Miami: Ground Zero for America's Condo Crash

Miami's Condo Crash Worst in the USA?

A few days ago, the Sun Sentinel ran a great piece on the Condo Crash in Miami. As I recently visited the condo glut in Miami on this blog, I wanted to add this Sun Sentinel piece for an update on that overheated and crashing market just North of the Florida Keys.

The Sentinel piece Boom of condo crash loudest in Miami gave us vignettes of investor dreams dying in flames.

We read about one couple who made so much money off their first condo flip, they threw themselves a $100,000 wedding. However, today, Mr. and Mrs. Living Large are now faced with an either/or proposition which must give them nightmares:

A) Either they walk away from a $117,000 deposit on an expensive "investment" condo in the tony downtown Miami Bal Harbour project

OR

B) Do they go ahead and close on the condo and pay the $585,000 price when they ordered the condo . . . eventhough the market has tanked for expensive condos in a market where 23,000 are now on the market and fewer qualified buyers are materializing as the crash worsens?

As the Sun Sentinel ponders,

Just how many other speculators face the same dilemma in the nation's most glutted condo market will become clear during the next two years. That is when 25,000 new condo units, most of them rising in or near Miami's downtown, will flood an area already saturated with 23,000 condos listed for sale. An additional 40,000 units have been approved, but analysts doubt the majority will break ground.

Well, if you add 25,000 new condos to 23,000 units for sale now, we get a total of 48,000 units for sale by 2009 in a market where lenders are tightening up on lending criteria.

Fewer qualified buyers and more foreclosed owners means prices are going to fall like an aircraft carrier anchor in deep blue water. So, I would say several tens of thousands of "speculators" in Miami's former "can't lose" condo market will soon be chum for the few smart speculators sitting on the sidelines with cash in pocket.

Furthermore, the coming bloodbath will be so bad in Miami, Orlando, and other urban areas of Florida that many honest Economists, Realtors, Homebuilders, Politicians and the like are banking on the Condo and Housing Crashes igniting a statewide Recession.

You are not going to hear this kind of thinking from upside down CEOs, investors or homeowners who are still in denial . . .

The Sun Sentinel throws this at us:

Orlando and other Florida cities -- Naples, Fort Myers, Tampa and Sarasota among them -- also have huge condo gluts. With 4,440 condos listed for sale, Orlando has an unprecedented 29-month supply, and last month sales plummeted 64 percent lower than a year ago.

But Miami, with its unmatched volume and untold number of speculative buyers, is ripe for the hardest fall in the U.S.

"Miami is the poster child for the condo bust," said Jack McCabe, CEO of McCabe Research & Consulting, a real-estate market-analysis firm located in Deerfield Beach. "There are probably only two cities in the world with more construction: Shanghai and Dubai. Unfortunately, there is (sic) going to be a lot of foreclosures . . ., and developers, lenders, title companies and real-estate companies will go under."

Many analysts, McCabe among them, predict the area's condo collapse will drag the rest of the state into recession. Other experts scoff at that notion. But nearly all agree grim times lie ahead.

As McCabe points out, many jobs will evaporate as the Crash spreads.

This can be seen every day with mortgage lenders going out of business. As the founder of the Implode-O-Meter website says in this interview,

"I honestly don't know how many at-risk outfits are left….dozens, perhaps. We're trying to gather together ALIVE and stable lenders for our industry readers to bring their business to.

But as far as continued fallout, I'm more worried about banks at this point. Banks are between 50 and 60% exposed to real estate by their net assets. Banks have held up thus far because they have much deeper pockets than the non-bank lending specialists, though a few have taken sizeable write-downs on mortgage portfolios. But it is well known the write-downs have been largely put off by delaying the mark-to-market process; even the bulk of the ratings downgrades have still not happened, so the real balance sheet hit is yet to come. And banks will see their real estate holdings of all sorts deflate in value.

Those that weren't sufficiently diversified or aren't considered "important" enough for a bail-out could see failure. After an interlude since the last recession, we've already had a few small credit union and bank failures. I expect this to turn into a tidal wave, short of a massive intervention by the government (i.e. a blanket bailout which the public will shoulder-this would not be a "good" thing)."

Think about all the folks dependent on a healthy housing market for work:

Realtors

Lenders

Bankers

Carpenters

Contractors

Plumbers

Appriasers

Home Depot Workers

Sheetrock factory workers

Truckers

Cement workers

Heavy Equipment Operators

Laborers

Accountants

Tax Preparers

. . . and the list could go on and on.

Housing is a major gear in our Economic machinery. When Housing strips teeth off its gear, the whole machine suffers.

My list above doesn't even include the biggest loser of all in the Housing crash: the speculator.

As the Sun Sentinel said,

Usually joyous milestones, closings in Miami are about to become somber days of reckoning for electricians, waiters, retirees and other amateur speculators who counted on making a quick killing in a market they thought would rise forever.

No one knows how many units speculators bought. But as early as 2004, McCabe and Lew Goodkin of Miami-based Goodkin Consulting warned that up to 70 percent of the condos rising in Miami were being snapped up by people who didn't plan to hold on to them, much less live in them.

That was evident from the hordes who camped overnight, fought over lottery numbers, even paid homeless men $20 and a pack of cigarettes to hold their places in long lines, all for the chance to put 20 percent deposits on condos that existed only in brochures. The frenzy for some projects was so fevered that some developers raised their prices hourly.

"It was a nightmare. Lines around the corner. People screaming into phones. I would look at them, and think, 'You don't know what you're doing,' " said Mark Zilbert, president of Zilbert Realty Group.

Many told a similar story: They had a friend who made $100,000 flipping a new condo, and they planned to ride the same wave of escalating prices. All they had to do was put down $60,000 on a $300,000 pre-construction unit and resell it when the value climbed to $400,000 -- before the building opened, and before closing and mortgage payments, maintenance fees, insurance and taxes kicked in.

That meant anyone could risk $60,000 and pocket $100,000 without actually buying anything.

One of my memories of the heady rush to buy . . . any and everything Real Estate in Key West . . . is the story of a guy I know who works as a jet ski tour guide.

Before his current line of work, this guy tried to open three or four businesses on his own. He failed in all attempts because he simply didn't have a head for simple math, nor did he have a mind for marketing.

Anyway, he ends up working as a tour guide for a local jet ski operator, and one night, he comes into the bar, drunk, telling me how he was going to make a mint flipping houses and how I should get into the same game.

To make a long story short, this blue collar worker bought his first and only home in 2005 for $550,000. He put no money down. He used a "Liar's Loan" and a local mortgage mill in Key West got him $575,000 or more than 100% LTV.

He took that extra $25,000 and used it to upgrade his home right before the flood of Wilma.

The loan is an interest only loan for the first three years. He and his wife (a hotel worker) pay more than $4,000 a month in "interest" and not one penny of that goes to paying off any principal.

Not only this, but homes in his area are now asking . . . not fetching when one actually sells . . . about $499,000. So he's upside down by $75,000 already and hasn't paid one penny to lowering his principal.

In June of next year, this interest only loan kicks over to an ARM loan.

His house is on stilts, so he didn't get crushed by Wilma; however, all that money he spent on landscaping his yard was washed away. He still hasn't replaced all the plants destroyed.

This guy is still a 34 year old tour guide operator. He makes $100 a day, rain or shine, with tips. His days are anywhere from 20 minutes long to 12 hours long, depending on whether the business is there.

And business? Business isn't good.

Business isn't good because fewer middle class Americans are coming to Key West.

Fewer middle class Americans are coming to Key West because fewer cheap hotel rooms are available.

Fewer cheap hotel rooms are available because developers went apeshit knocking down perfectly profitable hotels in the chase for bigger short term gains by building condotels.

And fewer middle class Americans are coming to Key West because their Housing ATM on their own homes on the mainland are now empty as housing equity disappears in the Housing Crash.

Thus, when you read about other amateur speculators in Real Estate, you know we can multiply these "losses" by an easy 2 million Americans in the next two years as ARMs adjust.

As the Sun Sentinel finished:

Owners of a gourmet shop, the transplanted New Yorkers poured their life savings into deposits on four condos they had planned to flip for a quick profit.

The plan worked for a one-bedroom condo conversion at The Residence in Hollywood. They agreed to buy it in 2004 for $207,000 and sold it before closing for $330,000.

But they were forced to close on a condo in Boynton Beach, where they now live, and they face the prospect of losing nearly $200,000 they put down on two condo conversions at the Harbour House in north Miami-Dade County. One is a $350,900 studio, which Natalie Luongo said is smaller and in a different location than the one she agreed to buy in December 2005. It is the subject of litigation.

The other is a $585,000 one-bedroom unit similar to others now available for about 25 percent less. As the September closing looms, the Luongos are distraught. If they can't secure another mortgage, the decision will be made for them. They will have to walk away from their $117,000 deposit.

But if they secure financing, they know they will be stuck with a property that could be as difficult to rent as it is to sell. Gregg and Mary Mullins, 70-year-old retirees living near Fort Myers, learned that the hard way.

Last month, they finally rented out the two-story $885,500 penthouse they closed on last year in Blue, a concave tower overlooking Biscayne Bay. But the $2,800-a-month rent they're collecting is less than half their monthly mortgage payment, maintenance fees and property taxes. Yet, as Mary Mullins said, something is better than nothing.

The couple never planned to live in the condo, but jumped at buying it at pre-construction prices in 2004 after friends shared a familiar story."They said they made lots of money, so they told us to try it and maybe we could make lots of money, too," Mary Mullins said. "But that didn't happen. We don't know what happened."

A sheepish Tom Leon says he knows. The retired businessman from Illinois said he knew he had made a mistake about six months after he put down $200,000 on two $500,000 condos at the end of 2004.

"Every 2 inches, I'd see another [construction] crane, and I knew: There is no market that can absorb these many units," said Leon, 72. "It doesn't take a rocket scientist to say, 'Gee, who's going to live in all these buildings?' "

To which I'll answer, "Those of use who were content to rent, who saved cash, who educated ourselves using the Scientific Method of observation and forming hypothesis, who read history books and who waited for the bottom to fall out of the Housing elevator." That's who.

If the math doesn't work, we will not put our cash into play.

It's that simple.

Why pay an outrageous price for a condo which has only lost 25% off its pre-built cost, especially when pre-built cost was set at a market top?

I mean, I buy stocks of great companies which have lost 50% or more from ten year averages and ride them up after they bottom. Why should I be antsy to enter Real Estate now when inventory is about to continue growing like a mushroom cloud over Ground Zero?

Some of the Biggest Upside Down Flippers are Realtors

"I'm A Classy Realtor"

Every once in a while you read a story which makes you stop and think, "How can you allow yourself to say things like this to a reporter?"

After reading this story from today's St. Petersburg Times, I can now understand why so many houses for sale in Key West classifieds say, "Realtor owned".

It appears that Realtors were not only some of the biggest cheerleaders for rocketing Real Estate during the Bubble Years . . . they were also some of the biggest flippers who are now upside down on their bets.

Today's St. Petersburg Times brings us a story about two Realtor/Flippers headlined . . .

Down, but not out: "I'm not a real estate bum," Realtors say

The story begins with staff writer James Thorner giving us a close up of a harried Realtor with creditors breathing down her neck:

"Like an operator working a buzzing switchboard, Liz Seither deftly juggles the two phones that never stop ringing in her kitchen.

The 67-year-old Clearwater Realtor's eyes are puffy below unkempt flaming orange hair. She begs your pardon for not looking like one of Pinellas County's top home sellers, but her allergies flared up when her dog's fleas bit her.

Equally irritating are the bank warning letters laid out before her on the kitchen table. Seither invested - unwisely it turns out - in expensive Clearwater waterfront property at the peak of the recent boom. Lenders are after her for millions of dollars in debts.

After juggling 15 calls from debtors, creditors and clients, Seither lays the phones aside and delivers a pep talk to herself.

"I'm not a real estate bum," the president of Executive Preferred Properties announces. "I wear diamonds, Rolexes and necklaces. I'm a classy Realtor.""

This woman is 67 years old and she was playing Real Estate Roulette? Is she an innocent or an insider who let greed get the best of her?

Moreso: many a drug dealer, murderer, Mafia don, dictator, corrupt Religious leader, scam artist, etc., have covered themselves in bling to make up for their lack of self-esteem. MTV is wall to wall with lame Rap artists who rap about diamonds, Rolexes, Cristal champagne, high priced hos, cars, expensive wheels and cribs all day.

There is not one shred of difference in attitudes about what comprises "class" with these shallow rap artists's and this poor 67 year old woman who seeks "class" through expensive doo-dads. She's 67 years old and her development is still arrested at the teen level.

But this post isn't about bling and shallow beliefs, it's about Realtors as Flippers.

Real Estate Roulette

Clearwater Realtor Anthony Marottoli's voice betrays a touch of envy when he recalls his 30-something neighbor who made the big score.

He recites the exact dollar amount the guy paid for his Mandalay Beach Club condominium - $475,000 - and how much he sold it for two years later - $1.65-million.

A 64-year-old Connecticut native, Marottoli entered the real estate roulette game a bit late. Despite asking almost $700,000 less than his neighbor, Marottoli hasn't found a buyer for his Mandalay condo. Doubling down, he's on the hook for another pricey condo at the adjacent Sandpearl Resort for $1.38-million.

His real estate business is down to a dribble of employees, from a peak of 20. He's no longer the "listing machine" that juggled 200 properties at once.

"I've been waiting a year and a half, waiting for something to happen. And it's not happening," Marottoli says.

Rock's comment: Buy more Real Estate now, Mr. Marottoli. You should double down on your double down as the Key West NAR is telling us every weekend " . . . there has never been a better time to buy Real Estate!"

Oh, and you know, Real Estate always goes up, right? Plus they aren't making any more land in Florida, right?

Chin up. Don't listen to the naysayers. Go all out and quadruple down, octuple down, and leverage yourself like a Master of the Universe at a Bear Stearns hedge fund. You're a Realtor and you know real estate is the surest way to big wealth. Screw those people you owe money to. They will just have to wait.

New Realtor Proverb: "People don't know you have too many until you have too many."

Brokers in Clearwater area waterfront property, that thin but rich slice of the real estate pie, were among the elite earners until about a year ago. Six-figure pay days were a matter of course as home prices, powered by speculative purchases, doubled and tripled.

But these days the waterfront runs red. Properties linger three times as long on the market as they did two years ago. Brokers like Seither and Marottoli have taken it doubly hard: They didn't just represent buyers and sellers, they dabbled in the investment arena themselves.

The housing slump has left the market oversupplied with million-dollar homes relative to demand. Listings on Clearwater area beaches approach 1,000. Sales in July numbered 30. As new condo towers open, the glut grows.

Says Virgil Sweet, a 24-year Realtor with Rutenburg Realty in Belleair Bluffs: "People don't know you have too many until you have too many."

Well, Verge, you'll learn later in life that wise people don't set themselves up to be slaughtered like hogs by making bad life decisions based on greed.

This is history in the making, Verge, and this is the kind of thing you should tattoo on your forearm so that any time in the future when someone is yanking your eyebrow ring to sign on the dotted line, you stop, look, read your tat and think about consequences.

Jesus Loves Mutli-Million Dollar Producers, But Can He Sell a Home?

It's a no makeup day for Liz Seither at her home on Island Estates, a barrier island washed by Clearwater Harbor. She's still in slippers, but a diamond anklet dangles from her leg. That and the diamond crucifix around her neck bespeak better times when she prided herself as a "Multi-Million $$$ Producer."

She dials a prospect, a movie theater owner from Alabama who's been hunting for beach deals. His voice mail picks up. Seither leaves a message:

"Hey you bottom feeder you. Call Liz. Call Liz. I'm still your best Florida friend!"

She hangs up the phone and deflates. It's not been her lucky year. Banks threaten to repossess six of seven investment properties. She slashed millions off prices, but still no buyers. Of her 40 home listings, no sales are pending.

She rented her private residence to a guy who fell $15,000 behind in rent.

The guy arranged to pay Seither. But when she arrived he had vamoosed with her high-end washer, dryer and refrigerator.

One a recent day Seither took her dog for a walk and a neighbor flagged her down.

"Don't worry, Liz, you're the only one making money," the woman reassured her.

Seither hated to disappoint her.

"My heart was beating 100 miles per hour," Seither recalls. "It was hard to tell her I'm suffering like everyone else."

Liz, if your neighbor reads the paper, the jig is now up. It's going to be hell trying to keep up appearances after this one makes the neighborhood grapevine.

Flip, profit, repeat. Flip, profit, repeat. Flip . . . uh-oh.

Anthony Marottoli sits in the lobby of Mandalay Beach Club. White caps curl and crash on Clearwater Beach behind him. He's tanned and dapper in a starched cream-colored button down shirt, slicked back gray hair and loafers without socks.

Families dally in the Mandalay pool, but Marottoli says they're all renters.

The plan seemed so simple. Buy a condo for $500,000 in Mandalay. Hold it a couple years. Flip it for big money. Invest the proceeds in another million-dollar condo. Flip. Profit. Repeat.

A lot of people had the same idea.

Of the 153 units at Mandalay fewer than 50 are owner-occupied. "The lights are off at night," Marottoli says.
By the end of the month, he has to come up with $1.38-million for a condo he reserved at Sandpearl Resort. He hopes to work out a deal with developer JMC Communities. He can't afford the unit.

One of his biggest frustrations as a Realtor is the sellers who cling to high asking prices. On the beaches around Clearwater, the average list price for single-family homes is $1.46-million, up over last year's $1.3-million.
"Out on Gulf Boulevard on Belleair Beach there are folks still looking to triple their money. Even in this dead market. See how greed plays?" Marottoli says.

This guy is 64 years old and he was playing the Real Estate Roulette wheel?

What is going on here with retiree Realtors playing in the lava flows of the Housing Meltdown?

From fine dining to all-you-can-eat meatloaf

Seither's agency is a shell of its former self. The 10 agents she once employed are mostly gone. She survives by managing rentals, 150 properties at last count. Rentals: It's a growth market.

At the end of another hectic 12-hour day, she's heading off to dinner. It won't be seafood on the beach, but $7 all-you-can-eat meatloaf next to Kmart.

She laughs a rare laugh before heading off to the feast: "We're economizing these days."

I don't know how people like this can keep hope alive. It reminds me of sociopaths who have no conscience, although in the case of this woman, some of you will think, "Yeah, but she's only harming herself."

Not true.

She's on the hook for millions. She owes other business people for her bad choices. Those business people have debts. If she's late paying back what she owes, its very possible, she might be the one debtor who puts one of them out of business.

She was "in the biz". She should have known how to do simple math. She had plenty of historical data to thumb through which showed the Housing Bubble was an obscene aberration for all time.

How in the world can anyone feel sympathy for this woman who could pawn off her jewelry (Rolexes, diamond encrusted crucifix, etc.) to help pay her debts?

Am I the only one here who feels this person is not being honorable?

Cake dreams

Behind the wheel of his Cadillac, Marottoli cruises Clearwater Beach. He observes the parade of lots set amid ticky-tacky tourist shops, hotels and restaurants. They're condo projects, the hits and misses of the recent real estate cycle: Indigo, Marquesas, Kiran Grand, Aqualea.

Condos figure in Marottoli's plan to revitalize his realty business. He wants to hold regular auctions and places his faith in fractional ownership, where investors pool money to buy million-dollar properties.

Marottoli pulls up at developer Uday Lele's office. Lele labors to get his Enchantment luxury condo project off the ground and displays a giant model of his horseshoe-shaped wedding cake of a building. Exuding confidence, he denies the existence of a slump when it comes to his project.

For a moment, after basking in Lele's enthusiasm, Marottoli perks up.

"I guess it's not all bad," he says as he takes his Cadillac down the strand, toward the condo he can't afford. "Good to see some life."

How do you break through to someone stuck on Real Estate that the game has changed?

How do you deprogram brainwashed Realtors into seeing what is happening and what is about to happen?

Is this guy not listening to CEOs of homebuilders? Does he not pick up a newspaper and read of the liquidity crisis which is now threatening commercial real estate and Wall Street?

How do you sober up those who spent too much time at the Housing Bubble punch bowl?

How?

Incentives, Inventory and the International House of Pancaked Leverage

Let's talk Inventory and Leverage today

Recently, on the Motley Fool's "Macro Economic Trends and Risks" board, I wrote the following in a post.

Before I cut and paste it, I will make a point about a change in the look in this blog: from now on, when I cut and paste from and outsourced link or quote people in long form, I will no longer indent first and then change the formatting to "justified", i.e., where left and right hand margins are even.

I will no longer indent.

I will continue to highlight in blue anything taken from another source.

I will use quotation marks to help set off the cut and pasted words from a source.Then I will justify that blue print to help set it off.

Using the indent feature on this board is too time consuming, and I find I don't spend time writing when I look at the indenting and "look" of the blog as a chore.

So, to speed things up, I'll use the new look.

Here is the first use of my new look, a cut and paste from that post I left on the Motley Fool.

Sign of the Times

1. In Key West, signs of the fast fall in rents are cropping up on windows of property management companies. For the first time in my 17 years down here, landlords are tossing in "First month's rent FREE" to find longterm renters.I've seen 3 bedroom 2 bathroom houses renting for less than my one bedroom, one bath home I'm in now.

2. High priced condotel units (look at the Santa Maria) are not selling at all. To add insult to the developers injury, these higher priced rooms are always the last to rent. Usually, Sunday through Thursday, these rooms aren't even hitting a 15% occupancy. On good weekends, if all the cheaper rooms in town are rented out, then people double up and rent these expensive condos.

3. Many housing developments on the Ronald Reagan Turnpike which have been completed for two years still have a majority of their inventory unsold and unrented. Lennar and other Developer Communities are suffering from graffiti bandits and vandals tagging and destorying empty homes which haven't sold in 2 years time. It's amazing to drive by these once former "pristine" developments and see doors off hinges, windows smashed, weeds on fence lines, graffiti spray painted on the backs of brand new homes never lived in.

To make this all the more surreal, billboards are enticing people to buy homes in communities where vandals are knocking out windows, stealing fixtures, etc. The enticement is in the way of "incentives". One billboard just outside the Top of the Keys on US1 shows granite counter tops, stainless steel kitchen appliances, whirlpool baths, and enclosed pools as "incentives". You still pay the same price for your home ("In the 220s!") but you now get more than what your neighbor paid for at full price back in 2005. A brand new home for $220,000 is unheard of in the Florida Keys, but the fact that homes this cheap and cheaper exist unsold, un-rented on the tip of the mainland says volumes about how hard housing has hit a wall in Florida.

4. Signs on condos and housing developments in and around the Miami Airport, Hallandale, Cutler Ridge, Homestead, and elsewhere are showing this new leniency on rents: townhouses are renting for no money down, no security or low security deposits, and, many signs have that "First Month's Rent Free" added to the them with banners flapping in the breeze.


The Take Away

It's way too early to buy real estate anywhere in Florida, unless you fall into a deal which can be justified as a money maker today, not built on future expectations.

Rents are coming down everywhere in Florida. This is probably one of the biggest mis-told or under-reported stories of all at this time: landlords are begging for renters. And the war to get houses, condos and apartments rented is obviously heating up into a cut throat war in pricing.

Do not believe a damn word coming out of Bubblehead Economists, NAR flacks, Realtors and the like about rents going up. Know that Florida, the canary in the coalmine for the Nation's Housing woes, is now in a beginning war of Rental Pricing. There is no other way to describe what is happening in Southeastern Florida.This war will certainly spread to other areas of Florida, and then nationally to California, Las Vegas, Arizona, New York City, and elsewhere.

Sales prices are coming down quickly in used housing, but the pressure to keep up "appearances" in "new" inventory is leading to distorted median prices due to "incentives" thrown in to keep "new home" pricing higher than it really would fetch as a used home.

Despite some owners taking properties off the market to sit out this crash, real inventory continues to rise. "Hidden" inventory is not admitted to or talked about by Real Estate agents quoting the already sorrowful inventory reports of official MLS listings. This is another under-reported story by the mainstream media which will come home to roost when enough homeowner realize all these new condos, For Sale by Owner homes, repossessed homes, foreclosed homes, etc., are not being shown on the local Multiple Listing Services.

We've got hundreds of new condotel units for sale in Key West (think the new Spottswood projects) none of which are showing on the MLS. That's a big hunk of hidden inventory for sale.

And there is not only hidden inventory, there is hidden sales: Most banks down here do not list their short sales so as to freak out surrounding homeowners.

We have one Key West developer who is being sued for forcing depositers of $200,000 to either walk away form their deposits and/or either take over their finished units which were not built in time and which are worth a lot less today than they were when ordered.

These "units" . . . the cheapest ones . . . sell for only $1.2 million. The rooms are renting for $350 (the cheapest ones Monday through Thursday) to $475 on internet sites where you are looking for "deals" in hotel rooms (again I am speaking of the Santa Maria condotel project) and the parking lot sits empty during the week.

Meanwhile, cheap motel rooms a half block away for $119 to $150 a night are doing good business despite the decrease in tourism.

Question: how does any developer hope to entice buyers of overpriced condotel units which simply must command higher nightly rentals to help pay the excrutiatingly high mortgage payments in a time of diminishing liquidity and even Prime loans? How can any developer hope to "make the numbers work" for potential buyers if the market is showing consumers will not rent by the night at $400 a night averages?

Here's another Real Estate reality all over the country: sales are slowing. (You know the difference between a Realtor and a cadaver? They both make no money, but a cadaver rests in peace.)

According to a local Realtor, two years ago 600 registered Realtors worked in Key West. Today, that number is 300. Sales are slowing all over Florida. Fewer qualified buyers are able to score a loan, means fewer properties will move at current pricing.

More new inventory is coming on the glutted market. New homes sit empty all over the place still showing 2005 prices to keep up appearances on the Potemkin Village facade so current homeowners won't freak, while out back of houses for sale across the street, crews are adding swimming pools, putting in fancy add ons, and what not to keep the prices artificially high.

Think about the 20,000 to 25,000 new condos coming online in Miami in the next 18 months: who will buy one of these at 2005 prices . . . unless you toss in a yacht or a couple of Ferraris as "incentives"?


Things to Consider Before Rushing Into Florida Real Estate

1. The number one thing all people must think about before buying Florida Real Estate: insurance.

2. The number two thing all people must think about before buying Florida Real Estate: taxes.

3. The number three thing all people must think about before buying Florida Real Estate: maintenance fees.

4. The number four thing all people must think about before buying Florida Real Estate and the most important one of all: can you buy a home or condo with a mortgage, insurance, maintenance fees and taxes all figured into a nice monthly payment which could be paid for by someone renting the property from you should you need to move? If the answer is no to this question, and it usually is these days, then don't buy.

Our papers are filled with stories of Floridians wanting to move elsewhere into a home for which they've contracted, but their purchase is contingent on them selling their Florida homes at the "right price".

This Banana Republic Crash is turning otherwise sane productive adults into shells of human beings. We are turning into a Zombie Republic of Debtors. We've got a bunch of people who want to leave and who can't afford to leave . . . they are owned by their Florida "homes" or condos in which no sane buyer can make the math work.

Lastly, there is only one way to get the Real Estate market moving again in Florida: prices must fall another 25 to 50%, or incomes must double. And if incomes double, so too will consumer prices, meaning, it will cost more to buy a Big Mac, razor blades, milk and gasoline . . . things which our politicians don't know the price of and some of which are not included in their convoluted Consumer Price Index.

I think the only natural way out of this mess is for pricing to come down to the 100 year old historical median. And right now, in the Keys and South Florida t at least, we are about 100% above the median. Hence, I feel we need another 50% fall in South Florida Real Estate prices before we get back to norm.

Denver Billboards for Subdivisions Banking on Incentives Just Like Those Outside Miami

Almost 2 weeks after I posted the above on the Motley Fool's board, I found a link from Time Magazine titled

"Ground Zero of the Real Estate Bust" which sounded as though I had written the lead paragraphs.

The article (printed one day after my Motley Fool post I might add) starts out with a similar description of billboards promoting new home subdivisions. Except this is describing suburbs outside Denver, Colorado . . . not Miami.

Here's how the article, written by Barbara Kiviat, begins:

"First come the billboards. As you head north, away from downtown Denver, they flip by like flash cards, advertising houses by Lennar, KB Home and Richmond American, from the $100s, the $170s, the low $300s. What they don't tell you is that should you wander into one of the new subdivisions popping up from the prairie, you're likely to be offered tens of thousands of dollars in incentives to buy, and to buy now. At a recent conference of Colorado builders and real estate agents, one speaker counseled salespeople to stop acting so desperate. "It sends the signal that the market is bad," he said, "and to wait for the bottom."

Rock's note: I remember during the dotcom and 9/11 stock market crashes, Wall Street analysts were telling investors to keep holding onto companies with no earnings and to wait for the bottom to buy more. Meanwhile, these bastards were selling their "lockup" shares from IPOs out the backdoor like there was no tomorrow. A recent example? Check out the CEO of Countrywide Finance who has sold hundreds of millions of dollars of shares from options as he was braggin Countrywide would weather the storm.

"Yet as Denver richly illustrates, there is plenty of bottom left to wait for. It's a far cry from the days of double-digit home-price gains and mass speculation in hot markets like Las Vegas--where 40% of the houses up for sale now sit vacant."

Rock's note: I drove into a couple of brand new Homestead, Florida sub-divisions up by the Nascar track recently. What was amazing was how small the yards were. Houses were less than 12 feet away from one another. I saw home after home with no curtains in the windows, no furniture inside, and no For Sale sign out front. These are your classic "vacant" for sale homes where homeowner associations don't allow for sale signs in the yard, or, the developer is still carrying the home on inventory.

. . . back to the Time Magazine story:


The International House of Pancaked Leverage

"What's astonishing about this particular real estate bust, though, is the way the damage has pinballed across the financial universe: mortgage companies in Los Angeles, banks in Seattle, hedge funds in Australia, the European Central Bank, Wall Street investment houses and Main Street stockholders have all had the American real estate market fall on them.
Call it the international house of pancaked leverage, built on the proliferation of subprime and exotic mortgages that did away with many of the safeguards built into the classic 30-year fixed rate with a 20% down payment. Riskier loans originally designed for a narrow band of home buyers--interest only, adjustable rate, balloon payment, no documentation (of income, that is)--took off broadly in the last rising market, and Denver was one of the many areas where they were hot.

The demand was coming not so much from borrowers as from Wall Street, which packaged the loans into securities to sell to investors looking to pile into "low risk" real estate. So mortgage brokers found ways to squeeze buyers into first and second mortgages even when their finances were questionable. Consider the appellation NINJA, used to indicate a buyer with no income, no job and no assets. "Capital was made available to every Tom, Dick and Harry," says Zachary Urban, who runs the Colorado Foreclosure Hotline.

Urban is now dealing with the fallout: 18,000 calls in the past 10 months. Calls from people like Essie Kemp, who lives in the hard-hit neighborhood of Montbello. Kemp is faced with losing the home she has lived in for 23 years, since she can no longer make the payments on her refinanced mortgage. She wanted to have money to buy an air conditioner and fix her pipes. What she got was an adjustable-rate mortgage that spiked after two years. It wasn't until she went to see a housing counselor that she realized her income was listed as $4,000 a month--more than twice what she was making from a part-time job and Social Security. "I've done all I can do to keep my end of the bargain," says Kemp, "but it just didn't work."

Rock's note: in a great piece on Countrywide Finance this week, the NY Times talked about how loan officers were pushed to sell the riskiest loan schemes as these generated the highest commissions.

I hope to highlight that article later this week as it was an excellent source for discussion on Motley Fool.

Back to the Time Magazine piece:

" . . . about 25,000 people who will receive a first notice of foreclosure this year in the seven-county Denver metro area, according to the housing-analytics firm the Genesis Group. That's about half the number of people who could be expected to put their homes up for sale in a normal market. The most distressed neighborhoods are seeing foreclosure rates rivaling those produced during the state's oil and gas bust of the 1980s--except these days, there aren't mass layoffs to blame. Just flat house prices and tighter credit standards, which make it harder for homeowners to sell or refinance their way out of trouble.

Green Valley Ranch, to the east of downtown Denver, is one neighborhood having a particularly tough time. Houses are still going up in the massive multiphase development, but within the new construction lurk bus benches advertising foreclosure assistance. Many of the people who have run into difficulty are first-time buyers who jumped into mortgages they couldn't afford in the long term. Now, as they endure the heart-wrenching saga of slowly losing their homes, the whole neighborhood suffers: according to a study by Dan Immergluck at the Georgia Institute of Technology, a house loses 1% of its value for each foreclosure within an eighth of a mile (200 m)."

Now there's a formula for the ages in that last sentence.

So if 8 homes foreclose say at the Key West Golf Course (I've seen that many and more on RealtyTrac) then homes surrouding the foreclosures should lose 8% of their value right off the top. Interesting.

Some Unaffected Areas to Feel the Ripples of Sinking Developments?

"Denver is just one pin on the national map. Looking across the country, the foreclosure problem is worst in areas where house prices went wildest (southern Florida, California), where local economies are depressed (Cleveland, Detroit) and where regulators paid little attention during the go-go years (before a new law took effect in January, mortgage brokers in Colorado didn't have to be registered). But it is important to point out that while Colorado has one of the nation's highest foreclosure rates, according to property tracker RealtyTrac, many parts are doing just fine. Prices in Denver's newly hip Highlands neighborhood, a community full of bungalow homes and yuppies, were up 13% last year, according to listings data crunched by real estate agent Ed Tomlinson. And ski resorts like Copper Mountain can't build enough pricey condos.

But troubles that exist in distinct pockets can ripple outward. In the northern suburb of Thornton, Stephanie Brown is trying to sell her four-bedroom house for $445,000, just enough to break even on her investment, since she's eager to move closer to her new job. Yet in a month on the market, she's had only a single showing. On one side, she is up against home builders who are knocking $100,000 off the price of houses similar to hers. On the other, she faces a market flooded with foreclosed properties, like the hundreds up for sale at two different auctions in Denver on a recent weekend, some of which started with bids of half the estimated market value. "It's hard to sell a house if you can't even get people in the door to look at it," says Brown."

Rock's Note: Look at the highlighted sentences in that paragraph above.
Here's a woman trying to sell her home for "breakeven" yet she's up against the market dynamics of:

1. Home builders knocking off $100,000 off prices for similar homes to hers.

2. The market is flooded with foreclosed properties.

3. Hundreds of foreclosed homes are being auctioned off, some of which are receiving bids of half off current market appraisals. (Sounds familiar. We've had two auctions in Key West with similar results . . . except owners wouldn't sell for less than their minimum bid . . . none of which were hit.)

4. Lastly, the woman, slowly coming out of the state of denial says, "It's hard to sell a house if you can't even get people in the door to look at it."

Ms. Brown's comment in point 4 tells me she hasn't dropped her selling price enough to compete with points 1 through 3.

It's like this: Say I owned shares of American Home Mortgage before they went bankrupt. Say I woke up one morning and saw the share price had opened 25% down from yesterday's close.

Question: If I needed to liquidate my holdings and I wanted out, what do I do to sell my American Home Mortgage shares?

a) Click in an order to sell at a "limit price" 10% above where American Home Mortgage shares were at the moment?
or
b) Sell at "market prices" wherever they are, take the loss, and clap my hands together than I had something to show before a further fall in American Home Mortgage's fall in share price?
Holding onto a home or condo in a crashing marke

It is similar to Chinese Water Torture. The drip, drip, drip of depreciating value cannot be stopped without underselling all your competition.

Look at it this way:

I'll guarantee a buyer can be found for any Key West home today if only the seller will cut his price by 50% for just one day only.

In Capitalism, there is a right price for everything.

Supply and demand.

If supply is too high, the only way to move inventory is to drop prices like a Macy's Basement Sale. First 10% off. If that doesn't work 15% off. If it still won't sell, try 25% off. I've seen stuff in department stores marked down 7 or 8 times til it ended up in my shopping cart.

All of us know the drill.

To move inventory, prices absolutely must come down.

On the other hand, if demand is too high, sellers can adjust condo and home prices by the hour as people camp out in lines before ground has broken. (How Realtors must long for those heady Bubble days of 2003 through 2005.)

Smart buyers never buy in a mania and expect to make big gains.

I don't care if its stocks, coins, cars or houses, smart people don't buy simply because someone they know, like their cab driver from the airport, tells them how he has made millions buying and flipping Key West condos.

How a Chase for Huge Gains Stoked the Insane Leverage in the Credit and Housing Bubbles

"This local malaise, repeated in city after city, has ballooned into trillions of dollars in losses around the world, thanks to the magic of Wall Street's financial engineers. Blame it on one of the Street's recent innovations, the collateralized debt obligation, or CDO. The recipe: buy home loans, blend them, then slice up the result into different securities (reflecting different levels of risk) to sell to investors. Many such securities carry AAA or "investment grade" ratings despite subprime mortgages being in the mix. From there, things get really complex--CDOs created from other CDOs, synthetic CDOs crafted from credit-default swaps, none of which had experienced a down market. "The problem is that CDOs were untested. There was not much history to suggest CDOs would behave the same way as AAA corporate bonds," says Richard Bookstaber, a hedge-fund manager and author of A Demon of Our Own Design, who views market palpitations as a predictable by-product of complex financial products like CDOs. (For the author's take on the subprime disaster, go to

time.com/bookstaber.

Now that the foundation is shaking, there are scant buyers for the lower-grade issues built on top of the pooled mortgages, and the values of those CDOs have plummeted. Losses in the subprime market drove Bear Stearns to declare two of its hedge funds, once topping $1.5 billion, all but worthless, and banks as far afield as Germany and France have frozen funds or received bailouts because of exposure to U.S. mortgages."

Will 2008 be worse than 2007 for Housing?

Last week, Countrywide Finance CEO Angelo Mozilo was interviewed by CNBC. Mr. Mozilo called the current credit crunch “one of the greatest panics I've ever seen in 55 years of financial services.” He also said we will most likely see the whole country slide into a Recession due to these problems.

Time Magazine's article is in synch with Mozilo's new gloomy look.

The Looming Disaster

"FOR REAL ESTATE, NEXT YEAR COULD BE EVEN worse if interest rates don't fall. In 2008, some $680 billion worth of adjustable-rate mortgages are due to reset, according to Bank of America. That's $165 billion more than this year, and of those loans that are likely to carry higher rates, nearly three-quarters are subprime. Since many adjustable mortgages change rates after two or three years, the loans due for reset would have been written in 2005 and 2006, the years underwriting standards were bent the most. "It's clear that the performance of loans will be worse," says Mark Adelson, recently departed head of structured finance research at Nomura Securities, "but it's not yet clear how much worse."

One way to think about it is to consider how much more homeowners will have to pay to keep their mortgages current. According to an analysis by First American CoreLogic, a firm that tracks real estate and home loans, a typical subprime first mortgage that was originated in 2004 to 2006 will face a monthly increase of $407, and a typical teaser-rate loan, the type often sold to people based on their ability to pay the introductory rate and not the reset, will see monthly payments jump by $1,512."

Rock's Note: How does any sane Realtor, CNBC Bubblehead, Lender or Homebuilder make the economic assumption Housing is bottoming now?

How does a taxi driver, hairdresser, waitress, bartender, deejay, etc., suddenly find $407, or $1,512 or even $3,250 extra a month to stave off the Mortgage wolves at his/her front door if wages and salaries are not increasing quick enough to meet the new realities of a reset mortgage?

Will Florida or the US Congress Take Colorado's Lead and Make Lenders Do More Due Diligence?

"Back in Colorado, people are reacting. This summer, three laws went into effect that, among other things, require anyone selling a home loan to make a reasonable inquiry into the buyer's ability to repay it. In recent years, as a growing percentage of loans have been generated by brokers rather than the banks that ultimately owned the mortgages, best interests have been at odds: brokers can make more money with higher-rate loans, even if buyers qualify for a better deal. And that doesn't even touch the lending arms of home builders, which come with their own special conflicts of interest once you consider pressure from shareholders to get people into houses and book those profits. Establishing a fiduciary duty for mortgage sellers, which Congress is considering as well, is meant to realign interests. In the meantime, many banks are working with homeowners to renegotiate loan terms to avoid foreclosure. Still, the EZ Credit addiction is tough to cure. Drive through Green Valley Ranch, and you still see signs for 0 DOWN PAYMENT, 100% FINANCING.

In early August, American Home Mortgage, a mortgage lender with little subprime exposure, declared bankruptcy, stoking speculation that troubles are bound to spread to securities backed by higher-quality mortgages. It didn't help when lenders Countrywide and Washington Mutual subsequently issued dire warnings about losing liquidity because so few people want to buy mortgages on the secondary market right now.

"One of the most interesting things is, we don't know who's going to suffer," says Karl Case, a housing economist at Wellesley College. "Obviously, the people who get foreclosed against suffer. That goes without saying. But who bears the losses ultimately is really complex." We can start with the stock markets around the world, which have surrendered $3 trillion in value over the past month, thanks in large part to the mortgage monster beginning to come undone.

But houses don't trade like stocks, so when it comes to correcting the system when it gets out of whack, we're talking years, not weeks. "Real estate," says housing economist Thomas Lawler, "is a slow, tedious process." In July, after the two Bear Stearns hedge funds first ran into trouble, bond guru Bill Gross of Pimco wrote a foreboding investment outlook, pointing out that hedge funds tied up in trading are the top layer of the problem, not the root. That can be demonstrated in the Mile High City and, as Gross wrote, "in the Summerlin suburbs of Las Vegas, Nevada, and in the extended city limits of Chicago headed west towards Rockford, and yes, the naked (and empty) rows of multistoried condos in Miami, Florida." It's a big problem. How big, we're still waiting to find out."

To which I will add one last tip to the reader of this blog: Bill Gross has recently called for government bailouts of 2 million Americans who bought housing at the wrong moment in time.

I am totally, 100% against any government bailout of corporations, farmers, stock shareholders and yes, homeowners.

I would waste words explaining myself about my new disrespect for Bill Gross, but no one has written about this better than Michael Shedlock, aka "Mish", on his blog.

Read Mish's

"Bill Gross Wants PIMCO Bailout" for an excellent analysis of Bill Gross's crocodile tears for two million American homeowners who might face foreclosure. Like Jim Cramer, his real tears are for the well heeled, especially himself.

Mish knocks this one out of the park and I hope all small shareholders of PIMCO funds or bonds take time to open this link to learn how Gross has piled on risk in the past few years in his chase for better gains.

I also hope you will open up some of the 256 comments this post of Mish's has elicited.

I'll give you some from the top to show you how investors are feeling about PIMCO, Gross and bigwigs calling for bailouts:

Mish -- great write up. I use to respect Gross but now I see he was waddling around in some of those 6 inch stilettos along with everyone else. He should pull up his shirt and show us his tramp stamp. If you are going to be crying for money to the poor, I think you should indicate that a big chunk of it is going to you. All, I can say is this is getting to be so typical. Makes me puke.Like this comment? [yes] [no] (Score: 17 by 17 votes)

LJ, I agree with you 100%. As I stated before, he was one of the only traders I thought made a good deal of sense. However, it seems like Gross has just shown himself to be a selfish little piggy just like the rest.Like this comment? [

yes] [no] (Score: 5 by 5 votes)Liberal JohnFriday, August 24, 2007[delete]

And Gross hires Greenspan. Message to Bernanke: I'll pay you a tidy little sum to be my advisor, too, once you retire for a Bernanke put.Like this comment? [

yes] [no] (Score: 3 by 3 votes)HappyThoughtsFriday, August 24, 2007[delete]

He wants another RTC? I lived through the RTC when I lived in Colorado Springs. The result was that the home owners were out on the street, but the big defaulting developers got to buy their properties back from their real estate agent buddies, who handled business for the RTC, for dimes on the dollar. Simply put, the big guys defaulted, and then got their properties back for less than half the value of the loans they walked away from, thanks to tax-payer subsidies. Of course, this time around, because we have a much more honest government, there will by no crony capitalistic deals with any government created bail ou organization. So please, just tell me where I sign up. I want to be in the front of the line when the feeding trough opens.Like this comment? [

yes] [no] (Score: 5 by 5 votes)threadkillaFriday, August 24, 2007[delete]

if there is a bailout i'm gonna be one pissed off mofo!!!Like this comment? [yes] [no] (Score: 2 by 2 votes)Dr StangeloveFriday, August 24, 2007[delete]

Excellent piece Mish. Very good work. I used to like Gross but this behavior by him is criminal to say the least. Does make you wonder just how bad things really are though to get this desperate. He's been on the inside for a very long time. He has to know the criticality of the situationLike this comment? [yes] [no] (Score: 1 by 3 votes)

The Fifth Stage of Key West's Development?

In 2983 . . . Atlantis we shall be?


The above headline is a play off Jimi Hendrix's cut from the Electric Ladyland album titled "1983 ... (A Merman I Should Turn To Be)".

Combining Hendrix's lucid dream type lyrics with freethinking out the box, I've assimilated some "down time" observations of other blogs and news to come up with a sci-fi fantasy future for Key West.

Here's what started this latest thread of blogs and news:

Ocean waters are rising more quickly than Al Gore's "Inconvenient Truth" showed . . .

An online Reuter's story headlined "Antarctic ice thawing faster than predicted" raises more alarming evidence that glacier melt is happening more quickly than scientists were thinking just seven years ago.

Just recently, I watched a National Geographic special on HDTV. Photo after photo showed glaciers melting more quickly than they were at just the turn of this new century. As far as I know, this National Geo special was the first scientific study to show Al Gore's movie is actually now dated and understating the effects of global warming.

For instance, the image below is a before shot of a famous glacier in Peru from 1980, followed by another shot of the same location in 2002. In the new National Geo special, we saw incredible shots of glacier melt in Antarctica and Greenland.

National Geographic had specialists explain how glacier caps which are over ocean water are not going to raise the ocean water. One specialist explained this by reminding viewers that a glass with ice cubes and a drink will not overflow the glass when the ice cubes melt. It's a simple law of solids/liquids called "displacement".

However, as National Geographic painstakingly showed, glacier melt from land . . . such as Greenland and the Antarctica landmass proper . . . will raise ocean seawater levels dramatically.

If all of Greenland's icecap were to melt, National Geographic says sea levels would rise 22 to 23 feet.

The National Geographic special also pointed out that if Antarctica's glaciers were to melt completely, ocean levels would rise another 200 feet above where they are today.

According to this same special, in 2005-2006, glacial ice melt all over the planet was at the rate whereby sea levels would rise one meter in the next hundred years. Since there are 39.37 inches in one meter, we are talking about a rise of sea levels of a little over one inch every three years.

The National Geographic special was well documented by their own Scientists and with longterm lookbacks in history to photos of Venice, Italy, which is sinking so quickly now that Venice is erecting higher walls around its city center and trying to come up with inflatable ocean barriers which will keep seawater from rising too rapidly at high tides.

As it is now, many Venice, Italy homes's first floors are now flooded and unusable, whereas early 20 century photographs of some of these same homes show highest tides only reaching their doorsteps.

Despite National Geo's well documented research, I read many posts on Motley Fool from people who claimed the research was slanted, biased, and political.

The Reuter's story is giving credence to what National Geographic scientists were the first to alert us to.

(Photo of Peru glacier in 1980 on left; same glacier 2002 on right)

The Reuters story said:

By Alister Doyle, Environment Correspondent
NY ALESUND, Norway (Reuters)

A thaw of Antarctic ice is outpacing predictions by the U.N. climate panel and could in the worst case drive up world sea levels by 2 meters (6 ft) by 2100, a leading expert said on Wednesday.

Millions of people, from Bangladesh to Florida and some Pacific island states, live less than a meter above sea level. Most of the world's major cities, from Shanghai to Buenos Aires, are by the sea.

Chris Rapley, the outgoing head of the British Antarctic Survey, said there were worrying signs of accelerating flows of ice towards the ocean from both Antarctica and Greenland with little sign of more snow falling inland to compensate.

"The ice is moving faster both in Greenland and in the Antarctic than the glaciologists had believed would happen," Rapley told Reuters during a climate seminar in Ny Alesund on a Norwegian Arctic island 1,200 km from the North Pole.

"I think the realistic view is that we will be nearer a meter than the 40 cm" in sea level rise by 2100, Raply said. The U.N. climate panel in February gave a likely range of 18 to 59 cm this century, for an average around 40 cm.

Asked at the seminar what the upper limit for the rise might be at a probability of one percent or less, he said: "At this extremely unlikely level the maximum would be two meters."

Skeptics often dismiss such low probabilities as scaremongering. But many scientists note that people take precautions such as to insure their homes against far lower risks, such as fire.

If Key West sees a one meter rise in the next 93 years, many of our streets in New Town will be underwater unless New Orleans style dikes are built.

If ice melt accelerates at a faster clip, in a worst case scenario, a two meter rise of sea water by 2100 will make many Key West condos and homes uninhabitable . . . unless a series of New Orleans dikes are constructed completely around the island.

My question to all is this: how can we afford to simply wall off and grow Key West dikes vertically when the whole coastline of Florida will be suffering the same predicament? Does the US Federal government send in the US Army Corps of Engineers for a wall longer than the famous Wall of China?

Will mainlander US citizens want to pay the bill for those who want to remain in a below sea level Paradise?

Stay with me for a flight of fantasy . . .

What's easier to market, the next Maccau/Las Vegas or diving the next Atlantis?

Cayo Dave once put up a video on his blog of what Key West and the Upper Keys would look like with rising sea waters. As I have yet to learn how to post the videos directly to my blog with a big button to hit, I simply ask you to click on this red highlighted link titled "Florida Keys Flooded by Global Warming."

The Key West segment is about :44 seconds into the video. Part one shows the effect of a one meter rise of sea levels on Key West. Part two shows what a Category 2 storm surge on top of a one meter sea rise would do to Key West. (A tip of the cap for Cayo Dave and his excellent blog for orginally bringing us this video.)

And then today I read The Real Key West Blog's "Four Stages of Development"

I've only recently discovered this blog and added it to "Links you can use" area of my blog.

Anyway, when you click on this link we are taken to a website with an opening page titled "The Four Stages of Development".

This website titillates the thinking with some photographic evidence and text describing a thought provoking exercise on the four stages of development.

I will list the four stages as put forth by the Key West Neighborhood Associations, but I think you will enjoy this more if you click on to the website to see the photos accompanying the text below:

1. Stage One - The area is in the process of being "discovered." It is frequented by a few adventurous individuals and an occasional travel writer.
2. Stage Two - More people come to visit. There are "Mom and Pop" type lodging places, and a few guest houses. Typically you will see a number of original locally owned eating places. Key West, for example, passed from Stage One to Stage Two with the arrival of Flagler's railroad. It stayed at this stage until the 1960's.
3. Stage Three - Chain motels begin to come in. As larger investors see the possibilities of development and growth, national restaurant chains begin to arrive. This part of the cycle ends with the arrival of resort condominium development. When the number of resort condominium units begins to exceed the number of traditional hotel/motel units, the original atmosphere which attracted the early visitors changes.
4. Stage Four - The area is overdeveloped. The original natural attractions are replaced by "novelty" attractions, i.e. museums, sideshows, T shirt shops, tattoo parlors, and "honky tonk" type attractions. There are demographic disruptions, as "regular people" are forced out by rising prices. This stage is typified by greater vacancies in commercial properties, a shrinking tax base, and a search for alternative sources of revenue. Business ownership tends to be concentrated in the hands of a few.

Putting all of the above together in a lucid dream, what would a fifth stage look like?

A fifth stage whereby we either make Key West a futuristic Las Vegas casino accessible only by hundreds of miles ferry rides from the new mainland of Georgia and Alabama, or a fifth stage where we let Mother Nature reclaim man's folly and we still take those catamaran rides . . . but for a different visit entirely.

The fifth stage of Key West could be either man made Rock of Gibraltar island which descends hundreds of feet below the sea and rises hundreds of feet above. Below would be a wall of dikes on top of dikes rising hundreds of feet from what used to be A1A, Roosevelt Boulevard, Eisenhower Boulevard, Palm Avenue, South Street, Waddell Avenue,and a wall around the perimeter of what is now Trumbo, Truman Annex, Mallory Square, etc.

How would we afford the seemingly unending building of a seawall which needs to rise meters per future century to keep seawater out?

Local property taxes wouldn't cover it unless the island is taken over by trillionaires. And we certainly can't depend on the state of Florida to bail us out when the whole state faces a sinking into the seas.

So what do we do to save the island from sinking?

We make Key West a gambling mecca such as the island of Maccau is to mainland China . . . and we build dikes and walls on top of dikes and walls, growing the island ever upward like the Hanging Gardens of Babylon . . . The wall would reach so high that sunsets would only be seen from top floors of the MGM Key West, Harrah's Sub Mariner Hotel/Casino, and the Hard Rock Hotel.

Key West would have to grow its gaming industry vertically like a miniature version of NYC meets Las Vegas meets Maccau.

OR

Three-hundred years from now, we may not be able to afford to wall off Key West and the whole state of Florida. American taxpayers might be so angry over government subsidies to people who make unwise life decisions that Mainlanders will look at coastal people as "On Your Own Owners of ex-USA Real Estate."

Anyway, three hundred years from now we will probably be colonizing new areas in outer space. The future will be out there, not saving the Earth from unstoppable climatic change.

So what do we do as Key West sinks into the ocean?

We let the sucker sink and turn it into an ultimate tourist destination . . .

We market Key West as the ultimate tourist destination whereby diveshops located hundreds of miles North on the new US mainland will ferry divers via solar/hydrogen powered speed catamarans to the hidden island of Key West . . . America's Atlantis.

Imagine this:

As a tourist in Key West's near future, you have to wear dive gear. You grab the anchor line of the cat which is tied off to what used to be Sloppy Joe's bar at 201 Duval. You dive down. You swim through the sidedoors or the two open front doors and see a plaque under green waters with sunlight dappling the words, "Still the best Party in town!"

You swim down and behind what used to be the bar. Instead of bartenders, you see schools of yellowtail, grouper, and several reef sharks. A giant sea tortoise swims off what used to be the stage. Underneath the stage where giant sub-woofer speakers were once mounted, a giant eel poke his head out. Sunlight is slanting down through green waters on the Green Street and through the side doors of old Sloppy Joes you see a pod of dolphin frolic by what was Guy Harvey's Restaurant across the street.

Outside, acroos the street at the old taxi stand in front of Rick's bar, battery powered submersiblewater taxis allow you to hold on to tow ropes. You and your friends float effortlessly behind touring the new underwater Duval Street.

There, in the 400 block, is the old La Concha hotel. You let go the tow ropes and drift up a few floors. Lolling about on its old sundeck near old swimming pool are barracuda sunning themselves in the sunlit ocean waters which are greener than the old pool water tinted with chlorine. Parrot fish, sergeant majors, grunts, yellowtail and other schools of fish are gliding in and out of missing windows and down former halls.

Over at Fast Buck Freddies, the windows are filled with permament mannequins pointing at old glass encased photos of Key West back when it was an island above the ocean waters. Divers take underwater photos of each other pointing at the photos to "prove" to the folks back home that they "dove" Key West. And underwater t-shirt purveyor is selling water logged merchandise which says "I dove Key West".

You swim through Fast Buck's front doors and you see other divers sitting in chairs smiling and gesticulating to others dancing on the ceiling upside down like an old Lionel Richie music video from the latter part of the 20th Century.

You get back to your water taxi and drive down to the old "butt plug" buoy of the Southermost Point. A new plaque is beside the old buoy pointing out that in year 2283, the "new" Southernmost Point is to be found in the hills of Texas . . . which by the way . . . is now beachfront property. Still, divers pose by the old buttplug mounument which says Cuba is 90 miles to the South.

The mountains of Cuba are now the only part of Cuba above water. The island is much tinier. And it is no more than 600 miles from the new US mainland.

After an hour, your crew rises from the depths, and the Catamaran sends a Zodiac to pick you up. You take a brief brunch on the Catamaran while it moves North to what used to be the Convention Center at the top of the old island.

You dive down to the Convention Center and swim inside a grand ballroom where an underwater band is playing and people in Scuba gear are smiling and dancing.

As a joke, some Catamaran tour guide placed a glass encased poster on an easel at an exit to the Convention Center. The poster is circa 2007, and it says, "There has never been a better time Key West Real Estate." Divers are standing by the sign smiling and having their photos taken.

Now all the condo rooms are filled with sea life, detritus, and sea grass, a hundred feet below the surface of the green waters. These rooms are Mother Nature's new birthing grounds for species which had all died out due to overdevelopment, overfishing, cruise ship pollution and inadequate sewage treatment in the "old days".

On the trip back to the mainland hundreds of miles away, whales were sighted over what was once Disney World in Orlando.

Back on dry land, divers tip the catamaran crew and tell the Georgians or Alabaman taxi drivers taking them back to their hotels how beautiful Key West . . . the new Atlantis, was.

Where will we go form here? I don't know, but I don't see Real Estate multiplying forever if the near future is an underwater Paradise.

Rock, under the sea, in an octupusses garden in the shade...

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.