The Real Deal Miami

Palm Beach prices bend, don’t break

By Sally Apgar | May 06, 2009 01:48PM

The transformation of the Palm Beach home of Bernie Madoff is complete, from trophy mansion to a target of picture-snapping tourists and troops of teenagers toilet-papering his house in retribution for the loss of their trust funds.

The biggest public slam to Madoff just came from a court-hired appraiser who reported the house had dropped in value from $9.4 million in 2008 to $7.45 million in 2009. Palm Beach County, known for its lowball values, had appraised the home at $7.45 million in 2007, according to property records.

Some real estate experts have pointed to the Madoff house as an indicator of the posh playground’s overall drop in residential values. Since the height of the market during the summer of 2006, values have dropped 20 percent. But across the bridge in West Palm Beach, the city on the intracoastal waterway, once designed as servants’ quarters to the winter retreat for the wealthy, values have dropped 50 percent or more.

In Palm Beach island, where the ugly or uncivilized is often hidden, The Real Deal was able to uncover only one foreclosure, a $10 million manse owned by Tom Petters, a Minnesota businessman who was indicted in December on 20 counts arising from a $3.5 billion Ponzi scheme. Most homes on the island have no mortgages, according to area bankers and real estate experts, making foreclosures rare.

“It’s amazing how well Palm Beach has held up,” said Laurence Leamer, a journalist, part-time resident and author of the recent book, “Madness Under the Royal Palms,” that vivisects Palm Beach society.

“The market has gone down 20 percent, which is unheard of for Palm Beach, because things never go down here,” said Leamer, “But given what’s gone on across the bridge, it’s held up quite well.”

At the time of Madoff’s December arrest, some investors descended on the 13-mile island hoping for bargains from those who had lost the family fortune either to Madoff or various Wall Street catastrophes.

But bottom-feeders were dismissed like rude guests, according to Paulette Koch, an agent with the Corcoran Group who has trafficked in island homes, often with her son, Dana, for 30 years.

“The bottom feeders made bids, but they never got any place,” said Koch. “Now a few are coming back, but with much, much better bids.”

There are 251 homes on the market priced between $799,000 and $72.5 million. Realtors agree that’s a glut by Palm Beach standards, but said about 300 homes hit the market during the mansion-flipping glory days of 2004 to early 2006. Back then, some investors made 25 percent profits.

Not now.

“People who bought in 2006 will take a bit of a hit,” said Koch.

Veteran realtors like Koch and Jeff Cloninger are optimistic. They say traditionally people shop for houses during the winter charity gala season, when the island population swells from 10,000 to 30,000. That migration ends around Easter and many return north. That’s when the house buying begins.

“I think if we’re not at the bottom of the market, we are extremely close to it and the buyers are coming out and the floodgates are about to open,” Cloninger said. “A year from now, some people are going to wish that they had bought in 2009.”

Frank Cardo, vice president of Anderson-Carr Realty, has monitored the Palm Beach market for 30 years and says the Madoff house drop is due more to the stigma of its owner than a market downturn.

“It’s like a haunted house or O.J. Simpson’s house in Brentwood,” said Cardo.

Cardo said the ordinary aspects of recession don’t affect islanders, though he admits Madoff and other Wall Street wipeouts do. Despite the losses, he said most islanders still have significant wealth by “the standards of normal folk.”

“It’s a funny island. People here have lots of money and they don’t think like you or I do,” said Cardo. “They will pay market price for the house next door and tear it down for a tennis court. They will buy a house and gut it because they don’t like the color of the flooring.”

As Cardo reads the numbers, Palm Beach homes under $6 million have seen drops in value, but the ones over that have not seen a dip.

Some celebrity-owned homes appear safe from the financial hubbub. For example, rocker Rod Stewart’s lemon yellow seaside manse that he bought in 1994 for $7.2 million is valued by Zillow.com at $32.6 million. And radio personality Rush Limbaugh’s ranch is rated at $45 million. Parrothead song writer Jimmy Buffett is living the fat life in a home he bought for $4.4 million in 1994. It’s estimated to be worth $31.3 million today.

Koch’s Corcoran Group sold a newly built Oceanside estate for $12.5 million in March, down from its asking price of $13.9 million. Koch said the selling price “was more realistic.”

Palm Beach fire sales are rare because owners of $30 million seaside estates typically own several other homes and may spend only a month or two a year in Palm Beach. They typically have several homes and fortunes in excess of $100 million. These are not their primary homes. They are not being transferred or forced to work elsewhere and therefore in need of selling.

Most Palm Beachers who want to sell can wait it out, he said.

“What’s interesting is how long these people will hold out to sell a major house, even if it is irrational,” said Leamer.