Condo conundrums: Sales in South End pick up, but glut of outdated ...

By: Darrell Hofheinz

After being knocked senseless by the real estate bust, Palm Beach?s condominium market south of Sloan?s Curve is beginning to stir, with more units changing hands in higher price ranges, brokers, agents and sales analyses say.

Even so, the problem that has plagued the area for many months ? a glut of outdated units that will require buyers to invest thousands of dollars to renovate them ? remains an obstacle to a quick recovery.

Sales of late have largely been driven by price-conscious buyers on the hunt for second and third homes, observers agree. Although more than 200 condominiums and cooperatives south of Sloan?s Curve in Palm Beach are on the market, buyers in the higher end ? those willing to pay at least $500,000 for an apartment ? are having trouble finding homes that meet their criteria.

?They all want an ocean view. They all want to be in the best building. They all want to be in a unit that?s been updated. And it?s very hard to give them all three,? said Don Gorbach, a senior agent for the Corcoran Group in Palm Beach. ?There?s a lot of inventory out there, but there?s not a lot of quality units.?

Some owners who bought at the height of the boom ? 2006 and 2007 ? choose not to sell, fearing they won?t recoup their original investment or the cost of renovations. Other sellers of non-updated units have seen buyers shy from apartments that require major interior work ? common south of Sloan?s Curve, where the majority of buildings are at least 30 years old, if not 40.

A market ?on the upswing

When the slowdown slammed the island, real estate sources agree, no other area of the housing market was hit as hard ? or was slower to emerge from the economic muck ? than the South End?s ?Condominium Row.?

But the sales picture is better than it has been since the recession tightened its grip on the island at the end of 2008, they say.

In 2007, at the height of the island?s real estate boom, nearly $85 million worth of South End condominiums and cooperatives changed hands in 99 transactions, according to that year?s Evans Report analysis prepared by Palm Beach real estate attorney and property owner Leslie Evans. Those sales were spurred in part by readily available financing and investors who bought apartments for quick resale in a red-hot market.

But the bust in 2009 left many new owners in the lurch, generating transactions practically unheard of in Palm Beach: foreclosures and ?short? sales, in which condos sold for less than what owners owed.

In 2009, the number of sales rose to 125 for South End condos, but the total dollar amount spent for them dropped to $73.5 million, reflecting plunging prices. In 2010, transactions climbed to 175, but the total dollar amount declined further, to $65 million.

Although more condos have sold in the years since the bust, prices plummeted from a median of $625,000 in 2007 to a median of $265,000 in 2010, the Evans Report shows.

?In the boom period, a lot of people stepped into that hysteria of owning real estate, and they paid prices for units in their original condition that reflected prices of units that had been completely updated or were in a better location. It was kind of a perfect storm,? recalled broker Scott Gordon of Scott Gordon Realty, whose Manalapan company focuses on South End condos. ?Before this past season, people were standing on the sidelines. Everybody was just waiting for that bell that said it was safe to come out and play.?

That bell sounded steadily the past six months for higher-end buyers, Gordon said. ? ?Last year, there were only seven transactions over $1 million for the entire year. So far this year, we have 12 that have closed, and another two sales are pending.?

Broker Jeffrey Ray of Jeffrey Ray & Associates said higher-priced South End listings ? $1 million and up ? fared well this past season. ?The better inventory that I had did quite well, and price became the focus of the sale,? he said.

But, Gordon cautioned, ?I?m not so sure prices are going up (across the market). I think people are being more selective about what they?re buying. They?re buying better location, for example.?

Joan Wenzel, manager of condominium sales at Fite Shavell & Associates, specializes in luxury South End condos priced above $600,000.

?I?ve seen a definite upswing in prices,? she said. ?I think the lower prices have been chewed up, especially if you want direct oceanfront. ? There are still bargains here, compared to a few years ago ? just not the ridiculous giveaways.?

Sales figures in the Evans Report for the first quarter of this year support that. From Jan. 1 through the end of March, about the same number of condominiums in the South End sold as during the same period last year: 36 in 2011 versus 37 in 2010. But the median sales price rose by $126,250, to $376,250, and the total dollar amount of South End condos sold during the quarter nearly doubled, from $12.4 million last year to $22.8 million this year.

Evans hasn?t released his second-quarter report yet, but the Palm Beach Multiple Listing Service shows a steady number of South End sales since January ? a total of 77 through the middle of this month. The biggest deal involved a three-bedroom condo with 4,040 square feet in the 2770 Building that sold in May for a recorded $2.2 million. The apartment was listed by Gordon; agent Ralph Gill of Monique Matheson Properties L.C. represented the buyer.

?Price it right, and it will move,? broker Monique Matheson said. ?Sellers have realized that they can?t get the prices they were asking for, and they?re being more flexible.?

What?s for sale, ?and who?s buying

Waterfront apartments in the South End have traditionally been less expensive than the island?s in-town condominiums.

?The South End lets you live on the beach with a cost per square foot that?s almost half of what it would be to live in town,? Gordon said. ?That?s not to say there aren?t great values in town, but it just demands a different price point.?

While Midtown condos are close to Palm Beach?s bustling retail and dining districts, buildings to the south have quieter resort-like charms. Direct ocean views and access are complemented by vistas to the west of the Intracoastal Waterway. The newly renovated Par 3 Golf Course is convenient for golfers. And the fact that access to the area is limited to a single roadway increases the sense of security ? a key sales point, Gordon said.

The number of residential units available in the South End also puts the area into a class by itself: Of the 267 condos that sold throughout Palm Beach last year, nearly two-thirds, or 175, were in the South End, Evans documented.

Today, the South End condo market ranges from a one-bedroom co-op unit at The Ambassador for $60,000 ? the bottom of the scale ? to a rare-to-the-market double-unit penthouse with 6,500 square feet at Sloan?s Curve, listed at $6.99 million by Matheson.

According to mid-July figures from the Palm Beach Multiple Listing Service, 37 properties in the South End were on the market for more than $1 million; 71 between $500,000 and $1 million; 47 between $300,000 and $500,000; and 78 for less than $300,000. (The price ranges in the adjacent town of South Palm Beach, in comparison, are more narrow: Of the 59 properties listed for sale there in mid-July, only two were priced at more than $500,000, and of the rest, 42 were listed at less than $300,000.)

?I always say, ?You buy building and view. These are the two things that drive the price,??? said Susan Sternfeld, a longtime condominium specialist with Martha A. Gottfried Inc. Square footage, condition and what has sold nearby are also factors in setting prices, she said. Thanks to the ease of comparison-shopping via real estate websites, buyers today often know exactly what they want ? and what they want to pay for it, Sternfeld said.

Different profile

Today?s buyers also don?t fit the traditional snowbird profile, Wenzel, of Fite Shavell, said.

?My buyer used to be someone who was retiring from the Northeast who was looking to buy a second home. I?d say that over half of my buyers are looking for third homes ? and they pay cash.?

Cash is key these days, as the availability of bank financing for condominiums has tightened since the bust.

Sternfeld agrees today?s buyers in the South End are likely to be younger ? in their 30s and 40s ? and in search of a pied-a-terre that will accommodate shorter stays. ?The bottom line is they look at it as if they?ll be here on vacation, so they want a lot of amenities in the building they choose.?

Sternfeld added a kicker: ?They also want newer amenities and very high ceilings, but there are few buildings that offer that.?

Updated apartments ?in demand

Properties in the area are all over the map when it comes to having the features in demand by the majority of today?s buyers: choice ocean views, updated kitchens and bathrooms, and fresh interiors in well-maintained buildings. Finding that package on the South End isn?t easy.

?Out of the 300 or so units (listed in mid-July), there?s less than 10 percent that have been renovated,? broker Gordon said.

Outdated apartments often end up in the hands of the original owner?s grown children, who find them a tough sell. Others who bought apartments in their original condition during the boom in hopes of flipping them for profit found themselves stuck with white elephants.

?Buyers don?t really want to renovate. And this season, I really saw them stick to their guns, whereas in the past, they would go ahead and buy and then renovate,? noted agent Susan Furman of Linda A. Gary Real Estate, whose specialty is condominiums priced at $1 million or more.

Wenzel cited one example of buyers paying more for renovated units today. At The Cove, 2784 S. Ocean Blvd., a renovated apartment recently sold for $685,000 ? $190,000 more than the never-updated apartment directly below it fetched a year before.

?A lot of the units need updating,? said Gorbach of the Corcoran Group, ?and they?re in buildings that need updating as well.?

While some higher-end buildings have made maintenance a priority, other buildings show their age ? with deteriorating concrete, leaky air-conditioning ducts, loose balcony railings, an out-of-date lobby or a host of other infrastructure problems, Gordon said. Buyers, who drive sales, may avoid a building where problems are obvious, fearing big special assessments to fix them, he said.

What lies ahead?

Real estate agents acknowledge it will be a while before they see more stability in the number of transactions, inventory available for sale and prices fetched in the South End. And, they warn, it may take years before prices approach numbers seen at the height of the boom.

?Today, our inventory is probably double what the sales are. That?s going to be the biggest hurdle before there?s stability in the marketplace ? to reduce our inventory,? Gordon said. ?It?s happening, which is a good thing. If we stay on this course, though, we still have a year and a half to two years worth of inventory to be absorbed.

?And once that happens, we?ll see a little bit of normalcy in the marketplace, where (sales and prices) won?t be just bouncing around, as they are now.?

The many less expensive units on the market ? priced below $250,000 ? will eventually find entry-level buyers, Gordon predicted.

Wenzel said she reminds her apartment-hunters that the South End is unlike many other condominium areas in South Florida, where canyons of high-rises area are a given. The South End offers buyers a different sort of lifestyle ? and Palm Beach cachet.

?The building may be more modest, but you?re right on the beach,? Wenzel said. ?When I tell people that there aren?t new buildings in Palm Beach, I do have people who say, ?What about Singer Island??

?But then you?re not in Palm Beach.?

Source: http://fiteshavell.com/blog/?p=841

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