Southwest Florida Condo Market: Ugly, Ugly, Ugly

Hank Fishkind, noted Orlando economist, recently described the Southwest Florida condominium market as “Ugly, ugly.”

But to adequately depict the situation in Manatee County, you might want to throw in an extra “ugly.”

The Manatee condo market is not only plagued by a lengthening list of unsold residences and plummeting prices, but developers are being hit by a flurry of lawsuits filed by Florida mortgage loan borrowers who want out of their contracts.

Twenty-one suits have been filed in the past 18 months, with most of them arguing that developers breached terms of sales agreements by failing to complete construction in two years.

At the same time, condo buyers in Manatee have defaulted on 22 loans since January 2006, forcing bankers to put properties back on the market at the worst possible moment.

But instead of easing back on construction in the face of these trends as their counterparts in Sarasota are doing, Manatee developers are planning to bring 3,307 units out of the ground by the end of 2009, Fishkind’s projections show. That is just 300 fewer units than were built from 2004 through 2006.

The Sarasota housing market, by contrast, is expecting to add 1,883 units over the next three years — nearly 2,000 fewer than were built in the preceding three-year period.

Realtors say the trend in Manatee County is worrisome because the only way for the condo market to turn around is to bring supply and demand back to equilibrium.

“Stuff has to come off market one way or another,” said Scott Norris, a condo specialist with Coldwell Banker in Bradenton. “We have to get rid of supply.”

Supply and demand
The reason the condo market throughout the Florida real estate market is so out of whack these days is that developers misinterpreted speculator-driven demand during the boom and marched out far more units than were needed.

“When the market was booming, quite a few investors were thinking they could buy and flip for a profit,” said Chris Kawcak, a Manatee county condo specialist. “For a period of time, it worked great. But it gave developers a false sense of demand. That’s why so many rushed to do conversions and put up buildings.”

In Miami alone, developers will deliver 8,000 units this year and 12,000 next year. That comes on top of the more than 20,000 unsold units already clogging the market.

In Southwest Florida, the situation is proportionally similar.

The result is that Sarasota County’s inventory of unsold condos reached 2,588 in March, a 447 percent increase from March 2005.

In Manatee, inventories rose twice as fast, swelling 851 percent to 2,246 during the same time period. But Coldwell Banker’s Norris thinks inventory numbers do not tell the whole story.

“Developers and condo converters have not put everything they have in the MLS,” Norris said. “They are holding quite a lot back.

While Sarasota’s condo market is experiencing an increase in sales and a decline in inventory, conditions in Manatee continue to deteriorate, Norris said. There are practically no Florida mortgage applicants going after them.

The inventory of unsold condos is up 50 percent since March 2006 and 13 percent since the beginning of the year, Norris’ numbers show. What’s more, only 268 condos were sold during the first three months of 2007, exactly the same number as were sold in the month of March last year, according to Manatee County Property Appraiser data.

Conditions are so bad that Jacksonville-based St. Joe Co. announced last month that it has suspended sales at its SevenShores development on Perico Island while it reassesses the market.

Fight or flight
Given the bleak market situation in Manatee, it is no wonder buyers have responded the way they have. As in Sarasota, many have put their units back on the market where they compete for sales with newly completed residences.

Others are walking away from deposits, believing it better to lose $60,000 now than to tie up $600,000 and assume the monthly carrying costs of a Florida condo that cannot easily be sold.

“We’re seeing an incredible amount of walkaways statewide,” said Jack McCabe, a Deerfield Beach-based real estate consultant.

Mike Miller, who is developing The Palms at Riviera Dunes, said he and his partners sold 48 of the the 58 residences in the first phase of their 117-unit development. But at least 10 customers have backed out of their contracts, dropping total sales to 38.

“There is no denying that too much supply is hurting the market,” Miller said.

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