INDIAN RIVER COUNTY — After several years when spec building was just a memory, permits are being pulled again and concrete poured as beachside builders regain confidence and sense an opening in the market.
A lack of high-end inventory, coupled with lower land and building costs, are driving the trend.
“Riding around town, I have seen a surprising amount of new construction going on,” says County Property Appraiser David Nolte. “Houses are starting to pop up in subdivisions that have been idle for several years and I see houses going up on the beach and ocean. Hopefully it is the start of a trend that will bring us back.”
From River Club in the north, where Iron Shore Capital LLC is putting up a 2,800-square-foot spec house to use as a model as it gears up to market 75 lots that lay fallow during foreclosure proceedings, to Casa Bella in the south, where Beachlen Development Company LLC is building two oceanfront homes currently listed for $17.9 million with plans for four more, a range of tightly focused new houses are in the pipe line.
High-end home sales were spectacularly strong on the island in the first half of 2011, according to most real estate brokers. That cut inventory to a point where – for the first time in long time – potential buyers outnumber homes for sale in the $500,000 to $1.5 million price range.
There are also fewer estate homes on the market.
“Inventory is at historic lows,” says Clark French, a Premier Estate Properties Broker whose knowledge of the Vero Beach market goes back to 2002.
“There isn’t one new single-family home under a million dollars for sale on the barrier island right now,” says Dale Sorenson Jr. “That creates an opportunity.”
Some buyers are not interested in re-sale houses, according to Sorenson. Instead they want the satisfaction of moving into a brand-new, never-lived-in home that is up to code in terms of wind resistance and has a builder’s warranty.
There is a growing consensus that whoever brings that product to market in the right price range is likely to find buyers.
Steven Owen, a broker with Westmark Development at Palm Island Plantation in Indian River Shores says Westmark is putting up five spec townhomes in the development because the company sees the same void Sorenson mentions.
“We are building them because we don’t have any inventory at the price points that are moving,” Owen says. “Everything that has been moving here has been $1.1 million and under.”
Palm Island Plantation, which opened in 2002, is a 137-home development with a mix of single-family, condos and now townhomes.
“The area where the 32 townhomes are going was condos in our original plan,” Owen says. “We decided to do townhomes instead because they offer a shorter construction time and better suit the market. They also benefit existing residents by lowering the density of our community.”
To get the ball rolling, Westmark is funding construction of five 2,500-square-foot, 3-bedroom, 2 1/2-bath townhomes that will sell for approximately $700,000.
“We are completely finishing out one of them to use as model,” Owen says. “The other four will be finished on the outside but buyers will be able to choose the interior materials they want, the flooring and cabinetry.”
“We think these make great second homes and we are confident they will sell at this price,” Owen says.
Along with short supply, lower building costs make spec homes a good bet for well-capitalized builders in the summer of 2011.
“Construction costs are down considerably,” says French. “We are hearing estimates of 30 to 35 percent below the peak. Subcontractor labor costs and material costs are lower because there hasn’t been that much building going on. People are hungry for work. Because of the slowdown, contractors have reduced their overhead dramatically. They are running much leaner operations today than they were in 2005 and they can bid much more competitively.”
Lot costs are down too, by 40 percent and more. Builders who buy foreclosed land can get an even steeper discount.
“Many communities would have to operate at a loss to sell homes of River Club’s quality at comparable prices,” says Jack Rodgers, the Ironshore Capital executive in charge of the revived development, which was purchased from Bank Atlantic for much less than the mortgage amount. “Because we acquired and recapitalized River Club in 2010, we can profitably offer a quality product priced for a post-bubble market.
“We can build a beautiful 2,800-square-foot home – build it, finish and sell it – for $600,000 and do it profitably,” Rodgers says. “In developments based on costs that prevailed from 2004 to 2007, they would lose $100,000 on the same house.”
The same dynamic is waiting in the wings at Avalon Beach, where a 38-lot development with six oceanfront lots and three completed homes is on the market for $14.9 million, about 35 cents on the dollar compared to what the foreclosed developer put into it, according to French, who listed the property.
First Southern National Bank, which owns Avalon, is doing spec building of a kind as it seeks a buyer for the development, putting approximately $500,000 into fixing up the completed homes to make the project more attractive to a developer.
In Central Beach, Kevin Howell, who describes himself as “an investor with a builder’s license,” says he recently built and sold one spec house and has another for sale on Live Oak.
He’s also building the 10,000-square-foot beachfront home on Ocean Drive at the southern end of the Jaycee Beach boardwalk that has attracted a lot of attention recently – but that is not a spec home according to Howell.
He says the imposing house, which he expects to complete by late August or early September, will be his personal residence.
Sorenson has spec building plans, too.
“We are working on a couple of things with CAL Builders,” he says.
How big is the void in the new home market? No one can say for sure, but one figure may offer a clue.
According to Property Appraiser Nolte, there was only $87 million in residential and commercial construction in Indian River County in 2010, down from $700 million at the height of the boom.
Real estate goes in cycles and often overcorrects, and Nolte says a normal year for the county would be around $400 million.
