Real Estate Boom

Buy, build, sell: The boom is on.
By RICHARD DEGENER - Staff Writer, (609) 463-6711
Published: Tuesday, December 13, 2005

Updated: Tuesday, December 13, 2005STONE HARBOR - Dale Pritz comes to the shore for its sandy beaches, cool ocean breezes and a $1,000 per day. That isn't what Pritz pays for his shore vacation. That's what he gets every day his investment property sits here. "They're going up $1,000 a day. I did the math," Pritz said. Pritz, who owns a body shop in York, Pa., is one of many real estate investors flocking to the New Jersey shore to make some quick money. Eight months ago, Pritz bought a modest rancher on 87th Street for the not so modest price of $965,000. He demolished the rancher, for the value is in the land, and built a $390,000 mansion more befitting this island of upscale homes.He planned to sell in 2006 for a substantial profit. Pritz had not listed the house because there are tax advantages in keeping it for a year.His plans suddenly changed. "Somebody came along with a lot of money. He just walked up and said, 'Is this thing for sale?'" It may be the understatement of a new era along the shore. At times, it seems the entire shore is for sale. Pritz took the $1,875,000 offered and muttered all the way to the bank."I don't know where these New York people get all their money," he said. Even after paying capital gains, something he would have avoided by holding onto the property for a year, he made a huge profit. He's already invested in another house on 89th Street.The experts say the unprecedented shore building boom is fueled by outside money as real estate investors, retirees, and summer vacationers line up to get a piece of the shore. Pritz, 52, fits all these categories.He is an investor who since 1980 has bought and sold properties in Avalon and Stone Harbor. He's on his seventh house, each time making a profit and buying another property. But Pritz, who describes himself as "just a regular guy," is also a summer vacationer. At any given time he owns a house at the shore and can use it for visits. Some day, in the not-too-distant future, he will get out of the body-shop business and live here permanently. Until then, he might as well keep making money."I'm just a little guy. I'm just your standard schmuck that gets a mortgage and buys a house. I wait a year, and then buy something more expensive," Pritz said.Pritz started out small, buying a $76,000 property in Avalon 25 years ago. The adage of buying low and selling high hasn't been much of a challenge for Pritz in recent years. No matter what an investor pays, the value seems to increase. Even if he did not tear down the rancher and build the new house, he would have made money. He paid $965,000 and said he could have sold it unimproved a year later for about $1.3 million.Even with New Jersey's new "millionaires tax," which costs him $12,000 when he sells a house, and a recent tripling of the real estate transfer tax, Pritz said shore real estate "still beats the stock market." He turns the properties over in just a year, and this keeps interest payments on the loan to a minimum. He pays no capital gains so long as he holds the house for year, during which he can rent it, and then he uses the money to buy a more expensive property."You can do as many as you want as long as you buy for a higher price," Pritz said. He tears down modest bungalows and builds much larger houses because that's what the market wants. The new houses have wood floors and custom cabinets. Still, Pritz noted he lives full time at one of the best properties in York, and it isn't worth one-third the price of the houses being built here.It's all about location. It's all about proximity to the Atlantic Ocean. As long as the ocean is there, Pritz doesn't see the bubble bursting."Everybody says it's going to end, it's going to end. It could slow down. They can go flat, but they don't go down," Pritz said.Someday Pritz expects to retire here and in Key West, Fla., where he also invests in real estate and has seen it skyrocket in value. He will summer in Stone Harbor and winter in Key West."When I first bought in Key West, it was a fishing and drinking town. I bought my first house for $100,000. Cruise ships moved in, and now real estate is going through the roof," Pritz noted.When he is in Stone Harbor, he will see some people from back home. Many York residents have already retired here. Some build as an investment and a place to vacation. Philadelphia lawyer Mike McKeever owns the house next door to the one Pritz just sold. He vacations there with his wife and four children. McKeever recently built his $900,000 home as a vacation home and investment."My brother said, "You can't sit on the deck of a mutual fund,'" McKeever joked. The Future There are no amusement parks, seaside motels, mini-golf courses or pancake houses. It may not even matter, since there are few tourists to support such businesses or housing for the workers needed to operate them.In this picture of coastal Cape May County in the not-too-distant future, the landscape is more cluttered than ever. There is more construction, even though there are fewer people. It's urban sprawl with a twist. There is more housing but fewer people living in it. None of it is affordable to people of moderate means. In the winter, most homes are empty.In this new world, the shore is condominiums and second homes owned by rich retirees and investors who have driven up real estate prices that locals, working in a tourism economy, simply can't afford. Year-round residents have all but disappeared. There are no local schools because there are no children left.Farms no longer exist because the agricultural lands have been gobbled up for development. Condominiums rise along back bays that once were home to busy fishing docks.If this image of the county's future alarms you, consider this: It is already happening and will continue at a growing pace. That is the view of an expert who tracks such trends. Richard Perniciaro, Director of Atlantic Cape Community College's Center for Regional and Business Research, envisions a shore owned entirely by the wealthy. He questions whether the working classes will be able to afford a shore vacation much less a shore home."The middle class is being priced out of the shore," Perniciaro said. What's more, Perniciaro said the trend that began on the barrier islands is spreading rapidly to Cape May County's mainland towns. Perniciaro has some advice for young people born in the county who hope some day to live the American dream here with a suburban home, a yard, a white picket fence and a swimming pool."Move to Montana." Perniciaro said. The last big building boom at the shore came more than three decades ago when the federal government guaranteed flood insurance. This new boom began in the late 1990s as the stock market went soft at the same time mortgage rates dropped. Perniciaro said the Sept. 11, 2001, terrorist attacks were also a factor since they convinced some to take money from the cities and invest it in safer areas.Perhaps the biggest factor is the sheer number of baby boomers, a group defined as those born between 1946 and 1964. They are getting richer and closer to retirement age. Many are buying shore homes as an investment, a place to retire, or both."Ten million baby boomers will retire a year once the 1948 kids start retiring. The peak are the 1957 and 1958 kids," Perniciaro said.This present generation of shore dwellers may not be the big loser. They are selling the family property at a huge profit. The real losers would be future generations who will be unable to afford to live here. There are some big winners. Perniciaro said the construction industry will add hundreds of jobs during the next decade. Last year, $310 million was spent on construction materials, and the first four months of 2005 saw another $146 million expended."The construction industry is 10 percent of the economy in Cape May County right now. It's huge. It's only 5 percent in Atlantic County," Perniciaro said.Cape May County Tax Administrator George R. Brown III sees the trend eventually pricing locals out of their homes, or at least preventing young couples from being able to buy their first house. He showed figures from shore towns that document rising real estate prices. In one study, homes in Ocean City were appreciating at a rate of 24 percent per year. This has happened for two consecutive years in Ocean City, Avalon, Stone Harbor and Sea Isle City. A trend that began in 1999 finally hit the Wildwoods in 2003 and is now starting to appear on the mainland."I'm already seeing 2 percent (per month) appreciation rates offshore. One concern is the pricing is outpacing our income. We have a service economy. We have a ton of people in the $60,000 to $70,000 salary range. They won't be able to buy here," Brown said.Ten percent of Cape May County is being bought and sold each year - 10,000 property transactions annually. Brown remembers a 1984 magazine article that said a shore home would never sell for more than $1 million. The average purchase price now in Ocean City is about $1 million. It's $1.2 million in Stone Harbor and Avalon.To buy a shorefront house requires $200,000 down and a mortgage of $4,800 per month. That doesn't include property taxes of at least $5,000 - for a second home, no less.Perniciaro said that in 10 years, as baby boomers age, the barrier islands will be retirement towns. As they build out, he sees the trend moving inland at a quicker pace."The demand is just crazy, and it's just the start. Baby boomers aren't even retiring yet. This is just starting," he noted.Perniciaro sees the tourism economy shrinking and the retail sector changing to different types of businesses, catering to the retirees who have replaced tourists. Expensive restaurants thrive while small businesses fail.Outside forces could slow or stop the trend, since it is linked to larger factors such as the stock market, and even current events such as the recent hurricanes in the Gulf and rising energy prices. If city officials want to slow the trend, Perniciaro said, they could do so through zoning. He suggests larger lot sizes, zoning against multi-family dwellings, and restricting new water lines. Some have even suggested having the government acquire large tracts of land just to build affordable housing for the people who grew up at the shore and can't afford to live here. It's all part of the new economy at the shore.

To e-mail Richard Degener at The Press: RDegener@pressofac.com