NAPLES — Builders in the Naples market are investing millions in houses with no buyers.
With the housing market on the rebound, the speculative, or so called "spec" market has made a comeback, especially in areas near the water such as Port Royal, Aqualane Shores, Coquina Sands and Old Naples.
In the past year, more high-end custom builders have been buying lots and putting multimillion-dollar houses on them, expecting buyers to come. And buyers have come, sometimes snatching up houses before they're finished.
Spec home building slowed to a virtual halt after the red-hot housing market went bust starting in 2006, but it's back.
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41 West, a longtime luxury builder in Naples, decided to start building spec homes again last summer after a four-year pause.
"Builders like myself are building homes on a speculative basis. Where everybody has been afraid of their own shadow for the last four years, people are stepping up. It's a totally different market," said William Bayes, 41 West's vice president of operations.
It's a different market because the inventory of both new homes and resales has shrunk, which is slowly driving up prices.
As the real estate market heals, wealthy buyers feel more confident about investing in it, reviving the demand for spec homes, Bayes said.
41 West's decision to get back into speculative building came after Naples-area Realtors saw one of their busiest summers for sales in a decade, Bayes said.
The builder soon will start its first spec house in years on Yucca Road in Coquina Sands, a waterfront neighborhood west of U.S. 41 and just north of the Naples Beach Hotel & Golf Club off Gulf Shore Boulevard. The five-bedroom home, which will span 4,500 square feet, will cost about $3.3 million.
"That's just the beginning," he said, noting his company is searching for more lots.
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Other builders jumped back into the speculative market more quickly than 41 West, with construction picking up noticeably last year, such as in Old Naples.
During the past two years, Waterside Builders built two quaint cottages off Third Street South that fetched some of the highest prices per square foot seen in Old Naples, said Mike Assaad, the company's president.
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Buyers paid more than $1,000 per square foot for the living space under air and one of the homes was a spec that brought $2.6 million, he said.
"The market is pretty good west of 41 everywhere," Assaad said. "Most of our work is in Old Naples, but I know lots of people are busy now."
Waterside is building a speculative four-cottage Old Florida-style project on the northeast corner of Fifth Street South and Fourth Avenue South, known as Mustique of Olde Naples. The two-story cottages, with three and four bedrooms, will have a living area of about 3,200 square feet. They're a few blocks from the beach.
Two of the homes in Mustique are under construction; one already sold, Assaad said.
Waterside is also building a larger West Indies-style five-bedroom spec home at 577 Gulf Shore Blvd., priced at $5.25 million. It's replacing a tear-down.
The market is pretty good west of 41 everywhere."
Mike Assaad of Waterside Builders
The builder has two more spec homes at the corner of Fourth Avenue South and Fourth Street South in Old Naples. They're smaller cottages, about 3,000 square feet, priced at about $2.5 million.
"There are a lot more buyers at $2.5 million than there are at $4 million or $5 million," Assaad said.
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Naples real estate broker Mitch Norgart works closely with MSM Builders, helping the company find lots to build on and financing for speculative homes.
The builder recently finished a home at 3153 Gin Lane, a five-bedroom, five-bathroom waterfront estate in Port Royal. Fully furnished, it's listed at $8,995,000, with 6,700 square feet of living space and all the "bells and whistles," including a home theater with "one of the largest TVs you can buy," Norgart said.
MSM has two other spec homes under construction in Naples. One is at 80 32nd Avenue South off Gordon Drive that's priced at just under $6 million.
"It's in the Port Royal area, but we bought the lot because it's only two houses away from the beach," Norgart said.
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While much of the speculative building is near the water, it has picked up elsewhere in Collier County, including Mediterra, the luxury golf community straddling the Lee-Collier county line off Livingston Road.
London Bay Homes, one of the original custom builders in Mediterra, started building spec homes there again in late 2011, with the supply of new homes so tight.
The company finished three in early 2012 and sold them almost immediately, said Stephen Wilson, a vice president for London Bay Homes.
The builder recently completed two more specs in Mediterra; another three will be done in the next six weeks and two more will start in April.
Most of the builder's spec homes have been priced at $1 million to $3 million. They are three- and four-bedroom homes, ranging from 3,000 to 5,400 square feet.
The builder will soon start similar spec homes in downtown Naples and Quail West, another golf community east of Interstate 75 between Bonita Beach and Immokalee roads.
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WCI Communities Inc., a Bonita Springs-based home builder, has spec homes in all five of its gated communities in Collier and Lee counties.
"The reason for that is that we are seeing people entering back into the market that have been able to finally sell their house and they have to get out of their own home," said Scott Wolf, the regional sales manager.
Also, lower interest rates are driving sales for buyers, Wolf said.
WCI has two communities in Collier, including Tiburon in north Collier, where it's building four spec homes with four and five bedrooms, priced at about $1 million. They'll range from 3,800 to 4,500 square feet.
There are another seven spec homes under construction at WCI's Manchester Square community off Livingston Road, north of Pine Ridge Road.
"We definitely have increased spec count," Wolf said. "Last year, we were kind of following a sell one, replace one (strategy). This year, there has been enough demand that we are putting out two specs for every one that we sell."
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Buyers of higher-priced spec homes are often executives and business owners in their 50s who are empty nesters living up North, but not yet ready to retire. They don't want to spend the time finding a lot, an architect, a builder and a decorator, said Norgart, who has been involved in spec home building since the early 1990s.
"It costs them more money to take time out of their life to build a home," he said.
Often the homes become second and third homes for the buyers, many of whom come from the Midwest and pay cash.
Norgart didn't do any speculative projects in 2007, 2008 or 2009 because of a bad economy, but he cautiously jumped back into it in 2010, taking it slowly.
"If you can make the math work and you've got the money, it's a good business to be in," Norgart said. "But it's becoming more difficult to find good lots and to be able to build a spec home and make not a very big profit, but a reasonable one."