If you segment the market, the murky real estate waters turn to a nice emerald green…

At the beginning of the 2007 summer, our cable channels kept reporting that buyers could purchase properties for fifty cents on the dollar. Over and over I was told “watch out, you guys are next”. I suppose it could be said they were partially right in a distorted 20,000 foot overview sort of way (and that is really being kind). I do not believe all properties can be lumped into one big bucket, packaged neatly and distributed in a cute little sound bite. If you were shopping for a sports car, would you allow everyone claiming to have a sports car in the same class? Can you really put a Mitsubishi Eclipse and a Porsche 911 in an apples to apples comparison. Do you see where I am going with this?

If you want to be that general, you could say that in 2005 we had preconstruction and existing sales approaching 500 and 600 a square foot. We are currently selling re-sales of newer condos anywhere from the high 200’s - low 300’s a square foot. Isn’t that fifty cents on the dollar? Are prices done coming down? How on earth can you answer a question that general and be anywhere close to the right answer? I believe you get a much more accurate view of the market by segmenting different condominiums. Amenities, distance from the beach, and preconstruction pricing all contribute to what the market is doing for that specific project. Here is a brief summary of where preconstruction is today in the Panama City Beach Real Estate market.

Non Gulf Front Condominium Preconstruction.

We have already seen a non waterfront preconstruction project fall. Cabana West was a preconstruction condominium project. It is a nice project, but it is significantly different than other gulf front condominium projects because it is blocks from the beach. That doesn’t make it a bad project, but it does make it different and pricing should reflect that. They could not get contract holders to close and now they are leasing. This is not the only project that is going to have this problem in Panama City Beach. We have a couple more on the way. The thing is that they should have very little, if any, effect on the waterfront condominiums.

Gulf front and Waterfront Condominium Preconstruction

Many of the gulf front preconstruction condominiums that conveyed this year were at contract prices that were at or significantly below today’s prices (as they should be). This was mainly caused by significant delays in the construction of those projects. If contract holders truly did not want to close on there units, it was easy to find a buyer without loosing any money.

We are now at a point where the preconstruction gulf front projects and their preconstruction contract prices may not be below current market prices. We have already seen a couple of projects close where this appears to be the case. There are several projects that were not able to close on the majority of there units. We have yet to see the developers flinch. The majority of these projects are backed by developers with strong balance sheets. It is also notable that the majority of condominiums that have closed this year had significant amenities that could differentiate them from other projects. I believe a condominiums ability to differentiate itself is likely to have significant impact on rental revenue and re-sales in the years to come.

Now we get to the buildings that have not started to schedule closings yet. I do not have a crystal ball on this one. This is simply going to come down to the strength of the developer’s balance sheet and the number of people that close. It is encouraging that many of these developers have offered reductions in contract pricing and some have even listed unsold units at what looks to be fairly attractive pricing. This doesn’t help the existing preconstruction contract holders, but it should help the absorption rate. My overall point is that the sky is not falling, at least for the condominiums that are actually on the water that can differentiate themselves from the rest of the market. As for the projects blocks from the beach, most of us were scratching our heads years ago when they first released preconstruction pricing. This isn’t a big surprise.

So what is selling?

There are many people saying I am going to wait for that special deal to come along. There are many condominium projects where waiting is the smart thing. There are others where this is not the case. There were a nice group of buyers in 2007 who came out from the closing table waiting for a swat team, helicopter, and some goofy detective on a megaphone telling us to come out with there hands in the air. They knew they stole the condo they just closed on.

Here are two great examples that some people have found, but many people are still missing. Two separate developers put up exceptional projects that conveyed in 2005, Majestic and Boardwalk. They both were designed and constructed with exceptional amenities. They both were also designed in a way to make themselves unique from other condominiums in Panama City Beach. Now look at the market timing. The projects were sold at preconstruction prices in the early 2000’s. This was right before the boom hit. This makes it very easy for original buyers to sell there units without loosing any money compared to the price they originally paid. This is also forcing banks to do short sales (for the people who bought at the peak and could not afford it) at some amazing prices. This is providing very attractive pricing for some of the best units on the beach and people are buying.

Disclamer:

All opinions expressed by Christopher Arnold on this website are solely Chris’s opinions and do not reflect the opinions of Prudential, Prudential Shimmering Sands or their or affiliates. Chris’s opinions are based upon information he considers reliable, but neither Prudential, Prudential Shimmering Sands nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Chris’s statements and opinions are subject to change without notice. No part of Chris’s compensation from Prudential Shimmering Sands is related to the specific opinions he expresses. Past performance is not indicative of future results. Neither Christopher nor Prudential Shimmering Sands guarantees any specific outcome. You should be aware of the real risk that property values can and do fluctuate both up and down following the purchase of a property. Properties values may go down in value once purchased. You must make an independent decision regarding the real estate market and your purchases of real estate. Before using any information contained on this site, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from other professionals that may be relevant in your decision making process.