Normally I’d wait until January to start looking back at the comings and goings of the previous year. However, since my market reviews are extremely focused, I can get a head start on some of the associations and market segments that have proved especially anemic during 2010. Enter the South Shore Club, king of the anemics and poster child for developments everywhere whose pricing bears little reflection on the broader market. In my premature year end review of the South Shore Club, I feel fairly confident (read dead certain) that there won’t be a sale in the next 10 days that might render this update untimely or inaccurate.
The South Shore Club. It sounds quite nice, doesn’t it? It looks nice too. And when you’re riding on a golf cart over crushed granite and Brussels block pathways that weave between magnificent homes down to a most impressive lakefront, it feels nice too. But for all those warm feelings, powerful marketing, and ethereal pricing, there’s something very wrong with the South Shore Club at the moment. I must admit that I love the South Shore Club. I really, truly do. I don’t love it in the way that I love Lobster mac and cheese, but do I love it more than I love stuffed mushrooms? Sure I do. The problem isn’t that I don’t like, or even love, the place, it’s that if the price is the same and all other factors are equal, I love private frontage even more. Before you blame me for bringing down the entire development with my cutting and condescending words, it’s important for you to realize that the rest of the market feels pretty much the same way I do.
How else can you explain a year where just one home sold in the South Shore Club? And that one home, it must be noted, was a bank owned property that closed for $1.75MM, a price that is roughly half of the average list price for the development. When some 18 or 19 lakefront homes will sell this year, in all price ranges of our lakefront market, and in spite of ample inventory in the SSC all year, just one home sold there? It was a difficult year in the South Shore Club, particularly when viewed against the resurgence that the lakefront market enjoyed simultaneously.
Particularly troubling is that the South Shore Club has had open market inventory available since its inception. It’s not like this has been an elusive development, like the Chicago Club or perhaps even the Congress Club of years past, where open market offerings have been impossible to find. No, this is a development with all of its wares on display, with neon signs and flashing lights and juggling circus clowns begging you to stop and have a look. In spite of all sorts of marketing attempts and properties that far exceed most buyers brick and mortar demands, the most recent MLS sale, prior to the REO this summer, took place all the way back in 2007. Or, to put it into context for me personally, 15 pounds ago. Given these sales statistics, how on earth can anyone say that the market is stable there? How can asking prices that appear to be chiseled deep into the cut granite fireplaces of these marvelous homes be taken seriously?
The unfortunate response is that they cannot be. The development has, during a year where the rest of the lakefront market feasted on a buffet of new and motivate buyers, failed to keep pace. The prices can no longer be viewed as anything other than suggestions of value, even though buyers may still show up once in a while and feign deep interest. The inventory is quite magnificent, with one spec home in the development (the only true spec in there that is listed at the moment) being a particularly fascinating home with deliciously high end appointments. But even as I get slowly sucked into finding some of these homes captivating, it’s the prices that stand guard and keep most buyers from taking even a wary second look.
The remaining vacant land in the development fared only slightly better during 2010. The MLS shows 9 available lots at the moment, with one lot being offered as bank owned (priced at $399k, it could be a ridiculously low entry point to the SSC). Two other lots sold during 2010 (per MLS), one was lot 15, a lot that was, at the time, the best available parcel remaining. This lot had a list price of $1.751MM, and closed for $1MM. Lot 22 was listed for $1.39MM and sold for $800k. The developing partners appear motivated to liquidate the remaining lots, and the pricing of the existing homes has suffered as a result. The biggest enemy of the South Shore Club might not be the broad market reaction to the development, but rather the real enemy may indeed be the developers putting downward pricing pressure on the entire place as a result of their necessary price cutting. The reasoning behind this is elementary. If an existing owner paid $1.7MM for his land and built a home for an additional $2MM, the owner is all in for $3.7MM. If a similar lot sells for $1MM and the owner can cut prices a touch and build with more restraint for, say, $1.7MM, the 2010 buyer can now be all in for $2.7MM, leaving the $3.7MM guy high and dry.
This is why I’ve told you repeatedly that I don’t like the idea of buying in unfinished developments. Be those developments within Geneva National, in Walworth County, or downtown Chicago condominium buildings, I just don’t like having exposure to the whims and financial strain of a developing group. While it may sound like I’ve been beating up on the South Shore Club, I assure you that I remain a fan of this development. But as the market adjusts I’d be foolish not to recognize the changes, and react accordingly. I think the best value at the moment is in the vacant land there. If I were a buyer who had previously considered the SSC, I’d take a very hard look at the available vacant land and consider making a play on it in January. If you’re of a like mind, I’d love to help.
Unfortunately, 2011 doesn’t look much better for the South Shore Club. Buyers are still looking for deals, and a theme of my 2011 predictions is going to be a very simple explanation that buyers are not going to change their buying habits through the next year. During 2010 buyers here have been attracted to two things, and two things only- low prices and rare offerings. The South Shore Club can’t offer scarcity, leaving low prices the only thing that will attract buyer interest into the new year. If prices of the existing homes adjust, perhaps we’ll see a sale or two during 2011. If prices remain stagnant, the only thing I can see moving will be the remaining vacant land, as the developers have demonstrated a willingness to adjust to the demands of the market. The South Shore Club is indeed a beautiful place, but the market still needs a bit more convincing.
(I am not affiliated with the South Shore Club in any way, other than my ability to sell property there as a cooperative agent. The statements above reflect my sole opinion.)
Yeah! I was actually going to ask you to do an article on this subject. One more thing to mention – and a big thing – the HOA dues and property taxes. With a good tail wind and another good year in the NASDAQ I might be able to get to "SSC" – but the HOA dues and property taxes are a showstopper.
The dues and taxes are tough indeed. The thing to remember with the SSC is that the ownership there needs to be compared to private frontage ownership. When you consider a tax bill in the $20k to $28k range, this is actually quite reasonable for the lakefront. Remove the private property expenses associated with private ownership and the expenses associated with boat, and waverunner ownership, the monthly fees actually become palatable. (says the guy who doesn’t live there!) Thanks for reading, David