Posts Tagged ‘Florida’
Large, circular storms
The first time I sailed in the Caribbean (on a 42′ Morgan Sloop), I asked the Captain about “hurricanes”. He said that was a verboten word in that part of the world, and I should simply refer to “large circular storms”. So, as many of you know, Key West and the waters of the Carib and the Gulf are my adopted second home (although, truth be known, my father was born in Florida and commanded a ship out of Key West back in the 1940’s… but I digress…). Like everyone, my eyes have been glued to the Weather Channel of late, and our thoughts and prayers go out to everyone harmed by the storms that have ravaged the southeast and our neighbors with whom we share those magical waters. I also want to thank everyone who has expressed concern over our potential property damages, but let me say that it’s only property, and it’s well insured… but more about this later.
By the way, we’ve been in touch with several folks who weathered the storm in KW. According to one report, at least one bar on Duval Street was re-opened and packed with locals by Monday morning. Of course, economically, the locals need to restore the never-ending flood of tourist dollars, otherwise they’re just swapping dollars among themselves.
A few factoids about the Keys to help color in the lines. The Florida Keys are an archipelago of about 1700 (!) islands starting about 15 miles south of Miami and running generally southwestward. Key West (which is actually an aberration of the Spanish “Caya Hueso”, which means Island of Bones) is the westernmost point which is accessible by car, thanks to Henry Flagler and his railroad/tourist empire. In actuality, the Keys officially include the Dry Tortugas, about 60 miles to the west of KW. KW is just barely in the Eastern time zone, and the Dry Tortugas observe Central time. KW is closer to Havana than it is to Miami.
By the way, the since KW is in the Western edge of the Eastern time zone, it means that the sunsets are slightly later there than back in Miami. This provides for an extended happy hour out on Mallory Square, on the west side of the island, every day at sunset. It also means that sunrise is slightly delayed, allowing for a few extra minutes of sleep before the obligatory morning dog-walk down to the pier to watch the sunrise in the east.
Oh, and about those 1500 islands — only about 30 are actually inhabited. The remainder are wonderful nature preserves. Geologically, the Keys are actually three different expanses. The upper keys (Elliott Key, Key Largo) are remnants of ancient coral reefs. The middle keys (down to Big Pine Key) are parts of the ancient Florida Plateau that stretched from Miami to the Dry Tortugas some 130,000 years ago. At that time, the water levels rose about 25 feet, submerging all of this plateau except for the islands which remain. Finally, the lower keys (Key West, for example) are sandy-type accumulations of limestone grains produced by plants and native marine organisms.
The climate is sub-tropical, and the foliage is more Caribbean than the rest of Florida. Monroe County is the only frost-free zone in America. There are three ways to get to Key West — by plane (short hops from Atlanta, Miami, and other nearby airports), by boat, or by car. US Highway 1 stretches from Florida City (just south of Miami) to KW. With the exception of a slight detour available between Florida City and Key Largo (Card Sound Road), every bit of vehicular traffic has to pass down this corridor. Additionally, all the water for the keys comes from the mainland via the Aqueduct Authority, which has built on an original infrastructure installed by the Navy back in the 1930’s. To put this in perspective, Mile Marker 0 on US-1 is at the corner of Truman and Simonton in downtown KW. Key Largo is at mile marker 102, and Florida City is at MM-122. Hence, everything that comes and goes thru the keys travels down this narrow path. While much of the original KW was built via shipping and rail, neither of these options currently exists. You truck it in, or it doesn’t come.
I had the opportunity to view aerial photos of KW taken by NOAA yesterday afternoon. There appears to be little structural damage to our house or, for that matter, most of the island. Indeed, even one nearby trailer park I viewed looked mostly intact. Apparently, the eye of the storm passed thru the gap south of Marathon where the famous 7-Mile Bridge is located (featured in countless films, such as the Bond film License to Kill and Arnold Schwarzenegger’s True Lies). According to reports, the 7-Mile Bridge and all of the bridges to the west are intact. Since the worst of the wind is on the east-north-east of the eye of the storm, it comes as no surprise that the worst damage occurred to the east of the bridge, including the cities of Marathon, Islamorado, and Key Largo. As you can guess, the damage to the east will have to be repaired before the western islands can be reached, or before tourism can return.
More as we hear it….
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American Real Estate Society annual meetings
ARES is one of the two primary real estate academic organizations in the U.S. (The other is the American Real Estate and Urban Economics Association, “AREUEA”). While most real estate academics are members of both, ARES also attracts a significant number of practitioners (typically ex-professors who are now in the consulting or investments business) plus has a great relationship with such practitioner organizations as the Appraisal Institute and the Royal institution of Chartered Surveyors. ARES publishes several of the top real estate academic journals, including the Journal of Real Estate Research (for which I’m a reviewer), the Journal of Real Estate Literature, the Journal of Real Estate Practice and Education, the Journal of Real Estate Portfolio Management, the Journal of Housing Research, and the Journal of Sustainable Real Estate (for which I’m on the editorial board).
ARES holds its annual meeting in April, usually in a coastal city on alternating sides of the US. This year’s meeting was last week at St. Pete Beach, Florida (an island just off the St. Petersburg coast), and we believe we set a record for attendance at a real estate academic conference. Several hundred working papers and panel presentations dominated the program, along with sessions featuring research from doctoral students, and a well-attended, day-long “Critical Issues Seminar” on Wednesday co-sponsored by the Appraisal Institute and the CCIM Institute.
I presented papers in sessions, including one I chaired (“Real Estate Cycles”) and participated in an excellent panel discussion on Friday on “Real Estate Failure”, chaired by my good friend Dr. Gordon Brown of Space Analytics (and featuring Dr. Larry Wofford of U. Tulsa, Dr. Richard Peiser of Harvard, and myself).
I’m still digesting the huge volume of intellectual content that came out of ARES, and I’ll probably discuss some of these papers in future blog posts. More later!
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Welcome to April
…and welcome to Florida. I’ve been in the southeast corner of the U.S. for the past two weeks in a hearing. I happen to love Florida, and if I ever get around to retiring, I’ll probably end up here. Thanks to personal choice, some business, and just a little bit of kismet, I get to travel here at least 3 or 4 times a year. Indeed, by the end of April, I will have made 3 trips here in 2012, with at LEAST two more planned.
In many ways, Florida is the poster child for the current economic problems plaguing the U.S. It has all of the hotbutton issues in one place — overbuilt housing, lending practices to match, and huge demographic shifts. The latter is almost humorous — Florida is jokingly referred to as “God’s waiting room”, not withstanding the fact that suburban Las Vegas, Orange County, California, and Scottsdale, Arizona, are all fighting for that moniker. Indeed, about 15 years ago, I was relegated to represent my university at the annual meeting of the American Association of Retirement Communities. I learned (among other things) that the two Carolinas, when taken together, actually get as many retirees every year as does Florida. However — and here’s the funny part — the “source” of Florida’s retirees is primarily the New England and Mid-Atlantic region. The “source” of the Carolinas’ retirees is Florida — they’re called “half-backs” because they move to Florida, find the weather to be abysmal, and move half-way-back home.
Being that as it may, Florida is still the destination for seemingly millions of retirees, a large proportion of whom seem to be “snow-birds”. They live in Florida 6.01 months of the year (just enough to qualify for Florida citizenship, and thus preferential Florida taxes) and then head back up north on March 31 every year. (I was in Florida on March 31, and the out-migration seemed to clog the interstates).
Before the melt-down, the whole housing industry in Florida existed to provide half-year housing for these snow-birds. Pick what you want — condos, townhouses, detached homes, we’ve got it at every price-point, size, color, and configuration. It would be hard to imagine a housing solution that wasn’t available in Florida. Financing? No money down? No problem. Move right in. While a surprisingly large number of homes were paid for with cash, there was certainly lots of available financing for the retiree who didn’t want to tap his funds for a down payment. And why tap your funds? When the stock market is growing at 10% per year, and real estate is going up by 15% per year, who would avoid a 4% mortgage? And what bank wouldn’t make that mortgage? After all, Grandpa and Grandma are great credit risks, and if they die before the loan is paid off, certainly the property can be re-sold for a profit. It’s a win-win, right?
Yeah, we don’t need to re-visit the meltdown, but the aftermath is a fascinating war zone. First, a lot of cond0-dwellers simply walked away. A lot of single-family dwellers tried to hang on, but often to no avail. Nothing would re-sell, so the market just froze. But, remember that a LOT of the buyers paid cash or had very low LTV loans. Those folks are particularly harmed — they are sitting on nearly unsellable property, with no end of the pain in sight.
If you visit Sarasota or Naples or any of the dozens of “retirement” communities on the Florida coast, you’ll get two distinct pictures. The beaches are filled, the hotels are filling back up, and the neighborhoods look healthy. Visit the county government complex, though, and you get a distinctly different picture. Floridians are a distinctly tax-averse lot, and so many county and city governments thrived on fees paid by developers. With that market frozen, the local government finances are a mess. Couple with it an actual and meaningful decline in property tax collections, and you get a local finance problem that won’t get fixed anytime soon.
With that in mind, millions of Americans (and an increasing number of South Americans and Europeans) see Florida as the best of all retirement solutions. The weather is great most of the year, there is excellent infrastructure and health care, and plenty of recreational opportunities. The cost of living is among the lowest in the U.S., providing ample opportunity for “worker bees” who move here to care for the retirement cadre. However, the housing market continues in the doldrums. A good friend of mine, with excellent credit and not unsubstantial resources, recently bought a Florida condo. The BEST loan he could get was 40% LTV, and even that was a paperwork nightmare. There is plenty of demand for Florida housing, but the financing side of the equation continues to be an issue. Unless and until the financing problem gets fixed, the housing problem will still be with us.
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Nevada
Just came back from a day in Reno. (Hard to type that without hearing Johnny Cash in my head.) Sitting in the airport, I struck up a conversation with a young man sitting next to me. He asked what I did for a living, and as soon as I told him, he wanted to know my “economic prognosis” for Nevada. Whether I had a good one or not, I gave him my two cents worth.
Nevada — and Florida, for that matter — primarily make their living from three things: tourists, retirees, and people who care and feed the first two categories. (One might be tempted to add Arizona into the mix, but that would be a bit of a mistake. Arizona’s economy is a bit more complex. One might argue that Florida and Nevada’s are, too, but let’s go with it for a while.)
One immediate “hit” to the economies of both Florida and Nevada was tourism, as families (and in the case of Las Vegas, conventioneers) had to tighten their belts. However, this segment is actually coming back a bit, albeit not totally to pre-recession numbers. For example, Florida’s Gulf Coast Panhandle (the nine counties in western Florida) were actually seeing a resurgence of tourism until the Gulf Oil Spill. Occupancies in the Gulf Coast region on Memorial Day, 2009, were quite good, but then the oil spill hit, and occupancies were dismal on that same weekend, 2010.
Las Vegas is certainly in trouble, but some of that came from overbuilding. The Saraha just closed — it had been slated for a makeover, but the owners have decided to “go dark” for a while instead, waiting for the economy to turn. The Las Vegas City Center continues to be a prime example of speculative overbuilding, both rooms and casino space.
But, Reno isn’t Las Vegas. Sure, Reno has casinos and some gambling, but it’s more of a retiree area. This segment of the population has been hurt in two ways. First, they can’t sell their houses. Moving to Reno (or Ft. Lauderdale) generally requires selling a house in Los Angeles or Groton. As I’ve noted previously, the supply of existing homes is pretty stable, and even though new construction has tanked, the demand for owner-occupied homes is actually shrinking from its pre-recession peak of about 69.5%. Thus, retirees may WANT to move to Reno, but no one will buy their home in Los Angeles.
Second, POTENTIAL retirees look at their 401-K’s and start thinking, “wow, I guess I’ll need to work a few more years.” This has some long-term issues for the economy. First, every retiree who “stays” on the job means one applicant at the beginning of the work-force pipeline who can’t “get” that job (or at least the job that leads to it.) Second, early retirement is more care-free (both personally and financially) than late retirement. Thus, early-retirees generally spent financial assets into the system without making many demands ON the system (health care being the biggie). Now, many retirees will defer retirement until the fateful day when they start demanding more of the system than they are able to put into it. If we think medicare and social security are problematic NOW, wait until that reality takes hold.
From a housing perspective, large parts of the U.S. (Nevada, Florida, and, yes, big swaths of Arizona) have been built to accommodate retirees in between the time they “sell the big house” and the time they move into assisted living. A prolonged “work-life” means a significant lowering of demand for this segment of the housing market.
From a small northwestern observatory... 