Beaches not seeing condo defaults despite market glut
August 19th, 2007 - Category: Condo, Real EstateSo far this year, the developer of the oceanfront Costa Verano condos has reported a 17 percent national default, referring to buyers who walked away from their contracts and their six-figure deposits.
But that wasn’t the case for the Costa Verano at 1031 First St. S. and defaults have been few with new condos in Jacksonville Beach, Beaches-area real estate brokers said.
Since 2002, about 16 condo towers have been built in Jacksonville Beach. Many of them were marketed as luxury homes, with prices ranging from $500,000 to $2.8 million.
Condo sales nationwide are down 6.6 percent compared to the same time last year, according to the National Association of Realtors. In Jacksonville, the median sales price of existing condos in the first quarter this year was down 8 percent from the previous quarter, according to a recent report from the national association.
A high rate of default is one sign of trouble. A default occurs when the buyer fails to close on the developer’s sales contract. Closing usually takes place when the city issues a certificate of occupancy.
Also known as a walkaway, the buyer who defaults usually forfeits a 10 percent to 20 percent deposit, which in the case of luxury condos can amount to hundreds of thousands of dollars. Some investors would rather give up the deposit than complete the purchase and wait years for the condo to resume its value.
WCI Communities, which built the Costa Verano and other high-end condos across the eastern U.S., reported a 17 percent default rate with its condos so far this year, according to its Aug. 6 report to the Securities and Exchange Commission.
But the Costa Verano closed on all the units in its 15-story tower, said Steve Zenker, spokesman for WCI in Bonita Springs. He said its oceanfront location and market timing boded well for sales.
The Costa Verano took reservations in early 2004 and closed on the contracts in December 2006, before defaults became an issue in 2007.
New condo defaults are relatively few in Jacksonville Beach, said Mark Werner, a real estate broker with Werner Realty Corp.
But there are some examples. Of the 41 units at the Pier Point Condo at 219 Fourth Ave. N., two buyers walked away from their contracts, forfeiting 20 percent deposits. One of them, who was buying two units, gave up a $250,000 deposit, Werner said. Real estate brokers immediately sold one of those units, he said.
“It didn’t create stress for us,” Werner said, noting the Pier Point defaults came to about 5 percent of the contracts, which is less than the standard rate, he said.
Another sign of the condo glut is the number of them on the market.
There are 360 condos for sale in Jacksonville Beach and about 225 of them are east of Third Street, Werner said. Most of them are resales, he said.
About 80 of the units for sale east of Third Street are in the $350,000 to $650,000 range and most of them are new, he said.
Werner blames the condo market’s downshift on speculators, whom he estimates made up about 85 percent of the buyers in 2005.
“Those guys are gone,” Werner said. “But we’re still a market for a buyer who wants to use something.”
The picture isn’t all bleak.
Werner said that in May and June, his company sold four units at the eight-story NorthShore on the west side of First Street North. There were no defaults when the NorthShore closed on its units in late 2006 and there’s only one original unit left, he said.
Pricing, location and amenities have a lot to do with it, Werner said. The NorthShore condos are in the $400,000 to $600,000 price range and have an ocean view, even though they’re on the west side of First Street.
Last year’s condo inventory was “huge” and many of the pricier units still linger on sales lists, Werner said.
But new condos in Jacksonville Beach are still a good bargain, he said.
