Gulf Coast Condo Glut Stalls Projects

GULF SHORES -- Financial broker Arthur Hood's clients are working on bulk buyouts at three Gulf Shores condominium projects where developers want to get rid of their inventory. "I think it's going to be an investor market for the next 12 months, and we're going to see some pretty serious bottom feeding," predicted Hood of Global Capital Solutions in Birmingham. His firm brokered the $40 million June purchase of the last 87 condos in the 142-unit San Carlos in Gulf Shores.

Two years of slow sales have killed many new condo development plans and put others on hold. The inventory glut -- almost 3,000 units for sale on Alabama's Gulf Coast -- has kept bankers away and Realtors hunting for buyers. In Gulf Shores, for example, developers of 10 approved condo projects have been allowed to push back their start dates because of the sluggish market.

Nationwide, builder confidence in the condo market is at its lowest level in five years, according to a survey of condo and multifamily builders by the National Association of Home Builders.

"The problems in the mortgage market are rattling consumer confidence in for-sale housing at the same time that the condo sector is trying to shake off excess inventory in a lot of markets," said David Seiders, chief economist for NAHB. "That combination is delaying any recovery in the condo sector."

Pensacola, Fla.-based developer J. Collier Merrill kept his purchase option on land in Orange Beach to build The Verandas, a 336-unit project, but said he has no plans to start building until the market improves. "Everybody knows the market is not there right now," said Merrill, who has built three condo complexes in Gulf Shores.

Sales activity has increased in August and September, according to J. Stradley of Ono Professional Partners. Even so, he and two other agents in his office are obtaining their time share licenses from the state so they can sell fractional shares of condo units, he said.

Fractional ownership can help buyers concerned about the rising costs of living at or near the water, Stradley said. Owners share the costs of homeowner association dues, property taxes, insurance and potential assessments. Fractionals are sold in 1/6 shares to 1/25 shares.

Fractional sales will be the catalyst to turn the market around, said Greg Saad of Saad & Vallas Realty Group. "We've got to have more users, and we've got to bring it into their economic sphere," he said. "To do that you've got to divide those ownerships up. The economy is not producing enough users to justify the absorption rate it takes to get the industry moving in two years."

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