Here’s something you probably didn’t know.
There’s a county in Florida with no strip malls, grandiose hotels or overdeveloped suburbs. In fact, there’s only one fast-food restaurant in the whole county, a Burger King, and no one can remember where it’s located.
Now, I know what you’re thinking, I wandered into Disney World’s Magic Kingdom, but you’d be wrong. The most magical place in Florida is the remotely located Franklin County, where the panhandle of the state turns west out of the great peninsula. I use the term remote, because you actually have to get off the interstate to get there.
About 86 percent of Franklin County is state or national forest, wildlife refuge or state park. That leaves just 14 percent of the county in development, and most of that is along the waterfronts, most famously on St. George Island, a 22-mile-long barrier island, often recognized as having the one of the finest beaches in America. Even with about 1,500 residences, mostly stilt-built second homes, the fine, white sand beach of St. George Island is never crowded.
Franklin County is also a microcosm of the Great Recession real estate bust.
About 10 years ago, investors looking for that last great stretch of undeveloped beach lands in Florida discovered Franklin County — in particular its two second-home developments on St. George Island and the peninsula called Alligator Point — and they started buying and buying.
"A lot of the stories were the same," noted Paul Parker, owner/broker of Harbor Point Realty at Alligator Point. "Investors would drive east from Pensacola looking for beachfront, but those spots were so expensive they would drive further east. Here the prices were half what they were in other towns. The investors assumed growth would keep coming this way and they kept buying."
Alligator Point was tiny (600 homes and 1,200 potential lots) and not easy to get to, but investors piled in nevertheless. In 1995, said Parker, you could have gotten a nice Gulf of Mexico waterfront lot for $50,000. Ten years later, at the peak of the market, the same lot would have cost $1 million.
"I sold a house 20 years ago for a price of between $90,000 and $100,000," Parker recalled. "Then I sold it for $1.2 million. Three months ago, I sold it again for $320,000."
Franklin County is often called the "Forgotten Coast" because it boasts so many early- and mid-20th-century structures that were never torn down and redeveloped as shopping centers. By all stretches of the imagination, the real estate bubble should have bypassed Franklin County as did all prior Florida boom eras, but it didn’t. And in small markets, the bubble effect is even more pernicious. Homes prices rise quicker, and, in the busts, decline dramatically.
At Alligator Point, that lot that cost $1 million in 2005 is now worth $250,000.
"When you learn about real estate, they don’t teach you how fast value can go away," Parker said. "Hurricane Dennis hit here on July 5, 2005. I sold $22 million worth of real estate before the hurricane and $800,000 after the hurricane."
Franklin County has a small permanent population and a larger second-home population. Its biggest market is St. George Island, which is connected to the mainland by a five-mile causeway and counts about 1,500 residences, everything from stilted single-family houses to townhouses and condominiums to a gated community.
Of those residences, about 200 ended up in foreclosure, said Alice Collins, owner/broker of Century 21 Collins Realty.
St. George Island was first developed in the 1950s, but civilization came so slow that the original developers would give you a second lot if you bought the first. Basic prices were about $2,500 an acre for beachfront and $500 an acre of interior sites. In the 1960s, the first causeway was built and things improved, but not much.
"I moved to St. George Island in 1973 and we were the 16th family to live there year-round," Collins said.
After 20 more years, the beachfront lots eventually began to sell at real prices, $500,000 to $600,000. Then the speculators — err, investors — found the place and by the late 1990s and early 2000s, there was more flipping going on than at a Pancake House. One-acre, beachfront lots were selling for as much as $3 million, Collins said.
It wasn’t just investor inflation going on, there was also the grandiosity problem as well. In the 1980s, homes were still built small, with two bedrooms and two baths, then came three- and four-bedroom homes, then six-, seven- and eight-bedroom homes. Since most of these were second homes that could be rented, proprietors figured bigger homes would bring in bigger bucks.
When the real estate bubble finally burst across the U.S., tiny St. George Island was pounded as if a Category 5 hurricane had just passed through. Home values dropped by 75 percent. That $3 million lot now cost $750,000.
"There were many people who bought during the time of house price escalation and didn’t flip," Collins said. "They wound up underwater (an ambivalent phrase if there ever was one in Hurricane Alley), owning more for the property than they could possibly sell it for. We have been dealing with foreclosures and some short sales for the last four years."
It’s important to remember that the Franklin County market peaked in 2005, far ahead of the rest of the country. So, the question is, does recovery happen ahead of the country as well?
Sadly, that’s not the case, but Collins and Parker see sunshine after the housing hurricane.
"People who wanted to buy but couldn’t when the prices were so high have started coming around," Collins said. "These are not investors, but professionals with families."
Over at Alligator Point, Parker is seeing a brisk business from a different kind of client. "I sold over 70 properties this year," Parker said. "Most of my buyers are newly retired or getting ready to retire. They always wanted a place on the water and now they can afford it."