Real Estate August 31, 2010, 5:41PM EST

Still Rising: Spec Houses Worth $20 Million

In Palm Beach, the Hamptons, Aspen, and Greenwich, luxury home builders keep developing megamansions—and hoping for buyers

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Enzo Morabito, a luxury real estate broker in New York's Hamptons, saw a line of people at his open house on Aug. 29. The property was a new, $25.95 million spec home by Michael Davis Design & Construction at 232 Parsonage Lane in Sagaponack, N.Y.—the country's most expensive small town, according to Businessweek.com. By the end of the day, more than 75 people had passed through the mansion. "That is an extraordinary turnout," says Morabito, executive vice-president of Prudential Douglas Elliman Real Estate in Bridgehampton, N.Y. Equally surprising, given the tough environment for builders: This is Michael Davis' biggest and most expensive house ever.

Amid concerns about unemployment, an uneven housing rebound, and difficulty getting financing, some elite developers continue to build ultra-luxury homes on spec—for sale on the open market, not for an owner. Some cost even more than the residences they built during the housing boom. In high-end markets such as the Hamptons, Beverly Hills, Calif., Palm Beach, Fla., and Aspen, Colo., a number of new spec houses have entered the market this year in the $20 million range. A few are asking for far more.

The costliest new spec house for sale is 1220 South Ocean Boulevard, an estate in Palm Beach that recently listed for $84 million.It is the most expensive house that builder Addison Development has built in its 30-year history, and one of the most expensive homes for sale in the entire country.The company also recently completed a house on El Bravo Way that is asking $47.5 million.

"A lot of people think I am a big risk-taker. I really don't see it that way," says Dan Swanson, president of Addison Development in Palm Beach. "We do something special. We see a market for this."

location—and room to park 50 cars

Some of this luxury inventory entered construction during the housing bubble. "No one knew how bad it would get and what the depths were. Not that we would have stopped anyway," says Swanson. While the timing is not ideal to list an $84 million house, "I don't know that I regret it. If we could see the future, I may have waited."

Timing is critical, but with spec houses, location is number one. Swanson began building 1220 South Ocean Boulevard in 2007, just as the housing market was crashing. The 27,300 sq. ft. residence sits on 2.5 acres of valuable waterfront land near the Bath and Tennis Club and Donald Trump's Mar-A-Lago. It has eight en suite bedrooms, nine bathrooms, a 60 ft. pool, a separate guesthouse, and room to park 50 cars. "We got stuck in this economy in the middle of building," Swanson says. The upside is that he now is selling the only new oceanfront homes in Palm Beach.

"That is the right street to be on for $84 million. It's right on the ocean," says Philip White, president of Sotheby's International Realty.

The house has attracted some interest this summer, and Swanson estimates he has so far had about 12 showings to qualified cash buyers. Nearly all were from the U.S.

In the Hamptons, Michael Davis started building 232 Parsonage Lane during the summer of 2008. The English country-style house is set on 7.5 acres, which is exceptionally large for properties in Sagaponack and includes a pool house, a restored 1700s antique barn, and a carriage house with a three-bay garage. At $25.95 million, it is Davis' most expensive listing ever. (His previous record was a home asking $19.5 million that sold for $18 million three years ago.) Morabito, Davis' broker, says he received a $20 million bid from a European buyer shortly after the house listed in March, although the deal fell through when the euro depreciated.

business up 50% so far this year

The economic downturn still has not deterred Davis. Last year he started pursuing a new project in Sagaponack and in February 2010, he began construction on an additional area home at 243 Hedges Lane. Listed at $19.5 million, this one is scheduled for completion in March 2011. Rather than use the term spec house, he prefers to call his products "custom houses without owners." "We're building speculatively, but at a level that is much higher than the normal competitive house built on spec," he says.