Is anybody home?
It’s hard to look at the new condominium towers that are coming to dominate the downtown landscape without wondering. Even at the peak of the real estate frenzy, when people were doubling their money and high-rises were selling out in 90 minutes, many people were asking, “Who is going to live there?”
Developers and city leaders predicted that the new buildings would provide enough shoppers to bring in big-name businesses like Brooks Brothers, PF Chang’s and Morton’s Steak House, transforming Main Street into a bustling upscale retail hub where people live, shop and work. It hasn’t happened yet. Despite about 2,000 new condominium units planned since 2004, only a few hundred have been completed. About a dozen storefronts sit vacant on Main Street, the lights are mainly out at Plaza at Five Points, and PF Chang’s has turned into a no-show.
In the meantime, twice as many downtown condos are on the market now as last year, and several planned new projects have stalled or canceled altogether.
Knowing who’s home and for how long is a critical piece in downtown’s economic development puzzle. Successful retail requires rooftops–rooftops with people in them, more often than not. But how many of those early buyers never intended to live in those handsome new condos, seeing them as a quick flip instead? Then there’s the market-dampening effect of soaring tax rates, doubling insurance premiums and the psychic toll of hurricane threats.
No one knows the breaking point for seasonal residents before they toss up their condos and head to South Carolina. And despite all the predictions, there’s no guarantee that baby boomers really will follow the migratory patterns of their parents and settle here during their golden years. Some studies show they’re staying put or moving to university towns.
Without a crystal ball to see what will happen when speculators leave town and the dust finally settles, we decided to take a close look at what’s actually going on now and what that may bode for downtown’s future. We picked Plaza at Five Points, a chic 16-story mixed-use development on the corner of Main and Central that opened last year. Across the street from Starbucks, around the corner from Whole Foods in the heart of downtown, the Plaza is one of the first new developments to open its doors.
We poked through property records and other documents, asked owners why they bought and what their intentions are, interviewed developers, realtors and other experts and spent a few days hanging out in the lobby and knocking on doors to see who’s home and who’s not.
PORTRAIT OF THE PLAZA
The $75 million Plaza, developed by the Ersa Grae company, counts many prominent entrepreneurs and business people among its owners, including Al Ferrigno, owner of New York Hair salons; Wendy Resnick, director of United Cerebral Palsy of Sarasota-Manatee; Wagner Realty owner David Eckel; local Dunkin Donuts’ owner Marvin Kaplan; and Congressional candidate Vern Buchanan, who bought the primo $2.4 million penthouse and the entire ninth commercial floor, where he runs his business and foundation.
When Ersa Grae CEO Ali Ebrahimi announced the project in 2003, the 50 luxury condos sold out in three months, long before a shovel turned dirt. ADP Group designed the Plaza, Kraft Construction built it and Michael Saunders handled sales. Contracts changed hands a number of times, but when it came to closing, prices ranged from $580,000 for a 1,580-square-foot condo up to $2.4 million for one of the four penthouses.
The Plaza is unusual for the downtown market in that it includes commercial businesses, retail and residential. Experts say that makes the project a little more stable than the strictly residential towers now under construction.
The neoclassic building has three levels of commercial space, a 425-car garage and retail throughout the first nine floors. At ground level, a Fifth Third Bank and The Grape wine bar are now open for business, with a restaurant coming soon.
There’s valet parking in the garage; and residents can drive up, stroll past the soothing sounds of the garage’s shooting fountains and walk through a small, private entrance with marble floors and up a private elevator to the residences on floors 10 through 17. The four penthouses on the 17th floor each wrap around a corner of the building, surrounded by glass with sweeping views of Sarasota Bay from Bradenton to Siesta Key. The 10th floor is an indoor-outdoor amenity floor with a pool, covered gazebo with a marbled fireplace, a wet bar, gas grills, a private fitness center and clubhouse overlooking the city.
Owners started moving into their condos last December, even though a few floors weren’t finished yet and contractors were still working on the common areas.
While the building manager and many of the condo owners keep saying this building isn’t one of those speculative ones, people have made triple figures turning them over. Among the notable “flips”: A Longboat Key investor sold two condos on the 14th floor and pocketed $421,000 in profits; a $580,000 condo on the 12th floor changed hands three times since November with a final price of $865,000, giving flippers a profit of $285,000.
But if a gold medal were given for savvy deal making, it would go to Joe Cirulli, a Gainesville health club owner. Cirulli purchased three units at the Plaza, sold two in a matter of months, and made a $404,000 profit, enough to pay half the cost of the 10th-floor condo he lives in part time.
“He’s got the Midas touch,” says Eric Sobol, Cirulli’s friend and business partner, who also bought a Plaza condo, where he lives when he’s not piloting international commercial flights.
Cirulli’s deal making didn’t end with the condos. He convinced the developer to buy fitness equipment from him. In exchange for selling the equipment at cost, Cirulli gets to use the Plaza fitness center as a showroom for potential clients. (The downside for residents is that the deal keeps free weights out of the fitness center.
THOSE ELUSIVE RESIDENTS
No one knows how many people are living at the Plaza year round, how many are seasonal and how many are investors. Even building manager Kevin Richards isn’t sure.
“It’s our first season,” says Kevin Richards, a former Army officer who worked in the White House for eight years before getting into property management. “My guess is I won’t have more than 20 to 25 [units occupied] year round.”
The runaway market of the last few years inspired many people with money to jump into real estate speculation. But it’s difficult to determine how much of the Sarasota market, or of a single condominium, is speculative. Owners don’t declare their investor status on their deeds, nor do they necessarily tell the building manager when they’re coming or going. Just because an owner claims a homestead exemption doesn’t mean he’s living there most of the time or at all. And neighbors don’t always tell one another their intentions, especially among the locals who use the building’s amenities but live somewhere else in Sarasota.
What we found at the Plaza may be indicative of what to expect as seven downtown projects with 769 condominiums near completion this year, and another 1,400 condos are teetering on the drawing board.
• About 15 of the 49 units (one owner bought two condos and combined them into one large unit) have claimed a homestead exemption with the Sarasota Property Appraiser, claiming the Plaza as their primary residence.
• Three-quarters of the Plaza residents own other residential property in the U.S.
• About 71 percent are from Florida. About 35 percent are from Sarasota and Manatee counties.
• About 24 percent live at the Plaza full time.
• About 36 percent appear to be investors—they’re listed as a corporate entity, have another Sarasota residence or mailing address, have a record of flipping other condominiums or said they were investors.
• About 25 percent of all the condos were “active” in the last few months—either up for sale, sold or had a listing that expired. Two were for sale in the Sarasota Multiple Listing Service at press time and at least one on a for-sale-by-owner site.
That information paints a picture of a building where at least a third of the units are sitting empty; a third might have residents there much of the time; and another third could have residents who come and go. If you figure that most condos are home to a couple, that means that out of a possible 100 Plaza residents, anywhere from 35 to 50 might be in residence at any one time. Those calculations are rough, but if the Plaza is representative of other new downtown condos, anyone measuring the buildings’ economic impact should figure that only a third to a half of the total number of units are likely to have active consumers in residence.
Some realtors say projects that are nearing completion will have a higher percentage of investors than the 36 percent at the Plaza.
“I think that’s a high number of end users,” says Tom Coler, owner of Buyer’s Broker of Southwest Florida, an 18-year-old Sarasota firm that only represents buyers. “They’ve also got a good mix with the commercial. I expect to see terrible numbers in terms of end users and cancellations to be high [at the newer properties].”
Coler says about a quarter of the people he’s sold property to during the last few years intended to live full-time in the units. The rest were multiple home owners or investors.
At the Plaza, a handful of owners, such as Bill and Norma Herman, started out as investors and then decided to move in after the building was finished.
An original contract owner at the Plaza, Herman says he sold his contract and then later bought another one. He and Norma moved into the Plaza in May, and Bill became treasurer of the association’s board.
“We were impressed with the building,” says Herman, who is chairman of the grants panel of the Sarasota County Arts Council. Herman says he was coming into the city from Longboat Key every day and decided it was time to move downtown. “We’ve done apartment living in New York, and we missed the walking.”
Wandering around the building with building manager Richards during several visits, we spotted few residents in the building. Many of the condos have paper signs posted on their doors telling staff to contact the owner before entering. It’s off season, the building hasn’t been opened a year yet, and there’s still a lot of construction going on, so the composition of the building isn’t final yet.
The real estate climate has changed radically since many of the owners closed on their units. Condo sales in Sarasota during May were down 42 percent compared to the same time last year. Coler says his business is down 50 percent, so he thought this would be a good time to train to climb Mount Kilimanjaro in Africa and forget about real estate.
“My buyers are saying, ‘We’re going to watch this for the next year,” he says.
Seven developments, including 1350 Main, are nearing completion, adding 769 new units downtown in the next year, just about the same number that are now for sale. Many projects, such as CityPointe on Cocoanut and another at 1750 Main that together would have brought 454 condos downtown, have been canceled. Several developers with condo plans are now trying to change them into hotels.
Profit-taking at the Plaza is down, too. A condo that once listed for $925,000 recently sold for $865,000. Still, the owner made $98,000. One hopeful investor who paid $766,700 had his property listed for $1.3 million, but recently took it off the market.
Most Plaza owners say they’re not worried about the market “correction” or “crash,” depending on your point of view.
“It’s a short-term hiccup,” says Eckel, owner of Wagner Realty, which has 10 offices in Sarasota and Manatee. “Long-range, it’s a perfect area.”
Eckel owns a home in New York and, like many of the Plaza owners, splits his time between the two houses, frequently flying back and forth. High-speed Internet allows him to manage his business seamlessly, he says.
Less common are the people like Al Ferrigno, who spends most of his time in Sarasota. If city planners and retailers could create a perfect downtown resident, Ferrigno would be it. As the owner of a chain of hair salons, Ferrigno creates jobs, contributes to the local economy and spends his money downtown.
New College sociology professor David Brain says the problem with downtown is that there aren’t enough working people such as Ferrigno living downtown, and so it lacks stability. Attempts to create affordable housing by increasing density have so far failed.
“In the long run, are we going to be a city of vacant residences?” says Brain, who wanted to live downtown but was quickly priced out of the market. “We end up with a hot market with people who don’t live here.”
Just how the slowdown will affect national retailers’ decision to locate downtown isn’t clear. Pineapple Square promised to bring 40 retailers and restaurants (and another 256 condos), but so far, no leases have been signed.
Despite the soft market, seasonality of the residents and a glut of condos, retail analyst Robert Gibbs says national retailers are still “bullish on Sarasota.”
“It’s considered one of the last under-served markets,” says Gibbs, founder of the Gibbs Planning Group in Birmingham, Mich. “It’s where Naples was 15 years ago.”
Gibbs has worked on five projects in Sarasota and spoken to business groups here. “National retailers aren’t bothered by seasonality,” he says. “It’s the smaller businesses that are bothered by that.” Gibbs says that if retailers have pulled back, it’s because of the proposed locations rather than the market.
Gibbs says Sarasota is in much better shape than the rest of the state. As he’s traveled Florida, Gibbs says he’s seen the Seaside area go from a hot market to one “where nine of 10 houses had for sale signs. I’ve seen lots of projects that were 80 percent speculative. In an ideal situation, everyone would be here year round”—but that, he says, is not going to happen.
Housing analyst Todd Zimmerman also sees the downturn in Sarasota as temporary, but one that brings real challenges.
“Revitalizing a downtown is very difficult,” says Zimmerman, an analyst with Volk and Associates in Clinton, N.J. He notes that many cities, such as St. Louis, have struggled to get people to come to the downtown area.
“But the long-term diagnosis is pretty positive,” Zimmerman says. “For foreign buyers, Florida is having a bargain sale because the dollar is devalued.” He says the nature of seasonal residents is changing also. Instead of snowbirds flying here and staying for four months, they tend to flit back and forth between homes.
“It’s the inability of baby boomers to retire,” says Zimmerman. “They split their time between two houses. It’s a different pattern.”
On the plus side for Sarasota, boomers who are retiring are attracted to urban living, Zimmerman says. “They like the new urbanism and the new village idea.”
Just how long the real estate market will remain “soft” and how long it will take for Sarasota to absorb the inventory downtown is anyone’s guess. About 500 condos are now for sale. Coler says every day his e-mail box is flooded with notes from real estate agents offering 30 percent price cuts on properties.
Among the few Plaza owners who have their condos for sale, one says she is rethinking her decision to live downtown.
“We bought [the Plaza condo] with the idea that we would use it for retirement,” says Clare Bismuth, who now lives east of I-75 off Bee Ridge Road. Bismuth joined the condo board, got to know other residents, and, like a handful of owners, has been using her bay-facing 15th-floor condo as a pied-à-terre.
But with more space at her home out east, she’s decided she’s not ready for downsized downtown living. “We’re very comfortable where we’re at,” she says. “I’d never be able to get all my things to fit [in the Plaza].”
The Bismuths paid $630,100 for the condo, and it’s now listed for $975,000 on a for-sale-by-owner site. And she insists she’s not worried about finding a buyer. “I think the Plaza is superior to anything you’ll find,” says Bismuth. For someone who is ready to become a full-time Sarasota urbanite, “it’s a perfect place to live.”