Successful Developer Says ‘Galveston Will Be Fine’

Galveston County Daily News, September 6, 2009
by Laura Elder

GALVESTON — After Hurricane Ike, speculation swirled that Houston developer Randall Davis would abandon Diamond Beach, a mid-rise condominium resort and spa under way on 8.5 acres at the seawall’s western edge.

Davis’ answer to skeptics? “Absolutely not.”

Next month, buyers will begin moving into the $55 million first phase of the project with pale pink and white facade that includes 117 units and an unheard of $4.2 million in amenities.

Diamond Beach is the first major development to come online in Galveston since the Sept. 13 storm and a general collapse in real estate nationwide and is doing so at time when the once-rocketing local condominium market is struggling to regain momentum.

Location, Location, Location

Diamond Beach, where prices start about $400,000, has more than the typical package of perks to lure buyers. It has a cascading pool, a narrow, serpentine channel of pool water 750 feet long dubbed the Lazy River, a swim-up bar, state-of-the-art fitness center with Gulf views, a private theater room, a private beach, an indoor pool and an in-house spa.

But the rarest amenity of all is its location. It’s the only such development on the Texas Coast with both seawall protection and direct beach access, Davis said.

After holding the prime parcel for years, John Sullivan and family sold the tract to Davis in 2005 for an undisclosed price. Davis bought the tract when the island was booming and developers were flocking to the waterfront.

One hurricane and a recession later and it’s a different world.

From Jan. 1 to Aug. 1, 74 condominiums sold in Galveston, compared with 142 for the same period the year before, according to data from David Bloom, a Realtor with Condos of Galveston.

“Considering the economic climate and the status of many of the island’s condo complexes that are still undergoing storm repairs, condo sales and leasing activity remains relatively moderate,” Bloom said. Leasing, however, was boosted by an influx of contract workers, insurance adjusters, utility workers and others who needed housing, Bloom said.

And Ike may in the long-run be a backhanded boon for the city because a lot of older properties are being completely renovated after the storm, he said.

Market Challenges

Slower sales can be blamed on a mortgage crisis, brought on by years of loose lending practices, that began stinging markets across the nation in 2007.

Buyers aren’t necessarily shy. After all, it’s a buyer’s market, Bloom said. Island condominium sales might have been more robust had it not been for uncertainty about some storm-damaged properties, Bloom said.

“Two of the greatest challenges that remain obstacles facing the island condo market are the difficulty in obtaining mortgages for second homes and vacation properties and the implementation of special assessments being levied on owners at many condo properties to cover the deficiency between actual repair costs and the amount of insurance settlements,” Bloom said.

Neither hurricane damage nor financing is an issue for Diamond Beach. IBC Bank, its preferred lender, is offering 90 percent financing for eligible buyers, Realtor Martie J. Terry, director of sales at Diamond Beach, said. But Diamond Beach isn’t immune to what ails other developments.

Sapphire Vs. Diamond

“Obviously, we were hit with the economy and the hurricane,” Davis said.

As of last week, 63 Diamond Beach units were under contract. Davis expects sales to pick up as construction of the first phase nears completion and buyers can “see and touch” the finished product.

He has a peg to hang that on.

In 2008, Hurricane Dolly hit South Padre, home of one of Davis’ newest projects, a high-rise luxury development called Sapphire. South Padre Island fared better than Galveston did in Ike, Davis said.

Sales are brisker there even though buyers are paying $75,000 or so more for units than are Diamond Beach buyers, Davis said.

Ike was only a temporary setback, however, he said.

“I’m feeling better than I did a year ago,” Davis said.

“A hurricane every 28 years isn’t the end of the world.”

‘Galveston Is Going To Be Fine’

Crews already have planted 200 palm trees at Diamond Beach and 40 more are on the way, along with truckloads of white sand for the private beach.

Davis noted that first-phase buyers will get to enjoy amenities meant for twice as many units.

The second phase, which will include another 120 units, likely is two years away.

“I’ll start as soon as I sell the first phase,” he said.

Last week, Davis, who has earned a reputation as a solid developer with a keen eye for detail through successful luxury projects in Houston and Las Vegas, donned a bathing suit and, with margarita in hand, became the first person to test the Lazy River.

“We’ve delivered a world-class resort,” he said. “Galveston is going to be fine.”