Not the Bubble - The Wave

I never really understood the bubble analogy. It brings am image of a layer of soapy water pushing up a molecule thin layer of iridescence and then bursting into nothingness. A bubble has no support, has no power, no substance. If you follow local real estate market as closely as I do, you realize that the bubble talk is a media invention, and as Lee County Property Appraiser Ken Wilkinson said at last Friday’s CCIM breakfast meeting, if it weren’t for the constant questioning of the media about a bubble, the talk would melt away in the face of this strong economy.
The current real estate market in Southwest Flordia has power, sustenance, and the momentum that will continue to push development and the requisite sales that feed that development. I prefer a wave analogy. We are now in the interval between single powerful waves exploding on the beach during a rising tide. The baby boomers are our rising tide, with long term demand creation. The gap between absorption rates and building completions are creating our waves. The waves going in and out will not lessen that rising tide of demand. The important thing is to know the difference and where opportunities lie.
Savy buyers are making their deals now, in between the waves. Just like a shell collector chases the receding waves before the tide rises.


Preconstruction Opportunities.

Many look at preconstruction opportunities as a sure thing. They are not. They are opportunities for both the buyer and the developer but and they are not risk free. When a buyer reserves a preconstruction home, he locks in his price and is given the opportunity to spend 18 to 24 months planning. The good news is that as a potential buyer your only risk is “opportunity cost”. If the reservation is cancelled or the contract returned, you get all your money back, but you may have lost an opportunity elsewhere. That opportunity may have been another pre construction buy, or it may have been a CD rate of return.
The developer, on the other hand, starts preconstruction sales to achieve his pre-sale requirements and to gauge his market while he entitles and plans his project. During this process he continues to spend his money.
There are a number of reasons a project will not go through tp construction: Costs; Entitlements; Sales:
Costs. In some cases the developer’s costs may have increased faster than anticipated and his margins have eroded past the point of a do-able venture. He may have taken reservations at too low a price or taken them too early.
Entitlements. In other cases his entitlements (zoning, height permissions, set backs, density, etc.) may not allow him to do the project as anticipated. Lack of proper entitlements will either kill the project totally or so drastically change the economics as to make the project impractical.
Sales. I have not seen lack of sales hurt a project in our market, but indeed, if the developer can not reach a minimum threshold of sales by a certain time, he may not even start the project.

On the cost issue, I have had buyers tell me, “Well too bad; they made a deal with me and I want them to honor the price.” Personally however, I neverwant to be in a situation where the builder is trying to meet a price point under duress. I don’t want any corners cut on my condo. Do you?
Smart buyers ask about the three points above.
“Do you currently have a firm bid are your costs?” If the developer has not selected the builder yet, you can be pretty darn sure that they have no lock on their costs. Also ask about entitlements and sales requirements.
But, if they are not entitled and they do not have a firm bid on costs, this does not mean that this is not a wonderful opportunity, it only means that there is a chance that your contract will not go through, or that later sales will be at a much higher price – which is good for you. You are taking a relatively small risk, your “opportunity cost” for a potential large reward.
The size and reputation and experience of the builder, by the way, while important, does not preclude the need to ask these questions. An experienced builder may be even more likely not to proceed than a smaller less experienced one.

The opportunities between these waves right now are on existing projects or projects that already are under construction. I like the following projects for various combinations of value, location, and quality. All of these are under way or completed.
The Paramount at the Shores – we now have the opportunity to sell condos here that are undoubtedly the best marina front homes in a mid-rise that we have ever seen. For the past four month Gail and have been admiring The Paramount from the deck of the yacht “Scandalous”, who belongs to our dear friends Richard and Sandy. You see, the view of The Paramount from the Gulf Harbour Marina is stunning. Al lthe pasenges would comment on it obvious fantastice views. Our first guided tour inside the building did not disappoint us. Ronto (The Developer) and BBL (The Builder) outdid themselves with this project that will be completed second quarter 2006. The amenities and the views are unsurpassed in Lee County. Indeed the term “luxury” is over used in this town and certainly at The Paramount there needs to be a new superlative. Since construction is under way you will need to contact Kathy Brewer to make an appointment to take a privatetour.
Grande Isle. This coming Saturday (Noon to 5PM) there will be a Grand Opening and over 30 models will be open for inspection. I list this as best value for Marina Front living. If you have not been up Burnt Store Road lately you need to see the progress for your self. At Grand Isle we also have a few leasebacks available. Come see some decorator furnished models on Charlotte Harbor at South West Florida’s largest deep water marina. Virtual Tour Here. Email Deb Krikorian for open house details. Gail and I will be there all day by the way, and we would love to meet some of my readers. We will be hosting in the furnished model.
Rivers IV This is actually a BBL Development project. John Sullivan of BBL gave Market America a private tour of the construction under way. This one is a hidden gem. BBL is quietly building this Cape Coral project and only a select few have even heard of it. The building sits right on the water and slips are available. Email Tatiana to set up a tour.
North Star Kemp Demming invited us for a private showing this week. There are only 30 units left and there is a reason for this. The prices are superb ( Kemp locked in his costs with BBL), the layout smart, and Kemp is very good at "under promising and over delivering". With special arrangement, Market America agents can get you a special pricing here. But this is only for contracts executed in February. You will be hearing more about Mr. Demming and his next projects in future columns.
Bella Terra and Island Cove are two completed communities that have some wonderful opportunities where early buyers want to sell.. Email Deb Krikorian for more info.
The Citadel For price and location, you will do well at The Citadel . This well established project with prices starting at $249,900, has just announced a total renovation and face lift. Less than four miles from arguably the best beaches in Florida. Remember Location, Location, and Location. Email Tatiana for more information.

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