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Catch The South Padre Island Wave
2687 Views :: 31 Comments :: :: South Padre Island, Second Homes

Catch The Island Wave
Ride The Remarkable South Padre Island Housing Recovery

How are Sales on South Padre Island?
South Padre Island's real estate sales have been steadily climbing throughout 2009. At the end of the third quarter, sales have already reached $97million, $36 million higher than the total sales for 2008. If this were any other city in the United States, this would be remarkable news. South Padre Island should be the talk of the nation with recovery statistics and new housing activities like these yet, it is not getting the attention it deserves. Foreclosure numbers as well as median price numbers for South Padre are also remarkable compared to the rest of the nation.



Foreclosures in the area are considerably less than in other parts of Texas and the numbers are miniscule compared to the national level. The national level of foreclosures according to RealtyTrac is at .28%, while Texas is less than half at .12%. South Padre Island's foreclosure rate is at .04%. (View the graph.)

Why have foreclosures been so low for the area?



According to Moody's, our real estate is correctly valued. You can view our median price graphs and see that the prices have remained steady for the last four years. Unlike Florida and other coastal areas, we did not experience an over inflated price bubble on the Island and thus have avoided the over-valued real estate values seen in most of the other markets.

Our sure-and-steady pricing has encouraged continued buying and investment - and has helped fuel this year's steady growth after last year's national economic downturn. Also our high percentage of credit worthy and cash buyers has kept our foreclosure rate low.


South Padre has the highest median price on the Texas coast, yet South Padre island and
the southwest gulf coast is the only coastal area in the country that is correctly valued - according to Moody's Economy.com

Who's Buying Property on the Island?

Of all the cities in Texas, we can boast having buyers from across the nation and different parts of the world. This year our buyers are mostly from McAllen, Houston, Monterrey Mexico and Canada. The buyers are choosing completed projects near the beach, mostly notably beach condos and beach homes.
  • Like most of the nation and Texas, buyers are avoiding projects that are still under construction - including lots and new homes in unfinished developments. Today's more cautious consumers apparently don't want the added risk - and living-in-a-construction-zone for an undetermined amount of time.
Being in a prosperous and growing area such as the Rio Grande Valley, McAllen has emerged as a national leader, often mentioned in the national press. It is one of the Fastest Growing Metros in the State of Texas, # 1 in Job Growth and # 2 in Wage and Salary Growth as well as # 10 Fastest Growing Metro in the United States. It would come as no surprise that prominent business folks from the area are looking for a second home as well as an investment opportunity and have decided to purchase property on the Island. The drive from McAllen is about an hour away, perfect for an anytime or weekend escape.

Houston residents are approximately an hour flight away from South Padre. Despite of their proximity to Galveston, many Houstonians have chosen to purchase property on South Padre. Their decision could be influenced by Hurricane Ike or they could have also fallen in love with the beautiful beaches, family atmosphere and blue waters of South Padre.

Dallas recently added non-stop flight service - to and from the Brownsville South Padre airport, so we expect to see an increased buying interest from the Dallas Forth Worth area very soon. Folks in the Dallas area can now enjoy quick and anytime access to the state's most tropical resort area.

The third category of buyers are from our neighboring country, Mexico. Mexican Nationals have always been a prominent and important part of South Padre. Mexican Nationals are buying land, developing new projects and buying properties at surprising levels

The Mexican Nationals not only see the Island as a great weekend getaway, they see it as an investment opportunity as well. Located at a four to five hour drive from Monterrey, the second largest city in Mexico, the Island has always offered an internationally friendly environment. Many Mexican Nationals have been visiting the Island with their family as kids during Easter break and want to continue that tradition with their own kids. They see many of their friends and relatives that want to do the same and have chosen the Island as a safe asset and investment opportunity to park their pesos.

Some Mexican investors have not only purchased a second home here but have also invested their money in new developments on the Island. They have been purchasing land in the North End of the Island for future development. Recently a new tower, Kirana, has been announced and already has a significant number of units reserved at pre-construction prices. The Mexican Nationals have always been and will continue to be an integral part of the number of visitors, buyers, investors and developers on the Island.

What are people buying?

Looking at the graph, one can easily tell that people are mostly interested in Condominiums for South Padre island. We are the only market in Texas where condo sales are greater than residential homes. The beachfront condominiums have always been the most desirable due to their dual beach and bay views and easy beach access. The second most popular property type are single-family homes within walking distance to the beach.



What makes South Padre Island so attractive?

For those of you that have visited our island, the answer to this question comes easily. For those of you that are thinking about visiting the Island, here are a few reasons why we think South Padre is one of the best beaches.

The white, sandy beaches of South Padre are known throughout the United States (ranked as one of America's top 10 beaches), with the emerald water of the Gulf of Mexico serving as the perfect backdrop for spectacular sunsets.

South Padre has an excellent tropical climate. The island’s sub-tropical temperatures rarely rise above 85° in the summer or drop below 65° in the winter, and steady easterly breezes sweep past palm trees and sandy dunes, providing windsurfers of all skill levels with some of the best conditions imaginable. During winter months we are home to many Winter Texans that make their way from the northern part of the country in order to enjoy the much milder winters.

The Island has access to both the Gulf of Mexico and Laguna Madre Bay. Both bodies of water give the Island the opportunity to offer many water activities such as fishing, kiteboarding, kayaking, windsurfing, jetskiing, parasailing, surfing, diving, snorkeling and many more. Anglers find the clear waters of the Gulf of Mexico and landlocked Laguna Madre Bay ripe with flounder, red snapper, amberjack, whiting, kingfish, marlin, and sailfish. In the early evenings you can head on down to any of the restaurants or bars on the bay and enjoy the beautiful sunsets or take a walk on the beach.

South Padre Island is a true beach resort in Texas. There are many public accesses that allow people not living on the beach to walk to it, but cars are not allowed to drive on most of the developed area's beaches. Parents feel a lot safer taking their kids to a beach where they don't have to worry about fast cars driving by. Investors like this as well. Other beaches, such as North Padre, have lost huge investment opportunities by residents voting against a bill to ban cars on the beach.



South Padre is now the home of two new towers and a new neighborhood which have brought a new level of luxury residences to the Island. The Sapphire offers high-end beachfront condominiums with 24-hr concierge service and its own movie theater. The level of amenities provided in this new highrise has risen the bar for any new developments that are being planned for the area.

The Shores is a stunning example of New Urbanism with its beach and bay access and amenities a walking distance from single family homes. This new neighborhood will become a self-contained destination within South Padre - and hopes to create a yacht owner community on the bays ide that rivals North Miami Beach. To include a hotel, yacht club, marina, town square, retail, horse stables and more.



The Future of South Padre

South Padre has a bright future ahead! New and exciting changes are underway for this unique vacation spot.

A second bridge to the Island is already being planned. Cameron County has picked five possible routes via bridge. Options 2 and 3 seem to be the most favored. There are still some studies that need to be done, but it looks like the new bridge will be landing near beach access 5 or 6.



This bridge will not only provide another access to the Island, but it will boost property values in the north end, help with evacuations during hurricanes and provide a shorter drive for the northern Rio Grande Valley residents as well as other visitors coming from northern Texas. If you have ever been stuck on the bridge during Spring Break, Easter or at any other time then you can understand what the impact would be to have a new bridge available. This is an exciting new change that everyone is looking forward to.

Beach erosion has always been a concern for South Padre Island property owners. The Texas General Land Office (GLO) has approved $135.4 million plan to defend against hurricanes and fight beach erosion. The Texas GLO plan includes $1.5 million for beach renourishment of South Padre Island beaches.

The Island's skyline will soon change as well. Kirana will offer 39 stories of 3, 4 and 5 bedroom luxury condominium residences and penthouse units with amenities such as four pools including an infinity beach view pool, a spa, and a state of the art gym.

This new development has already received a lot of interest from Mexican Nationals who have bought and reserved many of the units. With its spacious units and contemporary design, it is sure to capture the attention of many looking to purchase their new second home!



Rating
Comments
By San Antonio Business Journal @ Friday, October 02, 2009 7:38 PM
Hispanic buying power in Texas is expected to jump 47 percent to $252 billion by 2013, according to a study by the Selig Center for Economic Growth at the University of Georgia.

The study found that Hispanic households contributed more that $171 billion to the Texas economy last year.

Texas was home to 8.9 million Hispanics in 2008, or 37 percent of the state’s population, according to figures from the U.S. Census Bureau.
By Texas Brags @ Friday, October 02, 2009 10:19 PM
1. Texas ranks No. 1 for Economic Climate in Forbes “Best States for Business” Report

2. Texas Expected to Lead Recovery,
Two Texas markets will be the first to recover from the recession, says a nationwide forecast by IHS Global Insight. Austin and San Antonio will bounce back to their pre-recession job levels sometime next year, according to the economic forecasting firm. Eight other metropolitan areas are predicted to recover by 2011, a group that includes Texas’ two largest markets, Dallas-Fort Worth and Houston.

3. Six Texas Metros Ranked in the Top 20 of
Brookings Institute’s Overall Performance
Six Texas metros were ranked as the Strongest 20 Metro Areas of Brookings Institute’s “Overall Performance of the Largest 100 Metros” report. The six top-ranked Texas metros were Austin-Round Rock, Dallas-Fort Worth, El Paso, Houston-Sugarland-Baytown, McAllen-Edinburg-Pharr and San Antonio.

4. Texas Unemployment Rate Remains Below National Rate, The Texas seasonally adjusted unemployment rate rose slightly to 8.0 percent in August, up from 7.9 percent a month ago, and continued to trend well below the U.S. seasonally adjusted unemployment rate for August at 9.7 percent.

5. According to Brookings Institute’s MetroMonitor reports, several Texas cities were ranked as the Strongest 20 Metro Areas for employment and housing prices.

Top Three Metros for Employment
1. McAllen-Edinburg-Mission, TX
2. Austin-Round Rock, TX
3. San Antonio, TX

Top Two Markets for Housing Prices
1. Houston-Baytown-Sugar Land, TX
2. Dallas - Ft. Worth-Arlington, TX

See http://flv.texasgulfcoastonline.com/texas_brags.pdf
By Hunter @ Sunday, October 04, 2009 10:08 PM
Here's another way to analyze the prospects for the local real estate market. Most property on this island consists of vacation condos. People buy condos here because they like the island, and all the wonderful things it has to offer. There is no better vacation spot in all of Texas, we all know that.

BUT, most people only buy vacation homes when they're feeling good about their personal finances, job security, family situation, etc. It's all about feeling good, which is hard to quantify. The latest national job forecast data helps clear the fog:

http://www.usatoday.com/money/economy/2009-02-06-new-jobs-growth-graphic_N.htm

Tab to the individual city data, and you'll note that McAllen, San Antonio, Austin, Dallas, and Houston are all poised for job growth next year. (Not a lot of job growth, but ANY job growth compares quite favorably to most of the remainder of the nation.) That slow steady job growth is eventually going to drive SPI condo sales, no doubt about it, because people feel better when they're gainfully employed.

Now take a look at the other coastal regions OUTSIDE of Texas. Most of those areas are projected to continue losing jobs over the next year, suggesting the Texas coastal areas will rebound faster than anywhere else in the nation. I seriously doubt if we're going to see a big wave of buying on the island anytime soon, however a "slowly rising tide of buying" during the coming year is probably a more reasonable analogy. It also seems clear that the Texas Gulf Coast will be the first place in the nation to enjoy that rising tide.

We also can't ignore how much damage to the local real estate market was caused by Dolly and Ike. From an historical standpoint, a double-wammy like that was an extremely rare occurrence. Potential buyers are still scared, but bad memories eventually fade. Also consider how completely uneventful this year's hurricane season was. People tend to notice hurricanes when they occur, but they pay less attention when they're out lounging on the beach enjoying a cold one. (Let us thank God for the beautiful weather he has blessed us with this past summer.) Another calm summer in 2010 could really get this market moving again.

Alice, I know it has been exceptionally hard for you and your crew over the past couple years. I do however see good data here suggesting that better times are on the horizon! Hang in there.
By Statistics Watcher @ Monday, October 05, 2009 11:22 PM
That Moody's data clearly shows Las Vegas as being "undervalued", yet today's news makes it clear they just had to slash the price of almost 2400 new Las Vegas condos by 30%:

http://www.google.com/hostednews/ap/article/ALeqM5iMKCkZvguruvOMF6xh-dJ7QBBa2QD9B57LRG0

Scary, eh? The next time you have a client that doesn't want to lower his asking price, show how the rest of the country is slowly dragging us all down into the quicksand, reducing credit availability, scaring investors, stalling retirements, devaluing the peso, reducing tourism, etc. The SPI real estate market could very well be the first domestic coastal community in which prices recover, but with the rest of the world in such a mess, the eventual SPI recovery is likely to be very tepid.

What this island needs is a new charter for the Convention and Visitors Bureau. Instead of fishing for typical weekend tourists, and sponsoring expensive music festivals, CVB needs to be fishing for new property owners! Lure potential buyers with hotel and restaurant discounts if they agree to go on a guided property tour around the island. Put 'em on The Wave with a margarita in one hand, MLS listings in the other, and show them a sample of the wide variety of property this island has to offer!
By Condo investor @ Tuesday, October 06, 2009 11:47 PM
You ask "Why have foreclosures been so low for the area"?

The way I see it, areas of the country that are experiencing high rates of foreclosures are those that had overvalued property and/or areas which have experienced large losses of local jobs. I'm not sure that same logic applies to the island's property. SPI is mostly vacation condos, not primary residences. I think most foreclosures nationwide come from people who live from paycheck to paycheck, lose their job, and end up in serious financial trouble. That clearly does not represent the typical SPI property owner with a $250K beach condo, often with little or no mortgage to worry about. I think the low foreclosure rate on SPI is really a testament to the financial stability of property owners, not local economic conditions.

I would also buy the argument that low foreclosures on the island were the result of property not being overvalued, but only if property values have been remaining relatively constant. I think it's great that median prices of recent properties sold may be steady, but we can't ignore that a large number of recent sales are coming from those big ticket new developments, which deceptively skews the numbers upwards. What I'm hearing from agents suggests that overall prices have fallen 20 - 30% from the peak a couple years ago. That's a disaster, anyway you look at it.

So again, I think the only thing the low foreclosure rate tells you is that we're fortunate to have an above average number of affluent property owners. That's a good thing that we CAN brag about, but don't stretch it too much.

To judge the state of the island real estate market, you also have to look at inventory. From what I can see, there is about a year and a half's supply of property on the market. And that doesn't include property owners that would list if they thought they could sell it in a reasonable period of time. In order for prices to rise, the available inventory must come down. That's just the simple law of supply and demand.

On the bright side, is it possible that there is some significant pent up demand for island property lurking out there, and potential buyers are just waiting for prices to rise a little to be assured that a recovery is on they way? We sure can't rule that out. Once this market does show undeniable signs of recovery, the upturn in prices could be quite sharp. In other words, I seriously doubt if there are any fewer beach lovers out there today than there were just a couple years ago, before the market crashed.

You mention the "family atmosphere" of the island, and this important point deserves more attention. It is quite common to see Mexican families on the beach together under a large comfortable cabana, complete with their teenagers and maid! Such a scene of family togetherness and tranquility would be almost unheard of on other beaches in the USA. Teenagers willingly spending time with their parents? Yes, it is quite common on the SPI beach! To me, this is one of the greatest traditions our Mexican friends bring to our island.

Another great thing about SPI is the lack of serious crime. Sure, we have an incident every now and then, but overall you feel quite safe here. It's hard NOT to feel safe when everybody around you is enjoying themselves. The atmosphere of the island is very seductive.

Your comment about new buyers staying away from uncompleted projects is very interesting. The Ocean Tower disaster sure hasn't helped, but it will soon be torn down and quickly forgotten. Perhaps buyers want to "see, feel, and touch" what they're buying, having been so badly hurt by the more nebulous stock market crash. Let's face it, many people are more skeptical of various types of "promises on paper" than ever before. Construction contract or 401K statement, it's all just a paper promise. (I wonder if there is a way you marketing types could focus on affluent and paranoid people who have lost lost extraordinary amounts of money in the stock market. Ponder that.)
By Market guy @ Wednesday, October 07, 2009 6:32 AM
A "New Normal" for the SPI real estate market?

Late last year the wheels fell off the entire national economy, and few local real estate markets escaped the fallout. Any year-over-year comparisons are therefore likely to look very favorable compared to that period in time. That doesn't however imply a huge wave of new business is at hand. On the contrary, from what I can see, the island real estate business has been so dismal recently that only a fraction of the number of agents that existed just a few years ago remain in business today. (Only the best ones are left, right Alice?) I think the bottom line is that the current period of relatively slow sales is going to be "the new normal" for a while longer until prices start to rise and flippers can reenter the market. Investors can't flip a property when prices are falling, or even stable.

Marketing a property in this environment is tricky at best. Instead of playing the smoke and mirrors game of advertising the median pricing across the entire island, you've got to prove to individual buyers that a specific property really has increased in value over some very recent period of time. Accomplish that, and you're going to spark some interest from investors, and clinch the sale.

I also think agents on this island should be putting more effort into twisting the arms of more sellers to enter into owner financed deals. This market is ideally suited for such a tactic, given that so many sellers don't have a mortgage to worry about. Make no mistake, credit is tight everywhere, even for investors. Think about that for a minute, it is a powerful thought.

Many sellers over the past couple years have been haunted by low rental revenues that never seem to pay those never ending taxes, condo maintenance, and rental fees. The time is ripe for a little arm twisting. To be blunt, I want to start seeing more of you agents advertising "owner finance, 5% fixed, 5 year balloon, 10% down" in your ads! Perhaps even a special section in the local real estate flyers devoted to buyers specifically looking for owner finance deals.

Good luck to all you agents. I think you can start to increase sales if you just modify your strategy a little. The current market environment is difficult, but definitely not impossible.
By Ad watcher @ Wednesday, October 07, 2009 9:19 AM
I've noticed that Randall Davis has been heavily advertising his Sapphire project on the Yahoo finance web pages. Bernie Madoff has probably scared a lot of investors into buying lower risk, solid assets - like property. Probably a good advertising strategy by Mr. Davis' marketing team. Island agents should take note.
By Deal Hunter @ Wednesday, October 07, 2009 9:50 PM
What you need on this web site is a way to separate listings which offer owner financing from all the rest. That would be a VERY useful feature
@ Thursday, October 08, 2009 2:10 PM
Comments from the following blog entry: http://residencetrade.com/blog/2009/09/catch-the-south-padre-island-wave-south-padre-island-real-estate/
By Buy SPI @ Saturday, October 10, 2009 7:39 AM
We shouldn't underestimate the potential of future SPI property owners coming in on those new direct flights from Dallas. In case you haven't heard, there has been a huge discovery in natural gas up there, projected to bring 108,000 jobs by 2015, and significantly raise property values for many:

http://en.wikipedia.org/wiki/Barnett_Shale

Let's roll out the welcome mat for our new Dallas friends with fresh $$$$ in their pockets.
By Travel Promotion Act @ Monday, October 12, 2009 2:35 PM
Has anybody seen this new "Travel Promotion Act" moving through congress?

http://www.house.gov/apps/list/press/ma10_delahunt/tpa91009.html

One could argue that further taxing foreign tourists can only drive them away. On the other hand, ten bucks isn't much, and if it is spent wisely it could actually help.

I don't see any solid evidence to indicate that the new occupancy tax we recently placed on tourists has helped or hurt island business since it was enacted. On the contrary, business wasn't so hot this past season, but that was mostly due to the bad economy.

Has anybody out there ever seen a government "tax the tourists to promote more tourism" type of program that was actually proven to generate more revenue than it cost? I wonder if the law makers that came up with this new "Travel Promotion Act" really believe that it will enhance foreign tourism, or whether it's just more pork barrel politics?

On a related topic: With congress printing so much money lately, the value of the dollar against foreign currencies is likely to fall considerably in the coming years, making SPI property look like a real bargain to foreigners.

All opinions welcome......
By bottom fisher @ Monday, October 12, 2009 8:54 PM
Would any of you brokers care to offer an opinion regarding how much to offer on a typical island short sale deal? I've heard potential buyers should offer 10 - 15% below the BPO. (Less if it's been vacant for a long time, and possibly more if you want the bank to pick up the closing costs.) I've also heard these things can take a few months to close, even if the offer is ultimately accepted by the bank. ¡Ay, caramba! Of course I want to get the best possible deal, but I also don't want to waste my time making low ball offers that will never be accepted. The way I see it, I should be aiming for a price just above what the bank would get if they went through the foreclosure process. Somebody go ahead and tell me some horror stories about what can go wrong with a short sale deal, I want to know. I would also like to hear about how some successful deals came about. It's probably worth talking about, as there seems to be a number of these types of properties now on SPI, and you normally don't get much experience with this type of stuff when the economy is in better shape.

I'm convinced there is some money to be made on this island, but only if you know the in's and out's of flipping distressed property. I also think there is some good money to be made by agents that are good at dealing with deeply distressed properties. I remember during the last downturn seeing entire real estate offices spring up devoted to nothing but foreclosures, auctions, etc.

P.S. Webmaster: It would be cute if this website could quickly pull-up short sale deals. Perhaps even a special page for hand-picked deals that would interest investors/flippers. Just my 2 cents
By Mexico observer @ Friday, October 30, 2009 6:25 PM
Here is an interesting article for anybody interested in the SPI real estate market:

http://news.yahoo.com/s/time/20091030/us_time/08599193328800/print

It sounds like the Mexican government is getting a handle on their citizens who stash their cash outside of Mexico. If US banks are forced to report their Mexican account holders to the Mexican government, is it also possible that Mexican owned property in the USA will also have to eventually be reported to the Mexican government? Many people believe that half the property on this island is owned by crooked Mexican politicians and drug lords, though nobody can say for sure. However, if buying island property is no longer a viable way for Mexicans to hide their cash from the Mexican government, could the local property market eventually fall apart? I certainly can't predict that is going to happen, but this new trend in financial transparency across borders could have some serious implications for foreign investment of all types in our country. This is probably the result of the weak economy, as all governments look under rocks for new sources of revenue. Maybe this whole reporting requirement will all blow over as the economy improves. Let's hope so, because this can't possibly be good for the island property market.
By C.C.D. @ Sunday, November 01, 2009 8:22 AM
The biggest threat to South Padre is not from hurricanes or the world's current economic problems. It comes from Obama's desire to decriminalize marijuana, a trend already sweeping through Latin America. Although not openly discussed much, we all know where a lot of the "economic stimulus" came from to build and maintain this very safe, wonderful, peaceful, and family oriented tropical paradise. If they reform the drug laws in the USA, and/or the political system in Mexico, it could be a disaster for South Padre. Much more needs to be done to lure U.S. tourists and investors to the island ASAP, because that steady cash infusion from Monterrey probably won't last forever.
By Baghdad Beach goer @ Monday, November 02, 2009 6:58 PM
It's interesting that Baghdad beach, just south of the border, has never been seriously developed. The beach there is every bit as nice as on South Padre. I can understand why so many US dollars have been invested in South Padre, because it is the best beach in the USA for more than a thousand miles. But go ahead and try to explain why Baghdad beach in Mexico was never seriously developed. No easy answer. It's right there at the end of Highway 2, and receives lots of Mexican day visitors. The vast majority of the Baghdad beach tourists don't have visas to visit South Padre, so why don't we see tons of huge beach front hotels and condos there? Why have weathy Mexicans decided to invest in South Padre, and not Baghdad beach? Crossing the border isn't fun for Mexicans, so even decades ago Mexicans must have believed that there is something on the South Padre side of the border which they cannot get on the Mexican side. Let's face it, 50 years ago both places looked pretty much the same, with no serious infrastructure. Yet South Padre flourished, and Baghdad beach did not. Why?

My best guess is that wealthy Mexicans have always preferred to maintain their assets north of the border, where they don't have to disclose anything to the sometimes crooked and unpredictatable Mexican government. Perhaps SPI development just got started faster, creating a synergistic effect. Whatever the reason, now that SPI is fully developed, it's understandable why wealthy Mexican buy island property. I am however more curious as to why SPI attracts the majority of pesos from northeast Mexico, and Baghdad beach never seriously evolved. It's also a fair question to ask what would happen to SPI if there were fewer wealthy Mexicans, and/or no good way to hide their assets in the USA. Not a pretty picture for SPI.

I don't see how the Mexican government can ever accurately figure how many Mexican owned properties there are in the USA, much less exactly who owns what. You would need a heck of a national property data base to figure that out.

If US banks are now being required to disclose the monetary holdings of Mexican citizens to the the Mexican government, it could actually be GOOD for the island real estate market, as Mexicans pull their money out of US banks and wisely invest in SPI beachfront condos!

Bottom Line: It's time to start an advertising campaign in Monterrey, something like this: "Pull your money out of the US banks before the malo gringos report you to the Mexican government. Take your cash and buy property on beautiful South Padre where the Mexican government will NEVER catch you!"

Good luck to all you island realtors. (And always vote for the toughest drug laws possible, to keep that valuable drug money flowing into the South Padre economy.)
By Island life @ Tuesday, November 17, 2009 11:21 PM
Are we really going to see the upside of “a wave in the South Padre real estate market? Here are my personal observations:

South Padre has roughly one million annual visitors, but only about 5,000 residents. So what gives? Why do so many tourists believe this is the perfect vacation destination, but so few view it as a good place to live? The local school district in nearby Port Isabel is rated “ACADEMICALLY ACCEPTABLE” by the state, and you’ve also got a huge HEB and Walmart where you can buy just about anything you need. Not to mention some of the best water recreational activities and casual seaside dining in the state. So why is this wonderful island so often considered no more than a tourist destination?

Spend some serious time on the island, and you’ll better appreciate why more people don’t live here. Rent one of those beachfront condos, and you’ll enjoy the beach view, but soon likely discover a serious lack of closet space. Most of those condos are ideal for short term visitors living out of suitcases, but not for a serious retirement. Many condos also have a hotel-like atmosphere, conducive to property owners that desire short term rental income. It’s hard to get to know your neighbors when you have a different neighbor every week.

One very strange thing I have discovered is that if you have a condo in a complex that allows short term rentals, your rental income isn’t likely to pay the bills. Though the rental rates are very good in the peak seasons, those periods are relatively short compared to the entire year – seriously limiting your income potential.

So why would any serious investor buy a condo, and then rent it out at a loss? I think many of those owners later realize they need the money, and don’t plan to live there most of the year. I don’t know for sure, but it would seem logical that a lot of new condo owners become disenchanted with the total ownership experience sometime after they’ve owned the property for a while. You can’t ignore those significant monthly maintenance fees, especially if you live in one of those complexes that spends extra money for extra security and other resources to support short term renters. Now add in the special assessments for stuff like window upgrades, improvements and maintenance to common areas, etc. And then there are those nasty annual taxes that must be paid. Of course you also can’t always depend on the weather to support your rental income. Hurricane Dolly proved just how vulnerable this island is to tropical weather during the peak rental season. Another problem is that the island is relatively remote to most of the property owners who live in distant cities. South Padre is a great place to be when you’re on the beach, but getting back and forth to wherever you live can consume quite a few hours and dollars.

If you get sunburn on the island, you can go to the local clinic and get it taken care of fast by a great doctor with lots of experience. But if you decide to have a heart attack while you’re on the island, good luck getting to a hospital fast! They’ll take you by ambulance to the convention center, where a medical helicopter will take you to a hospital in Brownsville or Harlingen. (One time the chopper went down in the bay, costing the lives of the entire crew.) In other words, the golf course is great for retirement, but without any nearby major medical facilities, you’ll find it challenging to live on the island for an extended period of time.

I do think there are some good investment opportunities on the island, but not for your typical one-time condo buyer. Most good real estate agents will be honest with you and tell you that you can’t pay your bills by renting. You can try flipping, but that only works when the economy is steadily improving, and prices are rising. Some of these developers also make good money, but only if they “catch the wave” at just the right time. (Needless to say, a lot of developers have recently lost there *sses )

If you’re deeply deeply disturbed the “renting doesn’t pay the bills” phenomenon that seems to exist here, you’re not alone. I think any economist would look at that situation and come to the conclusion that it simply means there is an oversupply of rental properties on the market. No were else on the Texas Gulf Coast will you see so many condo high rises packed into each linear foot of beach line.

If that doesn’t scare you, also consider that this island has virtually no protection from tropical weather. There is no seawall on the Gulf side, only a bunch of dunes with huge open beach access points between them. If another major hurricane like Beulah hits this island again, the whole island will be virtually uninhabitable. The risk is so high that many owners are forced to get their insurance from an expensive state insurance pool, because few other insurance companies will touch them. Even little Hurricane Dolly proved how vulnerable this island is, and how poorly constructed many of its buildings are. To me the ultimate insult to potential property buyers is when some new development like “The Shores” advertises that their building walls are designed to break-away during a major hurricane (as opposed to building it right in the first place, and putting those buildings up on stilts!)

Did you ever walk along the beach during the peak tourist season, in front of one of those big high rises, and notice that 95% of condos have their shutters pulled down, seemingly vacant? In some ways island property looks more like some kind of “piggy bank” than a real city where real people live and work. It’s more like a place to stash your cash with the important dividend of providing you with a great annual vacation dividend.

I’m also not very impressed with the local government. It seems like there is too much silly bureaucracy to get any important work done, like fixing the beaches. Instead you’ve got the mayors of South Padre and Port Isabel doing silly stuff like stopping bridge traffic to get their pictures taken shaking hands – and pretending to be friendly. In the meantime they’re fighting a vicious and expensive court battle to see who gets to annex the unincorporated areas of the island. I would vote for somebody else, but during some elections there simply are not enough candidates available to fill all the ballot positions. So I guess we should be grateful for the local government we have.

Don’t underestimate the continuing beach erosion problem. This seems to be happening to most beaches around the world, and many blame it on global warming and rising seas. The scientists warn us to expect about a one meter rise in sea levels over the next hundred years, which would pretty much eliminate most of SPI’s beautiful beaches. Those slowly rising seas kind of messes up the dreams of any potential owner who hopes to eventually pass their beach condo onto their grandchildren.

I love the family oriented beach. Where else in the USA can you find teenagers on the same beach with their parents. I don’t care where those rich Mexicans get their money from, most are perfect citizens when they’re here. The island does that to people. When the winds are calm the water can turn a beautiful aqua/blue color, fooling you into thinking that you’re in some place like Nassau. (Especially true after a couple delicious margaritas!) There simply is no other place like this, and if you’re a US citizen, you don’t even need a passport to get here.

One of the best reasons to buy island property is to feel young at heart, which is especially easy do during spring break. It’s hard to feel old when surrounded by all the good freelance entertainment:

http://www.youtube.com/watch?v=nXnlp2Nj8Xs

Another good argument the realtors have in their favor is the relatively low cost of property on this island. Where else in the WORLD can you get a beautiful sea-side penthouse in a high rise for under $500K? Now add in those wonderful restaurants, and all those local recreational opportunities, and a bargain like that becomes real hard to turn down. Also consider that many analysts believe that property values in many parts of the USA are finally starting to creep back up, so the possibility of “catching a good wave” becomes a real compelling reason to buy island property right now.

Good luck to all you future island property owners and their agents.



Bytime for a serious auction on the island? @ Thursday, November 19, 2009 10:20 PM
I've been watching the number of island properties on the market for some time now. Earlier this year the number quoted by MLS broke above 600, and now we're in the low 600's. In other words, that big wave we're all anxiously waiting for still hasn't arrived. Maybe it's time all the island agents got together with an auction company and started to move a few dozen of the properties owned by the most motivated sellers. This could help put a solid floor under the entire island market, and in the short term provide some much needed income for hungry agents!

Make sure the auction company makes a serious effort to attract Asian buyers. Obama keeps printing money, thus lowering the value of the US dollar. That makes US property an all-time bargain for many foreigners.

http://www.cnbc.com/id/33997613
By condo buyer @ Monday, November 23, 2009 10:11 AM
I'm curious to know roughly how many condo sales on the island depend on FHA financing. Nationwide FHA constitutes about 35% of all mortgages, but I strongly suspect it is much lower here on the island. Given the new FHA condo rules discussed in the realtytrac article below, perhaps it would be safer for new investors to focus on higher end condos outside the normal FHA range, and/or single family homes which still qualify for FHA. (I would enjoy hearing a local mortgage broker's opinion on that. Alice, it would also be interesting if you could have a local mortgage broker contribute some material to this web site, describing the current state of the island mortgage market.)

Trying to get a good handle of this island real estate market is extremely difficult! Figuring out where it's going, and when, is even more difficult. I see no clear answer here. Right now I can only generalize, as it seems the overall prosperity of this island seems to be tightly correlated to the economies of Mexico and the USA. If you listen to most of the economists, it's going to be a long slow recovery. Maybe there isn't a "wave of buying" coming for the island anytime soon, but instead a long slow recovery which roughly parallels the national economy?

http://www.realtytrac.com/contentmanagement/realtytraclibrary.aspx?channelid=8&itemid=6783
By oil guy @ Wednesday, November 25, 2009 4:26 AM
I don 't see how Subsea 7 is going to provide any short term stimulus to the South Padre economy. Oil producers have idled more than half of the 78 offshore rigs in the U.S. Gulf of Mexico after oil prices plunged more than 50 percent since a record $147 a barrel in July 2008. Mexico's PEMEX, the national oil company, is facing an additional problem - their reserves are being quickly depleted. You would think that would cause them to spend much more on USA made drilling equipment for deeper water, but a lot of analysts believe that next year's exploration budget will be little changed next year. (Sometimes Pemex's spending habits are difficult to understand, much less accurately predict.) At the moment this financial turmoil in the drilling business is having a major negative financial impact on the big Texas equipment suppliers. (Haliburton, Hercules Offshore, Ensco International, etc.)

One could easily argue that the price of energy has a significant impact on the south padre real estate market. Higher gasoline prices mean that it's harder to attract visitors to the island. Remember last year when at least one condo rental agency was handing out gas cards to attract business? On the other hand, when the price of oil goes up, the new wealth generated in places like Houston tends to spread in all directions - including into the South Padre tourism and real estate markets.

Remember all the new island development that took place in the early 80's, after the price of oil had skyrocketed? That sure was good for the island's real estate market. (though all that new drilling really messed up the beaches with tarballs. The island's beaches may be eroding, but I would rather walk on a small clean beach, than a large one with sticky tarballs)

One small catch - to really improve the island's real estate market, the price of oil has to go up, and STAY UP. Oil companies have to believe that new exploration will yield good profits for a significant period of time before they invest in new drilling. Unfortunately for the island's real estate market, last year's spike in energy prices was short lived. That small blip might have helped stabilize South Padre's real estate market compared to other beach resorts outside of Texas. Any boost however was probably a small factor, compared to the much larger downturn in the entire world economy, credit availability problems, etc.

Does anybody remember what stopped most of that unrestrained island development in the mid 80's? The Mexican peso crashed, the savings and loan crisis impacted credit availability, and the price of oil fell sharply. History seems to be repeating itself, with arguably increased severity and the additional negative impact of last year's hurricane. The perfect storm.

On the bright side, being at the worst possible point in this current economic cycle could mean that it is the best possible time to buy undeveloped island property. (Don't forget the famous "buy low, sell high" rule) The island's land market seems to be nearly dead right now, and you can negotiate some fantastic deals. Unlike condos that have high maintenance costs and poor rental prospects in today's market, you can buy an empty lot and just pay the taxes on it until the market eventually rebounds. At some point those developers are going to start getting hungry for property again, and you can be there waiting for them! (Any prospects for the island to turn into the next Atlantis due to rising sea levels are probably many decades into the future, and greatly exaggerated, so you still have plenty of time to make some good profits.) I don't know when the next island real estate wave is coming, or how big it will be, history sure suggests that it's arrival is inevitable.

By STR Global hotel research firm @ Sunday, November 29, 2009 12:41 PM
"Executives at STR Global, the hotel research firm, expect demand to rise 1.6 percent in 2010, but average rates to drop 3.4 percent.

http://news.yahoo.com/s/ap/20091129/ap_on_bi_ge/us_hotel_overexpansion

A 1.6% rise in hotel demand in 2010 would be encouraging for island businesses, such as restaurants and beach outfitters. That isn't however much to look forward to, especially for business owners who are just hanging on during the current economic downturn.

The projection of a further 3.4% drop in hotel revenue would be even more disturbing, especially if it were reflected in the condo rental business. That could further depress island property values in 2010.

At some point there is going to be a recovery in the island real estate business, there is no doubt about that. It is however highly debatable as to when that next wave (or perhaps more realistically, the slowly rising tide) is coming.

How can property values rise if projected rental incomes continue to fall in 2010? That scenario would be difficult to rationalize. There could also be a damaging "lag effect", as many condo owners that depend on rental income finally throw in the towel after the spring break/summer 2010 seasons, and sell for whatever they can get in the fall of 2010. Although nobody but buyers want to see property values fall further, just seeing an increase in buying & selling would be helpful to the island's hungry real estate agents.

Don't sweat too much. Projections like this are hard to make, and almost always wrong. It's impossible for any buyer to correctly time the bottom of the island real estate market. If you bought today, you may be sorry a year from now. If however you have a long term perspective, the buying opportunities don't get much better than this. Also don't forget that the selection and availability of properties are unprecedented - an important buying factor that can't be ignored. It's hard to put a price tag on great selection, but it is certainly worth a lot.

So real estate agents, the next time you're dealing with a hesitant buyer, ask him how much it's worth to have such a great selection of properties. Surely that adds more than a few "invisible" dollars to the true value of any property they eventually purchase. Getting the exact property you want IS worth something extra, above and beyond the actual purchase price.

As for dealing with sellers, show them the article linked above. If they're looking for a better price on their property, it doesn't seem likely to happen in the next year. There is is already about a two year supply of properties on the market, and that isn't likely to change much anytime soon.

There is also a lot of overhang out there, that is potential sellers that would market their properties if there was any reasonable possibility of selling for a decent price anytime soon. I'm sure that many owners reason that if you can't sell your condo, then you might as well sit back and enjoy it until the market improves.

Eventually those "overhang" properties will come on the market, further extending the current dip in real estate values. Any recovery in prices will probably be gradual at best, and probably not happen until some time in 2011. We could however see a significant pickup in total sales later in 2010 as more sellers get serious - perhaps the real "wave" that so many agents have been looking forward to.

Hang in there
By Pent up demand? @ Monday, November 30, 2009 12:40 PM
Are SPI realtors seeing any evidence of pent up demand - such as lots of lookers & shoppers, but few serious buyers? Lots of web traffic but few actual results?
By rental observer @ Wednesday, December 02, 2009 6:54 PM
Notice what Service 24, a major condo rental firm on the island, has on their web site:

"Check our new lower Rates.... SEASON SPECIALS.... To get this RATE, please CALL OUR OFFICE at... Please mention this discount to our agent... Some units may not participate in this special."

First, I don't think this is any big news - they have been advertising "off-line specials" ever since the economy cooled off. To me it sounds like some of the condo owners have agreed to lower rates, hoping to undercut other condo owners in the hopes of luring the limited number of renters out there.

If the average base rental rates are still coming down, it's hard to imagine that island real estate prices are going up anytime soon.

http://www.service24.com/
By Supreme Court @ Wednesday, December 02, 2009 10:14 PM
SPI property owners and local government need to keep an eye on the upcoming beach erosion case currently in front of the US Supreme Court:

http://www.wjhg.com/home/headlines/78369247.html

I wonder if any SPI property owners would put up a serious fight if somebody tried to renourish the beach in front of their own property? That may sound nuts to most of us who feel we need much larger beaches on SPI, but I guess it is a serious issue in Florida.

The other interesting thing is that somehow this Florida town figured out how to get the Army Corp of Engineers to spend $100 million on their beach renourishment project. Now why can't we find money and resources like that? Maybe our mayor should assign somebody FULL TIME to get the job done.

http://beach15.beaches.fsu.edu/

One can only wonder why the Texas beaches receive no where near this amount of attention. We currently have beach houses being reclaimed by the sea up near Galveston, while these smart politicians in Florida are so far ahead of us that they're worrying about petty stuff like exactly what kind of sand to renourish the beaches with. It must be nice to have problems like that.

Seriously, I wonder why Florida takes so much better care of their beaches? They have a lot more coastline, that's for sure. Perhaps the various local coastal governments learn from each other, and maybe even compete heavily for tourist dollars? The overall Florida economy is certainly much more dependent upon tourism than the Texas economy, that could explain a lot.

I'm starting to become convinced that what this town needs is a stronger and more effective government to tackle the beach erosion problem. Florida has already shown us that it can be done, if you have the right priorities and determination. Let your local SPI politicians know that beach erosion is the #1 problem they should be working on. Nothing is more important to the value of our island property.
By Wall Street Journal @ Tuesday, December 08, 2009 1:46 PM
House flipping is making a comeback! Lower the price enough, and buyers WILL come....

http://online.wsj.com/article/SB126022588878780861.html?ru=yahoo&mod=yahoo_hs

By Beautiful Lady @ Sunday, December 20, 2009 6:58 AM
I want to buy land by that new causeway, once they figure out where it's going to go. That's where the money is to be made.
By beach advocate @ Tuesday, December 22, 2009 8:30 AM
I'm not sure what to make of SPI's beach erosion problem. Here is an interesting little video regarding similar problems in Cancun:

http://english.aljazeera.net/news/americas/2009/12/2009122243747328645.html

They seem to blame the Cancun beach erosion on "overbuilding" and hurricanes. I'm not sure I understand the "overbuilding" argument, but that's what they're saying. One of the overbuilding arguments I've heard in the past is that Cancun's past building boom sealed up channels leading into the area's central lagoon, which previously acted as some kind of pressure relief valve. In other words, some island overwash during big storms is desirable for natural beach rebuilding, but very undesirable if you own a beachfront hotel anywhere near the natural overwash area.

The environmental concerns in Cancun are confusing. They are using offshore sand pumping, much the same way SPI often uses channel dredge material to rebuild the beaches. The offshore pumping in Cancun has the environmentalists concerned about reef damage. The other concern is that the deeper offshore water will make Cancun more prone to damage from hurricanes.

I'm not sure what lessons can be learned from the Cancun experience for South Padre. I haven't heard any arguments against using channel dredge material, aside from the ugly black residue that stinks and takes a long time to wash away. Maybe we should seriously consider some kind of offshore artificial reef to hold the sand close to shore - similar in construction to the Brownsville Ship channel jetty, but parallel to the shore???? That would certainly be a lot easier than building a Galveston style seawall around the island. A reef project like that could greatly help island property values, proving to future investors that the island isn't going to wash away.

I also realize that such a project would be impossible in the current economic climate. Planning such a project would however show good faith - that the problem isn't being ignored.

The only other solution I see is cutting a few channels across the island to take the pressure off the beach during big storms. That would however require a lot of immediate property removal - a very expensive proposition.
By statistics man @ Tuesday, December 22, 2009 1:06 PM
Just for kicks, I dug into the MLS data base. We've got 451 island condos on the market, roughly a 2+ year supply at current sales rates. With statistics like that, I don't see how prices can rise anytime soon. Also, that is just the number of active listings, not the higher number that would presumably be listed if the overall market was in better shape. Let's face it, many prospective sellers simply won't waste their time trying to sell in a slow market like this. (so called "overhang")

If you look at the REALLY BIG picture, the situation isn't so bad. I did a very unscientific survey of about a dozen large condo complexes, and found that only 5 - 6% of the total existing condos are actually for sale on MLS. If this market were in total meltdown mode, the percentage of condos for sale would be much higher.

One legitimate way to look at this carnage: It is the opportunity of a lifetime to buy unique island property that seldom comes on the market. Most of the prime beach lots are already built and occupied, and the island definitely isn't getting any larger. Can't argue with that logic.
By wave predictor @ Wednesday, December 23, 2009 1:35 AM
I don't know when that "big wave" is coming, but hang in there, things WILL improve. Based on projected employment across the nation, it looks like Texas will catch the largest recovery wave:

http://www.usatoday.com/money/economy/2009-02-06-new-jobs-growth-graphic_N.htm

It doesn't look like a very large wave, or fast moving, but hey, at this point we'll take any size wave (or even rising tide) we can get! Also consider that South Padre represents some of the best value in the national coastal property market, an increasingly important consideration in this buyer's market.
By bottom fisher @ Wednesday, December 23, 2009 2:10 AM
It's probably time for you agents to come up with some new and creative new ideas for significantly reducing inventories on this island:

http://www.cnbc.com/id/34525266

First, hunt for one of these large investors or hedge fund (mentioned in the above article) that specializes in buying big blocks of distressed properties. Then get a bunch of serious sellers together, and have them to sign a guaranteed fixed price short term contract. In other words, tell the sellers: "we'll sell your condo for CASH within 60 days for this guaranteed price, or you're off the hook". In the end, everybody walks away from the table content that they got the best possible deal in today's market.

It's time for some serious "out of the box" thinking to start cleaning out all of this excess inventory, and get the South Padre property market moving again! And don't forget to invite those Chinese to the party, as they now seem to have most of our dollars $$$$$$$$.....
By Wall Street Journal @ Monday, December 28, 2009 7:24 PM
Developers must be wondering where the "sweet spot" is in the SPI market. Here is an interesting article from the Wall Street Journal which could shed some light on the more general topic of what class of properties are selling:

http://blogs.wsj.com/wealth/2009/12/02/the-new-flagship-for-philanthropy/

So now we've got the concept of a cruise ship with private estates for sale. It isn't a stretch to predict that most of those privately owned "on-board condos" are going to be empty most of the time. It reminds me of the exclusive Isola Bella beachfront condos on South Padre, in which most of the units are visibly shuttered most of the year. Rich people park their money in places like this, maybe coming out for a week or two each year for a little R&R. Other than that, their condos are deserted. (In some ways, South Padre is a big piggy bank.)

So now the high end ownership concept has found its way into the world of cruise ships. I'm sure the marketing guys did their homework before the venture capital guys invested a single nickel. One can only assume that catering to the rich is now the "sweet spot" of the real estate market, whether it be on a beach or cruise ship.

Perhaps the best approach for SPI developers and investors is to follow the cruise ship lead and focus on high end beach front properties, like Kirana? Cater to the people who still have money, and don't waste your time trying to sell anybody who can't afford anything less than a 1500 square foot 3 bedroom beachfront condo.
By charlesbrooks @ Thursday, January 07, 2010 7:29 AM
Influence can be defined as the power exerted over the minds and behavior of others. A power that can affect, persuade and cause changes to someone or something. In order to influence people, you first need to discover what is already influencing them. What makes them tick? What do they care about? We need some leverage to work with when we’re trying to change how people think and behave.

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