Earlier this year, I spent a very sweaty fourth of July weekend parading buyers through what promised to be the most exciting opportunity in the young life of the South Shore Club. Firmly enveloped in a November chill this morning, those sunny days where sweat came effortlessly haunt my dreams like a mirage in a rapidly advancing desert of winter. I spent many hours that weekend showing many buyers the new bank owned (REO) listing that had come to the market that week- a listing that I hoped, for the sake of my buyers, would sell quickly and cheaply. Fast forward several months, and while this beautiful home did sell, it didn’t sell particularly quickly, nor did it sell for my definition of cheap.
But there I go again, getting ahead of myself and crushing the market with the mere mention of a sale that doesn’t bode well for other sellers who remain intent on selling at prices that in no way reflect the serious market conditions of the day. First, some respect for the home that closed last week. It was a stunning home. It really was. It was presented with a very high end fit and finish, quite representative of the supreme stylings that reign in the South Shore Club. Having been built by Engerman, there is no doubting the pedigree of this fabulous home. With a sales price last week of $1.75MM, most would assume it was a screaming good deal, and perhaps it was. The sale did a number of things for the development, but I’d argue that the most notable ramification of the sale is that it may have installed a floor for potential future distressed sales.
When this property hit the market, I made no secret of my belief that it was a tremendous value around $1.5MM, and not much more. My thinking was, and is, that any purchase in the development needs to be made with the knowledge, and possible fear, that future distressed sales may indeed arise, and the purchase needs to be made with that contingency in mind. The other thing to weigh is the existence of extreme value in the remaining vacant lots within the development. The last developer owned lot closed for $799k- a lot that was “up front” in the development, with lake views. The REO home that closed was on Forest Hill, which means that any lake view present was only identifiable through trees and over land that will someday host two story, view killing homes. As of this morning, two of the other lots for sale on Forest Hill are priced at $449k. One of those lots is bank owned (REO), leading me to believe it may ultimately sell for considerably less than the asking price. If that’s the case, let’s work through a hypothetical scenario.
First, as long as this is hypothetical, let’s assume I’m 6′ 4″ and I weigh, say, 215 pounds. Got it? Good. Next, let’s imagine that a home, similar to the one that sold for $1.75MM could be built for around $1MM. Many would gasp in horror at the thought, but trust me, it could probably be accomplished (depending on square footage and finish). If the REO lot, or any other lot in the SSC on Forest Hill ultimately sells for, let’s pretend, $350k, that would put a buyer into a package deal for around $1.35MM. Let’s round up to $1.4MM. In light of the $1.75MM sale, wouldn’t it be better to be all in for $1.4MM in the same location with the same amenities? Theoretically, it would. But that all depends on the construction costs, and it depends heavily upon a buyer’s willingness to deal with the delay and extra hassle of the construction process. Even so, for a supremely budget minded buyer, wouldn’t it make more sense to buy and build new?
For some, yes. For most others, including this new buyer, no. The ease of buying existing is pretty significant, even though there’s a chance that a better deal could be struck by buying vacant land and building from scratch. There’s a pending deal on lot 15 (the last developer owned lot north of the swimming pool), and that buyer will probably put himself in a tremendous position moving forward if he caps his constructions costs, and arrives with an all-in number of sub $2.5MM. I don’t know about you, but I love the thought of being all-in for less than $2.5MM when my neighbors are asking $3.45MM+. Capitalizing on the distressed lot, or buying from a motivated developer is the best way to take full advantage of the market conditions, and gain enrollment into the South Shore Club for the least amount of money possible.
As a side note, several buyers have mentioned that they’ll be interested to see if there are more distressed, or otherwise discounted sales in the SSC. There very well may be (none appear to be headed that way at the moment), but this sale at $1.75MM did, in my opinion, establish a floor for prices in there. If a home on Forest Hill, off the lake, can sell for $1.75MM in 2010, it’s a very safe bet that any of the semi-circle homes, even if they’re bank owned, would sell in excess of $2.2MM. In other words, if you’re looking for another built home to sell for $1.75MM or less, you’re probably still thinking in the hypothetical, and I’m still 215 pounds. If you’re a buyer looking to take advantage of the opportunities present in the SSC, you’re probably a buyer who be well served to contemplate the purchase of a vacant lot.
The South Shore Club is a gorgeous development. If you’re a buyer who can’t stand the thought of leaving your comfortable suburban home for anything but an even more comfortable vacation home, the South Shore Club might be a perfect fit for you. One thing that is clear is that the SSC isn’t for everyone, and it most certainly isn’t the hottest development in this market. Prior to the REO sale last week, the last public sale of a residence in the SSC was in 2007. While deep pocketed owners will allow prices here to remain stable, ultimately cracks will form, and a distressed sale here and there will do much to erode the existing price structure. Buyers would do well to be active in the SSC this winter, as several of the available homes are simply stunning. If you’re a buyer who’s not afraid of the construction process and the South Shore Club excites you, think vacant land first. Congrats to the buyer who closed on the REO last week, and congrats to the agent who closed that transaction.
(I do not represent the South Shore Club, nor do I currently have any listings in the development. Any hypothetical numbers are just that- hypothetical.)