By Eric Pfahler
Posted: March 31, 2013
For nearly half a decade, the Treasure Coast has been mired in an economic slump highlighted by a struggling real estate industry.
But bankers, Realtors and builders are starting to become a bit more confident about the upcoming year. Real estate and construction remain an important driver for the Treasure Coast economy.
To better gauge how the sector is doing, Scripps Treasure Coast Newspapers conducted a round-table discussion to find out the status and future of the industry.
Q: What do you see happening in the local real estate market in 2013?
Donn Wonderling: The economy overall has gone through a period of recovery. From the moment the market stopped dropping in the end of 2008, it started to recover right at the beginning of 2009. For 2013, I expect that we are going to continue to make progress on the supply side of this equation. The inventory’s going to continue to drop. But the challenge is going to be on the demand side, and I think that’s only going to be improved by improvements in the job sector.
Adam Preuss: A few years ago when we would do a search for comparable (home sales), we had to weed through a lot of distressed sales to find the ones that were really true arms-length transactions that were indicative of the market. Now they’re still there, but it’s not nearly to the extent that they were. That’s shown in the lower inventory level. (We) track the median sale prices each month compared to the year prior as well as the inventory levels, and it seems like each month in 2012 was better than the year prior. The median prices have gone up. … As far as values and costs, there still is that gap, unfortunately. We’re not going to really be back until value and cost are relative, but I think it’s getting there.
Dennis Hudson: Unemployment here in the three counties is still high, (but) it’s improved. We’ve been in a recovery for three or four years. It hasn’t felt like a recovery for a consumer because we see wages being flat to down if you’re a consumer, and we see food prices that have increased and it’s just not been a very pleasant recovery for a lot of folks. But I’m encouraged in the last two years, we’ve had very strong winters, and we’re feeling the inbound migration again.
Dorothy Hudson: There are still very good deals out there. I think the market has reset and is starting to appreciate in the residential. In the commercial end, (we) still have some trouble, but there’s certainly signs of hope in my view. We’re seeing a pickup in the retail sector. Office, I’d like to see more in.
David Ederer: We have one approved development for about 400 units that we just received an unsolicited offer to sell a pod in at a price that was very surprising to us. When we thought the offer was going to come in, we knew it wouldn’t work for us, and the offer came in significantly higher than we expected, and all-cash buyers and everything’s moving smoothly for it. Our take on the market is over the last, let’s say four years, the relationship between builders, developers, bankers and appraisers has been broken. There’s been a disconnect. Our buyers couldn’t go out and borrow enough money for a new house, whether it be custom, and we couldn’t borrow the money to do any development work. I’m not sure we’re quite back yet to where the values and new construction comes in line, but we’re getting close enough to where we’re strongly evaluating putting up five spec homes on one of our developments that we have.
Dennis Hudson: I think we’re getting there, and we’re seeing there are new homes under construction now. Inventories are really going down rapidly. I’ve actually been thinking that we’re pretty well ready to step back in.
Mike Lafferty: All indications, all the statistics, all the numbers are pointing to a continued recovery. I mean 2012 was better than 2011, which was better than 2010. We’ve continued to grow. … The equity sales are starting to increase. The foreclosures are becoming the least number of sales, which is a good sign. I think 2013 is going to be a real standout breakout year in real estate, and without real estate, the economy’s not going to turn itself around. We’re going to all see the big turn this year.
John Auld: The first thing I’d like to do here is those of you with rosy-tinted glasses, could I trade mine in for yours? … My perspective will not come from the residential, although we certainly recognize that as a key part of the U.S. real estate market. I do not see things nearly as rosy on the commercial, industrial, investment, retail, land, whatever side as the rest of you do. … Is it improving? Yes, slightly. It is ratcheting, but it’s (slow). There is a lot of property out there right now that is valued at significantly less than it was in 2007. The last five years have been a disaster. In 2012, we had some successes, but I have not been involved in a transaction, and I’ve done over $10 million in 2012, that involved a financial institution. Not one. They’ve either been cash or seller financed, and several of them quite honestly were short sales. … There is a particular industrial condominium maybe 400 yards from where we’re sitting right now (at Scripps Treasure Coast Newspapers St. Lucie West printing plant) that went under contract at $90 a square foot, flipped five times and sold for $160 a foot. We weren’t involved in that transaction (in early 2008). We weren’t the listing or selling broker. But I knew all the parties.
Dennis Hudson: The last deal. (laughter)
John Auld: Yeah, so the buyer who was obviously not informed and took a big risk, financed it at about probably 95 percent loan to value ratio. Put up 5 percent on $160 a square foot, and called me up about three months after he bought it and said, “Please find me a tenant.” And I said, “Well, we could try, but the market is tanking.” … The bank owned that three months later. The guy just gave it back to them, and it became, for us, a symbol of what happened to overly aggressive brokers, both informed and uninformed investors, some users, to the real estate brokerage community at large.
Mike Lafferty: It sounds like commercial is in the same position residential was in 2-3 years ago. We just have to flush out all the bad stuff so we can get to the new building. And correct me if I’m wrong, but a lot of commercial really follows the residential. As we went through the boom and were selling like crazy, then all of the commercial came in to build the shops next to it. Then we crashed and then commercial crashed and as we come back, hopefully you guys are building. Is that true?
John Auld: The only slight rosiness that comes into the spectacles is this: as the residential continues to ratchet up, as the houses that were bought by the speculators and they weren’t able to fill them, so they put tenants into them, some of those tenants have been OK, and some of those tenants have trashed them. This provides an opportunity for workmen to come in and clean them up, fix them up, build them up. Chinese drywall, there’s a lot of jobs in Chinese drywall. Bringing things up to code, electricians, plumbers, tile, whatever. So we will see some growth and we will see some of the tradesmen coming back in who started out in their own building, went to 2,000 feet of rental and then went to their garage. … Now they’re slowly coming back out of their garage as they’re making money and they’re renting the space as cheaply as possible.
Dorothy Hudson: I think what you’re going to find is things will recover when builders are building, it starts making sense in the residential market for people to begin building new. That’s what creates jobs that starts using all of that extra flex space. That’s what really impacts commercial. That’s why there’s always lag, and I, for one, see that sort of thing coming up.
John Auld: But isn’t it sad, we were essentially a one-horse community. We were reliant upon the boom and bust of the residential. We do not have other jobs. Some of the stuff in Tradition is a wonderful idea, and it’s a great mini-hub between Palm Beach County to the south and Orlando to the north, it’s a great mini-hub, but the loss of Digital Domain hurt. There’s other good things going on in there, and they all seem to be OK for now. So hopefully, that’s going to go along, but where are the job creators here on this coast? I mean, seriously, where are the other job creators other than single-family? So if single-family is going to grow, who are the workers who are going to buy and occupy those homes?
Marc Friedman: We have seen nice increases in the market over 2012. I kind of use Palm Beach County as a gauge. We have many holdings in Martin County as well, and as Palm Beach County tends to increase then our properties in Martin County tend to sell better. So we’re seeing nice amounts of increases. You’ve got closed sales up 8 percent, median sales prices up 8 percent, pending is up 25 percent, days on market is down 5 percent, inventories are down 42 percent in Palm Beach County. So as those statistics continue, and they may go up or down on a monthly basis based upon what time of year and seasonal influx from residents of the northeast, but overall we’re seeing nice increases, and this goes from the Panhandle through Orlando and down. And there are some communities where in certain municipalities where I can’t go ahead and construct because of the cost to construct, because that community may be blighted and there’s too many homes in that community that are at short sale, and if I was to go ahead and build, I wouldn’t be able to obtain my price. But we are seeing as Palm Beach County increases, it moves north. And we have had a very good year, and we anticipate another very, very good year.
About this story
Scripps Treasure Coast Newspapers organized an economic round-table featuring eight professionals in businesses related to real estate throughout the Treasure Coast. The newspaper designed the summit to give local residents information about the present and future of the Treasure Coast real estate industry.
People who attended and contributed to the Scripps Treasure Coast Newspapers’ real estate round-table discussion:
John Auld: Broker, SLC Commercial Inc.
David Ederer: Managing member, NAVO Builders LLC
Marc Friedman: Vice president of Sales & Marketing, Kolter Signature Homes LLC
Dennis Hudson: Chairman and CEO, Seacoast National Bank
Dorothy Hudson: Realtor & commercial manager, Alex MacWilliam Inc. Real Estate
Mike Lafferty: President, Realtors Association of Indian River County
Adam Preuss: President, Adam Preuss Appraisal Services Inc.
Donn Wonderling: President, Realtor Association of St. Lucie County