Master-planned Communities in Austin, TX
1/22/08 - Austin home builders moving into void as national builders retreat
By M.B. Taboada
AUSTIN AMERICAN-STATESMAN STAFF
Sunday, February 24, 2008
The struggles of the national housing market are changing the face of development in Central Texas, delaying some projects and causing big builders to back out of others.
The changes could have long-lasting effects on the local real estate business, experts say.
Cash-strapped national home builders, stung by problems in Florida, California and other troubled markets and under pressure from Wall Street, no longer want to develop large swaths of land. Some are pulling out altogether, and others are leaving the responsibility for putting in roads and utilities to local development companies, who then sell the lots to the builders for a higher price.
Some are delaying projects until national market and credit conditions settle down.
Meanwhile, smaller, private builders are stepping up to get a bigger piece of the pie. That reverses a trend that started in the 1990s, when national companies moved into Central Texas and bought out many small builders.
"The national home builders have almost completely pulled out of the market, not just from a lot-development standpoint but also from a home-building standpoint," said Chris Ellis, a principal with Endeavor Real Estate Group. "They have either dropped their positions and land they were looking at or sold their positions or are actively looking to sell their positions."
However, that doesn't mean that Austin has a weak market. It's just that big builders are having to cut back as national problems mount.
"The local guys know the demand is still there, and the national builders know the demand is still there, but Wall Street is cutting them off," Ellis said. "The local lot developers and people with local home-building experience know this is an opportunity to get back into the market because our market is good and there's still a demand."
The trends can be seen in the experiences of two Central Texas home-building veterans.
Tom Buffington and Clark Wilson had companies in the 1990s and sold them to national firms. Today, Buffington is back in the market with Buffington Capital Holdings, which acquires and develops properties for master-planned communities. He also heads Buffington Signature Homes, which will finish the residential component of Southpark Meadows, after Lennar Homes, the country's biggest builder, cut back on its involvement there.
Wilson sold Clark Wilson Homes Inc. to Capital Pacific Homes in 1994. Last year, he started Wilson Holdings Inc., which recently bought an Austin green-building firm and announced an 800-acre development in Georgetown. The houses will have energy- and water-saving features.
"If you have the money and some moxie, you can get into some opportunities that a couple of years ago weren't available to us," Wilson said. "Now that the large national builders have pulled back and walk away from deal after deal after deal, there are opportunities that have allowed ... all the local guys to jump back in."
Real estate experts say the local builders are likely to offer competitive prices for buyers.
"If you like the house and the neighborhood, it typically doesn't matter if it's a national builder," said Mark Sprague, a partner in the Austin office of Residential Strategies Inc., which tracks housing trends.
But the changes are having a big impact on the local development community.
In April, Stratus Properties Inc. announced that two national builders, Meritage and Newmark Homes, would build 450 single-family houses at Crestview Station, a mixed-use project at North Lamar Boulevard south of Anderson Lane. Now, Stratus is taking over the lot development itself, putting in roads and utilities, and will sell the lots to two or three builders, said chief executive Beau Armstrong.
"Their business model has changed," Armstrong said, so the companies would prefer to pay higher prices for lots later rather than have land sitting on their balance sheets.
Late last year, Centex Homes called off plans to develop the Pearson Ranch, near Parmer Lane and the Texas 45 North toll road, where it had proposed a 1,400-home subdivision. In announcing the cancellation, Centex said the move was "part of a larger strategic review of the company nationally."
Like other publicly traded home builders, Centex is selling land and delaying land purchases and has cut its overall work force by 40 percent.
Dallas-based DR Horton had options on lots at Headwaters at Barton Creek, a project east of Dripping Springs that will have 1,000 single-family homes and a 1,000-acre park.
Rather than develop the lots, however, Horton agreed to be bought out.
"Their home office told them to cut back, and they agreed to back out on a mutually agreeable price," said Dick Rathgeber, who is one of the developers behind Headwaters.
Three of local developer Bob Wunsch's Central Texas projects have been stalled because of the national real estate downturn. The delays affect a transit-oriented development in Leander; a master-planned community of 3,900 homes in Georgetown and a smaller Georgetown development, Three Forks, which will have 280 single-family homes, multifamily units and commercial space.
"Some of our projects have been delayed a year," said Wunsch, CEO of Waterstone Development.
He said the difficulty in recruiting builders isn't related to a weak Central Texas market but can be traced to wary national corporate offices.
But, Wunsch said, he and other local developers continue to search for new deals.
"These very well-seasoned, well-capitalized operators are able to come back into the market ... and change it back into a regional home building market," said Patrick Starley, partner and CEO of Buffington Capital Holdings. "They're taking advantage of the national home builders" who are leaving Austin, "and my prediction over the three or four years is you'll see a lot of privately held companies dominating."
Wilson agrees.
"We'll take increasingly large shares of the market because we will be able to get in and get the land deals and get the good subcontractors and be positioned for the impending boom," he said.
Central Texas new home cooldown:
–19.8% Drop in starts from 2007 compared with 2006
–24.0% Drop in homes under construction at year end 2007 versus year end 2006
–9.0% Drop in 2007 closings compared with 2006 14.4%
- Jump in finished, vacant houses in fourth quarter of 2007 versus fourth quarter of 2006
Source: Residential Strategies Inc.
