponsored by Condo Owner magazine May 9, said the number of modern beachfront condos is just a fraction of the total number of condos for sale in Alabama’s largest geographic county. “Many of the condos that are for sale are in Bay Minette, Foley and on the Eastern Shore,” he said.

Tired of reading the misleading numbers, Wesch said he decided to do his own research. “If you take away the condos off the beach, the beach access condos and the beach view condos, in April there were only 618 beachfront modern condos for sale on the MLS,” he said. “These include many that are priced way above market value.”

He said owners of units whose price is so out of line with market value are not truly serious about selling their units. Taking these condos out of the sales figures, the number of modern beachfront condos for sale shrinks significantly. “The true number is somewhere between 194 and 244 beachfront modern units for sale,” he said.

While Wesch concedes these numbers only include condos that are listed on MLS, and not those being sold without the help of a real estate agent, he said the reports of thousands of beachfront condos for sale in Alabama are misleading at best. “The inventory of modern beachfront condos is actually pretty low,” he said.

Florida, on the other hand, has a large inventory of modern beachfront condos. This inventory has led, at least in part, to falling prices in the marketplace. “You really can’t compare Alabama to Florida,” said Destin real estate appraiser Bobby Hutchinson. “Alabama has a very limited shoreline. Florida doesn’t. In Florida, there’s been a ton of beachfront condos built in the past three or four years.” He said Panama City Beach has seen the largest number of beachfront condos built in the past few years. “There are a great number of these units on the market,” he said. “A lot of units that were sold in presales have had their buyers walk away, leaving the developers holding the bag.”

Marla Martin is the communications director for the Florida Association of Realtors. “One of the things we are having our agents tell prospective buyers now is that after a five-year boom market where there wasn’t a lot of inventory, there are now units available,” she said.

Area Auctions Help Reduce Inventory
One way savvy investors are getting the most for their money is through auction purchases. This spring, an auction of properties in the Charles Faircloth estate along the Florida panhandle brought in more than $60 million. In May, developers of Crystal Tower in Gulf Shores sold 44 condos at auction, bringing in more than $13 million.

At the Crystal Tower auction on May 3, more than 1,000 people braved cloudy skies, gusting winds and a steady downpour to bid on Crystal Tower units. Developers had advertised 30 Crystal Tower units to be sold at absolute auction with 60 units from which to choose.

By the end of the auction, Developer Collier Merrill and his two brothers had added 14 more units to the auction, taking the total to 44 units. These units were auctioned off at a total price of more than $13 million or almost $300,000 each.

Gulf Shores Attorney Daniel Craven was at the auction hoping to bid on a unit for an out-of-state client. “The first unit that came up for auction sold for $347,000,” he said. That price included a 10 percent buyer’s premium that each successful bidder paid. Craven said the second unit sold for almost the same price. According to Craven, the next 10 units purchased sold for approximately $300,000, and were primarily corner units.

He said the price dropped to approximately $250,000 for about 20 units in the center of the complex. “One buyer got one for $250,000. Another buyer said, ‘I’ll take one for that price,’” Craven said. “The auctioneer then asked if anyone else wanted one at that price, and hands shot up all around. Those units were flying out of there.”

Baseline Prices Taking Shape
Craven, who represents more than 100 condo associations along the Alabama Gulf Coast, said the Crystal Tower auction was an indication that there is still buyer demand out there for resort condos. “I like what I saw,” he said. “I think we’ve almost hit bottom.”

Jones said in his MLS research, he found many units sold in recent months brought between $275 and $325 per square foot. However, he noted that many of these sales were not beachfront properties, but rather had a beach view or offered beach access, and many properties were 10 years old or older.

Overall, the Mitchell Company’s Wesch said he is upbeat about the condo market, even in this down period. “The market is healthy,” he said. “And it will remain so.”

New condo developments won’t be built along the Alabama Gulf Coast until the average market price reaches about $600 per square foot, Wesch said. “What that means is that any purchase made now will go up in value significantly before new condos are constructed,” he added.

Lundstrom said condos in Sandestin were selling for $1,000 per square foot in 2004 and 2005, but have come down dramatically since then. “The buyers in my last sale paid $750 per square foot,” she said. “That was for a non-rental unit. They hold their prices better than rental units. Rental units are selling for about $600 per square foot.” However, there is almost no space left for beachfront condominium development in the Destin area.

Rental Demand Is Strong
While some investors purchase a condo as a second home, others prefer to use the condo a few weeks during the year and recoup expenses by renting to vacationers the remainder of the time. Up and down the northern gulf coast, vacationers continue to flock to the area in record numbers. That’s good news for investors.

Alabama Gulf Coast Convention and Visitors Bureau (CVB) President and CEO Herb Malone told tourism professionals at the CVB’s annual Tourism Summit May 13 that spring numbers showed March tourism up by 6.4 percent over 2007, a record-setting year. He said he believes the upward trend will continue into the summer. “Based on the information we have, we see an increase in business for the summer.”

Memorial Day statistics provided by the CVB show rental management companies reported their condos were at 88.5 percent capacity. While that number is good, hotel occupancy proved to be even better. The CVB reports that hotels were 92.9 percent occupied.

Compared to last year, tourism in South Walton County, Fla., was up by more than 11 percent through February 2008. By the end of March, Destin and the neighboring area of Fort Walton Beach was up 8 percent while Panama City rose by 13.9 percent. 

According to a survey compiled by AOL Travel/Zogby, Malone said 69 percent of respondents said the price of gas would not affect their travel plans. “The survey found 57 percent of respondents would have less money to spend, but that plays into our strengths,” he said. “Instead of a family from Atlanta or Nashville getting on a plane and going to the Caribbean, they will pack up the car and come to a destination like ours.”

Dan Rowe, president/CEO of the Panama City Beach CVB, said tourism numbers for the city were impressive in the spring as well, and a successful summer season is in full swing. He said Panama City Beach is doing all it can to attract visitors to the area. “If people are traveling, we’ll give them a reason to come here,” he said.

Malone said a long-time player in the vacation rental game also believes the economy bodes well for tourism in our area. “According to Pedro Mandoki, who has been a part of the vacation rental business for the past 30 years from Panama City Beach to Fort Morgan, anytime the economy slows down, it plays to our strengths,” he said.

It Is A Buyer’s Market
All things considered, now is a great time to buy a condo, according to the Florida Association of Realtors’ Martin. “Mortgage rates are now extremely low—as low as they have been in years,” she said. “Price points are now much better than they have been in the past several years.”

Destin Realtor Lundstrom said she predicts the gulf coast will come out of the slow housing market sooner than other areas, and that makes now the time to buy. “We went into this sooner—about a year—than the rest of the country,” she said. “Because we went in earlier, we should come out of it sooner.”