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Ocean City’s economic expansion of the last several years has slowed and in some cases reversed trend for 2007. While most of the indicators studied were higher, the rates of increase tended to be lower. In the case of condominium sales activity, the trend was downward. The hotel statistics, after inflation, also trended to the negative. Fortunately, the construction pipeline is beginning to reflect the economic slowdown as construction permits for the town were off by 33% in number and by 68% in dollar value.
In 2007, of the eleven indicators that we follow, more than half were negative. Of the negative indicators, the most important was the condominium sales volume, down 10.62%. This reflects the slowing economy and imploding condominium market. Also down were construction statistics. The analysis below will summarize the most important statistics, provide explanations, and reflect upon their impact to the resort.
The number of vehicles crossing the Bay Bridge increased last year, according to the Maryland Transportation Authority. Average traffic volume in 2007 for the Bay Bridge was 37,101 vehicles daily, up 0.85% from 2006 at 36,788. Year-to-year increases occurred in all months, except for February, April and December, which showed decreases of -1.9%, -0.1% and -4.6% respectively.
According to Ocean City Golf Getaway, 278,969 rounds of golf were played in 2007, with 11 courses reporting, a decrease of 2.37% from 2006, at 285,728 rounds. Overall, golf courses in Ocean City continue to benefit the lodging industry and help extend the tourist season. Courses that have opened in the last few years have been favorably compared with those in Myrtle Beach, South Carolina. In total, Ocean City has two dozen courses, with no new courses opened or current courses closed in 2007.
Ocean City generated $262.2 million in gross hotel, motel and condominium rentals in 2007, an increase of 1.76% over 2006 ($257.7 million). This latest increase is well below the 2007 CPI, indicating that the tourist dollars spent on rooms have declined, relative to inflation. Another factor could be a siphoning-off of revenues to unsold condominium units that may not be paying the room tax. Also, the lower number of hotel rooms, due to demolition or conversion to condominiums may have an impact here. Revenues from rentals have remained steady since 2003, with an average annual increase of 0.26% over four years. The change from 2005 to 2006 was the largest, at 6.5%.
Ocean City’s tourists spend more time at the newest hotels rather than at the older ones. These properties for the most part support suites, large bathrooms and a generally higher level of finish. The older, well-established properties must continue to reinvent themselves regularly to compete with the newest additions to supply. Also, oceanfront properties lead the way in terms of RevPAR (revenue per available room). Differentiation is also accomplished by pricing, with the highest rates at the newest properties—specifically the Hilton Suites, Ocean City’s premier resort property.
Vacationers not only rent hotel rooms, they also spend money on food, clothing, gifts and other taxable items. The State tracks these items by county and we use these statistics in our evaluation of Ocean City’s economic condition. The retail sales figures reported for Worcester County in 2007 rose to $1.280 billion from $1.225 billion in 2006, an increase of 4.47% (0.37%, net of inflation). This figure indicates that consumers tended to buy roughly the same amount of goods but at slightly higher rates.
The Assessable Tax Base is the total of all assessed property values in a given area and is affected by physical growth, the economy and market prices. The Town of Ocean City’s estimated real property assessable tax base (full year) for the tax year beginning July 1, 2007 increased 27.84% in 2007 with a tax base of $8.492 billion. Worcester County experienced a 20.1% increase in 2007, with a tax base of $16.948 billion. Both the Town and the County have enjoyed extraordinary increases over the last several years. Home sale prices have declined slightly but, the assessable tax base lags for a year or two, so increases in the tax base are not unexpected.
Hotel Development
The former Santa Maria motel site, on the Boardwalk at 15th Street, is under construction with 91 rooms in a Marriott franchised hotel plus nine condominium units. Currently on hold are a 160-room hotel on 45th Street and a Hampton Inn and Suites with 82 rooms at 123rd Street, both on the bayside. Approved in January 2008 is the redevelopment of the Avalon Inn at 1st Street and Baltimore Avenue. Its 40 rooms will be razed and replaced with 84 rooms. Though not exactly a hotel, a proposed 94-unit boarding house is proposed at 2nd Street and St. Louis Avenue. The existing hotels are still holding their own with the highest rates and occupancies in the newest projects, on the oceanfront. According to the City government, there were no hotel units completed in 2007.
Condominium Development
Three condominium projects were completed in 2007, adding to the large inventory of unsold units remaining from 2006. Seven projects are sold out with a total of 141 units. An additional 427 units on Sunset Island are sold out.
| Recently Completed & Sold Out Buildings |
|
Building |
Location |
# Units |
 |
|
|
| Tamarindo - Phase II |
Oceanside, 56th Street |
6 |
| Sunset Island |
Bayfront, 67th Street |
427 |
| Coral Seas |
Bayside, 76th Street |
46 |
| Mariner's Watch |
Bayside, 21st Street |
23 |
| Thee Christina C |
Bayfront, 75th Street |
12 |
| Seaside Retreat |
Oceanside, 137th Street |
30 |
| Oceans Mist |
Oceanfront, 6th & 7th St. |
12 |
| Ocean Whisper |
Oceanside, 62nd Street |
12 |
|
|
|
|
Total Units |
568 |
There are 17 projects still in initial sell-out and comprising a total of 577 units. Of these, 386 units are still available. Of the 386 available units, 146 of them are new additions in 2007. The remaining 240 are left over from 2005 and 2006. A summary of these projects is shown below.
| Completed Buildings in Initial Sell-Out |
|
|
|
|
| Building/Community Name |
Street |
# Units |
Year Built |
|
Comments |
|
|
|
|
|
|
| Tamarindo - Phase III & IV |
Oceanside, 56th Street |
8 |
2006/07 |
4 |
units available as of 1/29/08
(1 unit in Phase III and 3 units in Phase IV) |
| Belmont Towers |
Oceanfront, Dorchester St. |
75 |
2007 |
56 |
units available as of 1/30/08 |
| Meridian |
Oceanfront, 60th Street |
79 |
2007 |
78 |
units available as of 1/30/08 |
| Broad Marsh Condos (10 phases) |
Bayfront, 69th Street |
15 |
2007 |
8 |
units available as of 1/30/08 |
| Bel Mare |
Oceanside, Somerset St. |
13 |
2006 |
5 |
units available as of 1/29/08 |
| 4100 Condominium |
Oceanside, 41st Street |
16 |
2006 |
2 |
units and 2 retail spaces available as of 1/29/08 |
| South Beach Boardwalk |
Oceanfront, Surf Ave. |
36 |
2006 |
11 |
units available as of 1/29/08 |
| Sea Bright |
Bayside, Wicomico Street |
20 |
2006 |
9 |
units available as of 1/29/08 |
| Bella Vista |
Bayside, 46th Street |
40 |
2006 |
31 |
units available as of 1/29/08 |
| Sunset Beach |
Bayside, 46th Street |
35 |
2006 |
25 |
units available as of 1/29/08 |
| Bahia Vista II |
Bayside, 10th Street |
20 |
2006 |
9 |
units available as of 1/29/08 |
| Emerson Towers |
Bayfront, Wicomico Street |
13 |
2006 |
10 |
units available as of 1/29/08 |
| Pier 17 |
Bayfront, 17th Street |
15 |
2006 |
5 |
units available as of 1/29/08 |
| Bahia Vista I |
Bayfront, 10th Street |
40 |
2006 |
24 |
units available as of 1/29/08 |
| Bay 1 |
Bayside, 76th Street |
20 |
2005 |
4 |
units available as of 1/29/08 |
| Laguna Vista |
Bayfront, 14th Street |
41 |
2005 |
14 |
units available as of 1/29/08 |
| Sunset Island |
Bayfront, 67th Street |
91 |
|
91 |
condos and 6 SFD available as of 1/29/08 |
|
|
| | |
|
|
Total Units |
577 |
|
386 |
units available as of 1/30/08 |
Oceanside Condos Under Construction
Several other projects were in various stages of construction throughout the year but did not open before the end of 2007. The Gateway Grand will be 196 high-end, high-priced oceanfront and oceanside units at 48th Street. As of January 2008, there were about 86 contracts reported.
Bayside Condos Under Construction
Nearing completion at 81st Street are 88 bayfront and bayside units, known as the Rivendell. This project has 14 units with pending contracts. Also nearing completion is the Makai at 42nd Street, a conversion of the Ramada Inn hotel into 96 condominiums. As of the end of January 2008, there were 26 contracts. Broad Marsh, a new development by Centex Homes will consist of 13 buildings with a mix of two and three-story units with garages, totaling 77 units. As of the end of January, 15 units were completed with six of those settled and one more to settle by mid February 2008. Construction is being paced with sales, on a building by building basis.
| Properties Under Construction |
|
|
|
|
| Building/Community Name |
Street |
# Units |
Contracts |
|
Comments |
|
|
|
|
|
|
| Rivendell |
Bayfront, 81st Street |
88 |
14 |
|
Completion scheduled for 3/08 |
| Gateway Grand |
Oceanfront, 48th Street |
196 |
86 |
|
Completion scheduled for 7/08 |
| Broad Marsh Condos (10 phases) |
Bayfront, 69th Street |
62 |
|
|
When 3 more units sell, construciton will commence on remaining units. |
| Makai |
Bayside, 42nd Street |
95 |
26 |
|
Ramada Inn conversion |
|
|
|
|
|
|
|
Total Units |
441 |
|
|
|
Condos in the Pipeline
There are 474 units are in the pre-construction phase and have received site development plan approvals. Most if not all of these units are on hold. It is uncertain exactly how many additional units might be in the conceptual phase but shelved until the condominium market resurrects itself. Below is a summary of the approved projects that are in the pre-construction.
| Properties in Pre-Construction Phase |
|
|
Building/Community Name |
Street |
# Units |
Comments |
|
|
|
|
| Smugglers Cay |
700 S. Philadelphia |
31 |
Granted extension on site approval plan (expires 2/08) |
| Cropper's Landing |
Bayfront, 1st Street |
94 |
|
| Ocean Isle (3 Phases) |
Bayfront, 67th Street |
146 |
|
| 45th Street Village Hotel & Condos |
Bayfront, 45th Street |
203 |
Project on hold - waiting for capital from other condos |
|
|
|
|
|
Total Units |
474 |
|
Condominium Sales
According to ARIS , Ocean City condominium sales decreased 8.5% from 811 units in 2006 to 742 units in 2007. This is a significant drop, although not as drastic as the 43.5% drop from the previous year (1,444 in 2005 to 811 in 2006). Average selling prices have leveled off at discounts of 1%, contrasted with average price increases of 23% and 9% in 2005 and 2006 respectively. The average selling price of a condominium in Ocean City was $412,091 in 2004, $450,838 in 2006 and $445,971 in 2007. These trends are illustrated in the chart below. The average number of days on market has been steadily increasing from 155 days in 2005 to 225 days in 2006 to 305 days in 2007. The graphs on the facing and following facing page illustrate trends and recent status of the market.
In 2006 there were 23 condominium units which sold for $1 million or more. In 2007, there were 39, a substantial percentage increase. Clearly, there are individuals willing to cross the million-dollar mark in Ocean City. 2008 will not have a similar number of sales in this price range as, even though the supply of these higher-priced units is comprised mainly of the larger buildings which were not available in 2007, we anticipate a hesitancy on the part of prospective buyers or existing contract purchasers in this tumultuous marketplace. Many of the 2008 sales should emanate from 2006 and 2007 contracts for late 2007 and 2008 delivery condominiums. Whether a significant increase can be expected is unclear, especially in light of higher risk standards on financing and, more significantly, the overall slowdown in condominium and residential real estate, nationwide. The newest larger oceanfront and bayfront projects for 2008 are: Belmont Towers, Gateway Grand, Meridian, and Rivendell. All told, these projects will deliver more than 400 such units. This flood of highly priced units will farther drive down the premium for oceanfront and bayfront views.
As a microcosm of the condominium market, we tracked sales in the Sea Watch, a 400-unit condominium erected in 1975 with about 360 identical two-bedroom oceanfront units, as illustrated on the chart below. This particular property was chosen due to the consistency in unit size, layout and orientation to the ocean. Since 2001, the average price steadily increased from $221,250 to $461,429 through 2006 with a modest decline in 2007. During the period of price inflation, the number of sales remained fairly constant until the peak in 2006. At that point, the number of sales dropped to almost half. In 2007 the price declined and the number of sales remained flat. In 2008, we anticipate lower prices and an increase in volume as condo unit owners become increasingly impatient with the market doldrums.
Conclusions/Outlook
There has been a steady drop in units sold and condominium prices are no longer increasing. Instead, condominiums took a sidestep or in some cases, a slight downturn, coupled with a significant increase in number of days on market, and a needed decrease in permits and construction starts. Relative to the net proceeds of sale, increased marketing time and reduced price have a similar effect. Therefore, while average prices showed a modest decrease, the net effect, including the increased days on market, results in an effective price decrease across the board. Pricing or other concessions will be the key to selling out the over-supply of condominium units.
In summary, families vacationing in Ocean City are continuing to flock to the resort at the same numbers seen last year, and the resort businesses are in a good position to benefit from this consumer spending. The general trend of off- and shoulder-season visitation growth continues to be buoyed by the convention center, various planned festivals, attractions, the area’s golfing amenities and a fascination with the explosion in the condominium market. Ocean City will continue its growth, albeit with cyclical periods of reduced development, well into the future.
As always, we'll see you at the beach!
David H. Brooks, CRE, MAI
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