Condo Conversions, Upscale Development Transforming Florida Keys Real Estate

Real estate values soared last year in the Upper Keys, but have shown signs of slowing down in the past few months, according to the Florida Keys News online. While upscale redevelopment projects continued their strong growth, a new word, “condotel,” became part of the everyday Keys lexicon. In both Key Largo and Islamorada, officials continued to spar over housing issues in what was often a contenious calendar year.

The “condotel” phenomenon caught fire in the Upper Keys as many properties began to change hands, one after another. Hobo’s, Kelly’s on the Bay, America Outdoors Campground, The Pilot House, Bayside Resort, Holiday Isle; the list goes on and on. As with many other areas of South Florida real estate, investors converged on the Keys, paying big bucks for properties they plan on redeveloping into upscale hotel condominiums — hybrids in which rooms or suites are rented out like hotel rooms, but are privately owned by investors.

• Lindback’s La Siesta Resort in Islamorada, a venerable landmark, sold for $27 million, destined to be converted into a ritzy condotel.
• Meanwhile, Holiday Isle was under contract for nearly $100 million, and soon it too will become a condotel.

A new developer in the area, Cay Clubs International (run by Dave Clark of Tavernier) became a major player. Before the year ended, the company had acquired an entire block in Islamorada south of the Tavernier Creek Bridge, Mangrove Marina in Tavernier, Bayside Resort in Key Largo, the Pilot House (also in Key Largo) and two exclusive properties in Marathon. It plans to put floating townhome communities on many sites.

Some Marathon and Monroe County officials balked at the plans, however, calling the homes unsafe and saying they do not comply with building regulations.

As the condo conversion movement rages on and the number properties sold to big developers grows, officials in Islamorada and Monroe County are increasingly concerned about the loss of the Keys’ working waterfront. Monroe County placed a nine-month moratorium on marina redevelopment, while the issue took on an even more poignant significance in Islamorada. The village that bills itself the “fishing capital of the world” began to wonder if its charter fishing fleet is on the verge of being phased out.

In September, the Monroe County Tourist Development Council issued a report on the condo craze. The study found that more than 2,076 units — a startling figure for the tiny Keys — have been targeted for conversion to condominiums or condotels since the beginning of 2004. That number equates to 20 percent of the Keys’ total hotel, motel, recreational vehicle and campground spaces. In the Upper Keys, 75 percent of campground and RV units are being converted, mostly to residential condominiums.

Officials throughout Monroe County and the Upper Keys are also mullingthe ongoing crisis in affordable housing. Local governments have thus far failed to partner in the construction of a single affordable home. Driven by high fuel costs, continuing increases in property values and skyrocketing hazard insurance rates as a result of hurricanes, the cost of Upper Keys housing continued to rise at an alarming rate.

Not all was a loss on the affordable housing front in the Upper Keys, however. In August, the Monroe County Commission purchased a parcel of land on Tavernier’s Burton Drive with plans to build 32 residences. Habitat for Humanity constructed two units in 2005 in Key Largo and has seven more planned, while the 52-unit second phase of Key Largo’s Tradewinds Hammocks also is ready to proceed.

In Islamorada, progress also was limited to the planning phase. The village partnered with the Middle Keys Community Land Trust, which builds and manages affordable housing projects, to obtain four lots in Plantation Key Colony, upon which it seven residences will be built. Zoning changes were made to allow duplex construction in the village, and the board is looking to encourage builders along the Overseas Highway to mix businesses with affordable housing units.