January Guest Column: Is the Luxury Market Dead?
- Jan 02, 2009
By Yosi Gil, principal, J. Milton & Associates In preparing this column, I am working backwards, addressing the outlook for the next three to five years. This approach allows me to tackle the relevance of luxury real estate to our economy faster than walking you through a history of the term. Therefore, let’s start by looking at luxury in today’s climate and where it’s headed.In the short term, true luxury product will hold its value, and will see the quickest rebound in price. This holds especially true for boutique product because there is less of it around.Conversely, large buildings tend to have a profusion of investor-owners, thus a longer turnaround time for all the units to resell and recapture their value. Higher-end product also tends to feature larger square footage. When you have more living and sleeping areas (rather than efficiencies and one-bedroom units) you have a more marketable product because people can actually utilize the space and live and vacation there with family.This functionality translates into faster absorption by end users when compared to smaller units. What is luxury, anyway?During the real estate boom, many ordinary buildings were inappropriately marketed as luxury product. Although, what one consumer deems as one of “the finer things in life” is mundane to another, luxury real estate can be universally defined (or at least categorized) by services offered.Most condominiums in South Florida offer a pool deck. Many offer a fitness center. But only a handful offer the latest technology seamlessly integrated into the lifestyle, with handheld iPod devices that act as personal butlers. The luxury real estate buyer is always looking for waterfront property and a turnkey lifestyle, so what differentiates one product from the next is the level of service you provide. Of course, the finishes and the quality of construction are the yardsticks used to even appropriately label something luxury; however, luxury is now a standard. Therefore, developers need to outdo themselves each time because affluent buyers, who have other homes around the world and have seen it all, have come to expect it. At St. Tropez (pictured) in Sunny Isles Beach, for example, the convenience of shopping and dining in a European “town center” environment just downstairs from the towers has been a major selling point. The finishes, private marina and boutique size are also draws, as are fully finished units. The latter is a new phenomenon brought on by the slowdown in the market. Developers are having to give more, so what was once delivered as a decorator ready unit is now sold entirely finished with walls painted, flooring installed, and furnishings.Even at St. Tropez, which has an impressive list of amenities, the real distinguishing feature is the service. St. Tropez treats its prospective buyers like royalty and maintains that level long after they’re homeowners. It starts by assisting them with securing financing, guaranteeing the quality of work and presenting information more readily on such things as tax ramifications.Who is buying luxury product? We’re still seeing an influx of Europeans and South Americans and continue to have New Yorkers purchase at the higher end. The only change is their criteria. They now look for the most high-end product at the best price. This is not because they cannot afford to spend the money; it is because they recognize the value in the asset and are confident it will recapture its value in the long term. Another demographic is the locals looking to upgrade. In today’s market they know they can find great deals if they move up. The fact is that developers need to work harder and deliver more. Even if someone is qualified, it is hard to obtain financing. As a result, credible developers create buyer incentive programs that include gift giving and customer relationship management and many even work with preferred lenders, because they have longstanding relationships with banks. The other marketing approach that seems to be working is modifying your target. Instead of focusing on investors, developers are now talking to the end user and as well as the person who wants to upgrade their standard of living without the hefty price tag historically associated with moving up to the higher end. Service is the frontrunner, and interior appointments are a close runner up. Of course, buyer expectations vary. Security systems are paramount to South Americans, while Europeans lean toward top-line appliances and brand names, because those products are typically prohibitive in their respective countries. Then there are additional “over-the-top” expectations. One buyer requested a helipad on the roof of his unit because it is what he had in his home country, Brazil. While developers can do a great deal to wow their clients, there will always be something to aspire to. (Yosi Gil is principal of J. Milton & Associates, a South Florida real estate developer.)