Vivante - Punta Gorda, Florida 

Luxury Resort Real Estate - Prices So Low it is Like Stealing!

The Florida coast in the USA has a long tradition of accommodating vacation seekers and second home real estate owners.  In recent years, many of the ocean-front locales have experienced surges of development and as a consequence have lost a bit of their small town, “off-the-beaten-path” charm.  Through it all one area that has been able to grow thoughtfully while maintaining its quaint, boutique feeling is Punta Gorda, Florida. 

Vivante - in Punta Gorda, Florida is a newly completed (end of 2006) luxury resort real estate community located on the peaceful shores of Charlotte Harbor that stands above the rest of the resort real estate in Punta Gorda.  Mediterranean themed architecture, large residences, luxury resort-style amenities, and desired water-front position made this resort real estate community a “must-own” during the pre-construction sales period.  All (342) residences in both communities pre-sold quickly to desiring owners at prices as high as $1.2M. 

When it became time to close and take ownership of the Vivante residences, the “perfect storm” was in full effect in the real estate market of Florida.  Unfortunately, some of the prospective owners were no longer able to close and take ownership of their reserved residence. 

As a result, the limited availability residences have been placed back on the market at “near-cost” prices so low that it is almost hard to believe.  I know that sounds a bit like an infomercial but once we saw the new pricing we did a double take to confirm it.  The discounted prices are real, and have created an exceptionally significant opportunity for those that are ready to act and have been looking for their second home paradise in one of Florida's last remaining true small, ocean-front towns.

Contact Us for the rock bottom pricing now being offered to close out Vivante in Punta Gorda, Florida.  The pricing is so low they will not let us post it on the webpage!

The Effects of the Global Economic Crisis on New Construction

Luxury Investment Real Estate

One would have to look back to the US depression of the 1930’s to find an economic crisis that has caused such rapid asset value depreciation, wealth evaporation and meaningful tremors that have shaken the very base of the world’s financial system.

Frozen credit markets have brought global banks and businesses to their knees and have left leveraged organizations gasping for air and the ability to satisfy operational necessities such as payroll.   

Finally, Federal Reserve actions put into place to thaw the credit markets, stem increasing foreclosures, bring buyers back into the market, and ultimately bottom the real estate market is starting to show some signs of progress. 

Because we specialize in the world’s finest pre-construction resort real estate, we maintain an overall macro-economic view of the economy and a firsthand experience of many local real estate markets.  What has been occurring in the luxury pre-construction resort real estate market as a result of the economic squeeze is interesting and  is leading to the ultimate example of Darwin’s theory “The strongest will survive and win…” in this luxury niche segment of the real estate market. 

Most of the pre-construction luxury resort real estate projects are currently in one of the following statuses:

Cancelled or Postponed:

Many planned new resort real estate projects, even some planned with the best brands, have been delayed for a period of time until the market gets a bit more strength and credit becomes a bit easier to obtain. 

Average projects that have broken ground but never had the proper brand support, project plan and/or where fully leveraged against a credit option based on pre-sales, have mostly gone under due to lack of financing.   The exposed projects, no matter the pre-sales successes, were forced to abandon or postpone the project indefinitely as credit restrictions tightened.

Funded but Pace Slowed to Match Sales:

Many of the stronger projects are still building and sales continue to move forward albeit at a pace that models the pace of slower sales to limit exposure and capital outlay in slower times.  These projects are well-branded and well-capitalized and are in the strong position. 

Sourcing Funding and Slowed Building Pace

Some projects are in building phases of well sold phases and have the funding to complete and deliver.  Many are now sourcing additional funds in preparation of future phases and launches.  These projects are also in a strong and superior position. 

Looking Forward:What This Means for Buyers

New construction luxury resort real estate is much like most other industries in that it will obey the laws of Darwin’s theory and the strong will survive and prosper.  The strongest communities being built today are in an excellent position to prosper long term. 

What many buyers were presented with as viable alternatives and competition is getting eliminated and postponed.  The strong will be the first to complete, deliver and build long term value for their owners.  This will give the strongest real estate projects the ability to lead and direct the development of their specific locales.  With the elimination of weaker and less viable real estate alternatives, the strongest resort real estate communities will be the centerpieces and most desired addresses of the exclusive locations in which they have been created.  This will lead to the maximum opportunity for long term, mature appreciation and owner enjoyment.   

Gone are the days of under-funded amateur real estate hopefuls, borrowing their way to throwing up a bunch of repeatable condos near a highly desired locale and calling it a well positioned luxury resort real estate project. The less important and average quality real estate projects would sell mostly on lower prices and hopeful expectations and weren’t the type of projects that were ever going to make an important, positive difference to the locales in which they were established. 

The best resort real estate projects are strategically planned in the most desirable locations with the appropriate supporting brands, and amenities.  They are comfortably capitalized, are often supported by the local governments, and are recognized for the positive growth and contribution they will make to the landscape, and macro-economic fabric of the area. 

Although buyers could have less real estate projects to choose from in the near term with respect to the number of newly developed resort real estate projects, buyers will be in a long-term advantaged position if they choose to acquire the right pre-construction residence in an important real estate project. 

Due to the globally weak macro-economic environment and slower sales, the most well-branded, luxury real estate projects have not been able to increase prices as much as desired during the construction phases.  Thus, buyers will be able to purchase resort real estate that is in the process of being built, for pre-construction prices so they won’t have to wait as long for residence delivery, which will enable them to enjoy their second home residence sooner. 

Also, the pre-construction unique and rare real estate projects will be delivered to owners in the future time frame in which many experts predict that the macro-economy and real estate market will be on much more stable and growing footing.  This will put owners in an excellent position for long term appreciation as their luxury resort real estate has become much rarer and thus valuable to an increased supply of desiring buyers in a fresh real estate market of increasing financial optimism and stability.  This future imbalance and lack of supply against increased demand for the finest, best positioned luxury resort real estate could put strategically acting owners in the advantaged position of long term value and appreciation in years to come. 

Which of the world’s finest resort real estate is the best to satisfy your needs and goals?

Wondering which of the world’s finest resort real estate is best positioned and moving forward?

Contact Us….We are Happy to Answer All of Your Questions!

Spotting Signs of a US Residential Real Estate Bottom:

30 Yr. Fixed Mortgage Rates at 4 - 4.5%...Here's How!
by Paul Mraz

If saving 7-9 million people from foreclosure via the Obama Housing Plan isn’t enough to bottom the US residential housing market, what will it take to bottom this real estate market and turn the tide toward growth?

Spotting Signs That a Real Estate Bottom Is Coming

In addition to taking action to help stem the growing tide of foreclosures, the Fed’s focus needs to turn toward increasing the bank’s ability to lend. With initial TARP liquidity injections, the Fed was able to reduce the LIBOR and two year swap spreads significantly, and created enough liquidity in credit markets that banks are lending again, albeit at prohibitive quantities and at higher than necessary costs.

Banks still cannot lend as much or as inexpensively as desired due in great part to the “toxic” assets still residing on their balance sheets. The “toxic” assets are mostly composed of over-leveraged investment instruments (i.e. CDO’s, SIV’s) that were acquired by many global banks, pension funds and corporations. At their core, most of these structured products are groups of mortgages (based on residential real estate) that were packaged, securitized, and then sold as debt investments.

The toxic assets were supposed to be addressed at the forefront of the $700B TARP. However, due to the urgency of liquidity needed on the equity side of the bank’s balance sheets, addressing this issue was delayed. The toxic real estate assets are causing a major clog in the financial system and are one of the key issues preventing banks from being able to issue more and less expensive loans.

The Fed needs to act soon on their promise to purge the liability side of the bank’s balance sheets so qualified and responsible lending can resume. There continues to be much speculation and opinion around whom and how the toxic real estate assets should be acquired, held, and sold. Solid options with historical merit and success such as a “bad bank”, a public-private partnership, and/or liquidation company much like the RTC of the 1980’s has been discussed. However, even though time is of the essence, no clear structure, direction, or details have been put in place at this time.

How to appropriately price the toxic real estate assets has become a major sticking point delaying the plan’s release. Asset pricing is a paramount concern of any proposed plan and needs to be done properly if the plan is going to work. It is a struggle because it isn’t possible to price and sell the distressed real estate assets at a natural, market-determined price (for the Level II & III assets) because the market for these assets has all but dried up. To maximize their position, bank’s using internal value models are asking for more than private capital buyers using “market” based value models will pay. In both instances it is likely that the banks prices are too high and the “market” pricing models are too low. We now look to the Obama Administration to step in and provide a clearly structured plan and effective pricing direction that clears this major hurdle and re-ignites the critical lending our economy so desperately needs to function.

The good news here is two-fold. First, it finally seems that this critical area has the attention of our law makers, and that they are focused on putting an appropriate program in place to clear the credit and lending system clog. If they could just move a bit faster!

Second, it is important to recognize that there is private capital demand for the toxic real estate assets. Despite what everyone hears everyday via almost every media outlet, maybe real estate is not as hated and useless as it is portrayed. Private capital wants to buy these assets in bulk because they believe, and are willing to put large sums of money behind, the notion that real estate will be a highly desired asset again, and that they will profit greatly from this venture.

Expected Results: 30 Year Fixed Mortgage Rates Hit 4 % - 4.5 %

If the plan is structured appropriately and is put into action quickly a meaningful amount of toxic real estate assets will be wiped from the bank’s balance sheets. Cleaner balance sheets combined with near 0% overnight fed fund rates, and lower spreads on 10yr treasury bonds could create an environment in which the US may enjoy 30yr fixed mortgage interest rates between 4% - 4.5%. This would be the lowest recorded mortgage interest rates in at least the last 50 years of lending. Low rates should act as a catalyst to help further stem foreclosures and create massive re-financing for real estate owners.

Record low mortgage rates combined with residential real estate prices down 30% - 40% in many markets could become a significant demand catalyst and the opportunity of a lifetime for many to thoughtfully consider buying real estate again.

Help More! Waive the Appraisal Requirement for a Mortgage Refinance

To ignite massive amounts of debt re-financing and more stopped foreclosures the Fed should institute a waiver of the appraisal requirement on existing home re-finances. Many argue vehemently against this suggestion as it seems to directly oppose the theories of “mark to market” and present asset value accounting. However, this waiver would allow real estate owners suffering from the deadly combination of increasing adjustable rate loans, and home prices that have deteriorated past acceptable loan to value ratios to take advantage of what could be the lowest fixed rates of their lifetime.

The appraisal waiver would allow real estate owners to modify their loan based on the home value at the time of their last appraisal or when the note was issued in a purposeful oversight of the market’s recent decline, allowing a much greater portion of home owners to carry more affordable mortgages. This move would also satisfy banks because more foreclosures would be avoided and loan principles would not be decreased or forgiven.

Finally: A Real Estate Market Bottom and Brighter Days Ahead

With these actions, the real estate market will bottom, and is close in some areas without it. Many well-known economic experts predict the bottom of the real estate market to occur in June 2009.

However, the longer it takes to deliver and implement a clear, effective government action plan, the worse the residential real estate market could get because buyer demand will wait to act due to confusion and uncertain forward market conditions.

Keep an active eye out for the plan, how it is constructed, and position yourself to take advantage of the right opportunities before the demand surge that will lead to the real estate market bottom, and brighter days ahead.

Best wishes,

Paul

Is 2009 the Time to Run or Invest in Real Estate?

Part I: Is The Obama Housing Plan Enough?  

As we look toward the future and attempt to project the landscape of luxury investment real estate over the coming months and years we need to examine the planted economic seeds for progress.

The good news is that in the places the Federal Reserve has acted, they have achieved positive results. They have at least temporarily stemmed the crisis of the financial institutions. Solvency issues with some banks is still an issue but no longer are we going to bed wondering which investment bank will blow up tomorrow, and whether our investments are physically safe. The Fed has been able to reduce the LIBOR and two year swap spreads significantly, and has created enough liquid in credit markets that banks are lending again, albeit at prohibitive quantities and at higher than necessary costs.

The above is not enough and the global recession continues. Real estate and equity markets are stuck in a depressed deflationary spiral. There doesn’t seem to be a growth catalyst anywhere in the world except for the US government and their endless balance sheet of liquidity.

The Federal Reserve has committed, by any means necessary, to saving the US economy and financial system. Further, the Obama administration is just as committed to the cause of job creation and economic growth. There are several large, sweeping actions that need to be implemented, in 2009, across key areas to bottom the deflating US primary residential real estate market, and to put the economy back on a track of growth and prosperity.

Below is a review of the US government’s first step, announced 18-Feb-09, designed to directly attack one of the core issues affecting the US primary residential real estate market.

Problem #1:
US Primary Residential Real Estate Foreclosures

The rate of foreclosure in the US primary residential real estate market is too high and is increasing. The foreclosure rate needs to be decreased drastically and restored to a normalized pace.

Problem Effect:
Continued Cycle of Real Estate Price Erosion

Increased rates of foreclosed homes adds inventory to the already huge glut of primary residential real estate (approximately 12.2 months inventory), causing a sustained supply imbalance against demand. This causes continued price erosion and foreclosure increases.

The Obama Housing Plan released on, 18-Feb-2009, is designed to provide relief for up to nine (9) million home owners. The plan is composed of several parts and is aimed at the modification of conventional mortgages for a select few real estate owners that are current with their mortgages, and many in default status. The exact detail of how the plan will be executed has yet to be communicated, but the main objective is clear. First, allow defaulting real estate owners to modify their current mortgages to lower fixed rates at a level not to exceed 31%-38% of their income regardless of their current situation with respect to loan to value ratios and price depreciation.

Second, allow real estate owners that have been “playing by the rules” and paying their mortgages consistently and on-time to refinance their higher interest loans to ones with lower interest rates and at a lower principle. Only if the owner has a mortgage owned by Freddie or Fannie they will be eligible to have an appraisal of the property and receive a new mortgage written for up to 105% of the market appraisal.

For example, Frank buys a house in 2006 with a $400,000 mortgage. He wants to refinance the house to take advantage of lower available rates but the house is now only worth $300,000 (25% decline). With the new plan, Frank will be able to refinance up to $315,000 for his new mortgage. The $85,000 of debt from the first mortgage is wiped out. The plan lacks any clarity as to what happens to the $85,000 or if there are any future penalties to Frank for accepting this debt forgiveness.

Banks, especially those that are receiving TARP money will likely be forced to comply with the new plan. The thought is that although the bank will be receiving less money via the interest on a specific loan and forgiven principle, this “loss” will be more than off-set by a much reduced number of foreclosures. It is still not clear if the plan stipulates a specific interest rate to serve all real estate owners or if any further stipulations or restrictions exist that would prohibit anyone from taking advantage of this plan.

Expected Result of Obama Housing Plan:
Less Foreclosed Homes

Although the Obama Housing Plan seems geared to most serve those that are in default status or close to it, if fully successful, the plan could save at least seven (7) – nine (9) million real estate owners from foreclosure. This is at least half of the 13.8 million (27% of nearly 52 million US homeowners with a mortgage) people that according to Moody’s economy.com currently own a mortgage that is worth more than their home. The plan doesn’t include provisions for defaulting jumbo loans, people with multiple mortgages (i.e. second homes) nor is it clear what happens to the forgiven principle...but this is a first step.

We will have to wait and see how the rules and regulations look and exactly how it will be executed before the plan effects can be accurately measured. Please stay tuned for more on this.

Another Result:
Indirect Economic Stimulus

Is It Enough?

The Obama Housing Act alone will not bottom the US residential housing market. At the onset, the plan isn’t all-inclusive enough or broad enough to bottom the market alone. However, if the proposed Obama Housing Plan is able to lessen the tide of foreclosures and keep millions of soon to be foreclosed real estate owners in their homes, it will certainly be a step in the right direction. There are tons of questions to be answered and much of the plan’s success will depend on its final rules, regulations and its execution.

To get the primary residential real estate market to bottom and to get back on the path of growth and prosperity we will need further drastic action with respect to job growth as well the ability of our financial institutions to lend capital more freely and less expensively to all qualified parties.

Our next e-letter will focus on the expected upcoming actions that will be aimed at addressing these critical economic components.

                                                                                       Happy Reading!

Paulson Plan II

Federal Socialist Banking Positions?

What is going on now?

Although the rescue plan is likely to be effective in opening up the crucial credit markets it will take time to implement and deliver results.  It is taking the government weeks to award contracts to companies that will perform each of the plan’s functions and to ensure that the plan is most efficiently and effectively executed. 

Although taking a bit of time to get it correct is understandable, delay does nothing to address the overall credit market freeze, to get banks trading with each other, or to help the lack of general confidence in the financial system.  The truth is, even if the plan was in effect today it would still have taken time to see its positive impacts.

Unfortunately, US banks were out of time.  The frozen credit markets, sinking equity markets and lack of cash liquidity around the world were going to sink dozens of banks.  Going into the market close, last Friday (10-11-08), many professionals weren’t even sure if world renown investment banks Morgan Stanley and Goldman Sachs were going to be able to open for business the following Monday.  Still struggling from the fallout of the Lehman Brothers failure and fund redemptions by the billions, the system could not absorb additional financial strain and failure. 

In unprecedented fashion, the Federal Reserve of the United States begrudgingly took on an equity ownership position in many of the largest US financial banking institutions.  Basically, the US government has nationalized many of the largest most influential US domestic banks.  This move has received much scrutiny and appeal because it is socialist in nature, in the center of what is supposed to be a country based on democracy and capitalism. Unfortunately, the Federal Reserve had no choice and needed to adopt the “Marshall Plan” that was already being implemented around Europe.   As said by Secretary of Treasury Hank Paulson, “This is something that we would have preferred not to do, but it needs to be done to add strength to the system and the global credit markets.” 

Infusing capital into the balance sheets of the US banks has an immediate impact on the ability of companies to operate their businesses.  Available cash and credit will keep them afloat and functioning because the US Federal Reserve becomes both the lender and creditor of choice on both sides of the transaction.  This enables the Federal Reserve to back short term trading and lending between banks which will help un-freeze the credit markets and help operations of both Wall and Main street firms.  At this point, the Federal Reserve has basically reinforced every gap in the suffering banking system and has made substantial progress in creating liquid in the credit markets and overall operations of the US financial system.  Positive results have already been seen, credit liquidity has improved, and further efficiencies and operations will continue over time.  This undesired, socialist series of actions is proving effective and has all but eliminated the possibility of a 1930’s style repeat depression.

Toll Brothers Releases 2Q2008 Market Status

A Sign of Real Estate Market Progress?

On May 13, 2008 Toll Brothers, the nation’s leading luxury home builder, reported second quarter 2008 and six month totals for home building revenues, contracts, and backlog for the period ended April 30^th 2008.  The results were preliminary and unaudited and will be certified with the actual 2Q2008 earnings release scheduled for June 3^rd 2008.

It isn’t news that the numbers were terrible.  There are more than a couple reasons that Toll Brothers could blame for their poor performance.  What is important is Toll Brothers outlook for the sector and market overall.  The financial performance of Toll Brothers is an excellent indicator of the overall health of the primary residential real estate market because of their size and scale of operations.  Toll is currently building developments in many parts of the country including some of the most beleaguered zip codes. 

Jim Cramer, famed host of the TV show Mad Money on CNBC, aired an interview with Robert Toll, CEO of Toll Brothers the week of 5/13/08.  In this interview Robert Toll gave a candid summary report card of how Toll developments are doing across the board in the United States.  He commented how traffic is down and if it were a school report card it would be one, “in which you would talk to you child upstairs for a couple of hours, and then come down and have a stiff drink.  Most developments would receive a grade of F, F+, F- .”  These comments come as no surprise as the media has been very clear and consistent in highlighting all of the real estate market negativity. 

Robert Toll went on to make one very important statement; He commented that one area actually has seemed to turn a bit.  To the surprise of many people, Toll commented that in Naples, Florida they have actually been able to RAISE PRICES!   Toll stated, “One year ago in Naples, Florida we (Toll Brothers) were unable to give a house away, no matter what the price.  People were walking away from their deals and forgoing their deposits because they didn’t want the homes.  Although we (Toll) kept their deposits we were left with tons of finished inventory and unsold houses.  Since that time, most if not all of the inventory has been worked off and we have now raised prices commensurate with demand.” (CNBC, 2008)

The reason this is an interesting event is because Naples, Florida was one of the first and hardest hit locations in the country during this recent real estate market downturn.  The blood was in the streets and it appeared that even if you gave the homes away, nobody wanted them.   It seems as though this now may be changing, at least in this one particular location.  Does price increases in Naples, Florida indicate the bottom of the entire real estate market, and from here all will go up as desired?  Probably not, but what it does show is progress and a light at the end of the tunnel. 

We felt it important to share Mr. Toll’s sentiment with you as it is easy to lose sight of progress amidst piles and piles of daily negativity.  As a real estate investor it is critical to gauge negativity levels in investment marketplaces as many people have had more long term success buying quality real estate assets at the time when nobody else wants them.  Making money “following the herd” and mimicking what everyone else is doing is often harder than taking strategic, long term positions in historically strong markets which will eventually re-surface.  We urge you to look for small signs of progress in negative markets because one day the negativity will stop and reverse.  We don’t want our clients to be among those trying to “time” the market and getting caught off guard, unprepared, and back in the undesirable position of trying to make money chasing an up market once again.  For more information or questions please visit us at http://www.legacyresortconsulting.com