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AVENUE

Palm Beach: No Vacancy

Published: 1/1/2014Source: AVENUE

Participants

CAROLE HOGAN, sales director of Brown Harris Stevens of Palm Beach
DANA KOCH, sales associate with The Corcoran Group's Koch Team
JOHN O. PICKETT III, president and a broker at Barrett Welles Property Group in Palm Beach
JAY PHILLIP PARKER, CEO of Douglas Elliman Real Estate, Florida Brokerage
WALLY TURNER, agent and leading producer at Sotheby's International Realty in Palm Beach.

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AVENUE: How's the inventory on the island?

JOHN O. PICKETT III: As you know, the discretionary market came to a substantial halt in 2008-2009, and to a certain extent in 2010. That created a decent amount of pent-up demand. Now, I've got a back-up of buyers who are ready, willing and able to purchase something. But we just can't find them anything. It's going to be interesting to see what happens over the course of the next four or five months-whether or not inventory does reemerge and at what level. If not, you are going to start seeing a lot more off-market deals, which you haven't seen in a long time.

JAY PHILLIP PARKER: I agree. Demand is simply outpacing supply, and in turn, there's upward pressure on pricing. So we're seeing pricing start to increase, consistent with the general rule of thumb: supply and demand. Overall, inventory's down 8.1 percent from the same period, last quarter, last year.

WALLY TURNER: The market has also shifted from a buyer's market to a seller's market. Prices have been on the rise for the past 12 months. There is a lot of demand, especially in the entry level under $5 million, as younger families and seasonal residents come into the market. We have an amazing selection of waterfront properties in the $15 million-to-$50 million [market segment] at this time.

Avenue: Why is the inventory low?

CAROLE HOGAN: We have a very small market here. There are 105 houses for sale right now. When I first got into the business in the late '80s, we had 275 to 300 houses for sale. Also, people tend to buy in Palm Beach when they are getting ready to retire. So, as these baby boomers from the Hamptons and New York City started buying, maybe within the last ten years, they were buying for future use. Why would they sell when now is their future use?

DANA KOCH: In addition to that, sellers have nowhere to go. So, people on the island are a little more reluctant to sell.

AVENUE: How would you describe the North End, Midtown and the Estates sections?

JOHN: The North End tends to be more of a younger group of owners and year-round residents. The houses and the lot sizes in general are little bit smaller. Houses in Midtown are larger and tend to be somebody's second, third or fourth house. They tend to be for people who are down here just for the season or long weekends. Then, you get toward the southern end of Palm Beach, where you've got the big estates and you get into the celebrity factor.

CAROLE: The sections are also visually different. The Estate section was built for socialites in the 1920s. It has a lot of Spanish homes and historic properties. Midtown is a mix, with many homes built for people who owned shops. They're on smaller, non-conforming lots. The North End was developed in the '50s and '60s, with predominantly Bermuda houses on smaller lots.

AVENUE: We saw two big off-market sales-Howard Stern's and Ken Griffin's purchases. Is that a trend?

JAY: The growth of pocket listings is a phenomenon at the upper end of the market because of tight inventory. Obviously, it gives the seller tremendous leverage when it comes to negotiating. That's a trend that we'll see continue. The downside of it is that when you expose your property to a small percentage of people versus the mass market. There's no competition to drive the price even higher.

AVENUE: How's the volume of sales impacting prices?

DANA: Prices are up almost 20 percent from 2012. They have been impacted more in the North End, where there is a lack of supply, while in the Estate section the increase is more subtle. In the first 10 months of this year, we're up over 60 percent with regard to sales volume of single-family homes. It's a pretty significant number. In that period, we had 140 sales, up from 80 during the same period in 2012.

JAY: Volume obviously peaked in 2008. Year to date, we're 12 percent below the peak. But very interestingly, we're 20 percent above last year.

JOHN: The volume, particularly from January to June of this year, was the highest I'd seen probably since 2008.

AVENUE: How did the financial meltdown affect Palm Beach?

JAY: The financial crisis in Palm Beach was deeper than the banking institutions and the real estate market. It also involved the Madoff fraud. People who lost their investment in the Madoff scheme had to put on hold their plans to purchase a Palm Beach home, or in some cases were forced to sell.

DANA: There's definitely a direct correlation between what goes on, on Wall Street and what goes on in the real estate market down here. During the downturn, a new psychological perspective surfaced. People who did extremely well during that time were a little embarrassed to spend big money for a second home.

JOHN: Also, people who were doing very well in their jobs didn't have the confidence, for the first time in a long time, in their ability to replace money.

Avenue: What is happening with prices?

CAROLE: When we had the glut of inventory on the market and nothing was really moving, the North End prices dropped dramatically. The prices are still a bit under market and the area is still hot, in part because you can get new construction in the North End, whereas [in] the Midtown and Estate sections, we have numerous landmarked homes and tear-down restrictions.

JOHN: Whether values dropped 30 percent or 40 percent, North End probably took the biggest brunt of the hit on the island. Between 2009 and 2011 there was something like 40-something sales under $2 million in that part of town.

DANA: In Palm Beach, the highest average price and the highest median price were in 2008. Prices bottomed around 2011, when things started to turn. At the end of 2012, it was like someone turned a faucet on. And it's gone crazy ever since then, especially in the single-family home market.

AVENUE: How are prices doing in the Estate section?

DANA: The Estate section is a bit of a different animal. The high-end trophy properties that are direct ocean fronts will always sell. But the market that I find to be the quietest and offer the best deals is in the $6 million-to-$15 million-dollar range.

CAROLE: Now that prices have gone back up, we are missing properties in the $4.5 million-to-$6 million range.

Avenue: Is spec construction coming back?

DANA: During the downturn there wasn't any spec building, but savvy spec builders were buying land to sit on it. They came back into the market in the last 12 months.

WALLY: Spec building is having a big resurgence on the island. This is good for buyers who don't want to go through the pains of designing, permitting and construction. But, be prepared to pay up for that convenience and for having a brand new house. Pricing starts in the high $3 million and goes up to $50 million for spec houses.

AVENUE: How does the future of Palm Beach look?

JAY: The lack of state income tax, the homestead protection and the exclusivity of Palm Beach are going to continue to drive the financial players from Manhattan and the surrounding boroughs into Palm Beach in droves.

AVENUE: Are hedge fund managers becoming more active on the island?

CAROLE: Hedge fund guys have been here for a long time. The interesting thing, which

I've noticed recently, is that the hedge fund buyers spend more freely. They feel they will be able to replace the money easily because of an improving economy. They spend a little bit more casually on properties here.

DANA: So, what's been happening is that hedge fund managers, who have helped drive our housing market, are now moving their businesses down here.

JAY: If you own a 10,000-square-foot apartment in the Mandarin Oriental in New York that's trading at $6,000-a-square-foot, when you replace that for a house in Palm Beach, the new property is a bargain.

JOHN: If you're a hedge fund guy who makes $10 million a year, your taxes in New York are about $5.5 million. Down here, they'd be on the order of about $4 million, saving about $1.5 million a year. So, you can buy a primary residence down here and recoup the money in a few years.

DANA: There is a local investor in town who bought 10 to 12 houses at current market prices. That investor is in the process of renting all of their homes out. So they see Palm Beach as a great place to invest and bank their money.

CAROLE: There is practically no inventory of rental properties. It's really dreadful.

JOHN: About three months ago, I tried to find a rental for a gentleman who was building a house on the island. I looked for a home in the price range of $4,000 to $12,000 a month on the island and in substantial parts of West Palm Beach. Guess how many I came up with? Nine, and in some of the cases, the property really needed a lot of work.

AVENUE: What surprises you about the current housing market in Palm Beach?

DANA: Even though I have less inventory to sell, I'm putting more deals together. The tire kickers have left the market. And when people are out there looking, they're serious. I'm getting multiple bids again. In the last three weeks, I sold two houses for full asking price. Those days are back with a vengeance.

JOHN: But we haven't seen one trade above list, though, yet.

JOHN: Obviously, it fell furthest; and it is still the slowest to come back. The higher-quality condos are starting to catch up a little bit.

DANA: Next year at this time, we're going to be talking about the condo market the same way we're talking today about the single-family home market. The problem is that in the high end of the condo market, there's a scarcity of large apartments.

CAROLE: The condos started to be built in the mid-1950s, so we have a lot of old construction. They have open parking and catwalks, which are the open walkways along the backs of these buildings. And those are some of our better buildings. But people balk at that. That may send some condo buyers over the bridge into West Palm Beach.

JAY: We have a new project in West Palm Beach that we are about to launch at 1112 South Flagler Drive. We're building this project specifically to meet that need: larger units, modern amenities and security. These are all components that people are looking for but are not available at this moment.

WALLY: In-town condos continue to perform very well. We have very limited supply at this time. There are a few attractive oceanfront condos available currently in the $2 million-to-$3.5million range.

AVENUE: Tell me about one of your favorite listings.

DANA: We just listed a property that is a little over 2.6 acres with 300 feet of ocean front at 530/540 South Ocean Boulevard/61 Middle Road. To get that kind of acreage and (hat kind of ocean frontage close to town and in the Estate section is pretty remarkable. You have the flexibility with the property to build your dream home. The Middle Road property has a gorgeous courtyard-style home on it, designed by architect Marion Sims Wyeth-one of the name architects from the 1920s. The asking price is $47.8 million.

CAROLE: We share a listing with Corcoran. It's on 4.3 acres in the Estate section. And it's a unique property. It was originally five parcels, four of which were residential parcels. And then, the owner bought the end of Middle Road from the town. There's a Wyeth house on one part of the property and a Mizner house up on the ocean side. It has 150 feet of ocean front. It's on the market for $59 million.

JAY: 748 Hi Mount Road on the north end of the island: It's at the highest elevation in Palm Beach, so you have spectacular views from the main floor of the home. It has a tremendous amount of potential for somebody to come in and acquire a home that has great bones and structure and has the opportunity to really turn it into a showcase property, obviously having great dockage. It is listed at $19.5 million.

Paola Iuspa-Abbott is director of media relations with Schwartz Media Strategies in Miami. After a 15-year career in journalism, Paola recently joined the world of public relations. She held several newspaper positions during her career, including senior real estate reporter at the Daily Business Review in South Florida, suburban reporter with the South Florida Sun-Sentinel and real estate reporter with the South Florida Business Journal.

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