Those looking for signs that the economy is improving need to look no further than tiny Sagaponack Village and its environs.
There, more than a dozen real estate speculators each have risked seven-figure investments to build towering mansions, on the assumption that they will be able to sell them for millions more when they are completed. Most of the projects required investments of several million dollars for land and construction costs, and will sprout houses upward of 9,000 square feet in size—and asking prices topping $10 million, and $20 million in some cases.
Such speculative real estate plays, known commonly as “spec builds” in the construction and real estate industries, are nothing new to the East End. But the number of projects, and the enormous dollar amounts attached to them at both ends, are remarkable, even for the nation’s most expensive neighborhood.
“I would say that maybe a half of all the new dwellings that have gone up here in the past 18 months or so were done by speculators,” said Sagaponack Village Mayor Don Louchheim. “I was surprised at the number of spec houses being built here, and at the scale of them.”
A tour of Sagaponack and its fringes in westernmost Wainscott and easternmost Bridgehampton will pass at least 15 speculative construction projects, and several other parcels that are in the earliest stages of planning but will soon be home to new construction. All are located within an area of less than 2 square miles.
The asking prices for the nine properties that have been put on the market already—several are only just getting under way—range from $8.25 million to $24.5 million. Three are more than $20 million, and only one, a 6,800-square-foot gambrel-style cottage built on 1 acre off Wainscott’s Main Street, has an asking price of under $10 million—just under.
Real estate watchers say the flood of speculative activity in and around Sagaponack was brought on by a combination of a more secure economic outlook, the steady climb of the stock market, and what may have been the discovery of a not-fully realized demand for giant, new houses in a farmland setting, among the wealthiest house hunters in the New York region.
“[Builder] Michael Davis had those couple of big hits that were over $18 million and over $20 million in the last year or two, when the market was supposedly not hot, and everybody’s jaw dropped,” said Paul Brennan, the head of Prudential Douglas Elliman’s Bridgehampton branch and a Sagaponack resident. “Everyone was waiting for him to drop his prices and get out of Dodge with his checkbook intact. But he made two big scores.
“After that, a lot of people said, ‘If he can do it, why can’t I?’” he continued. “So they rolled the dice.”
And those are big dice to roll. The price for building lots in Sagaponack, which must be at least 2 acres in most of the village, ranges from $4 million to $9 million. With building costs for the sort of high-end construction that such investments demand topping $700 per square foot—before the basic appliances and amenities, like $20,000 refrigerators and $100,000 movie screens, are installed—a builder could have more than $10 million invested before a house is even listed for sale.
And yet those who have the most interest in such investments think the market is there.
“The investor class is back in the market in a significant way,” said Andrew Saunders, founder of Saunders & Associates, the Bridgehampton real estate brokerage that holds the listing on several of the large speculative projects in and around Sagaponack. “They have decided en masse in the past year or so that the time is right to deploy resources in the Hamptons again.
“This is a very dispassionate, very smart group, and they have decided it is purposeful to invest,” he added. “I guess the proof will be if these homes actually sell, and for what price.”
Mr. Saunders noted that for most of recent history the very high-end market, which includes houses upward of $10 million, was almost exclusively the realm of the estate sections south of Southampton Village and East Hampton Village. But recent sales seem to indicate that Sagaponack has started to enter that realm, for a variety of reasons: dwindling availability of desirable lots in other villages, a trend among über-wealthy buyers wanting houses with more modern interiors and amenities, and Sagaponack’s large amount of protected farmland that ensures there will always be open vistas and ocean breezes.
“Sagaponack is in a category by itself, because of the reserve fields,” said Brown Harris Stevens broker Chris Burnside. “[In] Southampton, you have the high hedges. Bridgehampton is centrally located, but it doesn’t have that farmhouse charm.”
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Mr. Burnside is not only a broker, he’s an investor in one of the spec builds now on the market in Sagaponack: a 7,000-plus-square-foot house that hit the market a month ago with a $14 million asking price. Despite so many large projects hitting the market in a small area, he said the numbers are deceiving, and that the supply of houses for that market is actually fairly low.
“Rentals have gotten so crazy—seven figures for a rental—and the financing rates are low,” Mr. Burnside said. “Buying makes more sense than ever, and if you’re looking for a $15 million house, there’s just not that many places to go.
“And buying new construction is what most people want now,” he continued. “People don’t, in general, want to deal with a custom project. Buying new, you’re still getting the same thing, except the builder is assuming all the risk and dealing with all the hassles.”
Builder Michael Davis said he is, likewise, confident that all of the spec builds currently on the market, including two of his own, will sell—most of them sooner rather than later.
“I don’t feel the market is flooded at all,” he said. “There is a dearth of quality out there. When we sit down with a customer and discuss the amenities they want in a custom house, not everybody goes for all the bells and whistles. But the house we build on our own—it is totally loaded. There isn’t an amenity they don’t have, to justify the sale price.”
The impact the flush of building will have on Sagaponack is an unsettled question. With still relatively sparse development and zoning that has whittled the number of vacant lots south of the highway down to only about 20, new residents are never going to tax the village’s infrastructure the way they have in other villages.
But the continued evolution of a once rural farming hamlet into a zip code sought after by some of the world’s wealthiest people is apparent to those who have lived there the longest.
Mayor Louchheim noted that because of the dearth of vacant lots, a substantial number of new houses are going up on lots that were previously developed and, in most cases, featured smaller homes that were demolished to make room for mansions. The recent purchase of a historic farmhouse on the corner of Sagg Main Street and Sagaponack Road by a builder with plans for another spec build project for a much larger, modern structure was discussed at Monday’s Sagaponack Village Board meeting, ominously.
“Any modest house is going to be demolished and replaced by a built-to-the-max structure,” Mayor Louchheim said. “I think there is a sense of sadness but inevitability among our residents.”