On Clearwater Beach, condo dreams dry up
Early edition: The beach had nine major projects on the way, worth $1.4-billion. But the market dipped, and empty sites dot the sand instead of high-rises.
By MIKE DONILA
Published November 11, 2006
CLEARWATER — Not long ago, popular south Clearwater Beach was teeming with tourists staying at the Beach Towers, Days Inn, Spyglass, Holiday Inn Sunspree and the Adam’s Mark.
But those hotels and others were knocked down or closed in recent years to make way for nine high-end condominium and hotel projects, valued at $1.4-billion. And more closures are expected.
The thinking was the beach community could absorb the loss of an estimated 1,100 rooms because the new units would attract more tourists, residents and money.
Somewhere amid the “condo boom,” however, prices skyrocketed, the market softened, insurance rates escalated — and buyers vanished.
Developers delayed or changed projects. Some refunded deposits, downsized rooms or lowered prices. Nearly all have pushed back construction.
What was supposed to be a time of great optimism, of unprecedented construction on the famed beach, has given way to quiet and an uncertain future. It could be many years before the rooms — and the millions of dollars in business — return to the beach.
Real estate, financial and government experts say the delays — some of which have left rubble-filled spots where hotels once stood — could make the beach less accessible, shrink city business revenues and cripple the tourist industry.
“We might never make up for what we’ve lost,” said David Little, a real estate agent and redevelopment chairman for the Clearwater Beach Chamber of Commerce.
• • •
The nine projects cover a nearly 1 mile stretch of S Gulfview Boulevard. Work on eight of them was to begin by the fall; the ninth was to start early next year.
But all but one have stalled or changed. Only the Marquesas, a condo project that will replace the Holiday Inn Sunspree, is on schedule, with construction set for early next year.
The delayed projects are the Clearwater Grande, Sienna Sands, Marbella Condominiums, Enchantment on Clearwater Beach, Kiran Grand Resort and Spa, Aqualea Resort and Residences, Entrada and Indigo Beach Residence & Suites.
Some of the projects also have changed in scope. After plans for the Clearwater Grande were shelved indefinitely, owners decided to keep the existing Quality Hotel open and renovate it.
Owners of the Enchantment condo project refunded about 50 deposits in April as they revised their plans.
Entrada developers also refunded deposits. The first phases of the project were to renovate the Gulfview Resorts’ two towers and sell the rooms as condo-hotels. But when developers finished one tower, it opened as strictly a hotel.
Likewise, Kiran Grande developers are considering running the operation as a hotel only, instead of condo-hotels, said Kirit Shah, resort president and CEO.
• • •
About 18 months ago, condos were selling at record rates countywide.
Two projects from developer Mike Cheezem — the Mandalay Beach Club and Belle Harbor — showed others the way. Built in 2002 and 2003, they were the first new high-rises on the beach in 25 years, and buyers quickly scooped up the units, in some cases turning a profit in one day.
That led to the rush of proposed private investment on Clearwater Beach, which by late 2004 was unmatched on other county beaches.
A series of events, however, brought the market to a standstill.
• Prices climbed. In 2004, beach condos averaged about $359,400. This month, they averaged $632,700.
“You have to make a heck of a lot of money to live on Clearwater Beach,” said Mike Mayo, spokesman for the Pinellas Realtor Organization, which collects and analyzes local housing market data.
• Several years’ worth of hurricanes sent insurance rates skyrocketing. That forced some to change condo-hotel projects to less-profitable hotels only.
“The lack of available hurricane insurance for people who signed up to buy the condos stopped us dead in our tracks,” said Jeff Keierleber, president of Decade Properties, the developer behind Entrada.
Rick Alles, former Gulfview general manager, said rates increased about 400 percent. And the resort owner, which paid about $600,000 a year in insurance for a hotel, could pay as much as $2-million if the building had condo-hotels. Those costs would have been passed on to the owners of the units, Alles said.
• Increased construction and labor costs have contributed to the slowdown, said Bill Horne, Clearwater city manager, and Ray Ferrara, president of ProVise Management Group, a Clearwater-based financial planning firm.
• And the market soon became oversaturated. In April 2005, there were 1,430 condos on the market countywide, and about 62 percent were selling, according to the Pinellas Realtor Organization. In April, there were 6,100 on the market, with 5 percent selling.
Mayo and local financial experts say the market hit an impasse: Investors are now on the sidelines waiting for a fire sale, and sellers are waiting for unrealistic gains.
“People are saying 'enough is enough’ and they’re walking away,” said Ferrara. “The prices simply got ahead of themselves.”
Those same factors also priced out another pool of potential buyers — retirees and second-home buyers. They generally want smaller, more affordable units, which are not offered on the beach, said Bill West, real estate manager for Opus South Corporation, which is overseeing a 25-story downtown Clearwater condo project.
• • •
The changes and delays have left the beach woefully short of rooms with no clear sense of when they will be built back. Even if developers break ground early next year, many say they’ll still miss at least four tourist seasons.
In the early 2000s, the beach had more than 4,600 rooms available for overnight accommodations, according to a St. Petersburg Times analysis using data supplied the city’s Economic Development and Housing Department and Smith Travel Research. But that stock began dwindling slowly, then at an accelerated pace. Within just the past couple of years, the beach has lost 1,100, bring the total to fewer than 2,600 rooms as of July.
“That’s a lot of rooms to lose in an area that touts the fact that tourism is our No. 1 industry,” said Sheila Cole, director of the Clearwater Beach Chamber of Commerce. “We’re keeping our fingers crossed that we can build them back up, but we’re going to be down the next couple of years as far as tourism goes.”
Some worry about potential long-term effects.
“Thousands of people are looking online for hotel rooms, and if they appear filled up, they’re going somewhere else,” said Mike Sanders, a local historian, real-estate agent and author of Clearwater: a Pictorial History.
Others are concerned the new upscale resorts and hotels will turn off the beach’s traditional blue-collar tourist base.
“We’re not Naples. We’re not Sarasota. A lot of people from the Midwest come here and they’re not going to pay $150 to $300 for hotel rooms,” said Little, an agent with ReMax, who — along with others who follow the beach activity — say the financial impact is in the “millions.”
Rob Remeikis, who works at Big Kahuna’s Wave Runners and Parasail, said the delays already are proving costly.
“This is going to kill the businesses out here,” Remeikis said. “They’re building these condos and no one is buying them. It’s going to be a ghost town.”
• • •
Still, developers say they remain optimistic.
Cheezem, whose latest project is the Marquesas, expects a healthy correction in the marketplace. “We’re on the verge of this huge baby boomer group. … They’re in their prime second-home-buying years and vacation and retirement years coming up.”
But developers say changes are in order. Keierleber said the Legislature needs to fix an insurance crisis that’s making it too expensive to protect homes along the beach. Others say something must be done about the state’s complex tax structure, which makes it costly to own second homes, which don’t receive tax exemptions.
“They needed to do something about taxes and insurance yesterday — we are taxing people out of their homes and business,” Mayo said.
Developers likely will have to redesign their projects.
Cheezem said the Marquesas is designed for retiring baby boomers and second-home owners, which are not as likely to be bought and resold.
“You have to listen to your customer, and they said they wanted smaller condos,” said Uday Lele, owner of the Enchantment.
Mayor Frank Hibbard said he is optimistic about the beach’s long-term health, but admits “there are growing pains going on right now.”
“The next few years are going to be difficult. It’s had a really negative impact on the beach and the businesses there,” he said.
Carole Ketterhagen, executive director of the St. Petersburg-Clearwater Area Convention & Visitors Bureau, said the beach is in transition.
“And we’ll come back stronger, bigger, better than ever.”
Mike Donila can be reached at email@example.com
[Last modified November 11, 2006, 19:05:18]
[an error occurred while processing this directive]