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Saturday, April 12, 2008

$3 Million Bathtub

(Carnac holds the sealed envelope up to his turban)
CARNAC: Three Million Dollar Bathtub.
ED McMAHON: Three Million Dollar Bathtub.
(Carnac rips the envelope open and removes the card)
CARNAC (reading): What your friends call your private town home pool.

The other day someone asked me what I thought about current property prices in Key West. I responded that they are still too many properties that are way over priced on a per square foot basis. I was referring primarily to the new generation of high-end luxury condos and town homes built or being built in the Old Town area. I have mentioned specific developments before and discussed the merits of the properties. I even offered to show them to prospective buyers. But no one has taken me up on my offer. I think the reason is that the properties are priced too high.

Most of the new developments are located on or very near the water, and that location supposedly justifies the very high asking prices. Santa Maria on the south end of Simonton Street has a slew of units still unsold. Unit # 16 is priced at $1.5 million or $1587 per sq ft for a 2 bed, 2 bath unit of 947 sq. ft. Shared pool here. On the opposite end of town at the new Key West Harbor Condominiums where you can buy unit WU#101 for $3,120,000 or $1,472 per sq ft for a 3 story 3 beds 4 baths on the waterfront. The views are spectacular and the finishes proposed look amazing.(Shared pool, however, at these prices.) There are several units at the Steamplant still available and a few owner re-sales. The least expensive (an owner resale) is unit #10, and it is priced at only $2,950,000 or $717 per sq ft. for 3 bed 4 bath unit with its own private rooftop pool. (Each of the 19 units has a separate pool--but not a big one. Photo of a pool is shown above on the right.) The Steamplant was designed to provide the very best of everything, and the offering price reflects the developer's view of the value being provided. There are several smaller new town home developments in the Old Town and Casa Marina Areas. Only the Washington Street Residences in the 800 block of Washington has actually sold out or nearly sold out. One six unit town home development in Old Town with individual pools, and priced at $1,850,000 or $1057 per sq ft, has yet to have one sale since it went on the market 16 months ago. The town homes are being rented out on a nightly basis. So much for preserving the value of your collateral Mr. Banker.

It amazes me that none of the banks that funded the construction of these properties has foreclosed yet. (I'm not including Steamplant because it is not complete.) Maybe the banks truly believe the units will sell for the prices being asked. Maybe. Or it could be that the developments were constructed using the funds of the builders and that no banks were involved. If that's the case, I beg your pardon.

Or maybe the banks have enough funds left in the construction loans to fund interest payments for several more months. But maybe the banks are just postponing the day when they will be forced to foreclose on the mortgages and take back the properties.

It is not just one bank that is doing this. I am not aware bank action to take possession of its collateral. The banks are in a difficult position. If they start telling their borrowers what to do and how to price the properties (e.g. price the units more realistically), the banks set themselves up for lender liability defenses of lender interference. By funding more interest and allowing the obligations to grow larger the banks may also see a defense that the banks should have intervened earlier thereby mitigating the loss. So no matter what happens the attorneys for the developers will try to convince a judge or jury that the bank should be held responsible for any short fall on the loans.

There are a lot of smart readers out there. Checkout the Monroe County Property Records CLICK HERE. Just see how many of the new generation of luxury condos or town homes with individual pools and high end finishes have sold in the past two years. (I'm talking about units priced anywhere from $1.8 million to over $3 million.) They are not selling. There is an over supply of such units. There are no buyers for such units at the price points being asked. Not in today's market.

I think this is what is going to happen. Bank examiners are going to require the banks to write down loans on some of the new Key West developments. That will force the banks to acknowledge the potential loss and either start foreclosure or workout a settlement with the borrowers to take back the properties. Once the banks acquire ownership of the properties they will either sell entire developments en mass at a huge discount or place individual units on the market with a liquidation strategy to sell all of the units within a defined time frame.

What is going on cannot continue. Prices are too high. Buyers are not buying. Banks are behaving imprudently. The other show will drop. That's my opinion, anyway. That's one of the great rights we have as Americans: the right to express our opinion.

That being said there are some good deals in Key West. There are many re-sale condos and town homes available in all areas of Key West at many price points. Many of these units are listed as short sales so there may be an opportunity to buy a vacation getaway at a bargain price. True you may not have your own private rooftop pool, but you will probably have many of the same amenities at a helluva lot less money. CLICK HERE to search the Key West Association of Realtors mls website. If you see something you like, please call me, Gary Thomas, 305-766-2642 or e-mail me at

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Key West, Florida, United States
I first read about Key West in a magazine called "After Dark" sometime in the mid 1970's. But it wasn't until March 1984 that I made my first visit to the island that would become my home. I had two weeks for a vacation and reserved a room at Colours Guesthouse (now Marrero's Guest House) for one week. I thought that if I didn't like Key West, I could always go back to Miami or Ft. Lauderdale for the rest of my trip. But after a couple of days in Key West, that was no longer a consideration. But when I wanted to extend my stay for the extra week I found there was no room at the inn. The guesthouse owner did find me a room at LaTeDa, the infamous guesthouse/restaurant. That's a story I'll write another day. But those two weeks in Key West gave me the realization that I had found Paradise. Key West has been my home since 1993 and my only regret is that it took me so long to get here. I am a full time Realtor at Preferred Properties CRI. Let me help you find your new home or business in Paradise. Living in Paradise is not a slogan, it's a way of life.