Construction Revamps ‘Island’: Beaches Area Sees Dramatic Surge in Housing, Businesses, but Some Question If Market Can Handle It
By News Herald Writer 747-5079 / Eoffley@pcnh.Com, The News Herald, Panama City, Fla.
Oct. 21–Editor’s note: This is the first article in a three-part series on the real estate market in Panama City Beach and unincorporated Bay County west of the Hathaway Bridge.
By Ed Offley
PANAMA CITY BEACH
A very strange phenomenon is happening on the Beach.
From the old Miracle Strip to Back Beach Road, from Bay Point to Lake Powell, a surge of construction west of the Hathaway Bridge is changing the landscape of the “island” almost beyond recognition.
This ongoing activity appears to defy the marketplace. While construction crews are working overtime to prepare construction sites and erect new housing and commercial activities, experts caution that recent negative trends — an oversupply of housing units, tighter mortgage credit rules, soaring property taxes and high insurance rates — have thrown many sectors of the local real estate market into a tailspin.
To gauge the actual state of development activity in the Beach’s real estate market, The News Herald over the past two months talked with dozens of Realtors, property managers, local government officials and bankers while analyzing construction statistics, housing sales and inventory figures, sales prices and other reports.
The short answer to the question — “boom or bust?” — appears to be “both.”
The market has cooled off considerably since mid-2005, but many experts said that was inevitable because the white-hot spike in property values and amount of new construction from 2003 through 2005 could not continue indefinitely.
Once the market recovers, many experts said, the Beach area is poised for a generation of further growth to satisfy the unprecedented demand of the Baby Boom generation for livable beachfront communities.
Much of today’s construction work constitutes a “bow wave” stemming from investment decisions made and construction permits obtained during late 2004 and early 2005, before the market began its cool-off following Hurricane Katrina.
“In 2004, we identified over 140 projects that were on the list as preparing for development,” said Rick Dye, city president of Regions Bank. “Out of that 140, probably today, 80 or 90 of those are either complete, under construction or finishing up on permitting.”
The rest have been delayed or canceled, he said.
Housing domination
Housing has dominated the recent development surge on the “island.” In Panama City Beach alone during the five-year period ending in 2006, new construction valuations, the estimated cost of a new project less land prices and permit fees, exceeded $1.1 billion, while commercial development valuations totaled $254.2 million, according to City Planning Director Mel Leonard.
Taking new single-family homes as an example, in 2002, the city issued construction permits for 156 homes with a total value of $19.71 million; in 2003, the number of construction permits for new homes rose to 171 with a total value of $23.73 million; in 2004, it jumped even higher, with 230 residences and a combined valuation of $30.01 million. In 2005, the number dipped slightly to 173 homes valued at $29.23 million. Then last year, new single-family construction in the city nose-dived, with only 49 new homes having a total valuation of $10.72 million. Partial figures for the first eight months of 2007 show no recovery.
Multi-family construction in Panama City Beach, primarily resort condominium units, followed a similar upward curve that peaked in 2005 and has fallen sharply since. During the three years of the construction boom in 2003-05, the city approved permits for an unprecedented 6,140 multifamily units valued at $896.42 million.
Meanwhile, commercial valuations in the city for 2005-06, largely reflecting the beginning of the massive retailing center at Pier Park, caught up and actually bypassed all new housing with $110.74 million in commercial permits and only $96.92 million for both categories of new housing during that 24-month period.
Development future
Those with a positive long-range view of Beach growth argue that investors and major developers continued to plow hundreds of millions of dollars in capital into the sand, despite the clear warning signs as early as mid-2005 of a looming housing slowdown. St. Joe Co. spokesman Jerry Ray recently said his firm is proceeding with its massive 1,414-acre Breakfast Point community north of Back Beach Road because the projected long-term appreciation of Panama City Beach real estate is expected to generate substantial profits once the real estate market inevitably recovers from its current slump.
“The market will tell us what to do,” Ray said in August. “Right today, what we think is going to happen is that there will be demand aplenty.”
Upon completion in 2018, Breakfast Point will include 3,100 housing units with a projected population of more than 6,500 residents. Given the company’s vast land holdings and financial resources, St. Joe officials said the company is well positioned to carry out the development despite the current housing glut on the island.
Similarly, the Bennett family has proceeded with developing the Towne of Seahaven, a beachfront resort village for higher-end condo investors.
“We’re making our own market,” said Mike Bennett, one of the owners of the project. “We’ve had a wonderful pent-up demand for this place.”
The retailers and restaurateurs flocking to Pier Park also are showing their belief the island is destined for long-term growth in both tourism and full-time residents, said City Planner Mel Leonard. “The city has 10,000 fulltime residents,” Leonard said. “They would not build Pier Park for just 10,000 people.”
Realtors say the boom in commercial projects west of the Hathaway Bridge is expected to draw a sizable number of young professionals building their careers on the Beach.
When Pier Park opens next spring, more than 130 retail outlets, specialty shops and restaurants will employ between 5,000 and 6,000 people, said “T” Cowart, the project’s property manager. Breakfast Point is projected to generate more than 1,673 jobs at a variety of commercial activities, including 560 in retail, 857 in offices, 56 in a planned 125-room hotel and 200 more at a planned assisted-living facility.
Thus, while many trends in the Beach area’s real estate market are down considerably from their peak in 2004-2005, veterans of Florida’s historic boom-and-bust real estate market say the current slowdown is no cause for panic.
“The future for this part of the world is very, very bright,” said former Florida House Speaker Allan Bense. Bense, as executive vice president of GAC Contractors and a board member of the public-private economic development firm Enterprise Florida Inc., keeps a close eye on the state’s real estate market. “I’m hoping that by mid- to late 2008, we’ll hit ground zero, and the market will pick up again,” he said.
Others are more skeptical.
“Oversupply, tighter mortgage credit, higher insurance and falling prices have created a ‘perfect storm’ in the market,” cautioned Pensacola real estate attorney Michael Wilboun, whose legal practice includes Bay County. His business now includes a growing number of people trying to break out of condo sales because the appraised values have plummeted below their original contract prices.
Before real estate market values can appreciate again, the glut of both condo units and single-family homes will have to be absorbed, Realtors admit. That could take between four and six years for the resort condo market, several recent studies predicted.
Sitting at the kitchen counter of a beachfront house at the city’s west end one recent Sunday morning, veteran Realtor Mary Jane Shields said in 31 years of work in the local market, she never has seen as big an oversupply of housing units as exists today.
“There are 3,142 listings on the Beach, and 895 of them are houses,” Shields said. “There were years where we’d knock on doors, we were so short of listings, but right now it’s a buyer’s market. If you are a seller, it’s very, very bad.”
Dye agreed with Wilboun’s assessment but also agreed with Bense’s prediction that the current slowdown inevitably will end.
“The market cool-down in 2005 was not because of Hurricane Katrina, but rather from a confluence of higher interest rates, soaring appreciation that boosted prices and insurance cancellations and premium hikes,” Dye said. “But our studies show that there is increased demand for housing, for (baby) boomers retiring or people wanting second homes off the water.”
‘A better place’
Public attention in recent years focused on the once white-hot beachfront condominium market in the city and unincorporated Bay County, obscuring the emergence of a growing market for full- and part-time residents seeking traditional homes and townhouses. This parallel boom in single- and multi-family housing that has spread throughout the area reflects the long-term demand for retirement and second homes among the Baby Boom generation, Dye and other experts say.
“One growing category of new residents is that of out-of-town vacationers who invest in a second home or condo, then become ‘splitters’ — staying frequently,” Dye said. “Eventually, they move here permanently upon retirement or a job change.”
Meanwhile, an area once visually defined by “mom and pop” motels and cinderblock bungalows is transforming into a modern urban landscape with panoply of recreational amenities for both tourists and fulltime residents, many observers say. This includes the ongoing Front Beach Road Community Redevelopment Area’s $400 million package of proposed streetscape projects.
“All of this construction is making Panama City Beach a better place,” said Chris Lawson, a real estate broker for The Villas at Suncrest, a 194-unit condominium and townhouse community going up on the “Miracle Strip” segment of Front Beach Road. “For the most part, we are seeing young professionals, first-time home buyers,” he said. “They vacationed here all of the time and decided that Panama City Beach is too pretty for just a vacation.”
Coming Monday: Condo woes
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