To notice a nuanced trend is to notice what most people do not care to see. Nuanced, subtle trends are difficult to see, to articulate, to explain. But front line trends, those bold ones that stick out so far that it would be impossible to not notice them, these are easy trends to both recognize and lend credit to. Trends are to real estate as waves are to water, and when there is a trend, we must acknowledge it and then react to it. Subtle trends are not the discussion today. Today, it’s about the macro trend on the lakefront.
If you have ever been riding around the lake by car or by boat, and you have noticed a large enough lot, perhaps 100′ or more, and then you’ve seen a small, cozy cottage under construction on that small, tidy, lot, then I’d like you to call me immediately. I will not answer my phone, as I tend to not do sometimes, but you can leave me a message about what you saw and where it was. The thing about this is that you’ll never call, so it won’t matter if I never answer, because the trend on Geneva has nothing to do with tearing down and building small, it has to do with tearing down and building big. Like huge. Restraint in construction was this strange theme that some thought might take hold back in 2009, when our real estate fortunes were down, but that attitude of reservation didn’t last too terribly long.
I’ve expressed some concern over recent years about the glut of gigantic new construction on Geneva Lake. I love seeing it built almost as much as the tax assessor does, but I have openly questioned the real estate sense involved in such an endeavor. To buy a piece of property for $3MM or more generally doesn’t mean to buy and build and be all-in for $4MM. That’s a sweet, tender idea, but it doesn’t happen. Instead, buyer’s buy for $3MM and then they build for $3MM and then they landscape for $1MM, and before Scott Byron backs his trucks out of the driveway for the last time the homeowner is $7MM or more deep into his new lakefront house. Homeowner scratches his head, assessor high fives himself, municipality rushes to begin plans to build a new school (complete with ski hill!) and neighbors gawk. This is new home construction, Geneva style.
What I’ve questioned about this move isn’t the motivation of the owner, for that is obvious, it’s the market ramifications of a future sale. No one in their right mind builds a $7-12MM vacation home with the intent of quickly selling, well, almost no one, but selling is something we all do. This is why we love a new car on a Saturday and then 52 Saturday’s later that same car is an old mess that we must get rid of. So I’ve questioned the sense of building these monster homes, namely because I don’t know if a resale market exists for them. The history of Geneva Lake is one rife with sales of all sorts, but it isn’t a market that easily pushes sales past the $5.5MM barrier. In order to achieve that sort of lofty bracket the home must be fabulous and the buyer flush.
And so we’ve all watched as the monsters have been built, one after another. While others have gawked, I’ve wondered. Is there an actual market for these seemingly out of place behemoths? The answer, it appears, is yes. A recent contract on a $7.9MM lakefront home proves that every once in a while, buyers will pay up for the high end luxury that is a great big spread on Geneva Lake. The question from here becomes one of not just current value, but future value. If we’re buying these homes for this sort of money, what is it that we might like to expect?
Well, for starters, we need frontage. Lots and lots of it. We don’t need just a bit of it. If we’re spending $6MM+ we had better have 150′ of frontage. If we don’t, well, then we don’t, but we’d like do. When I sold 1014 South Lakeshore for $5.885MM in 2010, the sale was largely accepted because the site was both wide and deep and level and there just so happened to be a ridiculously awesome 10,000+ square foot house on it. If the frontage were just 100′ would that property have achieved that sales price? Of course not. Don’t be so naive.
The lakefront market is, at this moment, on fire. Concerns over the instability of the financial markets appear to be assuaged by some blue water and dark green shorelines, and for this we can all be thankful. I see at least six lakefront properties pending sale as of this morning, and there’s another that just had an offer on it and very well might have a new offer on it soon (the phenomenon of overpaying for luxury is alive and well). A lakefront on Harvard Avenue in Glenwood Springs just closed this week for a price that appears to be $1.6MM. This sale was of a large, older home up on the hill in Glenwood, so while the property isn’t technically private frontage we will count it as such today and forever. At $1.6MM I’m not overwhelmingly excited about the property, but the $1.6MM close off of a nearly $2MM list represented a fine reduction for a property that likely needed one in order to sell.
What exactly is driving the lakefront market this summer? I’m not entirely sure. While there is plenty of doom and gloom (Roubini) there is also plenty of confidence, and if you’re the sort that wants to borrow a few dollars to pursue vacation home fame, well there’s plenty of cheap money out there as well. I think the lakefront market needs some new inventory, and I think if we get some over the next six weeks we’ll see a fantastic fall market. With the introduction of this new pending sale (with heavy shame this isn’t to my buyer nor is it my seller…), there’s reason to think that being all-in between $5MM and $7MM isn’t the worst idea someone can come up with on this lake. When this sale prints, we’ll figure out if the buyer got a great value or if the seller did well recouping some, or all, of his build costs. Until then, I’ll see you at the lake.