COVER STORY, JUNE 2005

THE GALVESTON ISLAND RENAISSANCE
Falcon Group’s Palisade Palms is alluring to second-home buyers and investors alike.
Haley Shuler

In the 1800s, Galveston Island was known as the “Wall Street of the Southwest.” It was a huge financial area, with the Port of Galveston being the largest port in Texas. It drew people from all over the United States on a primary or secondary home basis. But the storm of 1900, the worst natural disaster in U.S. history, brought success to a halt when one-third of the city was completely destroyed and 15 percent of Galveston’s population was killed. Though it has taken decades for the city to rebound, now, more than a century later, Galveston is undergoing a renaissance with the hopes of becoming the city it once was.

Falcon Group is bringing Palisade Palms, a $165 million club-class high-rise condominium project, to Galveston Island.

The east end of Galveston Island, as compared to the west end, is greatly undeveloped. The area contains The Galvestonian, which was built in 1983, and Islander East, which went up in 1973. “Down on the east end, there’s probably 1,000 acres and only two buildings,” says Richard Anderson, vice president of development for Falcon Group, owner and developer of the project. “When I first took our contractor [from Birmingham, Alabama-based Brasfield & Gorrie] to the site, he was amazed and remarked that it looked like Destin 25 years ago. There was nothing there and the land hadn’t been developed.”

Ground was recently broken on the two-tower Phase I of Palisade Palms, which will include 288 units situated within an 8-acre tract. The first phase comprises 478,000 sellable square feet and well over 1 million square feet of gross usable area. The 27-story towers will be built atop a three-level elevated parking structure and will be connected by a podium lobby that opens up onto the pool deck.

The development has enough amenities available to entertain visitors and residents indefinitely. “We have The Beachcomber’s Club — a hybrid between a daycare and a day camp for children who come down with their parents for the weekend,” says Anderson. There is also a fitness center, morning lounge, dining room/party area, media room, picnic area, children’s playroom and playground area, tennis courts, two swimming pools, two spas and a luau fire pit.

The curvilinear design of Palisade Palms sets it apart from other condominium developments. “The curvilinear construction is very unique, giving the development its own architectural persona,” Anderson says. “Basically, it’s more of a radius condition than linear, implying curvature.” The arched design affords all owners a view of the water. “There are only seven units per floor and a real tight core area, which includes elevators and hallways,” adds Anderson. “Each unit has a balcony that doesn’t look onto the other balconies — because of the curvature. And two of the units per floor have bay views and the other five have gulf views.”

Currently, Falcon Group has sold 190 units, or approximately 66 percent. In terms of dollar volume, the numbers are at 58 percent. “The way things evolved, at the beginning we sold a lot of the lower-priced units. Now, those units are no longer available and we’ve created such a momentum that people are not as price-sensitive as they used to be,” says Anderson. “From a national perspective, as compared to Destin, Panama City, Pensacola, Gulf Shores, Perdito Key and the like, Galveston is half-price. Right now the blend of all our units is running $350 per square foot.”

“Up until last December, the lion’s share of our purchases were being accumulated from a five-county region around Galveston,” says Anderson. “Then word of the project got out on the street and spread to a national level. In the last couple of months, we have been drawing buyers from all corners of the United States — except the northwest — who are willing to pay for the more expensive units because it’s still less than what they’d be paying in Florida.”

There is still the question as to whether buyers are viewing Palisade Palms as a second home or as an investment, and even Anderson believes that it’s almost impossible to separate the two ideas. Some purchasers will rent out their units, and others, especially those within driving distance, will elect not to rent since they will frequently use the unit on weekends and in the summer. But as Anderson points out, even investment-minded retirees who buy units will more than likely spend a month or two at the condo, warranting the label of second-home.

Many investment-oriented buyers are turning to real estate instead of Wall Street. “They are looking to place their hard-earned money in a real estate asset that is tangible and that they can use and enjoy, as opposed to placing it on Wall Street where there seems to be a high level of uncertainty as to whether that asset will appreciate,” says Anderson. “The average guy doesn’t understand Wall Street, and with the negative publicity that it has been receiving over the last 5 years, he doesn’t trust it either. He understands real estate better.”

The demand for the product has led to the late addition of 36 residences, adding five more floors to the original design, which comprised a 27-story and a 22-story tower. “Adding five floors just made sense,” Anderson says. “The market demand for the product was certainly there and the higher the density, the more efficient the operating costs are. Most professionals in the Texas residential real estate market would say that we were ‘burning them up.’”

Realizing the high level of interest in its project, Falcon Group decided to purchase an additional 16 acres adjacent to the original site, bringing its total land acquisition to 32 acres. The developer has not yet decided how to fill the space, and will rely on the success of the first few phases of Palisade Palms to determine the direction it will take. “Plans are up in the air right now,” says Anderson. “We plan to roll out subsequent phases but until we sell out of Phase I, we’re not going to focus on Phase II. Our velocity is such that we feel that we should be sold out soon on Phase I.”

The development of Palisade Palms is helping to fuel the renaissance that is currently taking place in Galveston. “By virtue of developing a residential project, with a relatively large number of people frequenting the property — people who wouldn’t normally be in that submarket — there will definitely be a positive impact to the existing retail community,” Anderson notes.

According to Anderson, 90 percent of the development on Galveston is going up on the west end of the island. Palisade Palms and a couple other developments constitute all the developments on the east end. “The first phase will bring money into the Strand area, which is on the east end of the island,” Anderson says. Galveston’s Strand National Historic Landmark District or downtown area offers more than 100 shops, restaurants and art galleries situated within 36 square blocks. “As we start rolling out Phases II, III and IV, there will be enough density on the east end on the beach area and retailers will start to position themselves to either buy land or lease to take advantage of that density,” says Anderson.

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