The Lengths We’ll Go: Building Luxury Homes in a Hot Market

FineMark Radio: Episode 5 Transcription

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David Scaff:

Hi, this is David Scaff with FineMark Bank. I’m the market president for Palm Beach County. Today with us, we have Carl Sabatello who is the CEO of Sabatello Companies. Welcome, Carl.

Carl Sabatello:

Thank you for your invite.

David Scaff:

Listeners are going to be interested in your perspective on real estate and Palm Beach. So that’s what we’re here to talk about. But first, before we get into those details, tell us a little bit about your company.

Carl Sabatello:

Well, we’re originally from New Jersey and relocated in 1978. I have been established in Palm Beach Gardens since that time.

David Scaff:

That’s great. 1978. So you’ve seen a lot go on in that period of time. What brought you to South Florida from New Jersey?

Carl Sabatello:

Well, it was actually scheduled. We were going to make a scheduled change. It was actually accelerated from some family issues that took place, you know, the passing of my father early, but we came here because of opportunity, number one in our business, and number two, the beautiful weather. Working in the cold of New Jersey was just difficult. So, this was the place to be. We felt that if we made the change when we were young, the transition would be so much better versus when we were older. It was an interesting story, how it all took place, because one of my brothers, Ted came to Florida and started up doing smaller projects, one home at a time, like a spec home in Singer Island. I remained in New Jersey and wound down the company and finished our jobs. Then I brought the company in Florida back up, increasing its level there.

It’s a family business. My father started it. One son joined it. I joined it when I came out of high school. I didn’t go to college and went right to the building world. Another brother went to college, and when he came out of college, he joined the company. So my father, and my other brother, Ted, and I, we were doing our thing. And then as we came to Florida, we had another brother join us. He was in the hotel business, hotel management, and didn’t like it any longer. He was traveling around the country. So, he joined us, and he handled our marketing and sales. Then our final brother Paul joined us, and he is the one who’s now in charge of the residential building in high end. He actually left medical school and decided he didn’t want to be a doctor. He always wanted to be in building and construction. So he left and joined us. So as time went on, each brother over time joined the company. The four brothers have been together since 1978, somewhere around there, 1979, we’ve been all together. My wife is in interior decorating. She would help with us in a lot of our projects that we did on the interior decorating side. So yes, it is truly a family business. And today, after all of the good and the bad, we’re all together and still doing our thing. It’s still fun. Like I said, as long as it remains fun, it’s not work, and you’ll always enjoy what you’re doing. It was a nice gathering of everyone coming together. It was great.

David Scaff:

That’s great. So, you were home building in New Jersey too, doing kind of the same thing?

Carl Sabatello:

Yes. We were home builders in Northern Jersey and also Southern Jersey on the coast. We’ve been doing that for a long time.

David Scaff:

That’s great. 1978, you said? Wow. Tell us a little bit about what changes you’ve seen in the market down here since 1978.

Carl Sabatello:

Well, the cycles have been very different. In the early days, cycles were pretty much predictable. The highs and lows were almost separated equally. You knew that you had to make money and do business during the recovery and the early part. Then the recessions came back, and the cycles repeated themselves, and it was kind of predictable. Those who prepared for a recession were always in better positions. And we always did that. We were able to have the luck and foresight to predict them. We were prepared for the downturns, and we were ready for the upturn coming out of it. Lately it has been very different. Palm Beach County specifically has changed. When we first came down, it was a lot of land and so many developments were coming up out of the ground. As time went on, the land was built out with new developments, so you ended up now where the cycle has changed to many of the homes being tear-downs. So, you either do major renovations or it’s a full tear-down, depending on the market. And that has been the biggest change over the last five to seven years. That has been the biggest change.

David Scaff:

Yeah, I guess one place where that has been going on for a while is the Town of Palm Beach, which has been built out for quite a while. But I read in the paper today that you had quite a blockbuster sale announcement for a new home here in the town.

Carl Sabatello:

Yeah, Palm Beach has been like other high-end properties and markets, with Palm Beach being extremely unique. It’s very, very different than the norm. The uniqueness of Palm Beach and the privacy and the community that they try to maintain. It is very special. There has been a change that has created a challenge for renovations versus new. So, what you’ve seen in certain areas, Palm Beach being one of them because of the requirements of the elevation, is the minimum floor elevation for flood level has increased. That has been a big problem. So homes that are older and built in the older days are lower. It’s difficult to improve those homes. You will see more of those homes being taken down because they’re too low. And then there’s another requirement that if you improve the home at a more than a 40% improvement ratio, you have to bring the whole home up to code to the current code. So you can’t go in and put lipstick on properties any longer. You have to do major improvements. So then you start making the business decision, as most people have been doing, and tear it down and just do new.

David Scaff:

The flood elevation requirement changed a few years ago, and has recently changed again, has it not? What is that elevation?

Carl Sabatello:

It continues to change as we learn more and as different problems happen specifically on the east coast. We had some major hurricanes here that had an impact to Palm Beach County. There was also a major super-storm up in the New Jersey and New York area. That again was another reason for the change. They had a big flood where the ocean connected to the bay, and everything was flooded. So, we have these events that take place, and as we learn and create changes, that becomes critical. Everybody wants to be higher. And of course, there’s a cap, meaning you can’t go as high as you want. You can only go at a certain level, and you must go to a minimum. There’s a fine detail that you have to deal with.

David Scaff:

So, they’re squeezing your property. So, the Town of Palm Beach we talked about as being built out for years and tear-downs and rebuilds going on, but when I moved here 30 years ago, the north part of the county, as you said, had lots of land to build on. That market has changed quite a bit, too, in Jupiter and Palm Beach Gardens. Tell me about the changes that you have seen there.

Carl Sabatello:

The change is the land — the opportunity to build and develop into different parcels of land. That has changed because the land is no longer there. For example, we were one of the first builders and one of the selected builders in many of the north communities: Admiral’s Cove, Old Marsh, Mirasol, Ballen Isles, PGA, Ibis. All of those communities had specific builder programs, which were selected after interviews of builders who offered something that would be complementary to their communities. That’s what we built in for many, many years. That changed. And in the real estate and building world, as in banking or in any business, the environment changes, but the core of the business never changes. You do banking the same today, 101, as you did 30 years ago, but it’s changed substantially. And the same thing with building, same thing with fashion, same thing with food: the core stays the same, but what we do today is totally different than what we did in the past. Not only in design, but how it is, the process. I remember when we came in 1978, we would make application for a building permit, which is the common situation. Plans were maybe four sheets, maybe, possibly, if it was really detailed five sheets. The building permit was three pages long, maybe two auxiliary pieces of paper and that was it. Today, we go in for a building permit and we have anywhere from three to four cardboard boxes of detail and plans and documents, all to the better. You know, it’s not to say that it’s something that’s been a requested for delay of anything, but it’s all to the better. The products are different. We’ve learned a lot over all of the storms and hurricanes that we experienced. So, things have changed. Codes have changed and how we do things today is very different than we did things years ago. But the core is the same. Building is building, if it’s a high rise or if it’s a one-story home, it’s the same.

David Scaff:

So, things have changed, and some things have stayed the same, but talk about the market from a standpoint of any change in people that are buying houses today, from what they were years ago, size of places, the features that people demand in houses today.

Carl Sabatello:

That’s changed. And the markets are very different. If you take Palm Beach, you have used that as a reference before. And when you say today, this is post-COVID. So, all rules are changed and everybody’s doing something different. We have a tremendous amount of younger people in the Palm Beach market that we’ve never seen before. Not only from the Northeast, the Midwest, California, Texas, we’ve never seen that kind of influx of people that are coming in. Families, young people, kids — it’s very unusual. Home is different now today than it was as you grew up and I grew up. We happen to be similar in age; I’m older than you, I could tell that.

David Scaff:

Thankfully there’s no video here to prove that, Carl.

Carl Sabatello:

But homes are different today, spaces and areas that people live in and how they use it is not the same. Family rooms are used differently today than 15, 20, 30 years ago. They are not as much the gathering areas; everyone has retreats in other spaces. A lot of the equipment and electronics change the home. The size of areas and how they relate to each other is very different today than it was. And it’ll change tomorrow. We’re getting near the Jetsons’ days now. We’re getting so spaces are smaller than they were, but there’s more spaces, more individual spaces for everyone. So, the homes are changing. Technology has entered into the homes. On your phone, you can do everything. Almost at this point in life, you can cook from your phone being somewhere outside of your home, push a button, turn on things, turn off things. So that’s something that is very, very different, not only in style and layout and plans and detail, but the technology has made a very, very big change to how we design homes and how people live.

David Scaff:

Has that presented a challenge to you or is it just different?

Carl Sabatello:

It’s different. There is always a challenge. Anytime there’s change, you have to learn the change. Your market and your buyer are asking for something different. You have to learn and understand what that need is. Sometimes they know, and in a lot of cases, they don’t know. They know what they want, but they don’t know what they want, or they don’t know how to get there. And that’s the challenge of professionals to bring that. And that’s the job that anyone needs to do, if you’re in banking or if you’re a builder or you’re a chef in a kitchen, it’s the same thing. Somebody knows that they want something, and the professionals bring those two together and make it happen. The challenge is there for sure. The first thing is to understand it, to learn it. How do I satisfy that challenge, that need of that buyer? And once I can understand how to satisfy that as a builder, an architect, a professional, once you understand their questions or what their needs are, you know how to bridge the gap and make it happen. So that has been a challenge; it’s always fun. Changes are fun. When you stop enjoying the change in your business, it’s time to hang up. So, it’s always fun to have change. Change is always the healthy part of any business.

David Scaff:

I think the listeners would love to hear some of the more unusual things you’ve been tasked with in terms of either design or build or something lately. Anything stand out?

Carl Sabatello:

There are a lot of quirky things people end up wanting and needing. I would say some of the ones that really stand out would be when we renovated the John Lennon mansion in Palm Beach for a real estate developer from Massachusetts. When we opened up the walls, you found hallways and rooms behind walls. The interesting one was a hallway that went down into a cave and connected the next-door neighbor to the property. There are stories of what had happened in those tunnels. That was kind of fun to open up and find something in a wall that you wouldn’t expect. We’ve opened up walls, and in a lot of cases, we found things that were pretty interesting like jewelry and money. Those things stick out with you. Well, what happens is people store things away and they hide things, especially older generations. They didn’t have a lot of trust in a lot of people in a lot of places. I don’t want to mention banks. But they would hoard these things in places. And then of course, they either would get ill and forget or die, and no one knew they were there. And when we start doing these types of things, that was always an interesting thing.

In design, most of the time people stay within the parameters. They understand that if they get too unique, their properties will become an issue possibly later on. But there are a lot of them.

The design is probably what really has changed. In the eighties into the nineties, it was bigger, higher, and more glass. More glitz was very, very popular. And then it softened off and less became more. Less became better. It was more an attention to quality and refinement, simpler, more Zen, quieter. A lot of the designs went away, the heavy look of homes. That again was a challenge trying to make it feel spacious without it feeling too big. And so that always became a challenge.

David Scaff:

You mentioned a few minutes ago just in passing about post-COVID, though 2020 was a tough year for a lot of businesses. What kind of impact did COVID have on your business?

Carl Sabatello:

Our business is extremely busy and remains extremely busy pre-COVID, during COVID and post-COVID. The difficult part was the challenge of trying to stay on schedule. It was difficult for workers in the field. I’ll take the field and I’ll work my way back. It is very hard for men and women physically to work in the field. And when they started having to wear masks, which reduced your breathing ability, that was really difficult. Your day of work or production would get lessened. The restrictions by the amount of workers on a job at one time was a challenge where you would have to almost plan and schedule differently. Before, if you take a residential home, you could have four or five, seven people, and different trades could be working at one time. Somebody could be working on landscaping or driveways on the outside, painters on the outside, trimmers, plumbers, electrical people, they all can work in harmony to get together. That all changed. So now it had to be a different type of scheduling. That was very, very difficult.

Materials and supplies are to the point now, it’s almost ridiculous. We are ordering our appliances for homes 10 to 14 months out from when we need them. It’s asking somebody to pick their appliances and their plumbing fixtures prior to even starting the slab of the home. It’s hard for them. They didn’t even think of that. You have to almost reverse the selection process because things are so difficult to find. And when you do pick something out, there is greater than a 50/50 chance that when you’re ready for that item, it’s either not available or it’s delayed, and you have to repick and start that over. So that was a challenge. And then back into the offices, of course, everyone’s experienced that, when you’re in the enclosed space, that’s a whole other restriction and difficulties that everybody has really experience when you’re within a closed environment.

So, yes, it’s been a challenge. Right now and going forward and post-COVID, I would say the biggest problem that is affecting the building industry, and I know it bleeds out to others, is labor and the amount of workers. I’ve been doing this for, I hate to say it, almost 50 years. It’s greater than 50 years I’ve been doing this, and I have never seen a shortage of laborers and workers of all levels, unskilled to skilled, and materials. Supplies have been so difficult to obtain. So, you have to be that much more diligent and be on top of your business plan to make sure that you’re out in advance of those items.

David Scaff:

So, what I hear is scheduling problems, lack of available labor, lack of materials, all those sound like delays to me. People always talk about how long is it going to take me to build a home? What are you counseling people today about how long it’s going to take to build their home?

Carl Sabatello:

Well again, of course, the complexity of the home matters, but it is very difficult for any professional to answer a client and not have the knowledge or be specific and have an answer. It’s an awkward position. It’s no different than if you went to the doctor and said, “I’ve got a problem. What should I do?” and he shrugs his shoulders like, “I don’t know.” That’s an uncomfortable feeling. So, it’s the same thing. You go to your architects or your builders and ask, “How long is it going to take?” You have to give them a very broad range. It could take anywhere from 18 months to or let’s say a year and a half to two and a half years. There first is a stare like “Are you serious?” and it is. They have to be prepared for the delay, because it’s very complicated when somebody is planning to move in a new home. It’s a whole different change. And especially when they’re moving from outside the state, and they have children. There’s so much that goes into it. It’s not that easy to move. Then when you give them a window that’s maybe 12 months, it’s difficult, but it is the problem today.

Unfortunately, as people see in the media, material prices are coming down and the availability is getting better. Well, that doesn’t hit the market for six to 12 months. It’s like saying a barrel of oil has dropped. We won’t see that when we put the fuel into our car until maybe months later, then you see that drop in the barrel of oil. So it’s the same thing with these materials. You’re not going to see change of availability, change of pricing until way down the road, which again, becomes another difficult problem scheduling.

David Scaff:

So, I guess when you talk to somebody about taking two plus years to build a house, it would explain the real demand placed on existing homes and the market being overheated and people snapping up available homes left and right.

Carl Sabatello:

Many people right now are buying something that they can move in quickly. They’ve made a decision to maybe move out of other areas of the country and come to Florida for many different reasons, but they’ve made that decision and they want to do it now. Of course, the market, as it’s being so difficult, less availability creates supply and demand, and supply and demand controls prices, no matter what you’re doing. Right now, we’re seeing extremely high prices. The supply is low. The supply is going to remain low for many reasons. Cost and materials are not part of it, but the availability of building a new home, finding a lot that is for sale that you can either renovate a home or tear down. The second thing is the approval process in some areas is very lengthy. Some areas are better than others, but the days of making a decision to get a plan and go in, get a building permit and receive a building permit from the municipality or governmental agency in a couple of weeks is history. It is very common that it’ll take months to get a building permit. And the more complicated the building, the longer the delay in how long it takes to do the plans. And after the plans are completed, then you can put in for a building permit and wait months to get a building permit. Then of course the construction period, when you put it all together, you’re talking a very long time.

David Scaff:

So, Carl a hot market, but a vibrant market. What concerns do you have?

Carl Sabatello:

Well, I’ve seen them. I lived them. I lived them all. I lived the market the crash that everyone will remember — the last one that took place. There were different forces, different elements, different reasons for that crash and the market flipping and going the other way. What is going to keep controlling this market is availability and product. As long as product stays of short, you will continue to have prices stay high. Not necessarily at the pace they’re at, although today’s pace has probably never been seen before, not in my experience. It may flatten, but it will still stay strong. The only thing that could happen is a hiccup if something happens nationally or something happens globally that is unexpected, that could be a blip. But I would not say that the market is going to soften, and it will stay strong for a period of time. Right now, the old words of, I guess it was Mr. Hilton, “location, location, location” in real estate today is extremely important. And those areas of quality are going to stay strong and they’re going to stay in demand, and the supply chain is going to stay low, and that’s going to put the pressure on it.

David Scaff:

So, Carl I’ll have one last question for you, and then we’ll hang it up. If I’m moving to Palm Beach County as a new resident and either want to buy or build, what advice do you have for me?

Carl Sabatello:

Keep your emotions in check. That is probably the worst thing that anybody can do. No matter what you buy. That is the dangerous part, emotions. Test yourself, ask the questions. Don’t overreach, just because you want it. Be focused, be diligent and be focused on your budget, stay within your means, and location, location, location. Even though it may be a delay, deal with the highest quality people you can. Don’t fall victim of somebody that could do it quicker, or you could get something that you were hoping to from someone else that you couldn’t, because there’s a lot behind that. You would have to ask the question, why is everybody so busy and take so long and someone else could do it quicker and different than others. That’s a formula for problems. So be careful, don’t overstep it and go to the areas that will remain strong for years to come. And that’s location.

David Scaff:

Great! Good advice, Carl. I thank you so much for being with us today. I’m sure our listeners will really appreciate your insights and thank you so much. We’ll see you another time.

Carl Sabatello:

Thank you very much.