What thrived during the Texas coast recession is a story how two developers came out smelling like a rose.
This study is about the lessons learned from two “high-end real estate project developers” that thrived during the worse recession and storms to hit the Texas coast in history. A silver lining from the unfortunate times the region experienced from 2008 to 2012, and a testimony to enduring value.
Synopsis At the real estate peak in 2007, over a dozen high-end projects were under way on the Texas coast transforming the skyline and promising better lifestyles. Some of the projects completely failed, most will redeem their value sometime in the future, but only two thrived and are roaring out of the recession.
This report focuses on the high-end projects. They raise the bar on product features and are above the median price of other new properties in the same area. We focus on these because they can lift the market value up for the entire community when they are successful, and they put a lot of resources into creating new demand – in fact, they are the only ones who can effectively create new real estate demand on the Texas coast, as the majority of buyers and vacation renters on the Texas coast come from the nearby Texas metro, and the Texas metro audience has a lot of competition trying to get their attention.
During the real estate boom, exuberance for real estate value appreciation was sweeping the nation and the Texas coast was no exception. There were fantastic new developments underway that looked like sure bets. I was there, and a lot of excitement was in the region with record levels of buyer interest driving up demand. Over A dozen high-end luxury real estate projects were underway that were a step above anything ever built on the Texas coast.
A quick look at some of these high-end projects and you’ll wonder if you are looking at the Texas coast.
Now even though the national recession and real estate bubble burst had the least effect in the state of Texas, (see http://www.newgeography.com/content/001680-how-texas-avoided-great-recession), on the Texas coast it was another story.
The Texas coastal region was hit hard by a rare combination of negative events including:
- Hurricanes Dolly and Ike in 2008
- The Subprime mortgage crisis in 2008
- The National real estate value bubble burst in 2009
- The BP Deepwater Horizon oil spill in 2010
- The News about the drug war on the U.S. Mexico border since 2006
These events plunged real estate interest and sales on the Texas coast to record lows in 2009 and put stress on the all the high-end projects that were underway. The market did not start fully recovering until 2012. Even so, the Texas coast has some of the strongest real estate market fundamentals in the nation, and home ownership remains significantly more affordable in Texas than in the nation as a whole. The future looks bright for the lone star state and the coastal area markets are all in recovery now.
This charts help illustrate the drop in sales and interest levels in 2009, compiled from actual MLS sales and Google trends.
It would be remarkable for any developer caught in this with a new project to make it through such a decline in interest levels, yet on the Texas coast two high-end developers [and their projects] persevered, and are roaring out the recovery, leading the market areas they serve with higher sales and better real estate products – offering improved lifestyles and well-being for their customers; not to mention, a better ROI.
At TexasGulfCoastOnline.com we have a criteria list we use to determine the rare and remarkable projects on the Texas coast, and two projects were consistently in our “Rare and Remarkable” list.
Here is how we pick them:
- The properties being built, as well as the location, have to be rare and unique.
- The owners and developers of the projects must be reputable and solidly financed.
- An impressive amenities package must be offered both in the individual homes as well as the community – and must exceed what is already available in the local area.
- A good marketing plan and sales operation team must be in place to ensure the project’s success.
- The project must not have major erosion and insurance issues.
- The project should have energy efficient and storm resistant features.
- The project design and price range should fit with the buyer profile for the area, and its surrounding properties.
- The project and personnel must be in good standing with the local community.
- The project must have sound market fundamentals such as rental income vs. price and supply vs. demand, predicting a safe investment.
Let us take a look at the high-end projects and developers who thrived, and those that dived, and see what made the difference. First, let’s get this out of the way; here are the only two high-end developers and their projects that thrived during the hard times:
- Cinnamon Shore, Port Aransas – Seaoats Group – Port Aransas http://www.cinnamonshore.com/
- Los Corales, South Padre Island, Paez Development – South Padre Island http://paezdevelopment.com/
This breakout analysis shows just how much a high-end market leader like Cinnamon Shore can lift a region’s value. Compiled from actual MLS sales data for price, price/sq.ft. and demand (lower months’ supply is better)
A look at the fantastic projects that (no-one would argue) are the most successful and best values on the Texas coast. Consult your local realtor for advice before making any real estate decision.
#1 Cinnamon Shore Port Aransas – Seaoats Group (Lamkin Family)
#2 Los Corales in The Shores on South Padre Island – Paez Development (Paez family)
Let’s look at those that didn’t do so well, and following the photos, the main reasons why.
Avocet – Crystal Beach
Laguna Harbor – Port Bolivar
Palisade Palms – Galveston
The Emerald By The Sea – Galveston
Beachtown – Galveston
The Sanctuary La Costa Grande – Matagorda Bay
Tortuga Dunes – Mustang Island
The Sapphire – South Padre Island
Pirates Cove – Port Isabel
The the main reasons why the projects didn’t do well (Just Survived):
- Laguna Harbor, Port Bolivar – highly leveraged | project stalled
- Biscayne, Crystal Beach – lack of interest by owner | project stalled
- Beachtown, Galveston – east side location price mismatch | project stalled
- Palisade Palms, Galveston – east side location price mismatch | auctioned
- Emerald By Sea, Galveston – highly leveraged | bank owned
- Diamond Beach, Galveston- highly leveraged | bank owned
- Point West, Galveston – detached ownership and remote location | project stalled
- Palmilla Beach Resort and Golf Club, Port Aransas – detached ownership, golf course | project stalled
- Sapphire South Padre – highly leveraged | bank owned
- South Padre Island Golf Club – detached ownership, golf course | project stalled
Projects that completely failed and the main reasons why:
- Avocet, Crystal Beach – lacked leadership and highly leveraged
- Sanctuary at La Costa Grande, Port Lavaca – detached ownership, remote location and marketing gimmicks
- Tortuga Dunes, Mustang Island – federally uninsured location in CBRA zone
- Pirates Cove, Port Isabel – priced too high for location
Side Note – Smaller New Projects
There are notable “smaller” new projects that did well, and continue to do well, but were not considered high-end for the purposes of this report:
- Surfside Estates, Crystal Beach
- The Dawn Beach Condos, Galveston
- Village Walk, Port Aransas
- Island Park Estates, Mustang Island
- Las Marinas, South Padre
Side note: New home development communities can have more potential risk for the customer (and less for the developer/bank) since they are completed over time. High-rises are the opposite, since they are completed before anyone can take occupancy. Thus for some new home communities there is a greater need “early-on” to investigate the financial backing and local commitment, to avoid being in an unfinished neighborhood. Another lesson from the recession nationwide.
Leadership Lessons Learned
The reasons great companies can rise even during hard times can apply to any organization, not just our thriving developers, and the principles of great leadership and product value are good advice for anyone in the region.
“Companies that focus simultaneously on increasing operational efficiency, developing new markets, and enlarging their asset bases show the strongest performance, on average, in sales and growth after a recession.” – Harvard Business Review
Here are 7 Reasons why great companies can “rise the tide” even during difficult times.
1. Great companies transform external threats into opportunities.
- Such a perspective encourages responsiveness – not re-activeness.
- They focus not on the problem, but on new solutions, not on survivability but on growth, not on short-term losses but long-term prospects.
2. Great companies take advantage of and profit from changing dynamics in the marketplace.
- A business can grow and profit during a recession if it understands the underlying dynamics of the marketplace.
- Crises tend to stimulate change in people. The challenge is to respond to such changes in a timely and direct fashion.
- Who is doing the buying now? Buying behavior shifts, changes and refocuses more than it declines.
3. Great companies catalyze seemingly “negative” times into positive moves.
- In recessionary times, great companies aggressively look for the “silver lining in the cloud” and mobilize resources to seize those hidden opportunities. They act, not react.
- The winners are those who recognize that their future is not determined by external events, but by their response to those events. They stay focused on what they have control over, and respond proactively to those they can’t control.
4. Great companies make room for new growth by reducing that which is ineffective.
- Great companies take advantage of down times to remove drains on time, money or people resources generating little or no return
- They scale back to what they do best and make room for new growth and profits.
5. Great companies build their resilience muscle to thrive in tough times.
- Today, accelerating change, increasing complexity and escalating risks have become the new business reality. To withstand external shocks a company must build its resilience capacity.
- Resilience thinking transforms uncertainty into confidence, fear into action and adversity into advantage. On an organizational level, resilience comes from a strong culture based on operational flexibility, employee loyalty and team collaboration.
- Great companies don’t just rebound from a one-time crisis or setback. They build the capacity to expect the unexpected and continuously reinvent business models and strategies as circumstances change.
6. Great companies aggressively position themselves ahead of the competition during economic downturns.
- During economic downturns, most companies go on the defensive cutting costs, downsizing marketing efforts and commoditized products.
- Great companies place themselves to win by ramping up promotions, accelerating new product introductions, and keeping a visible profile.
- They not only differentiate themselves, but also place themselves for explosive growth after its turnaround.
7. Great companies find the “learning” and the “grander purpose” hidden within challenging times.
- Our greatest challenges are our greatest teachers, and shift our thinking, behaviors, strategies and actions that help future growth.
- Companies negatively affected by a recession never see the grander purpose such times can offer them. Instead, they perceive only the worst, react out of fear and shrink to a victim mentality.
- Great companies, however, see recessions as learning opportunities. They recognize that yesterday’s thinking and strategies will not address today’s challenges. For these companies, recessions motivate them to get closer to their customers, reassess their direction, and take action in new and creative ways. Their rise to the top is often a by-product of their beliefs, attitudes and responses to such challenging times.
Conclusion It’s a real testimony that our two developers (and their projects) are such a success. Both the Paez family and the Lamkin family have a history of successful projects in real estate and other industries. The attributes that they demonstrated can be used as a guide to decide the value of any project and as a guide for other developers to follow. A rising tide lifts all boats, so this is a good thing for everyone.
Winning High-end Real Estate Project Takeaways
- Great development leadership
- Good location / value
- Solid Market Fundamentals
- Strong Financial Backing
- Commitment to local community
- High-rises & Inclusive Resorts
Losing High-end Real Estate Project Takeaways
- Inexperienced developer
- Location price mismatch
- Problem with Market Fundamentals
- Highly leveraged project
- Environment issue
- Coastal Golf courses
- Interactive Google Trends Tool
- Harvard Business Journal
- South Padre Island MLS
- Corpus Christi MLS
- Galveston MLS
- Google Research
- Marketopoly Book – The Definitive Guide to Beating The Real Estate Recession and Winning at The Game of Investment Real Estate
Michael Stuart, editor TexasGulfCoastOnline.com