Million dollar babies

Executive Summary
Industry. Real estate Trend. Naples luxury residential real estate prices rise sharply. Key. Home prices may stabilize as builders deliver new homes.

How hot is the luxury residential market in Naples? Consider this eye-popping statistic in the latest report from the Naples Area Board of Realtors:

The median price of a home in the area west of U.S. 41 in Naples hit $1 million in November, up 74% from the same month one year ago.

As high as that median price sounds, that figure may actually underestimate prices in the area that stretches south of Immokalee Road.

“I think that median price is probably on the low side because of some neighborhoods west of 41 that are not in that price range,” says Howard Gutman, president of Lutgert Cos., parent of Premier Sotheby's International Realty in Naples. “It's very difficult to buy a quality residence under $1 million.”

Developers are buying lots for $1 million, tearing down old homes and building speculative homes that they sell for as much as $6 million.

For example, the father-son team of Mark and Dante DiSabato's Encore Development built and sold seven spec homes last year in the neighborhoods of Old Naples, Park Shore and The Moorings for $1 million to $4 million each. Now, they're building six homes that will cost from $3 million to $6 million and range in size from 3,000 to 6,000 square feet.

“This is like Manhattan,” says Mark DiSabato, who has targeted development south of Park Shore and west of U.S. 41 in Naples with business partner and Naples appraiser Richard Armalavage. “That's the market we want to be in.”

The boom is benefiting all kinds of ancillary businesses. For example, upscale furniture purveyor Clive Daniel Home sells as much as $200,000 worth of furniture and fixtures for each luxury speculative home. “Everyone wants turnkey,” says Jo Carter, director of business development for Clive Daniel. “[Buyers] just want to come down here and bring their toothbrush.”

Carter has been working with speculative investors who have targeted neighborhoods such as The Moorings and Creighton Cove with homes priced in the $3 million to $4 million range. “They're turning and flipping with the local builders,” Carter says. “The investor trend started almost two years ago. It has probably multiplied times two since then.”

Other buyers are purchasing lots and hiring builders to build their dream home. For example, Luxury Home Solutions is building a 27,442-square-foot beachfront house for an undisclosed buyer on Gulf Shore Boulevard near the Naples Beach Hotel & Golf Resort. The $36 million home includes the $13 million lot, says Norman Bloxham, whose Fort Myers-based custom homebuilding company recently opened an office on tony Fifth Avenue in Naples.

Naples' unique location, trendy shops, fine dining and wealthy residents give it a special cache, Bloxham says. Only a stock market crash or other unforeseeable global disaster could slow down the real estate momentum. “This is almost bulletproof,” he says.

Caution light
During the recession, there was very little new construction in the Naples Beach area. Now, demand is outstripping supply.

“It's been a pretty wild down there,” says Phil Wood, president of John R. Wood Realtors in Naples, whose agents are busy with buyers and sellers. “They can't believe how many teardowns they're doing.”

Wood says most buyers pay cash for homes. “The demand is very, very high right now,” he says. Buyers are coming from the Midwest, but also increasingly from the Northeast.

Still, Wood says prices probably won't rise at the same rate as they have recently because more people will put their homes on the market. “I think we'll see a little more moderate gains,” he says.

Even the ever-cheerful Naples Area Board of Realtors sounded a note of caution in its most recent press release announcing the torrid November numbers in Naples Beach, quoting appraiser Cindy Carroll saying the median price “cannot continue to increase at the current rate indefinitely.”

Indeed, some speculators have shifted focus away from residential real estate to commercial development. Adam Smith, principal with Naples Redevelopment, recently sold four of the nine homes he's building in the Jumby Bay development in the $2 million to $3 million range. “We'll be done with it this season,” Smith predicts.

But Smith says rising lot prices have pushed him out of the single-family speculative homebuilding market for the future. “A fairly decent lot will cost you $2 million,” he says. “If you get one house wrong, it's too high of a price to pay,” he says.

Instead, Smith is focusing on commercial real estate. For example, Naples Redevelopment acquired the site of the former St. George & the Dragon restaurant, a 1.3-acre parcel in the prime Fifth Avenue retail corridor, and the Summit Medical Building on First Avenue. “The commercial is going very well,” he says, noting that rents and occupancies are trending up as retailers and other merchants gobble up limited space.

New inventory
Residential prices in Old Naples have as much as doubled since 2012 from $500 a square foot to as much as $1,000 a square foot, says Rachel Zucchi, partner and management director for RKL Appraisal & Consulting in Naples.

But such rapid price appreciation has attracted new development, which will act as a brake on price appreciation, says Zucchi. “Now we're starting to ramp up and get more supply in the pipeline,” she says.

In addition to scattered construction of luxury homes, some developers are launching bigger projects that include multifamily homes. Even hotels with a condo component are going to reappear, says Zucchi.

For example, at the popular Mercato shopping center off Vanderbilt Beach Road at U.S. 41, Lutgert is going to start construction Feb. 1 on 52 single-family and attached homes that will range from $1.2 million to $1.8 million.

Further south and close to Fifth Avenue in downtown Naples, Ronto Group is developing Naples Square, a 300-condo project that will also have 150,000 square feet of commercial space.

“Everyone wants their piece of paradise,” Zucchi says.