This month’s round-table panel of experts explains the fundamentals of buying luxury real estate in Palm Beach and why it’s a market that will always thrive
Edited by Elisa Brinkworth
Photography by Diego Tosoni
To buy a home in the United States, in Palm Beach for example, is very rare, because many owners can only visit for a month, and if any situation may go wrong they are unable to take the value of the home of the money spent with them.
Palm Beach Post
Haute Living Magazine
The Corcoran Group
Tara Eden Pearl
Palm Beach Real Estate
Jeffrey Cloninger & Associates
John D. Pinson
John D. Pinson, Inc.
Martha Gottfried, Inc
Rick I think something that people are really curious about is the term “luxury real estate.” What is applied to the term “luxury” and what factors affect personal buying decisions in luxury real estate?
Gail Individuals that buy real estate in Palm Beach are buying secondary homes in a luxury resort.
Paulette People own multiple homes; it’s a place of choice for them. They think of investment and future growth.
Tara Eden Pearl The luxury market in Palm Beach and the area surrounding it have 65 percent of the world’s wealth, not just this country’s wealth. We’re pretty isolated from other types of marketplaces.
Rick Interest rates are going up, which may be a problem for many. You are saying individuals buying in Palm Beach are not worrying about the increasing rates?
Tara It’s gone between 6 and 7 percent, [but] even if it were 10 percent, many of our buyers still have the means that enable them to buy in this area.
Paulette Ninety-nine-point-nine percent of all our transactions are cash transactions; they are not contingent or conditioned upon mortgages or money borrowing. So that doesn’t preclude people from getting a mortgage, but in and of itself makes a very strong statement.
John Pinson People park their money in a position and they can weather any market changes. And they only look at cost to carry. What’s it going to cost me for taxes and insurance and staff; that is basically the thought process behind these buyers. And they can weather a storm, as well – ultimately, in Palm Beach, the value is in the dirt, even if the house gets blown away.
Seth Who is actually the customer? Are they coming in from Europe? New York?
Shirley My business used to be 40 percent Europeans many years ago, but after 9/11, many more Americans are coming to live in Palm Beach.
John You have to spend an extreme amount of money for a three-month Visa to visit the United States, and to spend that much for a three-month opportunity is hard. To buy a home in the United States, in Palm Beach for example, is very rare, because many owners can only visit for a month, and if any situation may go wrong they are unable to take the value of the home of the money spent with them.
Jeff Every buyer is different, and I have buyers that range from their 20s to their 80s. I showed the property [to someone] and mentioned that the taxes were $400,000 and he said that his family would laugh if he spent that much on taxes, let alone a home. The sale never closed. A week later, I showed the exact same house to a man in his late 70s and his response to the tax price was, “It’s a hell of a lot less than it costs to maintain my boat.” Each buyer is different. As many different houses are out there, there are just as many different buyers.
Gail That being said, many of our clients, especially in the higher price range, are from New York, the Hamptons, Aspen, Palm Beach and the Northeast. Those are our target markets, or let’s say the affluent buyers.
Seth How do you feel Palm Beach plays in the national real estate market?
Paulette There is no such thing as the Palm Beach market going down. Whether there is a disaster or storms, there is no way that the Palm Beach market will ever dissipate. I think the Palm Beach market dictates other luxury markets, because you have so small of an area with so many luxury developments throughout a 13-mile radius.
John Palm Beach historically is the American Riviera. Everyone has heard of Palm Beach, and many come here for their vacation or their home away from home.
Jeff I think when other markets start to dip and we stabilize, our stability is a shorter period of time than other areas in the country. When times in Palm Beach are bad in Palm Beach, they are stable in other areas, and when times are bad in other areas, things are good in Palm Beach.
Paulette Crazy as it seems, our area is undervalued based upon the similar markets in other areas. It’s hard to believe but it’s true, we have yet to peak and that is why so many people see the value and are willing to park their money here – because eventually, many will see very solid appreciation.
Jeff New York is freighting, Aspen is very high and the market in Palm Beach is very stable and reasonable for the property and product people receive.
Seth What is the average square footage of some of the spectacular mansions in Palm Beach? I’m talking about the premier property, the oceanfront mansions.
Tara Oceanfront is really not done in square footage anymore it is done in linear footage, and it is funny because you have to take into consideration the age of the house – if it will be a “tear down” if it is older with more space or newer with more features.
Paulette Corcoran has many lakefront sales, about four or five under contract that are strictly land value and will set a new record of $115,000 a linear foot. And those are complete knockdowns, so it is proving that there are very strong numbers out there.
Joan We thank the value of property in Palm Beach because what happens is some people don’t want to pay such a high price and many migrate to Jupiter. We recently sold oceanfront property to a builder and he is building new homes at a price that is less than if the property would have been in Palm Beach. So while some people may not leave Palm Beach, many individuals may not pay the prices [required to live] in Palm Beach, and they come for oceanfront to Jupiter.
Paulette Also, Corcoran has another vacant land sale on Jupiter Island at a very strong price and the purchaser is willing to “flip it” potentially or will eventually utilize it. It is a 6-acre parcel that is going for a very strong number. And that is Intracoastal property again.
John When you ask about the market in general, we talk about Palm Beach and Palm Beach County; there was a spillover affect with our hot market into West Palm and the outlying areas and the media tends not to differentiate the island of Palm Beach and Greater Palm Beach County. And although there are many new condominium developments that seem to be going down, you need to differentiate between the two animals. Our market isn’t really slowing down; the prices are not dropping, but if you look in the greater areas of West Palm Beach the new condos that are coming out of the ground, the question is whether they will even be completed or not. The educated buyer that knows the market that wants to be on the island with the 33480 zip codes is willing to make the purchase, where others are not.
Paulette You can see the consensus here – that we don’t necessarily agree with all of the media’s ideas about the market, because our market is somewhat different. There’s a difference between the marketplace and a luxury marketplace.
Jeff Palm Beach and West Palm Beach are different cities and they are different markets.
Tara In this marketplace you have builders and developers that are going to different areas because they can’t find dirt here. They can’t find the numbers they need to find, which is the spillover effect that was previously mentioned, and if someone were to approach a seller with a buyer for the home, many people ask, “Where am I supposed to go?” – because there are no other areas [available] to build.
John When the financial papers talk about money pulling out of real estate and going back to the stock market, we sit back and go, “Great, that’s going to mean another rise in our market,” because the buyers are the ones on Wall Street that will buy and build a bigger home.
Seth There are two homes right now on the market that are over $100 million. How much higher do you believe the prices can go in this market, generally speaking?
Shirley The money is there. Right now I am selling a house that Donald Trump is asking $125 million for with 475 ft. on the Ocean.
Paulette It is a design-ready home, which means that a design team will come in and really customize the home.
Rick What features are a must-have for buyers in the luxury market in Palm Beach?
Shirley Movie theaters, pools, built-in bars, private quarters, all new appliances, wine cellars, massage rooms, gyms, garages and guest houses.
Tara People will sit down with you and describe what they want, but in Palm Beach they will buy what you have.
Seth Not many markets are like this. It’s great.
Panelists I agree.
Paulette People come over the bridge to Palm Beach. They could buy in Boca or Ft. Lauderdale, but when you cross the bridge into Palm Beach there is a certain aesthetic there that pleases everyone. Everything is expensive, but you really get what you pay for, and with a little bit of research you can make a potential match. There really can be something for everyone, as long as you can wrap your arms around what you have paid.
Joan People are willing to pay the money and take the time. They will purchase a home and tear it down or purchase in another area waiting for their dream home.
Rick Does the lack of supply still hold in that category as well?
Panelists Yes, even more in that category.
John I think a good message to send out is that when people start talking about how times are bad, it’s a great time to buy.
Seth I’d like to go person to person to really get your opinion on where you think the market is going to be over the next 12 months.
Joan The market’s going to be better; it’s a relatively short thing that has happened. Reading from Wall Street Journal, “Some Floridians blame the media and even Wall Street for scaring people away.” In our market, we’ve found some strange things. We’ve got some markets that have been a little slower, but our high-end market is doing well quite well. But I do think that the slow period is not going to last any extensive period of time.
Jeffrey I feel very positive about the market that we’re in right now. This season has been incredibly strong. And another thing I’d like to point out is that there’s really no such thing as a “high” in a real estate market, because if you look at the last 100-year history of Palm Beach, what was high at one point in six months to a year is laughable. There’s never been a point in time where anybody can say, “Gee, I wish I’d waited to buy.” There’s no such thing as a high market; the high at some time becomes the new phase low.
Shirley I think the market’s going to stay strong. I think it’s going to be a longer season. People coming now really want to buy.
Tara I agree. The past few months we’ve had a lot of sales compared to the middle of the season. I think people were waiting to see if this bubble was going to burst. But I don’t think the real estate bubble burst any where in the country. The first quarter of this year is not indicative of any kind of a marketplace; it’s one quarter. And one quarter in Palm Beach really is not indicative of anything that’s going to happen in a long time.
John My best guess is that in next 12 or 24 months, prices will hold up, but the number of units sold will level out, and as Wall Street moves forward, like the media seems to project, certain people will move back to New York because they’re going to be very interested in their businesses and want to be right there and not working out of their home offices. Other people will be selling their companies and moving to Florida to retire, so there will be a turnover that way. And in the long run, the prices will appreciate over time, because they always do in Palm Beach, but there will be a leveling effect.
Paulette I think this season has been much more traditional for us. It’s ending firmly and safe. The market itself is stable. Our marketplace has really been relatively efficient over the years. There are 2,500 single-family homes in all of Palm Beach, and last year, I think in the first quarter there were 122 on the market; this year there are 149 currently on the market, which represents about 5 percent. We have a supply of technically 15 months. The key thing at the end of the day is correct pricing. If you put a correct price on a property and make evaluations accordingly, the properties will sell and there will be that turnover and be on to new inventory
Gail I pretty much echo what everyone else here has said. One thing that’s affected our market in terms of the somewhat softening has been that perception becomes reality. When we started reading about this, I knew instinctively that it was going to affect us in the way it has in the sense that people started to say, “Oh, I shouldn’t be buying now, it’s at the top of the market. I should wait until the prices go down.” That’s not going to happen. They probably can make better buys now, or possibly can on some properties. I think it’s more what has been written that is affecting us, and that’s changing.
Paulette We have quite a few exciting sales coming up, so even though they were late in coming, they are strong. The values are amazing, and they are very good sales.