In struggle to meet buyer demand, luxury ‘spec’ home developers have been stymied by limited inventory, rising land prices. Home for Sale in Palm Beach
By Darrell Hofheinz/Daily News Staff Writer
Take a drive on a fall morning through Palm Beach and you’ll likely find yourself sharing the road with about as many concrete mixers and construction trucks as Mercedes-Benzes and Land Rovers.
And what are those work trucks doing? They’re making up for lost time.
Or rather, they’re trying to help developers keep up with the demand for new houses, a demand sparked by buyers who have returned to the island with cash and a desire for a house that is move-in ready.
What house-hunters are finding is a lack of new homes, a direct consequence of the recession years, when building on the island all but ground to a halt. That means never-lived-in luxury homes, funded by developers on speculation, are rare finds indeed. Only a handful were built during the slowest years of the recession, and those have since sold, including several major waterfront spec mansions that changed hands for between $20 million and $42 million within the past two years.
“What’s happening right now is that a lot of people are coming down, and they’re scrambling to find something to move into for the season,” said longtime Palm Beach builder Paul Wittmann of Wittmann Building Corp. “There is definitely a lack of newer houses.”
Over the past year, Wittmann and other builders and developers have been working feverishly to fill those gaps, especially on the house-dense North End, where houses built during the 1950s and 1960s have been ripe targets for replacement.
New home permits up
With the economic recovery, the number of demolition permits and new-home building permits issued by the town has soared over the past couple of years — and most of those are for projects on the North End. Over the past 12 months, town records show, as many as 23 permits have been issued town-wide for the construction of new houses, and many of those are custom homes. For the same period three years ago during the recession, there were just 13 new-home permits.
A new analysis prepared by the Preservation Foundation of Palm Beach also demonstrates the breadth of recent change on the North End. The report examined house demolitions between October 2008 — the start of the recession — and July of this year. Nearly 50 percent of the demolitions occurred during the past two years.
The frenzy has left many would-be home buyers and spec developers struggling to find suitable properties on a built-out island where prices have soared, thanks to the laws of supply and demand. Compounding the problem is a tighter-than-tight inventory of houses listed for sale.
The reason for the inventory crunch? Some would-be sellers are holding onto properties while prices rise, and others don’t want to part with their homes until they’re sure they can find something to move into that’s comparable. And some simply are content to remain where they are for the time being, having emerged from the real estate bust a little more cautious about trading up.
The numbers tell the story: As of early last week in Palm Beach, 101 single-family homes, including townhouses, were available in Palm Beach Board of Realtors Multiple Listing Service – the lowest number in recent memory, brokers agree. Last year’s number was 120, at the time representing a new low.
No wonder that Palm Beach’s housing picture has become more competitive than ever for home buyers and their real estate agents — and developers, too.
Take Wittmann, for example. Later this month, he will debut a Bermuda-style spec house he built in partnership with investor Peter Callahan at 235 Eden Road on a prime street in the North End. Wittmann’s wife, real estate agent Paula Wittmann of Fite Shavell & Associates, will list the four-bedroom Bermuda-style house with 6,221 square feet, inside and out, at a price of just under $7.5 million.
“Paula already has gotten calls from six brokers who want to see it as soon as it’s available,” her husband said.
That’s the sort of buyer interest that has been good news for builder-developer Donald Malasky, a Palm Beacher who heads his family business, Malasky Homes. Last season, Malasky sold two North End spec houses in the British Colonial style before they were finished. A 4,916-square-foot house at 226 Jamaica Lane brought $4 million, while a 5,400-square foot home at 226 Kenlyn Road sold for $4.13 million.
“Palm Beach has come back big,” said Malasky, who has broken ground on another house, intended as a spec home, of about 4,550 square feet. That four-bedroom, Mediterranean-style home in Midtown is at 310 Australian Ave. — but buyers shouldn’t get their hopes up.
“It’s pre-sold,” Malaksy said, declining to discuss the contract price. “It sold before we poured the slab.”
All about the ‘dirt’
Many of the spec projects under way are on choice North End streets within a few blocks of the Palm Beach Country Club, where some lots are 100 feet by 140 feet, far bigger than usual, said the Corcoran Group’s Bill Yahn, senior regional vice president and head of the agency’s Palm Beach office.
The size allows the lots to accommodate larger spec homes with fine interior finishes and layouts designed for indoor-outdoor living. They will carry prices big enough to justify the cost of the “dirt,” as developers and brokers call it.
“I note that (tear-down houses in) the current spec inventory — few that there are — are priced at or above $1,200 per square foot. Some of the new ones already announced by other brokers are well above $ 1,300 per square foot,” Yahn said.
“This is consistent with the increase in prices up and down the coast of southeast Florida – and a function of the appreciation of tear-down properties being acquired by developers. It’s very difficult now to find a decent, buildable lot — large enough to accommodate a 4,000-square-foot or larger finished home — for under $2.3 million on the island.”
In today’s market, the expected price for such properties might easily exceed $3 million – especially if the property comes with amenities such as deeded beach access and the use of a neighborhood cabana, he added.
“To reward the developer for his effort and risk, a finished home on a $3 million site would likely be priced approaching $7 million. New homes priced in the $6 millions may become a thing of the past after 2015,” Yahn said.
In the Estate Section, about the closest thing to a high-end spec house on the market right now is landmarked Villa Tranquilla at 640 S. Ocean Blvd., with a price tag of $42.9 million. Thanks to a top-to-bottom, multi-year renovation and expansion that left nothing untouched, the 1923 house on the ocean — equipped with smart-home technology — is being marketed as new construction by broker Linda Gary of Linda A. Gary Real Estate. The project is just finishing up, and the house hasn’t been lived in since work began, she said.
On the higher end
Malasky is equally aware of the numbers. He said he hopes to add to his portfolio of spec projects a property in the Estate Section his company has under contract. He provided few details about the project.
“If this deal goes, we’re projecting a house (with a price tag) of a least $17 million,” he said. “It’s very difficult to buy a piece of ground right now. We’re cautious. But we know how to evaluate the market.”
Longtime Palm Beach builder and developer Dan Swanson of Addison Development, likewise, said he has already “secured” one property — although the sale hasn’t yet closed — for a new higher-end spec development. It could break ground this season, he added. And he’s working on one other potential purchase, he said, although he would not provide details about either deal.
Last season, Swanson sold the last of his two recession-era spec mansions — an oceanfront house at 101 El Bravo Way — for a recorded $30 million. He said he’d like his next project to be on a smaller-scale.
“We’ve done so many high-end projects, But there’s a big, big hole right now for (spec) houses in the $15 million to $30 million range,” he said. “And it’s hard to find the land.”
Ready to renovate?
So where does all that leave house-hunters this season? Until more would-be sellers decide to take the plunge, many shoppers just won’t have the option of buying something brand new, at least for the short term.
And in the lower end, brokers say, the most cost-effective option is likely to renovate — and possibly add on to — an older house on a standard-size lot. On the North End, at least, those can still be had for prices hovering at or just below the $2 million mark.
And, as builders like to say, there’s always next season.
View entire article on the Palm Beach Daily News website.