This is in Sunday's paper. It's about how St. Joe extended the build-out date for WaterSound.
http://www.nytimes.com/2006/12/17/realestate/17nati.html?ref=realestate
http://www.nytimes.com/2006/12/17/realestate/17nati.html?ref=realestate
New York Times article on WaterSound
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Thanks for sharing ;-)
IN 2002, when the St. Joe Company, one of Florida?s largest real estate developers, began selling parcels in a new neighborhood here, it was inundated by potential buyers.
With as many as 10 applicants for every lot, the company put numbered balls into a fishbowl, then had an agent draw the balls at random, to decide who would be allowed to buy the home sites.
Four years later, you can hear a pin drop at the gated community of WaterSound Beach. Most of the lots sit empty, and even Thanksgiving weekend brought only a handful of visitors.
After the dire hurricane season of 2005, the real estate market along the Florida Panhandle ground to a virtual halt.
But WaterSound Beach and WaterColor, another St. Joe development eight miles west, are meant to be New Urbanist communities, modeled on Seaside (their neighbor on Route 30A). And New Urbanism requires density. That is why, when it sold the lots, St. Joe had a requirement that buyers break ground on their houses within three years.
Homeowners who did not meet the ?build-out deadline? had two options: to begin paying a penalty, as much as $2,500 a month, or to sell the land back to St. Joe at the original price.
As it turns out, many of the landowners were speculators who had no intention of building. ?They thought they?d sell after six months, and make a killing,? said Lew Belote, an executive of Move Inc., which provides online services to buyers and sellers, and the owner of a house in WaterColor.
Some did manage to sell. Chris Martin, a local builder, bought a lot in WaterColor in 2003 for $215,000. He sold it in early 2005, he said, for $750,000. In WaterSound, several lots have sold for more than $2 million apiece.
But after Hurricane Dennis hit the Panhandle in July 2005, most of the planned flips turned to flops.
?People got caught day-trading lots,? said Marc Levy, who operates a flooring company in New Orleans and owns a house in Rosemary Beach, a community near WaterColor. Those who did not want to sell their lots at a loss, but had no plans to build, were stuck. After years of double-digit appreciation, the market was so bad that ?some of them would have been happy to sell back to St. Joe at the original price,? Mr. Belote observed.
But St. Joe ?wasn?t interested in buying back people?s lots,? said Jerry Ray, the company?s vice president for corporate communications. ?Our goal is to build towns.?
So last May, St. Joe issued a statement that caught many of the owners by surprise: They would have an extra two years in which to begin building their houses.
For some property owners, the decision, effective June 1, was a welcome reprieve. Debora Usher, who with her husband, John, had bought a lot in WaterColor, said the decision made her ?happy, happy, happy.?
The Ushers, who live in Central Florida and own a weekend house in Seaside, now have two more years to decide whether to sell or build in WaterColor. Though other parts of WaterColor are ?built out,? their lot is in a section that shows only two signs of development: sewer hookup pipes emerging from the ground, and signs touting the names of the owners and their children (a homey touch meant to create community, but these days seeming spectral).
Some people who have already built houses in the St. Joe communities are unhappy about the extension, claiming that the company changed the rules in the middle of the game.
Pat Spafford, a neonatologist from Atlanta, bought a lot in WaterSound Beach at the end of 2002, began building within the three-year window and moved in with his family late last month.
But the lot alongside his is empty, and now, with the extension, there is no telling when its owners will break ground. So instead of living in a finished community, he said, he could end up living next to a construction site.
Dr. Spafford said he was ?not too happy? about the extension. ?The speculators,? he said, ?put pressure on St. Joe.?
Mr. Belote, who divides his time between homes in Atlanta and WaterColor, said he ?kind of took a proactive approach.?
?I got tired of people complaining and nothing happening,? he said. So he helped organize an e-mail group on Yahoo. ?I got us communicating more effectively with each other and with St. Joe,? he said. ?I think we influenced the company.?
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Fred A. Bernstein for The New York Times
Chris Martin bought a lot in WaterColor in 2003 for $215,000 and sold it early last year for $750,000.
Enlarge This Image
Steven Frame for The New York Times
But many other lots remain vacant, prompting the developer to extend a building deadline by two years.
Still, Mr. Belote conceded, some owners ?were adamantly opposed to this. I got a lot of people mad at me.?
But without the build-out extension, many lots would have come up for sale, almost certainly sending prices downward. It was ?in the best interest of St. Joe and the homeowners to control the inventory in a buyer?s market,? said Nikki Nickerson, an agent with Keller Williams Realty in Seagrove Beach.
Other proponents of the extension say the company?s original deadline never made sense. Both WaterColor and WaterSound Beach have very strict building codes, designed to ensure aesthetic harmony. Simply getting plans approved has taken some homeowners as long as 18 months, according to Ms. Nickerson and others.
Some observers said that if it intended to see communities built quickly, St. Joe should have limited each buyer to one lot. Instead, it allowed the purchase of multiple lots; Mr. Belote said he knows at least three people who own three lots or more.
According to local agents, there was so much demand before 2005 that St. Joe could have had a ?one lot per buyer? limit and still sold every home site. But Mr. Ray defended the company?s policy. ?You can?t know in advance what a buyer is going to do,? he said. He added that the company ?could institute better procedures in the future ? we?re always learning.?
Mr. Ray said that in the 1920s, St. Joe, then a paper company, bought nearly 2,000 square miles in Florida for a few dollars an acre. ?For all intents and purposes, it?s free land,? he said.
That explains why, with Panhandle real estate booming, St. Joe got out of the paper business, and into the development business, in 1997. A publicly held company based in Jacksonville, St. Joe now has 16 communities at various stages of development statewide. WaterColor and WaterSound Beach, which cater to wealthy vacationers from places like Atlanta and Dallas, are the most expensive of the 16, Mr. Ray said.
But Hurricane Dennis changed everything.
?There was a group panic after the hurricane,? Mr. Usher said.
Nonetheless, Hilary Farnum, a sales agent for St. Joe, said the company had not lowered the prices on the lots that it still owns. Doing so, she said, ?could compromise the value of the lots that we?ve already sold.? People buy into St. Joe communities, she said, because they know the company is in a financial position to ride out any storm.
But some people believe St. Joe?s two-year extension has undermined its attempt to create community. Sally Shushan, a federal magistrate who owns a condominium in neighboring Rosemary Beach, said Rosemary had become a real community because the developers ?stuck to their guns on the build-out schedule.? Rosemary, whose homeowners include the White House aide Karl Rove, is almost complete, eight years after the first house there was finished.
It is now likely that the St. Joe communities will take much longer to complete.
But not everyone who bought land from St. Joe is concerned about the extension. Barry Richard, a lawyer from Tallahassee, built one house in WaterColor, then moved to a bigger one and put the first one on the market. He said he was not worried about how quickly the community is finished, ?because I didn?t buy the houses for investment.?
Eight miles east, at WaterSound Beach, Jim Andros, a lawyer from Atlanta, said he was not affected by the issue either.
Mr. Andros, who spends weekends in a condo in WaterSound Beach, said he bought a lot as an investment. Under the original build-out deadline, he would have been required to break ground on a house this month, he said.
Despite the two-year reprieve, Mr. Andros said, he is likely to start building soon. ?I?m ready, and I may just go ahead,? he said, adding, ?The market goes up and the market goes down.?
With as many as 10 applicants for every lot, the company put numbered balls into a fishbowl, then had an agent draw the balls at random, to decide who would be allowed to buy the home sites.
Four years later, you can hear a pin drop at the gated community of WaterSound Beach. Most of the lots sit empty, and even Thanksgiving weekend brought only a handful of visitors.
After the dire hurricane season of 2005, the real estate market along the Florida Panhandle ground to a virtual halt.
But WaterSound Beach and WaterColor, another St. Joe development eight miles west, are meant to be New Urbanist communities, modeled on Seaside (their neighbor on Route 30A). And New Urbanism requires density. That is why, when it sold the lots, St. Joe had a requirement that buyers break ground on their houses within three years.
Homeowners who did not meet the ?build-out deadline? had two options: to begin paying a penalty, as much as $2,500 a month, or to sell the land back to St. Joe at the original price.
As it turns out, many of the landowners were speculators who had no intention of building. ?They thought they?d sell after six months, and make a killing,? said Lew Belote, an executive of Move Inc., which provides online services to buyers and sellers, and the owner of a house in WaterColor.
Some did manage to sell. Chris Martin, a local builder, bought a lot in WaterColor in 2003 for $215,000. He sold it in early 2005, he said, for $750,000. In WaterSound, several lots have sold for more than $2 million apiece.
But after Hurricane Dennis hit the Panhandle in July 2005, most of the planned flips turned to flops.
?People got caught day-trading lots,? said Marc Levy, who operates a flooring company in New Orleans and owns a house in Rosemary Beach, a community near WaterColor. Those who did not want to sell their lots at a loss, but had no plans to build, were stuck. After years of double-digit appreciation, the market was so bad that ?some of them would have been happy to sell back to St. Joe at the original price,? Mr. Belote observed.
But St. Joe ?wasn?t interested in buying back people?s lots,? said Jerry Ray, the company?s vice president for corporate communications. ?Our goal is to build towns.?
So last May, St. Joe issued a statement that caught many of the owners by surprise: They would have an extra two years in which to begin building their houses.
For some property owners, the decision, effective June 1, was a welcome reprieve. Debora Usher, who with her husband, John, had bought a lot in WaterColor, said the decision made her ?happy, happy, happy.?
The Ushers, who live in Central Florida and own a weekend house in Seaside, now have two more years to decide whether to sell or build in WaterColor. Though other parts of WaterColor are ?built out,? their lot is in a section that shows only two signs of development: sewer hookup pipes emerging from the ground, and signs touting the names of the owners and their children (a homey touch meant to create community, but these days seeming spectral).
Some people who have already built houses in the St. Joe communities are unhappy about the extension, claiming that the company changed the rules in the middle of the game.
Pat Spafford, a neonatologist from Atlanta, bought a lot in WaterSound Beach at the end of 2002, began building within the three-year window and moved in with his family late last month.
But the lot alongside his is empty, and now, with the extension, there is no telling when its owners will break ground. So instead of living in a finished community, he said, he could end up living next to a construction site.
Dr. Spafford said he was ?not too happy? about the extension. ?The speculators,? he said, ?put pressure on St. Joe.?
Mr. Belote, who divides his time between homes in Atlanta and WaterColor, said he ?kind of took a proactive approach.?
?I got tired of people complaining and nothing happening,? he said. So he helped organize an e-mail group on Yahoo. ?I got us communicating more effectively with each other and with St. Joe,? he said. ?I think we influenced the company.?
Skip to next paragraph
Chris Martin bought a lot in WaterColor in 2003 for $215,000 and sold it early last year for $750,000.
Enlarge This Image
Steven Frame for The New York TimesBut many other lots remain vacant, prompting the developer to extend a building deadline by two years.
Still, Mr. Belote conceded, some owners ?were adamantly opposed to this. I got a lot of people mad at me.?
But without the build-out extension, many lots would have come up for sale, almost certainly sending prices downward. It was ?in the best interest of St. Joe and the homeowners to control the inventory in a buyer?s market,? said Nikki Nickerson, an agent with Keller Williams Realty in Seagrove Beach.
Other proponents of the extension say the company?s original deadline never made sense. Both WaterColor and WaterSound Beach have very strict building codes, designed to ensure aesthetic harmony. Simply getting plans approved has taken some homeowners as long as 18 months, according to Ms. Nickerson and others.
Some observers said that if it intended to see communities built quickly, St. Joe should have limited each buyer to one lot. Instead, it allowed the purchase of multiple lots; Mr. Belote said he knows at least three people who own three lots or more.
According to local agents, there was so much demand before 2005 that St. Joe could have had a ?one lot per buyer? limit and still sold every home site. But Mr. Ray defended the company?s policy. ?You can?t know in advance what a buyer is going to do,? he said. He added that the company ?could institute better procedures in the future ? we?re always learning.?
Mr. Ray said that in the 1920s, St. Joe, then a paper company, bought nearly 2,000 square miles in Florida for a few dollars an acre. ?For all intents and purposes, it?s free land,? he said.
That explains why, with Panhandle real estate booming, St. Joe got out of the paper business, and into the development business, in 1997. A publicly held company based in Jacksonville, St. Joe now has 16 communities at various stages of development statewide. WaterColor and WaterSound Beach, which cater to wealthy vacationers from places like Atlanta and Dallas, are the most expensive of the 16, Mr. Ray said.
But Hurricane Dennis changed everything.
?There was a group panic after the hurricane,? Mr. Usher said.
Nonetheless, Hilary Farnum, a sales agent for St. Joe, said the company had not lowered the prices on the lots that it still owns. Doing so, she said, ?could compromise the value of the lots that we?ve already sold.? People buy into St. Joe communities, she said, because they know the company is in a financial position to ride out any storm.
But some people believe St. Joe?s two-year extension has undermined its attempt to create community. Sally Shushan, a federal magistrate who owns a condominium in neighboring Rosemary Beach, said Rosemary had become a real community because the developers ?stuck to their guns on the build-out schedule.? Rosemary, whose homeowners include the White House aide Karl Rove, is almost complete, eight years after the first house there was finished.
It is now likely that the St. Joe communities will take much longer to complete.
But not everyone who bought land from St. Joe is concerned about the extension. Barry Richard, a lawyer from Tallahassee, built one house in WaterColor, then moved to a bigger one and put the first one on the market. He said he was not worried about how quickly the community is finished, ?because I didn?t buy the houses for investment.?
Eight miles east, at WaterSound Beach, Jim Andros, a lawyer from Atlanta, said he was not affected by the issue either.
Mr. Andros, who spends weekends in a condo in WaterSound Beach, said he bought a lot as an investment. Under the original build-out deadline, he would have been required to break ground on a house this month, he said.
Despite the two-year reprieve, Mr. Andros said, he is likely to start building soon. ?I?m ready, and I may just go ahead,? he said, adding, ?The market goes up and the market goes down.?
I was interviewed by Mr. Bernstein a month ago when he was preparing for this article. I gave a very possitive review of JOE and the Watersound project specifically. Obviously he chose not to quote me. I think the article is slightly unfactual and a bit one sided, but all in all a fair assesment of the situation. I hope Mr. Bernstein will do a follow-up piece when the build-out extension expires, to report on what developments look like.
:shock: You mean all those lots were being bought up by people who never really intended to build their vacation homes and eventually retire here???? Gee....what a surprise!!!! Who would've saw this coming??? 
Interesting how St JOE doesn't even want to "buy-back" the <overpriced> lots at the original price paid...not exactly a vote of confidence on the value of land going forward. <JOE: Hell no...we don't want our fingerprints on this trainwreck.>
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Interesting how St JOE doesn't even want to "buy-back" the <overpriced> lots at the original price paid...not exactly a vote of confidence on the value of land going forward. <JOE: Hell no...we don't want our fingerprints on this trainwreck.>
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I am sure JOE would have loved to buy back the lots sold in 2002 2003 and early 2004. But since the mkt changed dramatically in 2005 they felt they could not cherry pick the earlier lots at the expense of the lots sold in 2005 and 2006. That would have created a legal catastrophe not to mention a PR nightmare. They chose the least onerous route.
The "build-out" thang rarely--if ever-- applied to lots sold in 02'/03'. The "build-out" clause was added @'04 to keep the frenzy moving along during the hottest period of the bubble to give the "illusion" of exclusivity in order to justify jacking up the prices.
Cherry-picking lots to buy back will seem like a "dream" compared to the upcoming PR nightmare when "Place-Maker JOE" starts cutting corners on "promised" amentities for its "Places."
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SHELLY, St. Joe has always had build out dates. That was part of their plan from the very beginning.
Does anyone remember that after 9/11 Rosemary Beach gave an extension on build out dates
JOE has the right to buy back ALL the lots at the ORIGINAL price whether they sold once, twice or more. Anyone but the original purchaser is subject to taking a loss if JOE decides to assert its rights. However, I agree with Shelly. Joe wants to have nothing to do with repurchasing the lots. It would be a PR nightmare, a cash flow drain and then they would have to try to resell all the lots in a very bad market. They've got plenty of inventory in Watersound West Beach and Watersound that they need to get rid of, and lots in these subdivisions are not moving at all.
There is no way the market is going to absorb the 120 resales in Watercolor, 80 resales in Watersound PLUS all the unsold lots in Phase IV in Watercolor and the remaining 40 or so JOE owned lots in Watesound before the two year extension runs out. So, don't be surprised to see JOE grant an additional 2 year extension when this one runs out.