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The Games Realtors Play With "Original Price" and DOM (Days On Market)

Hello Friends,

Today we are going to look at what I believe is an honest mistake made by a Real Estate company which obviously hasn't kept close tabs on one of its entries to my favorite MLS in the Florida Keys. This Real Estate company in question simply keeps tabs on properties for sale down in the Keys and adds very good slideshows and a decent, quick-searchable data base set up by price, different Florida Keys, different types of homes (condos, duplexes, etc.) and so on. As this Real Estate company does officially represent the sellers of but just a few of the properties on this searchable MLS, my guess is they sell "shoppers" on using them to mediate a sale.

This particular MLS is the one with photos of most every home and business listed and can be found at www.keywestmls.com.

This particular MLS, sponsored and edited by Key West's Seaport Real Estate, is the most popular MLS which my Key West friends use. Other MLS searchable databases put together by other Real Estate company go nowhere near the lengths which Seaport provides information.

Most especially welcome on this great website is the tab for "Just Reduced" homes which, like it's title, shows all homes and their new reduced "listing" prices over the past 7 days. (And please, please, please . . . if you are new to looking for a Key West home . . . notice nowhere on the website of www.keywestmls.com is there a tab for "Just Increased" home prices. That should tell any novice that prices are still cratering in the Keys.)

Nevertheless, Seaport Realty's webmaster makes a mistake once in a while and leaves up two MLS numbered entries for the same home. Today, I discovered one I want to share. And please keep in mind this is not to condemn Seaport Realtors for their mistake, but it is to applaud the fact that their mistake is another in a long line of proof which I have supplied over the years that Realtors are trying everything to put lipstick on the Housing Crash Pig.

Onward.

In many a past blog post I have told you why I recommend you keep your own Excel spreadsheet on falling home prices if you are seriously considering buying in the Keys within the next 6 months. Among my reasons, I told you how Realtors play this game of ripping homes off a market after an "original" price had multiple price drops and then coming back on the market a few days or weeks later with a new MLS number and new "original" price.

The reason for doing this is obvious:

1) The new "original" price is a much lower price than the old "original" price and subsequent price drops. Hence, with a newer starting price, one cannot fathom the "panic" in the seller's position, giving a potential buyer less leverage in making a deal.

2) When a new "original" price is listed, it also means the DOM (Days On Market) start afresh. Meaning a listing with only 7 days on market and an "original" price looks more enticing to sellers than one which has been on the market for 300 days and has had 5 price reductions would look to buyers. Sellers and Realtors want to "keep up appearances". Buyers are looking for desperation from sellers, i.e., deals.

3) And when a new, lower "orginal" price is lowered or reduced to a new listing price, should that price sell, the Real Estate cartel will trumpet it was only 20% off the original price and prices are firming, when in reality, the "Just Sold" price could be as much as 50-70% off the first "orginal" price. All of the above might sound confusing to a new reader, so let me show how one house in Cudjoe Key has been marketed, accidentally, with two MLS numbers - one of which shows the real drop in value on the property.

Let's start with the more benign listing, the one with the least amount of depreciation in pricing.

Here's the mansion in question:

MLS#:	550147
Original Price:	$3,795,000
Listing Price:	$3,100,000
Address:	23069 Redfish Lane
City:	Cudjoe Key
Subdivision:	Cudjoe Acres
Mile Marker:	23
Prop Type:	Single Family
Waterfront:	Yes
Days on Market:	276
Bedrooms:	5
Bathrooms:	5.5
Interior Sq Ft.	4,430
Price Per Sq. Ft.	$699.77
Lot Sq. Ft.	0
Year Built:	2007
Taxes:	$25,000.00
Tax Year:	2008
Exemptions:	Homestead

Here's the description of the property by the Realtor:

Private Gated Keys Estate With Open Water Views. Chestnut & Marble Floors, Gourmet Kitchen, Elevator, Private Boat Basin, Ramp & 2 Lifts. Lounge By By Your Pool Or Beach. 5 Bds/ 5.1 Baths + A Library & Loft. Main House Features 3bd/3.5 Baths & Thguest House Offers 2 Bd/2 Ba. True Paradise Living To The Most Discriminating Buyer Who Wants Everything...With A Sense Of Being Away From It All.

Notice the following three data points above: Original price, Listing price and DOM (Days On Market)
1. Original Price: $3,795,000
2. Listing Price: $3,100,000
3. Days On Market: 276
(By the way, to see the 9 slide photo shoot of this listing click here)

Now as I never kept track of Florida Keys mansions by entering their info on a spreadsheet, it is very possible this mansion had more than one "Reduction In Price" in the past 276 days.

Regardless, let's pretend for a moment that some well heeled buyer simply comes along today, plops down the new listing price of $3,100,000.

Well, the way the Good Deeds in the Sunday paper would report this sale is "100% of asking price". And, invariably, some of the Realtors in our town would crow that this 100% bid on the listing price is "proof that the Real Estate market is bottoming in the Keys."

In reality, the sale at $3,100,000 would represent a drop of 18-19% from the owner's "Original Price" some 276 days ago at $3,795,000. But the Good Deeds in the Sunday Key West Citizen long ago quit showing both "Original Price" and "Listing Price". So, buyers looking at the Good Deeds now are thinking, "Prices don't seem to be falling as much. That's good."


Time For Another Strong Dose Of Reality In Keys Real Estate

But what if the mansion discussed above had been on the market for a longer period of time at a much higher price? Don't you think a savvy buyer would like to know this information so he/she could drive a better bargain with maybe a panicked seller?

Well, in a case of laxity (that's my guess), the keywestmls.com webmaster did not notice the same mansion appears twice, with a different front photo shot, and a different MLS number on their www.keywestmls.com website.

Here's the first entry for the same mansion we are looking at above with new cover photo. (Also if you want to see the original 19 photo slide show, click here) :

MLS#:	107685
Original Price:	$4,499,000
Listing Price:	$3,100,000
Address:	23069 Redfish Ln
City:	Cudjoe Key
Subdivision:	Cudjoe Ocean Shores Sec 2,2b,3
Mile Marker:	23
Prop Type:	Single Family
Waterfront:	Yes
Days on Market:	813
Bedrooms:	5
Bathrooms:	5.5
Interior Sq Ft.	4,443
Price Per Sq. Ft.	$697.73
Lot Sq. Ft.	32,242
Year Built:
Taxes:	$20,589.00
Tax Year:	2009

Notice the following:

This earlier listing of the exact same property with different MLS number has been on the market for 813 days! That means this mansion has been on the market since early 2008 and is really in its third year of being marketed.

Secondly, notice the "Original Price" of $4,499,000! That is $704,000 more than what the newest listing (MLS #550147 with 276 Days On The Market) is showing as an "Original Price" of $3,795,000.

Same property, two different MLS numbers showing, two different DOMs showing, and two different, very different "Original Prices" showing. (Meaning the webmaster's slip is showing how Realtors really play the game to "juice" Potemkin pricing which many times is a facade for what has really gone on behind the scenes.)

If some rich buyer comes to the Keys today, without thinking about hurricanes and oil spills, rising sea levels, a county government in deficit, declining county services, bad schools, etc., and pays $3,100,000 (the new listing price), said buyer would actually be getting 31-32% discount from the real "Original Price". Not only is that the real discount so far, but, the Key West Citizen would be showing the sale as 100% of the Listing Price in the Sunday paper's Good Deeds. (It should be noticed that "Good Deeds" are sponsored by some Title Company here in the Keys, and it is they who obviously decided to discontinue showing "Original Price" of homes sold.)

These are the games going on all the time with the MLS as played by Realtors. They put homes on the MLS. They rip them off. They assign new MLS numbers and put properties which have been for sale for years back on the market after a few days breather to hide market inefficiencies and buyers who were in denial for a loooooong time and who are now determined to get out of their money holes.

This is why serious buyers must pay attention and do their own diligence: Realtors are not going to give you the whole story and you will not have the macro-Economic wide angle view you need to know whether you are getting a deal, whether Real Estate is really bottoming (don't worry, buyers, it is not) and whether you should rush in now to get a "deal" compared to 2006 prices (don't, rates have only one way to go . . . higher . . . and as rates go higher, even fewer people will afford "more" home meaning home prices will have to drop even further).

That said, anyone buying a home in the Florida Keys or Florida before the BP Oil Deluge is finally stopped is not paying attention to the current Double Dip Recession which may turn into a Depression forcing even more pressure downward on Keys home pricing.

Stay aware of Macro-Economic trends. Stay aware of local trends. And whatever you do, don't listen to the FIRE Economy cheerleaders who are telling you "There's never been a better time to buy a home!" They've been saying this for the last ten years. Keep in mind these are the vested interests who do not have your best interests at heart.

As always,

Caveat emptor!


Rock Trueblood

Florida Keys Island Mansion Still Has No Takers At Over 70% Off!

Dreamers:

Feast your eyes on the above island in the Florida Keys with house built by a "major recording artist" some years back and which is dropping in price precipitously over the past week. This house has been on the market since September 1, 2006 and has still not found a buyer.

Here is the MLS description of this mansion:

Private Offshore Island With 3/3.5 Luxury Home In The Keys! Owned & Improved By Major Recording Artist W/ New Pool, Hot Tub, Central Air, Concrete Pier, Jet Boat, 35kw Generator In Sound-proof Shed, 850-gal/Day Desalinization, New Electric, New Landscaping & High-end Finishes. Self-contained, 70' Onshore Lot W/ Concrete Dock, 3-story Custom Home, 360 Degree Ocean Views, Impact Windows & More.

Here are the stats:

Status: Active
Original Price: $10,000,000
Prior Listing Price: $3,799,000 (this change just 7 days ago)
Listing Price: $2,995,000
Address: 0 Melody Key
Key/Island: Summerland Key
Subdivision: Misc Summerland Key
Mile Marker: 28.0
Prop Type: Single Family
Days on Market: 1376
Bedrooms: 3
Bathrooms: 3.1
Square Ft. 2,822
Price Per Sq. Ft. $1oo.00
Lot Sq. Ft. 0
Year Built: 1992
Taxes: $14,800 (subject to change)
Tax Year: 2005
Exemptions: None

To see more photos of this house, click here: PHOTOS

At least the Realtor for this listing hasn't been playing games by taking the house off market and putting it back up a half-dozen times to try and hide it's real loss in value over the past 1,376 days.

How low will this one go? Well, since September 1, 2006, it has already lost more than 70% of its value. I'll wager this one loses another 20 to 50% from its current listing price of $2,995,000 before it is all over.

Stay tuned.

Rock in Paradise

Key West Citizen Yesterday: "Bankruptcy looms over Keys Builder"

Key West Citizen Disappears

Top Headline from Yesterday

No post on this blog has fanned hate email like my recent post about Cay Clubs. The responses to the blog, listed right below my comments were tame compared to some of the stuff I received via email.

So, in an effort to throw a little gasoline on the fires of "Haterz" of Rock Trueblood, I have to ask this question: What happened to the Citizen's above the fold and top of the fold headline from yesterday screaming . . .

Bankruptcy looms over Keys Builder

Cay Club develops financial problems

I would refer you all to this article by Robert Silk, except for one minor problem: the Key West Citizen's online story has vanished.

See for yourself. Check the lineup from yesterday's headlines.

We find:

Restaurateur collects donations for hurricane victimsPublished on Wednesday, August 22, 2007

Family fun day focuses on child safety awarenessPublished on Wednesday, August 22, 2007

Curfew will be enforcedPublished on Wednesday, August 22, 2007

'Keep off' signs go up on WisteriaPublished on Wednesday, August 22, 2007

. . . but there is no entry for yesterday's biggest and best story about Cay Clubs. And this was the top headline you would see as you walked past a paper vending box.

Again,

Bankruptcy looms over Keys Builder

Cay Clubs develops financial problems

Yesterday, online, the story was there.

Today, it disappeared.

As Colonel Klink from "Hogan's Heroes" would say, "Veeeeeeeeeeeeery Interesting!"

When I started this blog, one of my first posts was "Realtors Wag the Key West Citizen Dog".

In that short post I simply posited the idea we can not expect the Citizen to be too observant on Housing in the Keys as the majority of its revenue comes from Realtors.

Why I think yesterday's top story is missing from the online edition of the Key West Citizen

All it takes is a threat to yank advertising dollars. It's that simple. I saw this "cave in" attitude time and again at a Clear Channel radio station where I worked for a short spell.

Key West is such a small town that the paper is inextricably dependent on advertising revenue to make up for its tiny circulation. And no ad revenue is bigger than Real Estate.

I feel someone, somewhere, with ties to Real Estate interests made a big ass phone call to the Citizen and asked, cajoled, pushed or even threatened a Citizen bigwig with the loss of ad dollars if that Cay Clubs article wasn't erased online.

I just googled the headline. No luck. No one anywhere saved the headline and story to an online "memory hole" that I can find.

What was in the article?

Well, here's the flavor of the article in the first sentence by Robert Silk . . .

"The company that became synonymous with the frenzy of redevelopment that swept the Florida Keys in recent years is now scrambling to stay our of bankruptcy."

Here are some of the tidbits discussed by Silk about Cay Clubs:

• An SEC filing by Cay Clubs for its pending merger with Key Hospitality Acquisition Corp. shows a $1.2 million dollar loss for the first quarter of this year versus a $13.8 million profit, year over year, for the same quarter.
• The company owes lenders $91 million, $74 million of which is due in the next year.
• One lender has already notified Cay Clubs they are officially $9 million in default.
• Cay Clubs is in arrears by $10.5 million to about 140 owners of condos who opted for the "lease back" program (as documented in this blog which incited hate emails to yours truly).
• Cay Clubs spokesman Chris Brown says the company is still trying to negotiate with lenders.
• Cay Clubs is still trying to sell off portions of its holdings for cash.
• Of note . . . and something I was not aware of . . . Cay Clubs "owns" 150 single family homes . . . along with 6 resort hotels (the Citizen should have printed condotels), 900 boat slips, and restaurants and other businesses. (I am wondering if the single family homes are really condos the company was forced to take back?)
• More interestingly, the deal to buy and manage the Half-Shell Raw Bar, Turtle Krawls Restaurant, A&B Lobster House complex and other businesses on the waterfront has not happened. The owner of some of these restaurants, a Gene Smith, has refused to answer any Key West Citizen questions since March of this year.
• Cay Clubs bid to purchase the former Marathon Manors nursing home fell through in April and Cay Clubs walked away from the deposit.
• In May, Cay Clubs fired 80 workers in the Keys.

Last but not least, this language from the SEC filing:

"Without additional borrowing and/or the refinancing of existing short-term debt, Cay Clubs will have to change its current mode of operation and may potentially have to file for federal bankruptcy protection."

Now I don't know about you, but if the company is putting the above in fine print on an SEC document, I think it's the kind of language which should be blown up into at least a 20 point font and given to potential investors in their leaseback program. I feel this flare gun warning should be stapled as a top page on brochures and prospectuses to show just how forthcoming Cay Clubs is with the public.

As always . . . caveat emptor,

Rock in Key West

p.s. Robert Silk, you have a beer with your name on it at my club. Bring Rob O' Neal and the new business editor for the Citizen. You three are on my personal Honor Roll for trying to tell it like it is.

Condotels Are Going to Hell: Cay Clubs Gives "Investors" Another Reason Not to But a Condotel Unit

Cay Clubs Non and Late Payments to 140 Investors Shows the Downside of Investing in Florida Rental Schemes

I have been alluding to big "local" developers' growing problems in the Keys. And as soon as I find time, I will be showing photographic proof how badly their bets are going.

Many of these developers tore down longstanding hotels which had high occupancy rates and built expensive condos in their place which people could buy and have the condo-management team . . . assembled by the developers . . . rent out for income producing purposes.

In the past three months, my brother-in-arms blogger in the Keys, Cayo Dave, alerted me to the problems of out of town developer, Cay Clubs, was having in the Keys with his short piece Has Cay Clubs Bit Off More Than It Can Chew? In this piece, Cayo Dave explained how Cay Clubs was forced to cut 80 jobs in the Keys due to what Vice-President of Operations, Dave Rego, wanted us to believe was an upcoming merger with Keys Acquistion Company Corp.

Cayo Dave quoted Dave Rego on Cay Clubs's intent to "go public" (i.e. list publicly traded shares of a company on a stock exchange) with the following, "It is a down market. Several developers across the country are going out of business," Rego said. "We need to make sure we can prosper through a down market so we're one of the companies that stay in business."

But as Cayo Dave and I both believe, there is a major systemic change for reality based Real Estate pricing in this crashing market. You cannot keep the Ponzi Scheme alive if inventory continues to spike upward, prices continue to contract, and consumers are stretched thin and cannot continue vacationing in Florida . . . especially at higher priced Condo and Hotel prices.

I reprint parts of Cayo Dave's blog to show how he was having none of the "calming effect" b.s. from Cay Club's VP of Operations.

As Cayo Dave so eloquently explained,

Cay Clubs is now among the largest developers in the Florida Keys. The question that we should be asking: "Have they bitten off more than they can chew?. And what effects will it have on the Keys should Cay Clubs and it's new parent company become financially unstable?"

Cay Clubs, only recently formed in the past decade, is betting that people will continue to buy expensive second homes, boat slips, and condominiums. Plus, they recently acquired the Turtle Kraals, Half Shell, and A&B Lobster House restaurants.

Remember, during the go-go-go real estate craze of the past few years, hotels in Key West were being bought up, closed, and turned from transient rentals to condominiums. Now that buyers are nearly non-existant, what will happen to the hundreds of hotel rooms stuck in limbo? What if the whole enchilada goes belly up....will we be left holding the bag?

With most of the Cay Clubs holdings in Florida, aren't they particularly sensitive to market shocks? Since Florida is suffering the biggest declines in real estate, should we worry about one of the largest developers here in our backyard? Think about this: in only the past 2.5 years, Cay Clubs has aquired at least 8 Florida Keys locations.

Well, let's look at today's Miami Herald to see how one lucky couple feels after buying the b.s. "investment theme" by purchasing a Cay Clubs Condo in Orlando.

The story is titled "Housing's ills imperil condo deals"

And here is the heartbreaking lead paragraphs directly from the story as written by Douglas Hanks of the Miami Herald:

Horacio and Patsy Parra cashed out two retirement accounts last year to buy an Orlando condominium they couldn't afford.

At the time, they weren't worried. The developer, Cay Clubs Resorts & Marinas, agreed to lease back the $307,000 unit for 15 percent of the sales price -- enough cash to cover the mortgage for nearly two years.

But the Parras now expect to lose their unit to foreclosure, they say, because Cay Clubs owes them about $40,000 in unpaid rent.

Let's stop right there.

The Parras only paid $307,000 for the unit up in Orlando which their friendly developer, Cay Clubs, agreed to lease back for two years at 15% of the purchase price. (I italicized the word only as most condos in the Keys are selling for above $1 million.) Cay Clubs would then "rent" out the condo to vacationers and keep anything over and beyond what they were to owe the Parras.

Doing simple math in my head, the Parras should have received over $45,000 in "rent" on their lease agreement with Cay Clubs and are claiming they are owed about $40,000 in back rent now.

Seems to me Cay Clubs may have started making payments but suddenly stopped. Why?

Well, as an observer of Key West condotel conversions, I'll bet what has gone wrong in Cay Clubs inability to pay the Parras what they owe them is vacationers cannot afford higher Cay Clubs unit rents in a town where they are already paying $100 a day or more for tickets to Disney World. And another point is this: inventory of rental properties is flooding the market. If you want to rent in Vegas or Orlando, there is so much oversupply of rooms to rent you need only go to priceline.com and name the price you are willing to pay, or, you can try hotels.com and shop for lower rates. I've seen ticket books for hotels advertised on I-95 advertising Kissimmee motels going for $39 a night.

The Internet is the new boxing ring for hotels and motels to slug it out to attract customers. Room rates on the many websites I've been surfing are fast coming down. In Marathon, Islamorada and Key Largo, for instance, Cay Clubs have dropped their prices on some units to $89 a night on weekends. In the Keys, Cay Clubs is now undercutting big chain hotels, hoping to put some heads in their empty beds.

(Next week I hope to show photographs of a rental management company with photos of long-term rentals in Key West where three rentals are now offering "first month's rent FREE".)

In other words, like most developers, Cay Clubs's future outlook in 2004-2005 was one where Real Estate would keep its hyper growth curves going with a fully opened up fire hydrant flow of cheap and easy available credit. In 2004-2005, too, Cay Clubs was looking at non-stop growth in tourism. Hence, selling small-time "investors" on lease-back programs where the developer probably showed over-confidence in making back their downpayment in two years was not the kind of "slam dunk" move you'd expect from savvier developers who know Real Estate does go down and up in cycles . . . similar to the stock markets.

None of the genius developers . . . or homebuilders . . . who were overbuying at the Top of the Housing Bubble ever looked back in History at how all manias end. Instead, they buried their heads in the sands of Florida, kept repeating the mantra "Real Estate in Florida will continue to double every 3 to 5 years," and kept building condos like Woodpeckers on Crack.

The Herald further documents,

Fueled by investors' hunger for resort condominiums, Cay Clubs vaulted from a small start-up in late 2004 to a major developer whose 14 properties and marinas include eight in the Florida Keys. The firm, whose billboards dot the Overseas Highway, says it manages nearly 3,000 condominium units and more than 900 boat slips.

Now, the nationwide real-estate downturn has brought a cash squeeze that forced Cay Clubs to lay off dozens of workers, slow redevelopment plans, and ask roughly 140 buyers like the Parras to wait for their rent checks.

The 'money is just not available to make the necessary payments and continue to maintain Cay Clubs' long-term viability during this down market,'' Chief Executive Dave Clark in May wrote to condo buyers awaiting lease-back checks.

Uh-oh. We've got a problem Houston.

Again, I will bet stinking Smathers Beach seaweed to dollars that there is diminishing revenue, a shrinking pool of condo buyers, and less of a chance to borrow a big hunk of money at privately held Cay Clubs (again soon to go "public" in a merger) but we cannot access the privately held books to back up my hunch.

Still, for this company to come out and admit that 140 "owners" of condos are suffering from Cay Clubs inability to pay on time the rents their investment units generated is the stuff of lawsuit prone Real Estate Attorneys.

Then Clark of Cay Clubs lays this egg in the next few paragraphs of the Herald story . . .

Clark says Cay Clubs' finances have improved since then. It has sent rental checks to about 20 buyers to cover one or two months' worth of mortgage bills. The company hopes to refinance its debt, and a pending merger with a publicly traded holding company would bring an additional $47 million this fall. ''Our problems are fixable 100 percent,'' he said.

But on Friday, Cay Clubs disclosed that this year's sales slowdown forced it to accept less lucrative terms for the planned merger with Key Hospitality Acquisition, regulatory filings say. Clark and his top deputy, David Schwarz, agreed to receive 46 percent fewer shares in the new company -- a loss of $197 million in value based on Friday's share price.

The troubles that the Clearwater company faces symbolize wider concerns about South Florida's battered condominium market.

Real-estate analysts say too many developers depended on investors who stretched their bankbooks buying condominiums during the housing boom on the assumption that others would buy or rent them only a year or two later.

Faced instead with anemic demand for real estate, those investors are left scrambling to pay the bills, said Jack Winston, a condominium analyst with Goodkin Consulting in Miami. 'It's the same people: `Hey, let's invest in some real estate! We'll flip
it. . . .' Then, all of a sudden, they find they have to reach into their pocket every month to cover the mortgage. And it's a shock.''

The company hopes to refinance its debt? Hope in one hand, Mr. Clark, and spit in the other. See what you get in this market of Credit Implosion and leveraged buyout deals going bust leaving major Wall Street banks holding the bag for junk bonds they could not sell. There is a major liquidity squeeze here on Planet Earth, Mr. Clark, and all the easy money has fled these types of companies such as your Cay Clubs.

Still, Clark claims this problem is "fixable 100%" and he's banking on the merger going through and giving his company $47 million to rectify the late rents it owes 140 "investors".

However, I must ask Clark the following questions:

How does one expect to increase revenue in a declining tourist market (the Florida Keys are in a Tourist Recession the likes of which we haven't seen since 1990) and how does one stay cashflow positive? There is not only a shortage of buyers in this downturn of Housing, but there is downturn of "renters" by-the-night in this downturn of Tourism.

Does Clark think his units in the Keys will rent as easy in late 2007 as they did just 12 months ago? It appears that fast falling rental prices at Cay Clubs up in the Middle and Upper Keys are telling us a story of sweat stains under the armpits of Cay Club execs's Hawaiian shirts. At least they are trying to compete by slashing nightly rental prices.

Does Clark ever walk Duval Street in Key West's downtown and take note of all the businesses closing their doors forever?

Has Clark not seen the two or three cars in the overpriced Santa Maria Condotel's parking lot (Santa Maria is a non-Cay Club Condo with $350 to $450 a night rooms and units which start at $1.2 million for buyers who cannot do simple math) on weekdays, while nearby motels and small hotels still charging only $99 to $150 nightly have plenty of rooms rented? I think Clark sees the writing on the wall: overpriced condo rooms will not rent during the week, and will only rent as the "last option" on weekends when maybe all hotels and motels are "No Vacancy".

Moreso, Clark has probably read the stories of Santa Maria condo owners who lost their $200,000 deposits but who are battling the developers with class action lawsuits. That has got have Cay Clubs especially anxious to close their merger and IPO deal. My advice to Clark and others in Cay Clubs executive offices if they close the deal to merge: get those options, cash out the day your "lockup" provision ends, and whistle a sigh of relief you made it before the Big Crash I expect in credit markets.

Lastly, who in their right mind would invest in a Cay Club Condo after this latest fiasco as highlighted in today's Miami Herald? I hate to say it guys, but maybe you should have sold off a couple of Lexus's, a vacation home, you know, take a hit on your own to make good on your promises. Now your name is mud and you can't unring that Bad PR Clock.

Cay Clubs needs investors to buy and then not demand rental revenues owed them in this Ponzi Economy which depends on a selling an overpriced asset at continuing higher prices. An important part of the funding program for Cay Clubs expansion was this lease-back program. The buyers of Cay Clubs's units are actually the small lenders which make the developments fly in a market of Condo oversupply. What Cay Clubs needs most is not just a major refi of big loans, but they need small "lenders" . . . i.e., mom and pop investors" . . . to turn over their retirement money and not ask for any of it back until the market returns and makes Cay Clubs's bet look good.

As the Herald explains:

Clark, the former head of a development company that built the Mariner's Club in Key Largo, launched Cay Clubs in 2004 with the goal of creating a chain of luxury vacation spots in soughtafter destinations.

Instead of shouldering the development costs alone, Cay Clubs adopted a familiar strategy in South Florida: selling off rooms in resorts as condo-hotel units to individual buyers, who could then share in the rental revenue. That financing mechanism helped others, such as Miami's Four Seasons hotel, Key Biscayne's Ritz Carlton and the new St. Regis in Fort Lauderdale.

But Cay Clubs gave the strategy a twist: The developer would contract to rent units back from buyers for two years, refunding as much as 15 percent of the sales price upfront. In those two years, construction crews would convert the property -- typically an apartment complex or budget motel -- into a top-tier resort, according to sales materials.

Condominium converters often lease apartments back from buyers to free the new owners from serving as landlords. The programs aren't common among condo-hotel developers, but more projects are turning to the tactic as a way to woo buyers in a cold market, according to the National Association of Condo-Hotel Owners. The group lists 13 Florida condo-hotel projects offering lease-back programs, mostly in the Orlando area.

Yep, the words "lease-back program" are the words anyone with retirement savings ready to invest in Real Estate should run away from at sprinter's speed, in my opinion.

I have never read a Cay Clubs brochure trying to sell an investor on the reasons he or she should buy such an income producing condo. One thing I can assure you we will never read in such a brochure wold be the following in big bold print:

Oh. By the way, we might not be able to make those promised timely rental payments to you if market conditions turn against our company. The company comes first. If we go bust, you will have no one to rent and maintain your unit. Capiche? So late payments are part of the "promise".

And a second thought. Nobody ever said Real Estate was a sure fire investment, did they?

Can you imagine anyone wanting to buy a Cay Clubs lease back property today after reading this Herald piece?

Can you imagine anyone wanting to buy any Florida condotel property built by anyone else?

And this vaunted "lease-back" program. Can't go wrong there, brother, as everytime someone rents your condo, you'll receive a check in the mail at the end of the month.

That's not the emphasis Cay Clubs gave in their advertising? Oh, really?

". . . virtually two years of FREE appreciation" and 90% of Cay Club Condo buyers opt for the lease-back option.

From the same Herald article:

Ricky Stokes, a top seller for Cay Clubs, touted the lease-back arrangement in a May 2006 online presentation as providing ''virtually two years of free appreciation'' because, for most buyers, it would cover ownership costs for 20 months. Stokes did not respond to interview requests.

Company executives said about 90 percent of Cay Clubs' buyers chose to sign a lease with Cay Clubs. They included the Parras, full-time landlords who have acquired 20 houses and apartments within a half-hour's drive of their Castle Rock, Colo., home.

Last summer, they accepted an invitation to a Stokes Web talk from a company called the National Association of Women Real Estate Investors.

''This developer has put together an unheard of package for investors,'' read the e-mail from NAWREI, which received finder's fees for Cay Clubs sales. ``Immediate equity. . . . Guaranteed rental income. . . . Anticipated appreciation.''

Even with their large real-estate holdings in Colorado, Patsy Parra says she and her husband do not have the extra income to handle another mortgage payment.

But they took out four loans to buy two Cay Clubs units: the one in Orlando and another in a planned Las Vegas hotel. They counted on 20 months of lease-back payments to cover the $4,500 in monthly costs for both. After that, the Parras needed appreciation gains to make the investment work.

''I'd have to refinance to get the next five or six months of payments,'' Parra said. ``They were supposed to be very valuable.''

Other buyers depended on the lease-back cash to pay their mortgages, too. ''I have clients that are filing bankruptcy because they can't afford their payments,'' said Gene Denton, president of Select Market Real Estate, a Colorado firm that sold Cay Club units through Internet presentations.

NAWREI wrote to Clark on June 7 that Cay Clubs owed members nearly $240,000 in back rent, leaving members ``facing personal financial hardship including bankruptcy.''

I've said it before, I'll say it again,

"Never trust any stranger who looks at you

as just their next commission check!"

Look at how Cay Clubs had ancillary marketers hosting Web conferences under the auspices of people who collected a commission for every sale generated by buyers not even seeing the properties being discussed.

This is the stuff of " . . . and I've got some (swamp)land down in Florida I want to sell you" sarcasm you heard during the Great Depression. Here I was feeling sorry for the Parras at the beginning of the Herald piece and then I read they owned 20 rental properties in the Denver area before making the worst Real Estate investment of their careers.

Let's re-read what the Parras 'fessed to:

Even with their large real-estate holdings in Colorado, Patsy Parra says she and her husband do not have the extra income to handle another mortgage payment.

But they took out four loans to buy two Cay Clubs units: the one in Orlando and another in a planned Las Vegas hotel. They counted on 20 months of lease-back payments to cover the $4,500 in monthly costs for both. After that, the Parras needed appreciation gains to make the investment work.

''I'd have to refinance to get the next five or six months of payments,'' Parra said. ``They were supposed to be very valuable.''

The Parras were experienced Real Estate landlords. Yet, they let greed get the better of them. They overextended themselves buying two Cay Club condos, one in Orlando, one in Vegas. They used four loans to make the purchases happen. And then they banked on Cay Clubs making 20 monthly payments to them for rentals on both units to help them make the $4,500 in monthly mortgages.

And now they, the Parras, cannot make those monthly mortgages?

And they already own 20 income producing rentals in and around Denver?

Hello. You own 20 income producing rentals and you cannot afford $4,500 in monthly mortgage payments on two losers?

Can anybody here explain how these folks are poster kids on "How to Make Millions in Real Estate"?

Again, "Where Are the Adults?"

Okay, I'm not pointing my finger at Cay Clubs exclusively. Although they marketed the miracle of having your condo leased back and two years of rental fees coming into your account to help pay monthly mortgage, I had to shake my head in quiet agreement at this last bit in the Herald article:

Cay Clubs executives question how buyers unable to pay mortgages out of their pockets could have qualified for loans in the first place. A Cay Clubs spokesman noted that the Parras' mortgages bar putting their Orlando condo into a rental program.

Even so, the company makes no apologies for giving real-estate investors a place to spend their money.''I think anyone who has been doing real estate in the last four years has been selling to investors, not end users,'' said Mike Matte, Cay Clubs' acting chief financial officer. ``I don't care what company you're talking about.''

Analysts largely agree, blaming the current nationwide housing slump on investors abandoning real estate this year. A July report from Fitch Ratings blamed a spike in rental vacancies across the country on ``investors who are biding their time before putting single-family homes back on the market.''

Clark, the chief executive officer, said Cay Clubs will be able to weather the downturn. Cay Clubs is negotiating with lenders to refinance its $87 million in loans and may sell off land to raise cash as it awaits the Key Hospitality merger scheduled for the fall. Meanwhile, spokesman Chris Brown said Cay Clubs is making ''Band-Aid'' payments to about 20 buyers, including about $4,000 to cover a month's mortgage payment for the Parras.

But Patsy Parra said Friday that she has no cash to pay the mortgage in July or August -- a scenario she said she never anticipated.''When we first bought these condos, I thought everything was fine,'' she said.

``I never in my wildest dreams thought something like this would go wrong.''

So, the company makes a point that any adult who qualified for a loan, should have been able to make mortgage payments on their own in the first place. Point taken. Yet at the same time " . . . a Cay Clubs spokesman noted that the Parras' mortgages bar putting their Orlando condo into a rental program."

The company is claiming the Parra's mortgages barred them from putting their Orlando condo into the lease-back program?

Somebody didn't do their due diligence, or somebody flat out lied. Who's at fault?

Point taken away from Cay Clubs.

But then the CFO of Cay Clubs says,

''I think anyone who has been doing real estate in the last four years has been selling to investors, not end users,'' said Mike Matte, Cay Clubs' acting chief financial officer. ``I don't care what company you're talking about.''

Well no joke, Sherlock. You guys are pushing lease-back programs on the Internet in Webcasts to "investors" who are promised they will make back their monthly mortgage payments in rental fees you will collect and disburse to them.

You are trying to tell me Cay Clubs bears no guilt for the way they've marketed their condotels to investors, not end users?

Clark, the chief executive officer, said Cay Clubs will be able to weather the downturn. Cay Clubs is negotiating with lenders to refinance its $87 million in loans and may sell off land to raise cash as it awaits the Key Hospitality merger scheduled for the fall. Meanwhile, spokesman Chris Brown said Cay Clubs is making ''Band-Aid'' payments to about 20 buyers, including about $4,000 to cover a month's mortgage payment for the Parras.

And Clark still thinks "lenders" are going to refinance $87 million in loans in this new climate of crashing leveraged buyouts where junk bond financing has stopped abrubtly and the Wall Street Investment Banks are now left holding the bag and owing over $30 billion (at last count this morning) on unsubscribed to debt they were trying to sell investors?

In a time of sub-Prime meltdown and now a similar routh in Alt-A loans, does anyone think a company which can't make payments to small lenders, i.e., buyers of their condos, is a safe company to refinance?

Not I.

Like Cayo Dave, I think Cay Clubs is deep in the doo. I don't see how they can possibly work their way out of their own hole digging other than to not only sell off some land for pennies on the dollar, but also sell off some of their completed projects.

The tailwind Cay Clubs and other developers enjoyed in 2004, has now changed to a hellatious headwind. (Just ask the developers of 20,000 new condos coming on line in Miami during the next 18 months in an area that has 75,000 housing units on the market at this moment.)

I expect to see many big scale bankruptcies on condo projects all over Florida. Cay Clubs is just the most notable taking a hit in the Keys. If they don't close their merger deal quickly, I believe these guys will burn up any remaining cash and be bought out from vulture funds.

But it's not just Cay Clubs: the hard rain is going to fall on bigger developers with local ties. I see the evidence all over. This is only the beginning of the Housing Crash and Credit Market Crash. It will affect prime borrowers as well as those in the sub-Prime sector.

Action to take: do not buy Florida Real Estate in Florida. The worst is to come. Wait. Amass cash. Buy only those "safe" Blue Chip Big Cap names in stocks which can weather any major crash in markets. Buy gold, silver and oil as hedges. Keep working hard. Make yourself indispensable to your employer or work at marketing your self-owned busienss better.

Be prepared for Hard Times. And be prepared to profit when Hard Times bottom.