More than 15,000 condo-hotel rooms could flood the Central Florida housing market during the next several years in one of the biggest, and possibly riskiest, building booms ever to sweep the region’s lodging industry.

Condo hotels are outwardly indistinguishable from their conventional counterparts. They have lobbies, room service and even affiliations with the world’s best-known hotel brands. It’s their business model that’s radical.

In place of a single owner, condo hotels can have many hundreds of them, each with title to a room or a suite. The buyers are often second-home owners who become members of a condominium association that runs a lodging business. When the owners aren’t staying at the hotel, their rooms become part of the rental pool.

“If all these rooms are built, the [Orlando housing market] would have the greatest concentration of condo hotels in the country,” said Jack McCabe, a Deerfield Beach real estate consultant. “The investment potential of these things is really in question. What kind of appreciation, or depreciation, will we see on these units? No one knows.”

Many hotel-industry experts are skeptical about the prospects for condo hotels. There are many issues that cloud the outlook for these businesses. What will the resale market be like? Will room rentals offset owners’ costs? What happens if the hotel market goes soft?

“The stars really have to align for these hotels to work,” said Mark Lunt, senior manager with Ernst & Young’s Hospitality Advisory Services in Miami. “There may be some real estate appreciation for the owners, but I suspect there are a lot of complex issues that will ultimately be tested in the courts.”

Those concerns didn’t dissuade Rob Risman, an attorney from Cleveland who specializes in real estate development. He bought a unit at Mona Lisa at Celebration, a condo hotel being built near Walt Disney World.

“Condo hotels are a lifestyle purchase,” Risman said. “I really don’t look at it as an investment. It is a second home that we don’t need to decorate, and they take care of everything.”

Risman said he does business in Central Florida, and his family expects to use the hotel during visits to the theme parks. But he said Florida mortgage borrowers need to understand that condo hotels will only work if the hotel is viable.

“At the end of the day, I don’t think anything will work as an investment if it doesn’t work as a good hotel,” Risman said.

Not an investment
Condo-hotel developers walk a fine line when they market their projects, often to the high end. Because the units are condominiums, security laws prohibit sellers from marketing them as business investments - for good reason. Hotel-room rates and occupancy levels can fluctuate, making a rate of return hard to forecast.

So developers sell condo-hotel rooms as residential properties - albeit ones that might lack full kitchens, washing machines and other household basics. Like time shares, they can be used for vacations and rented when not used. But in a time-share arrangement, a unit has many owners. Condo-hotel rooms have just one owner.

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The Central Florida housing market has seen home sales dropp 34 percent in the fourth quarter, according to a report released Thursday.

Sales of existing homes did better than new ones in the fourth quarter and in 2006 overall, says a report by the Orlando Regional Realtor Association and Attorneys’ Title Insurance Fund.

Lake, Orange, Osceola and Seminole counties reported 7,666 existing single-family homes changed hands, while 4,357 new homes sold for a total of 12,023 in the fourth quarter of 2006. That compared with 12,390 existing and 5,849 new home sales for a total of 18,239 for the same period in 2005.

The year overall experienced a 23 percent decrease, as 38,537 existing homes and 19,264 new homes sold in 2006. In 2005, 51,913 existing and 23,087 new homes sold in the Orlando housing market.

The median home sale price for Central Florida was $245,000 for the fourth quarter of 2006 and for the whole year. In Seminole and Orange counties, the median sale price was $251,248 in the fourth quarter and $248,000 at year’s end. As these drop, more Florida home mortgage applications are likely to be sent in.

Hank Fishkind, chief economist for Attorneys’ Title Insurance Fund, says he expects activity to increase in the Orlando area in the second half of 2007. Closing volumes for the single-family market will likely recover in 2008 to more normal levels, while the Florida condominium market’s recovery should come in 2009, he says.

The report is based on multiple listing service data from the Realtors group, which is primarily compiled through deed information from the Attorneys’ Title Insurance Fund.

A quarter of a million dollars.

That’s roughly what it takes to buy a typical, pre-existing home in the Central Florida housing market these days.

Existing-home sales soared to record heights in 2004-05, taking prices with them: The median price of a home in the Orlando area rose more than 60 percent in those two years, according to the Orlando Regional Realtor Association.

But since then, the local median has been stuck in neutral: For nearly a year now, the median has been exactly $250,000 or within a few thousand dollars of that amount in the Realtors’ core Orlando market.

So what kind of home can you get for that quarter of a million?

The answer varies widely depending on where the home is located in Central Florida. That same amount will fetch you a condo or small bungalow in downtown Orlando - or a nicely appointed pool home with a big yard in outlying parts of Volusia County, Lake County or Osceola County.

“The farther you get from downtown - the 32801 ZIP code - the more affordable housing is in general. It’s just basic economics,” said Marty Hunt, who has been selling residential real estate in metro Orlando and Central Florida for 18 years.

He said he has a home with about 1,300 square feet in Casselberry listed for $239,900 that would sell for “probably at least $50,000 or $60,000 more” if it were “closer to downtown Orlando or Winter Park.”

Also, the run-up in Orlando home prices in recent years - and throughout the state of Florida and much of the country - has pushed the median to levels few would have predicted not that long ago.

“Three years ago, you could get so much more” for $250,000, said Rhonda Morgan, an agent with Exit Real Estate Results in Orlando.

The Orlando market’s median sales price didn’t crack the $100,000 mark until mid-1998 - then promptly flattened out for nearly three years.

By the end of 2000, it had barely budged upward to $107,474, according to local Realtor records. As recently as January 2004, the median was still only $148,324 - about $100,000 less than it is today.

Most of the surge came during 2004-05, when Florida mortgage rates were low, the inventory of local homes for sale was tight and speculators began snapping up homes and fanning the inflationary psychology.

But the market slowed abruptly last year, and the median price flattened out at $250,000 as the costs of Florida mortgage loans soared higher than most prospective borrowers could bear.

Economists and industry experts say two of the three factors that fed the sales boom are now gone: Investors are no longer looking to flip properties for a quick profit, and the number of homes listed for sale has swelled more than sixfold to record and near-record levels.

Orlando’s existing-home inventory slipped from a peak of 21,324 in October to fewer than 20,000 by year’s end, but “a lot of that is seasonal,” Larson said. He predicts that many new listings will surface soon as people who yanked homes off the market late last year make another attempt to sell them during the prime home-shopping season this spring.

In January, inventory rebounded to 21,266 properties for sale.

The median has stopped rising, experts say, in large part because “people are buying at the bottom of the market, because it’s all they can afford,” and sellers have been slow to give ground by lowering their asking price.

For example, the average list price reported in January by Realtors in the Orlando area was $329,374 - about $80,000 more than the median for that month. The average list price never fell below $300,000 last year, despite the sales slowdown, as local sellers clung to hope that the market would soon rebound in their favor.

While housing prices now are relatively stable compared with recent years, sharp increases in homeowners insurance premiums and in newly resold homes’ property taxes have added to the pressure on Florida home mortgage costs and made it difficult for Realtors to close sales.

The pace of new-home construction continued to slow in the Central Florida housing market during the fourth quarter, with housing starts falling 37 percent from the same period a year ago, the Orlando Sentinel reports.

The research firm Metrostudy, which tracks the new-home market, said work started on 5,281 single-family homes in the final three months of last year, down from 8,443 in the same period a year earlier and 6,853 in the third quarter of last year.

The quick contraction in housing starts should help bring the supply of new homes into balance during the next few quarters, said Anthony Crocco, director of the Central Florida and Northeast divisions for Metrostudy.

“The construction pipeline is going to drop dramatically,” he said.

The region’s inventory of new homes declined nearly 10 percent at the end of last year, to 19,808 units, or a 7.7-month supply. The finished/vacant category doubled, to 8,867 units, while the number of properties now under construction dropped 40 percent to 10,129 as home builders cut back their work schedules in reaction to slumping demand.

Metrostudy physically drives through subdivisions to measure closings, so it can spot evidence that an individual or family has actually moved into a dwelling. That differs from the usual industry definition of a “closing,” or sale, because many times a sale will go through but the home won’t be occupied for months.

Home closings in the Orlando area fell 14 percent in the fourth quarter to 8,056, compared with a year earlier, Metrostudy found. For the full year, the number of single-family closings was down 5 percent to 30,699 compared with all of 2005.

One interesting sign of continued Florida mortgage demand in the region is that the number of people moving into new homes was just as strong during the final quarter of the year as during the year’s previous quarters.

That’s impressive, because the October- December period is generally not the time of year during which families take possession of a home and move.

“So the fact that we had as many people moving in at the end of the year as during July, August and September says a lot. That shows there’s still strong demand,” Crocco said.

He also cited the ongoing job growth, low Florida home loan rates and low unemployment rates in Metro Orlando - Orange, Seminole, Osceola and Lake counties - as good signs for a housing market rebound later this year or early in 2008.

Still, the industry has plenty of challenges ahead.

“Contract cancellations are still high,” he said, and competition from the huge inventory of used homes for sale remains a barrier to any rebound for home builders.

For its Central Florida report, the company’s survey of subdivisions includes the four Metro Orlando counties as well as parts of Polk and Volusia County.

City and county officials across Lake County Wednesday blasted Gov. Charlie Crist’s massive tax-cut plan, saying they would have to either reduce services or raise taxes to make up for the loss in real estate tax revenue.

On Tuesday, Crist said he wants the Florida Legislature to call a special election so residents can decide whether the state’s $25,000 homestead exemption - a critical factor in the ability of many homeowners in the overheated Florida housing market to remain there - should double.

Voters also would decide whether or not the Save Our Homes property tax cap should become portable, allowing Florida homeowners to carry those savings with them when they move into new homes.

The governor also proposes expanding the Save Our Homes benefit to include businesses, second homes and houses owned by out-of-state residents.

That all sounds great to the prospective Florida mortgage applicant, but city and county leaders in Lake said that would mean a drastic reduction in revenues.

Lake County, for example, would have received about $12.2 million less in revenues from property taxes last year if the homestead exemption had been doubled.

“That’s a huge chunk of money. I don’t know how you cut that much money out of the budget without cutting services,” said County Commissioner Elaine Renick.

However, Lake County plans to collect significantly more tax dollars this fiscal year, mainly because of new home construction and rising property values across the Central Florida housing market. Working with an expected $26 million windfall, county commissioners in September approved a slight tax-rate decrease of 5 cents for each $1,000 of taxable value.

In Eustis, Jim Myers, the city’s finance director and interim city manager, said he understands residents want tax relief. But cities and counties rely heavily on property-tax revenues to fund police and fire departments and maintain streets and parks.

Eustis would have seen about $569,000 less in tax revenue last year if the exemption had been doubled. Myers called Crist’s proposals unfair because they don’t cost the state any money, but greatly affect local budgets.

“I don’t question that some people need some relief, but it always seems to be the level of government that more closely serves the people - like the cities and the counties - that bear the brunt. When someone gets on the phone and calls 911, they don’t expect us to respond any differently.”

In 1992, voters approved the Save Our Homes referendum limiting the growth of taxable value of a primary residence to 3 percent a year.

The constitutional amendment applies only to homesteaded properties - not second homes, businesses or rental properties - and homeowners lose the savings when they move to a new house, thus rapidly increasing the taxes they must bear along with already-high Florida home loan payments.

But longtime owners say the amendment traps them in their current homes because they can’t afford the substantially higher property taxes they would pay if they moved. So Crist proposes making the tax benefits portable, allowing homeowners to keep them when they move.

Mount Dora City Council member James Homich said that would hurt smaller cities in rural areas.

“We have a large influx of people from South Florida coming into Mount Dora. If they buy up a lot of property here, that would be a serious cut in our tax revenues,” he said. “The people that live here now will have to pay for it.”

Homich said the proposal also would encourage urban sprawl and not address the growing issue of affordable housing by making it easier for people to buy homes in outlying areas.

Lake County Commissioner Jennifer Hill urged lawmakers to examine the long-term impacts of the governor’s plan, particularly efforts to expand the Save Our Homes property-tax cap.

“With the portability aspect, would people start selling their houses?” Hill said. “Would that make the housing market go up again? And would that increase housing prices and thereby increase taxes?”

After her divorce three years ago, Dawn Kirlew worried that she might end up living on the street. She couldn’t find a safe, affordable place for herself and her son to live.

Everywhere she looked, the rent for a two-bedroom, one-bath looked exceeded $1,000 a month. That would have taken up almost half her $25,000 salary.

“I was growing desperate, ” Kirlew said.

Then she found The Villages, a mixed-income complex near the Mall at Millenia that fit her budget. The 42-year-old moved right in.

But she may have been one of the lucky ones. As land prices escalate in the Central Florida housing market, and roads and schools become more crowded, developers are finding it harder to make the mixed-income concept work.

It has been an effective tool to help meet Central Florida’s acute housing affordability issue. Developers of communities of condos, rental apartments or a combination have set aside a percentage of the units at below-market rates for people with moderate incomes.

By using federal and state loans, as well as tax credits, developers such as The Villages’ Scott Culp, vice president of CED Construction, can still make a profit. But Culp’s Marbella project, set to break ground next month on North Goldenrod Road, may be the last of its kind for a while.

The infrastructure, housing experts say, can no longer support the growth of Orange County. Add on top of the Florida mortgages for home buyers, there are the escalating land costs for the developers themselves, and land for such projects becomes out of reach.

“We have two issues that compete in our community: the need for affordable housing, and school and transportation concurrency rules. It’s difficult to get a site that meets all of the regulations,” Culp said.

In most of unincorporated Orange County, where poorly-rated roads abound, that translates into a halt on additional apartment buildings and units up for purchase on the Florida condo market, which pack in more people than single-family homes.

“It’s a Catch-22,” said Mitch Glasser, the county’s housing and development manager. “On the one hand, you don’t want to overcrowd schools and overburden roads, but the need for affordable housing is real. I really don’t know what the answer is.”

As Florida mortgage costs raise the burden of home ownership higher than many residents can bear, the task force of developers and county officials is studying the problem.

Orange County Commissioner Mildred Fernandez, who worked closely with Culp, said that it was imperative to keep workforce housing projects from going extinct. She challenged fellow commissioners to work more diligently toward a solution.

“These are the people that work the hardest and are among the most needed to keep our community afloat,” Fernandez said. “They deserve to be able to live in a good place.”

The $36 million Marbella will have Mediterranean features, as well as an ornamental fountain near the main entrance. At least 40 percent of the condominiums and apartment units will be set below fair market value for people making 60 percent or less than the area’s median income.

In 2006, that was $34,440 for a family of four.

The first construction phase of Marbella is scheduled for completion early next year. Experts predict that Florida mortgage loans will remain at or around their current levels throughout 2007 and possibly beyond.

Sunday’s Lakeland Ledger tells the story of Carissa and Jerry Saus, one of many couples suffering a seller’s fate in a buyer’s market.

Despite a price drop of $15,000, the couple’s home is still on the market after four months. Nestled between Mulberry and Lakeland, the 1,611-square-foot, three-bedroom, two-bath, four-year-old home has a nice lawn with fenced backyard and a pond view.

Beginning price: $219,900
Current price: $204,900

Thursday, we talked about the current woes experienced by those selling in the Polk County housing market. So when this couple put their home up for sale, they weren’t surprised that it didn’t sell right away.

“We figured it would take a while,” Saus said. “There are several others in the area that are for sale. They have been up for a while, too.”

Brian Dockery, their Realtor from Keller Williams Realty in Lakeland, said that in the Central Florida housing market, lowering the price is becoming a necessity and the wait to sell a home is getting longer.

A little more than a year ago, homes sold within hours. It was a buyers’ bidding frenzy that was at or above the asking price in a boiling market towards the end of 2005.

But now there’s more room for negotiation.

“It used to be that 90 days was common for a house to sell,” Dockery said. “But now, 180 days is more of the norm. People just don’t come. There are too many out there to compete with.”

Only a handful of people came to the last several open houses he hosted, mainly for the free food. And Realtors these days are on a tight budget.

There were 4,215 listings for homes, condominiums and townhomes throughout Polk County last month. But in that time, only 362 sold, a 26 percent drop from 488 in December 2005, according to the most recent data from the Mid-Florida Multiple Listing Service.

“With so many homes currently listed in the Orlando area, sellers need to make their home stand out, and the most effective way of doing so is to reduce the price,” said Justin Kranitz, who is also a Realtor with Keller Williams.

He says Central Florida has reached the stage in the market where buyers can opt to be very picky and choose not to purchase a home because of one minor thing they don’t like about the home. Previously, buyers would rather purchase a home and fix or change the minor detail they did not like.

But now, if you are selling, experts advise you not to take out a Florida home improvement loan and spend a lot of money renovating it. Instead, simply reduce the price and let the next person improve it.

One impact on the slow housing market is an oversupply of new homes from builders. And with Florida mortgage costs exceeding what many buyers can afford, that inventory just continues to pile up. That inventory reduces home sales and makes it difficult for Realtors and their clients.

“It is really affecting resales in a negative way,” said Judy Cleaves, a Realtor with Judy Cleaves Realty in Winter Haven. “It is causing the sellers to realize we are competing with new homes.”

But sales should increase as the inventory declines through 2009, according to a recent real estate forecast. Builders have an advantage with new homes because of the incentives they can offer, not to mention a lower price.

New homes are being priced in the $150,000 range, a significant drop from asking prices a year ago. Incentives like $3,000-5,000 in closing costs plus free upgrades make selling even more difficult.

The pricing of a home is critical, especially with Florida mortgage loans so expensive, experts say. Those priced under the $200,000 mark move much quicker. But there aren’t that many out there.

“The prices got so far out of hand a year and a half ago,” one Realtor said. “We’re just now getting a correction in resales.”

CB Richard Ellis (CBRE) reported that its Central Florida housing market multihousing group sold 8,660 units for approximately $772 million in 2006.

CBRE’s sales accounted for 42 percent of the $1.85 billion total apartment sales in metro Orlando. In terms of total dollars, 2006 was the second most active year for Central Florida apartment sales, trailing only 2005, which saw heavy action in the condo conversion market.

Apartment occupancy rates for 2006 were 96.8 percent and are projected to remain at 95 percent or higher throughout metro Orlando due to the strong job market. Research by CBRE indicates that 41,000 jobs were created in the region during the 12 months ending September 2006.

Interest in purchasing multihousing properties in metro Orlando with Florida home loans continues to be strong because of growing demand for apartments as more new residents move into the region to fill those newly created jobs, CBRE says.

In addition, few new apartments are expected to be built in 2007 because of a lack of available land. But it’s a good sign that the reason is unrelated to a slowdown in Florida mortgage loan demand.

From new home construction to condominium conversions, it is a buyer’s market as 2006 wraps up.

Realtors, buyers, investors and Florida mortgage loan applicants all came together at Orlando’s “Real Estate Expo” with wishes that the housing market will be hot in 2007.

Real estate developer Jerrold Kryscoff said: “Everything has cooled off a little bit. I think it is a correction period.”

Kryscoff is here selling the wonders of “Palazzo Del Lago,” an $800 million resort. He says condo-hotels are next big thing in housing.

“While you’re not using it, you put it into a voluntary rental. Basically mitigated some of the costs of your second home,” Kryscoff said.

Orlando realtor/Florida mortgage broker Gisela Smith believes the vacation townhomes she’s marketing near SeaWorld make a smart investment.

“It’s a great place to invest in real estate,” Smith said.

Although the realtors and brokers assembled here may not agree upon what makes the best real estate investment, a condo-hotel or a second vacation home, they do agree on one thing: the real estate market in Central Florida has definitely changed.

“They actually started winding down a year ago. They have slowed down a little bit,” Kryscoff said.

In the Orlando housing market, according to the latest figures from the Orlando Regional Realtor Association, 1,597 homes were purchased and sold in November. This is compared to 2,423 in November 2005, and 1,897 in November 2004,

Real Estate Expo show promoter Paolo Sedri said, “Now consumers are doing the wait and see.

The Polk County job market continued to hum in October even as the Central Florida housing market exhibited another sluggish month, according to The Lakeland Ledger’s monthly “Business Barometer.”

The county’s jobless rate for October, 3.4 percent, marked a new record for the month, besting the previous record of 3.7 percent in October 2005. Last month’s rate also was down from 3.8 percent in September, according to Polk County officials.

Job growth also was strong in October, as Polk added 6,400 jobs since the previous year. In keeping with ongoing trends, hiring was strongest in professional, education and health industries, while the retail sector lost 400 jobs and manufacturing shed 300 jobs.

But the housing market continued to sag, as Polk County home builders pulled 338 permits for new construction last month, a 57 percent drop from 783 in October 2005, when the county was enjoying a housing boom.

Even as Florida home mortgage rates remain at historically low levels, a glut of inventory and massive amounts of speculative buying inflated home prices to the point where a cooldown period is inevitable.

In fact, every Polk city experienced a drop in new home permit totals, with the exception of Dundee, which saw no change, and Lakeland and Fort Meade, both of which had an increase of just one permit from last year.

Existing home sales also fell last month. October’s total of 421 homes was down 22 percent from 537 the prior year. Sales fell more than 20 percent in both Lakeland and East Polk County, while Bartow recorded 12 homes sold, up from eight last year.

Lakeland Realty owner Arthur Mattson said that inventory is still very high, meaning that buyers aren’t feeling rushed to make a purchase. In addition, the market is entering its slow season, he said.