Brother Act — Say the Word, LUV
The smart one sees an L in Europe, a U in the U.S., and a V in Asia, plus bumpy.
A Scramble on Brambleton, Va. for Big Builder’s DC-Metro Dream Team
This is the third in a series of short video reports on a reality-show like component of Big Builder’s educational and networking event, coming Nov. 16-20, 2009.
Watch TV? Think one part “The Apprentice,” one part “Iron Chef,” and one part “Dancing With the Stars,” and you’re onto what’s going on here.
The event is virtual. The theme is “Accelerate the Positive,” and the assumptions of the developers are that executives want to hear their peers’ ideas on how to design and create a business model around American consumers’ new normal.
Affordable but highly valuable; sustainable and highly practical–a half-dozen executives from competing companies in five different markets are actually working together to conceptualize, collaborate, and communicate their vision for a community that could come online in the next 12 to 36 months.
Big Builder editor Sarah Yaussi reports here on our kick-off project call with the Washington, DC-metro team of executives.
Let me introduce the D.C. crew:
- Alan Shapiro, Winchester Homes. Shapiro started gracing the pages of Big Builder magazine in earnest in early 2008, when he took over as president of the Weyerhaeuser subsidiary. Under Shapiro’s leadership, the Maryland-based builder has focused on product and branding under its high-end Camberley Homes brand and its active adult brand Artistry Homes. In addition, the company’s dabbled in some universal design and green building
- Dan Ryan, Dan Ryan Builders. You may recognize Ryan’s name; he is from a long and distinguished line of home builders, some of whom founded some of the industry’s best-run companies. Anyone heard of a Ryland Homes or Ryan Homes, by chance? Most recently, Ryan served as the cover model for Big Builder’s annual private builder report.
- Craig Collin, Pulte Homes. Collin is a fresh face and wonderful addition to our Big Builder event. He’s got a fantastic reputation in the market as Pulte’s vice president of construction operations for its Northeast Region. In addition, Collin has received accolades for his commitment and success in green building.
- John Clarke, Elm Street Development. As regional partner and vice president for one of the D.C. metro area’s hottest developers, Clarke is the go-to guy for land acquisition and development in Maryland. And he’s a Harvard MBA to boot.
- Debbie Rosenstein, Christopher Communities. A true sales and marketing maven, Rosenstein has years of experience on the housing market research side of the business. If there’s anyone who knows what D.C. metro buyers want in today’s environment, it’s Rosenstein.
- Rohit Anand, Cubellis. A 22-year design veteran, Anand currently is managing partner and residential practice group leader for the Northern Virginia arm of design firm Cubellis. You may recognize some of Anand’s work from the pages of Big Builder; he and his team have participated in past Big Builder design challenges from 2008 and 2007.
Where’s the Power in Numbers?
Demographics giveth–and when we mess with it–demographics taketh away. Demographics was so full of promises right around the middle of this past decade, so what went so wrong?
Developers and home builders, bankers and investors, Home Depots and Sunglass Huts alike all staked their futures in a big big way on the promises of demographics and its lift across the land in households, spenders, employees, etc. Now, everyone’s chastened, as household growth is closer to .8% than it is to the 1% we’d banked on, as apartment vacancies reach a quarter-century record high of 7.8%, and as months’ supply of existing and new homes for sale still stretches to double-digits supply on a national basis.
Really though, we may refer to demographics as if it is a force of nature shaping economic destiny, but it’s not. It’s a statistical science, aimed at illuminating people patterns.
Much as it may seem like a vengeful god, exacting penance on those who dared to futz with the natural order of household formation and homeownership, demographics is but a study of households and their make-up of people, ages, gender, educational attainment, income, and race and ethnicity. It really isn’t so much an agent of change as it is a way of understanding change.
What we’ve found it difficult–and painful–to learn is that a populace by its existence may correlate to economic expansion or contraction, but more people doesn’t necessarily mean more business. What we’re seeing these days is the effect of more out-of-work people. It means household growth slows; rents fall; vacancies mount up; potential households “double-up.”
“Home buying accelerates when prices are going up and decelerates when prices are falling,” notes Dowell Myers, professor of urban planning and demography at USC. Myers notes that long term demographics is a good-news, bad-news story for real estate developers. Growth–in aging people, immigrants, and the young adult Echo Boom cohort–is certain.
With all that, though, is what Dr. Myers calls “an explosion of problems” that we’re slogging through right now. Just look at our pain points right now–housing, healthcare, energy, the economy and finance, and immigration. Just try to separate out any one of these problems from the rest. They don’t allow looking at one at a time.
Professor Myers will be addressing what happens to household growth during deep economic downturns as part of his remarks for the Developer-Multifamily Executive Conference, Tuesday, Oct. 13, at the Bellagio in Las Vegas. “We’ll take a look at the data from the 1930s and see what happened with household formation patterns; I’ll be interested to see what comparisons there are to now.”
As will we.
Home Buyer Tax Credit 2.0
Many believe that every facet of the housing boom of the early part of the 2000s was pure economic pathology, a loosely knit series of white-collar crimes perpetrated by those unrestrained by scruples upon those undeterred by sound judgment.
Ones without principles stray into evil with impunity. The unknowing ones swept into the “everybody wins” jetstream are hardly more innocent–ignorance alone is never an excuse, especially when many of those “taken for a ride” leapt at the illogical “opportunity” to get something wonderful for nothing.
There being no innocents, the conclusion of those who regard the financial and real estate bubbles as pure malfeasance is that fire, brimstone, and cathartic correction must level the place and start afresh.
Nobel laureate Princeton economist and New York Times columnist Paul Krugman writes about those who believe in the economy as if it were an self-filtering ecosystem that–left untouched–would find its quickest route to recovery.
It’s all there: mass unemployment is necessary, because you have to shift resources away from sectors that got too big, stimulus is a bad thing because it slows the necessary adjustment. And now as then, the whole notion falls apart when you ask why, say, a housing boom — which requires shifting resources into housing — doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.
And this has exactly what to do with high volume home builders just now? There’s one critical measure we’re going to be looking at for the next several months as job numbers keep getting worse. That is “temporary” hours. Once hours among temporary workers start to expand, the recovery will really have started. So far, that metric is still getting worse.
So, here at the intersection of Smith and Keynes, big builders need to choose their lane. The problem here is that “big builders” are not a homogeneous bunch. They are different in magnitude, geography, business model, and just about every other characteristic you can talk about, except that they together account for six out of every 10 of the half million new homes being bought these days.
Today, a public home building company CEO’s looking at another year ahead of mostly finding ways to value-engineer product and swap out land enough to drive volume, turns, and cash. Most privately capitalized companies are trying to find lenders who’ll bankroll going vertical on land that can more and more be gotten for a song.
They’re different as day and night from one another, but if they’re going to have a business to build on during 2010, they’re going to need to speak with the same conviction for the same goals, and it’s past time now to decide what those goals should be.
If only this once, home builders from Tampa to Tucson to Tacoma and from Orange County, California to Orange County, New York, should pick a lane and unify.
The issue is this: people do not get the the theory behind the home buyer tax credit. Many voters see it as a hand-out to “haves” in society paid for in great part by people not fortunate enough to cross into homeownership. Many elected officials see it as that, or as a hand-out to big builder companies that helped build too many new homes in bubble markets, inflating the price of homes everywhere. Many economists see it as an extravagant means of depleting the pool of renters to “shift the deckchairs on the Titanic.”
What’s not clear, after all, is that a home buyer tax credit stimulus–the one that would really work if it included all buyers of primary residences–works in multiple ways on the economy. It works not only on stoking demand and removing vacant and for-sale units from the stock of homes regarded as excess inventory.
- It creates jobs
- It builds communities where owners have a greater stake in taking the baby-steps toward developing a new local economy
- It creates demand for consumer goods and services
- It creates positive impact on earnings
- It creates more jobs
Calculated Risk’s big argument against the extension, expansion, or continuation of the tax credit for home buyers as part of the ARRA stimulus program is that he asserts that it’s a hugely expensive way to get incremental home purchases, and ones that rob the rental universe, to boot.
What Calculated Risk discounts is a housing tax credit’s impact on the broader economy. To get household growth back to where it needs to be, it’s going to take jobs. But first, it’s going to take more temporary hourly wages as the need for inventory grows.
Stimulate demand in home purchases at all price ranges, and temporary hourly wages will start climbing again.
Fact is, government policy and private sector market forces are going to have to work with and around each other for another couple of years as the economy recovers from the past two years’ shock.
It’s a tough dilemma. Do you support further intervention in the economy? Or dropping it in favor of letting the market correct itself?
Are you guys together on this issue or no? Do you have the voice in Washington you need to make your case, or no? On this issue, home builders — large and small, Rust Belt and Sun Belt, public and private — should find a way to pressure Congress to do the right thing.
Big Builder’s Dallas Dream Team Goes for Real Time Land Claim
The Big Builder ’09 Virtual event has a reality television element to it. Five teams of hand-picked executives from competing companies in five different geographies coalesce around a challenge. Take a real piece of available land in Southern California, Phoenix, Dallas, Atlanta and DC, and come up with a plan for a viable community.
The land parcel is similar to the “secret ingredient” in Iron Chef America, where competing chefs create a multi-course dinner using the ingredient in every part of the offering.
In the Dallas market, it’s the Northwest Dallas area that has the most vitality right now, so Big Builder’s hand-picked executive Dream Team — John Landon, president and CEO of John Landon Homes; Jamie Bigelow, president of Bigelow Homes; BSB Design partner David Copenhaver, Charles Merdian, CFO at LGI Homes, Tony Albachiara, and real estate broker Paige Shipp (formerly of Mercedes Homes) — are bent on finding a piece of land they can sink their proverbial teeth into for a near-term opportunity.
Big Builder editor Sarah Yaussi introduces her audience to the team, its land dilemma, and the team’s race to zero in on a parcel that will merit their efforts to conceive, develop, design, and pencil out a business plan for a new community.
Will they make it? The clock is ticking. Only 20 or so days left before they’ll have to serve up their collective concoctions for the Big Builder Virtual ’09 event.
Here’s Sarah Yaussi’s analysis in a four-minute video.
Education and Networking, Big Builder Virtual Style
Doing more with less. This could be the tagline for society as the “new normal” hunkers down to stay with us for a while.
So Big Builder, which is a magazine and a community and a set of values, is going with the do-more-with-less flow in its development of an education and networking event program for the Fall of 2009.
The Big Builder Virtual ’09 event is officially under construction. We expect the “welcome center” will be flying its flag within a few weeks.
Meanwhile, here’s the notion behind the conference.
And here at the starting gate of one of Big Builder’s big-time initiatives, editor Sarah Yaussi describes a conference call she had yesterday with members of a Southern California centric “Dream Team” of executives who’ll be hatching their ideas and business thoughts to present to Big Builder audiences live beginning November 16.
Follow-the-Money Bright Lights Set for Las Vegas Panel
Suddenly, this month the M&A movers and shakers blinked. Capital markets opened for business. Deals are back. Risk’s rewards–as opposed to only its lashing penalties–are emerging afresh as an enticement to cash patiently sitting on the sidelines. Assets both real and in commercial paper have gone from free-fall to suspended animation toward the first flicker of the new valuations they’ve sorely lacked these many months while the world of assets was stuck in limbo.
Now, as equities regain traction and investors steadily gain confidence and fear missing an opportunity, it’s high time to find out what real liquidity there is out there. The moment has come to understand real money’s peculiar appetite for real estate, and just what it will take to move it from being bundles of horded cash into working capital.
If 2008′s eerie radio silence on the residential land deal front was only occasionally interrupted by a net operating loss-motivated divestiture here and there, the first nine months of this year have offered quite a different picture of transaction activity.
Truth be told, many of real estate’s ”Done Deals” have been one-offs, each one triggered by its own urgencies on the parts of seller or buyer groups. We’re not seeing a national trend here, mind you, and we’re nowhere near normal deal-flow yet, but that’s mostly because bank repossessors haven’t had reason to move land assets out of their claim. Too much public sector money around, or at least the suggestion of it, gummed up the works of a normally functioning price reset.
In residential land, this past spring and summer saw a flurry of finished lot deals. Foreclosure sales, short sales, distressed sales, and highly motivated sales brought home buyers–especially at the entry-level, non-contingency level–swarming back into the market to look at their options. Home builders who’d retooled their entry-level product lines to win the comparison battle with existing foreclosures found that demand was picking up, and an $8,000 first-time home buyer tax credit that kicked into effect in February and effective on all purchases from January 1, 2009 on, sealed the deal.
Home builders pounced on finished lots because they were selling out communities and needed to reload. They could pencil take-downs at a higher price than private equity or hedge fund money because they could grab some margin on direct construction costs, book the cash, and keep their operational pulses pumping.
Greg Vogel, CEO, Land Advisors Organization
Greg Vogel, chief executive officer for Phoenix-based Land Advisors Organization, has been in the trenches, particularly in Southern California and Arizona, and saw “the lights go on” on finished land deals with multiple bidders beginning in April.
Still, 2009 has begun to witness its fair share of activity in more than the Phoenix and SoCal markets, and among more than home builders.
“We’re seeing more deal-flow now than I have seen ever,” said Charles Schwartz, a principal at Winter Park, Fla.-based Avanti Properties Group, a land and real estate investment group operating in 25 metro areas. “I’d characterize deal-flow as serious inquiries, negotiations, and transactions, and we’ve got more of that going on than we’ve seen in years.”
Vogel and Schwartz are part of a super-group of private equity, investor, and financial advisory powers we have slated to go over the “Deals Done” landscape as part of the Developer conference taking place at 3:30 pm, Tuesday, Oct. 13, at the Bellagio in Las Vegas.
Vogel–who’s so stoked about the imminent prospects of land transactions that he’s expanded his Land Advisors Capital talent pool by adding veteran home building and real estate expert Irene Carroll as senior director of business development, and has tapped designated broker Anthony H. Lang and market expert Rick Hildreth to open up a Las Vegas office–will moderate a “follow the money” panel that will look at where the land asset transaction market is and where it’s going.
In addition to Vogel and Schwartz, here’s who’s on the panel:
- Michael Forsum, west region president, Starwood Land Ventures
- Richard Gollis, principal, The Concord Group
- Laurence Pelosi, director, RBC Capital Markets
- Andrew Stark, executive managing director, Cantor Real Estate
The five panelists and Vogel will explore the drivers behind 2009′s deals, diagram out the metrics, the multiples, the rates of return hurdles, and what’s in play as risk returns as a deal catalyst among investors in all asset classes. Whether it’s single- or multi-family, for sale or for rent, these fellows have their finger on the pulse of every real dollar already working or ready to go to work in real estate.
What’s more, they’ll plot the timing and trajectory of continued demand for finished lot inventory, and begin to plot the time-line for the resumption of demand for raw properties, assigning return hurdles and horizon dates based on path of growth expectations as they’ve been reset.
To sign up for the Developer Conference, follow this link.