High (Rise) Hopes

If current trend lines hold steady, Southwest Florida will in the next two to three years be home to a handful of new residential towers, a product line that largely evaporated in the aftermath of the previous recession.

Although most of the new towers will be clustered around Naples, where a few are already under construction, Bonita Bay and downtown Fort Myers could also see new development beginning in 2017.

And several other projects that are well underway are scheduled to top out in the coming year.

“Two years ago, I said you'd see luxury high-rises return to the market,” says Randy Thibaut, president and CEO of Land Solutions Inc., a Fort Myers commercial real estate brokerage that specializes in land sales. “Now, they're coming out of the ground.”

Thibaut's comments, made Nov. 2 during the firm's annual Market Trends event, highlight just how significantly real estate markets in Collier, Lee and Charlotte counties have rebounded — especially for upscale residences — during the past five years.

As in previous up cycles, new high-rise residential developments under construction or planned for the three-county area are tied to waterfront locations, or are on sites that offer views of the water.

“Waterfront views, that's what people want, and so they go forward,” Thibaut says.

Already, a handful of new towers — including Ronto Group's Seaglass at Bonita Bay, Pact Real Estate Group and Ironshore Capital Partners' Aqua II, WCI Communities' Altaira and Soave Real Estate's Kalea Bay — are under construction, and more are planned.

Each project's units start around $1 million. Combined, the projects under construction will add 347 units to their market.

“We looked at the stock that was out there, and determined that people wanted updated finishes, more open floor plans and kitchens, more glass,” says Anthony Solomon, a Ronto Group executive vice president. “Tastes had changed in the decade since a new residential high-rise opened in this market, and for many people, the existing inventory didn't meet their needs.”

Solomon adds that unlike single-family homes, condominiums in high-rise buildings are sometimes difficult to renovate, the result of condo bylaws, building structure and because of the arduous nature of getting materials in to an individual unit.

Units at Seaglass, he says, are more than 50% sold, with a majority of sales occurring on upper floors or for penthouses.

Of the projects that have not yet broken ground, Mystique, a luxury project with 81 planned residences ranging in price from $1.2 million to $10 million, has garnered the most attention.

Gulf Bay Group of Cos., which is developing the planned 22-story building with investment firm Kohlberg Kravis Roberts & Co., has begun infrastructure and necessary site work for Mystique, including clearing and grading the land and installing underground utilities.

Set for one of only two remaining developable parcels in Naples' Pelican Bay community, roughly 35% of the units there have been reserved or are under contract.
Aubrey Ferrao, Gulf Bay Group's president, says the project is “generating interest and enthusiasm from buyers not only in Naples, but throughout the country and abroad.”

But it will have competition. Soave and partners are planning five towers in all at Kalea Bay; Miami's Jaxi Builders has plans for a 15-story, 24-unit tower in downtown Fort Myers called Allure; and plans are circulating for an 18-story, 133-unit building in downtown Fort Myers.

Unlike previous waves of high-rise development in the region, though, Thibaut says developers and lenders alike are being more cautious with their projects.

Many lenders are requiring developers pre-sell at least half of their units before agreeing to financing draws, and developers appear willing to abide by the rules — a shift from last decade when many proceeded with only non-binding reservations, selling in many cases to flippers or speculators.

“Developers are being more cautious today, because a lot of them lost their shirts in the last cycle,” Thibaut says. “And lenders today aren't letting go of $75 million or $100 million of their bank's capital until 45%, or 50% of units are under contract to real, hard buyers.”

Altaira, which is being built in the Colony Golf & Bay Club in Bonita Springs, is more than 30% committed; Seaglass has half of its units spoken for; 70% of the units at Aqua II have buyers; and three quarters of Kalea Bay's units are under contract, Thibaut says.

“This time around, high-rise development is working because it's filling a void,” Thibaut says. “There's been no new high-rise development in this area for 10 years. And, it also shows there remains a ton of money in Naples available to invest in real estate.”

Still, he expects the market will “pause” until well after 2018 before another major residential tower will be proposed. Developers and lenders alike will want the market to digest the new units coming online.

Curiously, while high-rise and upscale vertical developments have gained steam, the rest of the Southwest Florida housing market appears to be on a more steady trajectory.

Total residential permits in 2015 for the three-county region came in around 13,000. This year, they are projected to be 11,200 permits pulled, about 11,500 in 2017 and 13,000 in 2018, according to Land Solutions data and analysis.

And while those figures are healthy compared to the 2,066 permits issued in 2009, at the height of last decade's recession, they are but a fraction of the roughly 44,000 permits that were taken out in 2005 — the height of last decade's unprecedented housing boom.

Thibaut, however, views the projections as positive.

“If we were in a boom, our permit numbers would be somewhere around 20,000 annually,” he says. “Instead, we're having years of steady activity and growth compared to the bust years.”

—K.L. McQuaid

(This story was updated to reflect the correct name of Jaxi Builders' project in downtown Fort Myers.)