I had two conversations last Friday regarding Key West's current real estate market. One was positive and the other negative. I thought I would share those perspectives with you.
Bob Cardenas is a realtor with a company that sells many of the homes on Sunset Key including this one CLICK HERE. That is the island just west of Mallory Square where the nightly sunset celebration occurs in Key West. Most of the homes there are priced in excess of $2 million. And Bob usually represents the buy or seller of every property out there. He was the realtor who sold the $5.8 million home referenced above.
He said his buyers held back a bit last year thinking that the market would take a dip and that they would then buy at a lower price. They got it wrong, he said. Bob said his niche market has actually increased since last year. Bob mentioned that he had just put another doozy under contract that day. CLICK HERE to see the house that is under contract for very close to the asking price. Bob wasn't boasting about the sale and said his activity has been very brisk all season. I pointed out that his niche market is different from the rest of Key West. He agreed to some extent, but he said he felt too many Realtors are bemoaning the current market and that the negative comments abut the market are helping to keep it down.
Bob said if Key West gets through the summer hurricane season without any serious storms that he thinks the market will vigorously rebound this coming fall. Let's hope he is right.
That same day I talked with a local real estate investor who owns about 20 properties (mostly single family homes) in Key West--most of which are listed for sale at ridiculously high prices. He owns most of the properties in partnership with other investors. And he acquired most of the properties over the past four years or so--at the height of the Key West real estate boom.
Surprisingly none of his properties has sold during the past 18 months. One of his houses is a single family that he has not made a mortgage payment on since Hurricane Wilma (October 2005). The house is rented so he is getting income from the property, but he is not servicing the debt. He said he called the out of state lender and asked to speak to someone about a workout. He said the lender told him not to worry, that the lender was not going to foreclose. The lender offered to restructure the loan and add all arrearages to the loan which could be paid in a lump sum when the house sells.
That reminded me of two similar situations that I had heard of. Another investor bought two different properties. One was a single family home in Old Town and financed it through one of the national lenders that does lots of television advertising. When his world turned upside down, he tried to do a workout with the lender. Impossible. The company is so big, they lost him in the mix. He hasn't made a payment in over a year. And the lender still has not started to foreclose.
He also bought a commercial development project which he proceeded to royally mess up. (I could use more colorful language on this deal!) He had a first mortgage on part of the property from a national bank and a first mortgage on another part of the property from the prior owner (purchase money mortgage on a part of the project, but not all). He had some retained un-mortgaged interest in an additional parcel that was integral to the entire development. The banker responsible for the project has continued to fund interest payments out of the loan reserve established to pay construction costs. So the lender has avoided declaring the loan in default. Then the purchase money lender foreclosed it's mortgage on its collateral. The borrower walked away, but the property is a mess.
Getting money to buy property is Key West has never been difficult. Maybe it was too easy. And I think maybe too many lenders have yet to recognize the extent of the mess that is out there. I used to do commercial loan workouts and I know how bankers operate. They are great at making loans and terrible at collecting them.
I guess the answer to the question posed in the title to today's blog depends on who you talk to. If you are an optimist like Bob the realtor, you see good things heading your way. And if you are like the real estate investor who can't sell his over-priced homes or if you are like the banker who refuses to acknowledge an impending loss, the end is near.
As for me, I think this is a buying opportunity. CLICK HERE to preview all current MLS Listings in the Lower Florida Keys.
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