Emerald Opens
High-rises Buck Housing Slump
Galveston County Daily News, March 9, 2008
by Laura Elder
After some delay, the high-rise tower Emerald by the
Sea, a forerunner in the skyline-altering island condominium
boom, is scheduled for completion by month’s end.
Sunhill International Inc., developer of the 15-story
project, said crews were making final touches to the white tower
with green-tinted windows at 500 Seawall Blvd. on the East End.
The Emerald, which developers began building in March
2005, comes on line while demand for condominiums along the
Texas coast remains strong, even as other housing sectors, including
high-rise projects across the nation, languish.
The Emerald is among the most visible monuments to
the island’s entry a few years ago into the luxury resort
market. But more have followed and still more are certain to,
said Jim Gaines, research economist for the Real Estate Center
at Texas A&M University.
Condominium development on the island and elsewhere
along the Texas coast may experience fits and starts, he said.
But the high-rise market here has nowhere to go but up as baby
boomers and second-home buyers gravitate to where luxury condominiums
are still affordable and values are likely to increase.
‘One Of A Kind’
“It’s inevitable,” Gaines said. “You
can see it coming.”
Houston real estate investor Barbara Quackenbush, who
in May 2005 signed a contract for a 1,419-square-foot unit on
the Emerald’s seventh floor, said she can see the market’s
potential. Although Quackenbush was frustrated by delays in
closing on the purchase, the final product was worth the wait,
she said. The Quackenbush family and friends already have made
use of the condominium, she said. She had considered other high-rise
properties on the island, but settled on Emerald for its design,
she said.
Quackenbush said she particularly liked the sweeping
views of the island and the harbor.
“It’s one of a kind,” she said. “Seeing
the cruise ships coming in on the weekends is just breathtaking.”
Quackenbush, a real estate attorney for ExxonMobil
Corp., paid $445,000 for the unit, which she plans to eventually
lease, and invested another $30,000 for custom shutters, furnishings,
art and electronics, ceiling fans and closets, among other things.
“I wouldn’t sell the unit now for less
than $650,000,” she said.
In November, Quackenbush became the third buyer to
close on the purchase of an Emerald unit.
Cheryl Price, a Realtor with Personette & Associates,
said all the Emerald’s units are spoken for and are in
the title process.
As of last week, seven deeds were on file, according
to records at the Galveston County Clerk’s office.
On Wednesday, Andy Hadley, a selling agent for the
property who also is buying a unit on the 12th floor, said he
had sold 82 of 108 units that are under contract.
The city of Galveston has issued certificates of occupancy
for floors seven through 10. Floors one through five are for
parking and storage. The sixth floor contains such common areas
as an infinity pool, spa, theater room, wine room and other
amenities.
High Expectations
Late last year, construction stalled as the developer
and contractor G.T. Leach Builders sorted out disputes. International
Bank of Commerce, construction lender for Emerald by the Sea,
agreed to inject more funding into the project to resolve contractor
liens and get construction back under way.
Delays in such large projects are inevitable, said
Quackenbush, who owns seven investment properties.
Quackenbush had wanted to close on the unit in May
last year, she said. But the developer wanted to wait until
the sixth-floor common areas were complete.
Emerald prices range from $375,000 to $1.5 million.
Units range in size from 1,014 square feet to 1,776 square feet.
Penthouse units range in size from 2,383 square feet to 2,751
square feet.
Emerald by the Sea arose on the old Jack Tar Hotel
site, a tract of land upon which developers through the years
planned and promised projects that never materialized. Expectations
for the project were high.
Randall Davis Touch
In the summer of 2004, when Houston developer Randall
Davis announced he was involved, interest and confidence in
the project surged.
Davis’ luxury projects in Houston and Las Vegas
earned him a solid reputation in the luxury loft business. His
developments include a 65-unit Art Deco loft building on the
famed Las Vegas strip. He’s credited with reviving Houston’s
downtown by transforming historical buildings into urban lofts.
In July, Davis said he no longer was involved in the
project. He had been a fee developer, meaning Sunhill International
called upon his expertise while maintaining ownership and control
of the project.
Davis, who is developing a luxury condominium project
on the island’s West End, said disagreements about compensation
were settled through arbitration.
Some prospective Emerald by the Sea buyers have sought
return of their deposits because of construction delays and
after learning that Davis was no longer involved in the project.
David Hass and F.L. Riederer assert in a Feb. 8 lawsuit
filed in Galveston’s 212th District Court that they were
told by the sellers the condominium would be complete in March
2007. Hass and Riederer are seeking return of $27,500 in earnest
money on what would have been a $555,000 purchase.
But in a Feb. 25 correspondence — obtained by
The Daily News — with another prospective buyer seeking
the return of earnest money, legal counsel representing the
condominium development said that Randall Davis helped design
Emerald by the Sea and there had been no deviations from design
plans. Contractor G.T. Leach builds other Randall Davis properties,
according to the correspondence.
“The quality of the property therefore did not
change as a result of Randall Davis Co.’s involvement
or lack thereof,” according to the correspondence.
Mary Jo Naschke, a spokeswoman for the project, said
it wasn’t unusual for some early investors, who were hoping
to resell quickly for a profit, to change their minds.
Market Shakeout
“People invest thinking they’ll make a
quick sale and return for their money and they really have no
intention in living in the place,” Naschke said. “If
time is not on their side and they can’t hold out, they
tend to get angry because they panic.”
Tightening credit markets are shaking out some types
of investors, those who buy during construction with intention
of flipping the property for a profit. Flippers represented
about 10 percent of the market, Gaines said. Nervous lenders
aren’t so quick to finance such deals lately, he said.
Early on, some developers who declared their projects
to be almost “sold out” before construction, were
basing the claims on deals with buyers who were in it for a
quick buck, Gaines said.
“You flat-out just lost some buyers,” he
said. “Some who were looking to flip have canceled out
or can’t get their financing.”
The island market isn’t immune to the mortgage
market meltdown, which began with high default rates on subprime
and other adjustable-rate mortgages made to borrowers with splotchy
credit histories, but it is buffered, Gaines said.
Exotic mortgages and aggressive loan incentives inspired
borrowers to buy what they couldn’t afford, with hopes
of refinancing later at better rates. But when housing prices
began to dip in late 2006, refinancing became tough. Defaults
rose and the situation morphed into a global financial crisis.
Galveston Buffered
Galveston condo buyers are more likely to be affluent
and therefore less discouraged by trouble in the credit markets,
Gaines said.
“I think Galveston will do reasonably well,”
Gaines said. “I don’t think it’s immune from
everything going on in the housing market, and it’s not
immune from tightening credit,” he said.
“People who are looking to buy condos are going
to have to understand that the free and easy money of the last
three and four years is not free and easy any more.”
But Galveston has an advantage over other Texas coastal
markets, because it’s close to the vast Houston metroplex,
he said. And there’s a strong demand for second homes
among baby boomers and retirees, he said.
Bargain Prices
Also, Texas prices still are dirt cheap compared with
Florida and California condominium markets, Gaines said.
Luxury condominium units still can be had for about
$400,000 along the Texas coast, he said. But that’s soon
to change, he said.
As the market evolves in 10 years to 15 years, those
same units could be selling from $500,000 to $1 million, he
said.
Not a week goes by that Gaines isn’t getting
calls about the Texas coastal condominium market, either from
news organizations or groups representing retirees, he said.
Sales of condos for the period Oct. 1 to Jan. 31 rose
31 percent — from 39 units to 51 units — compared
with the same period a year before, according to the Galveston
Association of Realtors. The average price of a condo in that
period rose 8.1 percent to $205,500.
A Good Year
David Bloom, CEO of Galveston Real Estate Resource
and operator of www.CondosofGalveston.com, predicts the island
condo market is poised for a strong year.
Proximity to Houston, affordable prices and wide range
of product — especially compared with markets such as
those in California or Florida — bolster the island market,
Bloom said.
“The unique attraction of the island condo market
is the diverse selection of properties to choose from, as well
as pricing that fits most budgets,” he said. “Currently,
there are a number of condos on the market priced in the ($60,000s),
which are very attractive to first-time buyers, most of whom
live within a relatively short driving distance of Galveston.”
A booming energy market also is fueling Galveston condominium
sales, he said.
“The strength of the Houston economy has created
a new and very well qualified pool of prospective buyers and,
at the same time, gas pump prices will play a much larger role
in the public’s summer vacation plans,” he said.
“Both aspects should bode well for the island’s
overall economy this summer, especially our real estate market.”
+++
By The Numbers There are 368 condominiums listed for
sale in the Galveston Multiple Listing Service. Pre-construction
properties are not included.
Year-over-year, same-period comparisons for island
condominium sales:
• Jan 1, 2008-Mar 5, 2008 — Sales: 24
• Jan 1, 2007-Mar 5, 2007— Sales: 22
• Jan 1, 2006-Mar 5, 2006 — Sales: 25
Most active properties with multiple unit sales in
2008: Marina Pointe, Pointe West, Club of the Isle
Source: www.CondosofGalveston.com
