After the crash, Keys ghost resorts showing signs of life

 

Florida Keys lodging

Year 2007 2008 2009 2010 2011 2012
Occupancy Rate 68.1% 67.5% 69.4% 70.3% 74.3% 75.9%
Avg. Daily Rate $195.18 $194.68 $172.10 $179.71 $199.44 $212.87

Source: Smith Travel Research


Florida Keys real estate

Year 2011 2012 Difference
Avg. Sales Price $403,000 $422,000 +5%
Number of Sales 2,050 2,218 +8%
Pending Transactions 2,097 2,345 +12%
No. of Properties For Sale 3,359 3,138 -7%

Source: Tri-Services Multiple Listing Service Board Key Largo to Key West


On the cover

The photograph on the cover of Business Monday shows Tarpon Point, a 12-house complex in Islamorada that is one of the few luxury developments in the Upper Keys in which the original investors have not gone belly up. The photo was taken by Cammy Clark of the Miami Herald staff.


cclark@MiamiHerald.com

The Tavernier Dive Center and Plantation Key Fisheries were thriving until the real estate boom of the mid-2000s, when the canal-front land they sat upon became more valuable than the buildings and the businesses.

Campgrounds, trailer parks, marinas, mom-and-pop motels — any commercial property with waterfront in the Florida Keys — became targets of luxury developers armed with grandiose plans and banks willing to lend big bucks.

During the land rush, the upscale developers gobbled up hundreds of acres of precious property from Key Largo to Key West, including the dive center, the fish house and even the funky but rundown Holiday Isle with its World Famous Tiki Bar, for an eye-popping $98 million. All were scheduled for demolition.

“The rat bastards bought up our property and took our affordable housing,” backcountry fishing guide Capt. Dennis Robinson said at the time.

But then came the real estate and credit crash in 2007 and 2008. More than 20 upscale projects with names like Playa Cristal, Ocanos and Seaglass, and with a collective price tag of nearly $1 billion — came to a screeching halt. Even Home and Garden Television’s 2008 Dream Home, serving as the anchor, couldn’t save a pricey multi-unit project in Islamorada called The Shore.

While it was a reprieve from the economically diverse island chain feeling like it was turning into a playground for the rich, the collapse left a big mess in its wake: evicted trailer park tenants, bulldozed campgrounds with “keep out” signs, shuttered waterfront businesses and half-built condos in ghost town resorts. The mess also included a slew of foreclosures, lots of lawsuits, plummeting property tax revenue for the local government and federal fraud charges for five people involved in an alleged $300 million Ponzi scheme.

“We’ve all seen downturns in the real estate market, but I’ve never seen anything this deep last this long,” said Brian Schmitt, broker at Coldwell Banker Schmitt Real Estate Co.

It’s been five years, but finally most of the mess is beginning to be cleaned up. Literally. Fifty-seven large containers full of debris recently have been removed from the building that used to house the Plantation Key Fisheries. New owners are redeveloping four vacant buildings — which once were part of the alleged Ponzi scheme of Cay Clubs Resorts and Marinas — but had become a haven for vagrants and drug dealers.

“We bought this for like 8 cents on the dollar,” said Keys native Nick Lee, who’s managing the construction project for the new owners: his mother and a family friend.

Other bargain hunters have quietly started buying up the bank-owned properties, keeping mostly a low profile until they figure out what the market will bear.

Private investors who want to remain anonymous purchased the uninhabited Marlin Bay Yacht Club in Marathon at the end of 2011 for just $15 million. The swanky $220 million project by Virginia-based L.M. Sandler & Son abruptly ran out of money in 2008 with only 13 of the planned 84 upscale townhouses constructed.

Five months ago, investors who formed the Key Largo Hospitality Land Trust bought the former American Outdoors campground for $7.3 million. In 2005, Cortex Resort Living paid $28 million for the same land with mature vegetation and breathtaking views of the bay.

“There’s not too many of those big deals left in the Keys,” Schmitt said. “Knight’s Key probably is one of the last ones.”

In 2007, Earthmark had big plans to turn Knight’s Key RV Resort and Marina, 24 acres of prime land near the start of the historic Seven Mile Bridge, into a 199-room hotel/condo called Maranu Luxe Bungalow Resort and Spa. Organizers of the Seven Mile Bridge Run feared they would have to end the popular event because they would no longer be able to stage it from the RV resort. Six years later, it’s still an RV Resort.

Marathon planning director George Garrett said in 2009 it likely would take years to sort out the developer’s legal tangle that involved an estimated 15 banks.

And he was right. After contentious litigation, the Knight’s Key foreclosure case finally was completed, with CXA-10 Corp., of Plano, Texas, receiving title for $100. The judgment was appealed and on March 25, the 3rd District Court of Appeal upheld the judge’s decision.

Schmitt expects the property will go on the market soon after the clear title was delivered — and it will generate a lot of interest.

Garrett agreed: “Half a dozen people at various times have sat in my office and talked about development potential of Knight’s Key, indicating they are hot to go.”

Also in Marathon, the Coral Gables-based Peebles Corp. bought the aging Key Colony Bay Hotel (formerly a Ramada Inn) on five acres for $28.3 million, and borrowed about $50 million to develop it into 72 ultra luxury waterfront homes with roof terraces and elevators.

The 80-room hotel still is shuttered as the foreclosure case continues.

“About a year and a half ago the bank and Peebles came down to the Keys to meet with me and we went on site,” Garrett said. “I’ve heard nothing on it since and they haven’t done anything. They are still in an arm-wrestling contest.”

That case will go before a judge for trial, although the date has not been set.

While many bargain hunters looking to invest in large Keys properties have had to wait for the outcomes of these complicated foreclosures and lawsuits, many also have been waiting for the recession to run its course.

“The market has turned enough now that you can figure out what to do with a piece of property to make some money,” Schmitt said. “Before, they [condos and townhouses] were selling at such low numbers, even below construction costs, that it didn’t make any sense to buy a big property to redevelop it and try to sell it off.”

But real estate in the Keys has bottomed out and steadily has been on the upswing. Last year, the island chain closed with an 8 percent increase in number of sales, 12 percent increase in pending sales and 7 percent decline in inventory.

The average sales price improved 5 percent to $422,000. While it’s still nowhere close to the 2006 peak when the figure was a whopping $805,000, the average sales price is expected to continue to trend upward. One reason: Distressed properties account for less than 10 percent of all properties on the market, the first time that has occurred since 2007.

Another reason investors see the Keys as a good buy now is the strong tourism market.

Despite the recession, the threat from the BP oil spill and the real estate crash, the Keys have enjoyed occupancy rates and average daily rates for hotel rooms that are the envy of most tourist destinations.

Since a recent low of 2009, when occupancy dipped to 69.4 percent and the average rate was $172, the figures have increased consistently. In 2012, they jumped to 83.4 percent occupancy and an average rate of $212.87, and have continued the upward trend for the first two months of this year, according to Smith Travel Research.

“The whole investment climate now in real estate is not focused on appreciation as much as it is focused on cash flow,” Schmitt said.

The biggest attention-getter of the land rush was the purchase and planned bulldozing of iconic Holiday Isle. Developers somehow thought the setting was perfect for a five-star, ancient Greece-themed condo/hotel called Ocanos. Units would go for $1 million plus.

But the crash stopped the demolition. In March 2009, Starwood Capital acquired the hodgepodge complex in a deed in lieu of foreclosure. But the uncertainty had left the once crowded fun spot in shambles, with management so desperate for tourists that it was offering rooms for just $69 with two free welcome drinks.

After Starwood Capital discussed demolition and rebuilding, it decided to go the renovation route, and pumped more than $10 million into making the rundown home of the rum runner into “beach resort chic.” It’s now called Postcard Inn at Holiday Isle.

“There aren’t many places like this,” said Debbie Johnson, from Toronto as she sipped a margarita and watched her husband and kids soar past her on personal watercraft. “It’s one-of-a-kind and would have been a shame to have it torn down for condos.”

But it’s too late for some of the Keys’ precious affordable housing.

Jabour’s Trailer Park in Key West was torn down as part of Caroline Street Partners $23 million acquisition of land to build 32 three-bedroom condos called Harbor House. All that’s on the site now is one model townhouse and a city block worth of dust and weeds.

Well-known Keys developer Pritam Singh partnered with the bank that took over the foreclosed property, which is located in the heart of the Historic Seaport District near popular Schooner Wharf Bar. The city approved a 96-room hotel, but that project was delayed in October when neighboring residents filed a lawsuit to block construction due to its high density. But the project is back on track, with the case settled in December when the residents agreed to accept “money they could not refuse” for future inconveniences, attorney Robert Goldman said.

Gulfstream Trailer Park in Marathon also was demolished, with about 90 mobile home owners evicted to make way for Marlin Bay Yacht Club. High-end buyers were wooed at parties with free-flowing drinks. Today, the complex across from stacks of lobster traps looks beautiful from the front of the locked gate, but there are no yachts and no high-end buyers living there.

It has taken longer than expected for the new owners to figure out how best to proceed with the quarter-finished project, which includes a 99-slip marina, 7,600-square-foot clubhouse and pool.

Stuart-based attorney William Anderson originally said his unidentified clients were looking at a possible March 2012 grand opening, but that didn’t happen. Anderson, reached last week, said an announcement is expected in about two months.

“We have completed the clubhouse construction, repaired the units up to code and the pool and Tiki bar are done,” he said. “It really is spectacular. We’re getting ready for the next phase, to sell.”

The 13 townhomes that were built in 2008 originally were listed for $1.6 million to more than $4 million, Only two were under contract when the market crashed.

“We’re probably slightly at a buyer’s market now, but we think that will improve,” Anderson said. “Pretty soon, we think it will be back to a seller’s market … We’ve had a lot of interest. People have left their names.”

In Islamorada, a project called Tarpon Point with 12 pastel colored townhomes along the Atlantic Ocean is still a construction site after five years. But Randy Seldon, the listing agent with Century 21 Schwartz Realty, said it’s one of the only big projects in the Upper Keys where the original owners didn’t go under during the economic crash.

“Five brothers own it, and they never tanked,” he said of the Rosseau brothers. “There never has been a day the job was shut down since it’s started. They’re just building it slowly.”

The four-bedroom, four-bath homes are listed from $2.3 million to $2.9 million. So far only two have pending sales, and they are to two of the owners. Seldon said he does not know when construction will be done.

Managing partner David Rosseau did not return a call.

On Stock Island, near Key West, developers spent $103 million in 2007 to buy 50 acres of land and bay bottom around Safe Harbor, a deepwater port. The plans were to build a world-class marina with 260 slips and a 300-room hotel. There would be a ferry terminal, too, if Cuba opened up.

But New Stock Island Properties couldn’t get permitting and also went under. That property now is under contract and should close in June, said Schmitt, who is brokering the deal. He said he can’t give any details at this time about the deal or what is planned for the property.

In Islamorada, Lee was happy to show the construction that was going on at the former Tavernier Dive Shop and Plantation Key Fisheries. The plan is much more modest than that of the previous owners, Cay Clubs Resorts and Marinas.

Cay Club’s executives came into the Keys as high rollers, sponsoring a 2005 Celebration of the Sea concert in Key Largo that featured Chuck Berry and Steven Tyler.

The company proved to be nothing more than a Ponzi scheme, according to the U.S. Securities and Exchange Commission.

There are no swanky condos in the plans. Lee is working with the existing zoning and said the buildings will remain commercial, for a dive shop, fish house, restaurant, coffee shop and six retail outlets that are all water related.

The crash also has helped save some affordable lodging in the Keys for those who love the outdoors. Fiesta Key RV Resort in the Middle Keys was packed Easter weekend with families from Miami and around the country.

“We’re so happy there’s still places you can come to the Keys and not have to spend $300 or $400 a night,” said Jane Derenthal, who was renting a $100-a-night cabin. “Look how gorgeous it is here, and it’s pet friendly.”

She was walking her dog Pompei along the seawall, while Noah Ditchie of Michigan was fishing for tarpon and Brynn Schiavi, 8, was showing Whitney Carlin, 3, the lizard she had caught.

“She’s my animal lover,” Kelly Mychalishyn of Rochester, N.Y., said of her daughter, Brynn.

Their family vacation has included jaunts to the Turtle Hospital and Bahia Honda State Park.

Cortex Resort Living had bought the campground for $55 million with plans to turn the 324 campsites into a 230-townhome complex called Seaglass, with a shipwreck salvagers theme.

But the developers also never got this project off the ground, becoming embroiled in a $74 million foreclosure suit. In the meantime, the campground remained open.

In 2010, the property’s deed was turned over in lieu of foreclosure. Now, New York-based Morgan RV Resorts runs the place. They have 21 campgrounds in 11 states with a motto: “Where luxury meets nature.”

Another bayside property in the Keys also was slated to become townhomes, but the new owners have turned the 12 acres into Point of View Key Largo RV Resort, albeit for big rigs of 30 to 75 feet. No tents or pop-ups are allowed.

“They were checking around to see what was needed and everybody pretty unanimously said RV park,” said Laurie Comeau, manager of the park that just opened March 1.

Comeau had managed nearby American Outdoors campground for 16 years, until the developers closed it for good. The entrance now is blocked with a chain fence, and the new owners are planning a Marriott hotel.

Harold Wheeler, executive director of the Monroe County Tourist Development Council, said that while it’s “too bad” the Keys went through the recession, he’s happy the Keys were able to maintain some of the private RV resorts and campgrounds.

“We’re known for our eco-tourism and we want the nature-based tourism,” he said.

“We need the campground areas. It’s a big part of the Florida Keys — always has been and hopefully always will be.”

Read more Business Monday stories from the Miami Herald

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