PANAMA CITY BEACH PRE CONSTRUCTION

Updated Spring 2008

Panama City Beach is a town with about 11,000 residents (that’s 5,000 less than Destin) but with over 18,000 rental units (condos, hotel rooms, etc.) available or coming on-line over the next 12 months. The latter number has doubled since 2003 as older condos, “mom & pop” motels, and single family residences have given way to high-rise condos that now line the beach in many areas. This will continue for several more years as the developments now underway are completed.

PCB has also enjoyed, until now at least, a charmed status as far as tropical storm damage goes. In addition to avoiding a direct or near-hit from a hurricane since Opal in 1995 (which actually came in at Navarre Beach near Pensacola), the city’s managers and business leaders have done a first-rate job of beach renourishment and damage prevention. The result is those beautiful, wide, white-sand beaches stretching for miles.

A Market in Transition

PCB is undergoing a major transition from the old “Spring Break Capital” and “Redneck Riviera” to something more like Las Vegas East – minus the gambling (for now) and plus our beautiful Emerald Coast beaches. A new international airport is scheduled to open in 2008. A major gulf-front retail and entertainment complex, Pier Park, is well underway with many first-rate restaurants and shops already open. Both the airport and Pier Park have had a considerable boost from the St. Joe Corporation, the area’s prime landowner and developer. A major animal theme park, Jim Fowler’s Wild Kingdom, has been announced as the first phase of a music resort/theme park complex near Bonifay, less than an hour to the north. [2008 update - although still under discussion, this project has been indefinitely deferred] Well-known upscale restaurants such as Ruth’s Chris Steakhouse are moving in near the traditional seafood emporiums.

Yes, you can still get tattoos on many parts of Front Beach Road (the gulf-side thoroughfare), and the city still hosts at least one major biker rally in the spring that draws upwards of 15,000 participants. But change is in the air. And change spells both opportunity and potential risk.

The Investment Landscape

In the near term, everyone knows there’s a glut of condos on the market with more to come. However, actual sales prices have held up reasonably well. Consider that pre-construction prices for luxury gulf-front condos in 2003-2004 (i.e., for delivery in 2005-06) were in the $250 per square foot range. At that time, those prices were 10-20% less than what you would have had to pay for a new condo ready to occupy. A new condo today, from one of those same projects, will cost between $350-$450/square foot – still not a bad return for those who bought in at pre construction prices, especially considering the benefit of leverage they had. The slight problem for today’s pre construction investor is that prices for new, high-end pre construction condos are in the $380-$500/square foot range, which is more than you’d pay for a brand new condo today in many cases (some of them fully furnished!).

This situation is, in our opinion, due to a combination of circumstances: developers who bought land at much higher prices than in the late 1990’s/early 2000’s (which is when the land for the projects being completed this year was likely purchased); higher construction costs (many categories of material, insurance, and some labor-related costs have escalated sharply over the last couple of years); and, of course, plain old fashioned greed, where developers perceive that they should be getting a bigger share than pre construction investors of the potential profits from a project. On the plus side, pre construction prices for luxury ocean front condos in PCB are still less than 70% of those in south Florida, and they pale beside the $700-$1,000 per square foot prices for condos in the Destin/30-A area.

2008 update. As you can see from the information below, there have been some changes in the PCB pre-construction market! Basically, anything that isn't already under construction has been shelved or cancelled completely, and it's unlikely that we'll see any new action until much of the current inventory is absorbed. This is actually good news for owners and/or buyers of existing condos, as they won't have competition from developers offering newer and better products. This process is likely to take 2-3 years to unfold. Meanwhile, we think it's a good time to be considering an investment (see below).

What to do?

We continue to think an investment in a Panama City Beach condo (or several, depending on your means and appetite), makes sense for people with moderate risk tolerance. It’s not the “slam dunk” your friends who have pocketed profits may have told you about over cocktails, but we do see a lot of upside and limited downside. In general, we believe the full scale “resort” developments, with multiple pools and recreational facilities, on-site retail & entertainment, and in some cases conference hosting capabilities, are a better bet than the perfectly nice, but relatively unexciting smaller condo complex with perhaps a pool and a limited exercise room. Those are great for people seeking relaxation and privacy, but probably won’t benefit as much from the economic activity that we see as key to PCB’s 3-5 year future. Two ways to participate are:

·       Buy a new unit in a complex that is just coming on line. Projects such as Calypso, Majestic Beach, and Palazzo, are good examples. These units can sometimes be purchased at a significant discount from their asking prices, often fully furnished and rental-ready. This is a good choice especially for people who want to use the unit themselves as well as participate in the market.

·       Buy a pre construction unit in one of the better projects now underway or planned for the immediate future. We’ve featured several of these projects on our site. We have emphasized those that appear to offer superior value, are well managed, and have unique features that will make them stand out from the crowd. We’ve omitted others that didn’t seem exciting and/or that just didn’t seem to have the right location (in general, we think anything not right on the water is less attractive).

Whatever you do, take the time to research it. Call us or your Realtor® for details and ask questions. Good luck and enjoy the ride!