Perhaps the best way to describe it is to quote Scooby-Doo: “Ruh-roh!”
What happened to those developments already underway? And how are they selling their homes and condos in one of the toughest lending markets in recent memory, despite some of the lowest mortgage interest rates of all time and government incentives—both federal and state—to encourage home ownership?
Larissa Abeling is vice president of sales and marketing for the Foster City-based O’Brien Homes
, which broke ground on its Hidden Hills
development in Napa’s Brown’s Valley area in 2007. The company released its first homes in June of 2008.
“We didn’t have a stampede, even though we’re in a very, very nice area,” Abeling says. “At first, people were definitely hesitant because they had homes to sell and they just weren’t sure. There was interest, but they weren’t ready to make a commitment right away. Certainly, it was slower than we’d have liked, but we have a unique product and we did make sales.”
Hidden Hills includes 67 single-family homes in two product lines, Abeling explains. “Homes in The Summit neighborhood are at the higher end, at about $1 million to $1.35 million,” she says. There are five floor plans ranging from 3,100 to 4,300-square-feet. The Glen is the second neighborhood, with five more floor plans ranging from 1,900 to slightly more than 3,000 square feet, priced from the mid-$600,000s to $800,000.
Our current prices are 10 to 15 percent lower than our prices were in 2008,” Abeling says, “and approximately 25 percent lower than opening projections.”
The biggest factor for Hidden Hills was to “get over the initial hump,” Abeling says. “Now people see it’s a successful project and it’s safe to buy here. In recent months, things have been going very well—we only have 33 homes remaining to sell, including the models.” She projects the homes will continue to sell for another 10 to 12 months and the construction should be completely finished by the end of 2011.
In short, despite the economic challenges, Abeling says O’Brien Homes has been “happy with what we’ve done, and we’re hoping things are stabilized now and getting better. It hasn’t been easy, but we’re working through it.”
Also in Napa, Delco Builders and Developers
of Pleasant Hill introduced its Oak Leaf Ranch
development of 45 homes in 2007.
“We came in close to the peak and followed the market down,” says Harry Young, community sales manager of the Reiser Group
, which is responsible for marketing Oak Leaf Ranch.
Because of the market and the fact that prices in Oak Leaf Ranch have been reduced an average of $200,000 (they’re currently selling from $649,900 to $724,000), active marketing has pretty much been limited to the Internet, open houses, road signage “and talking with a lot of realtors,” Young says.
While builders were offering incentives as recently as a year ago, Young says they’ve had to back away because prices had to be lowered “and soon there’s just no money. We’ve been nimble at responding to consumer needs, like credits for closing costs and some upgrades to structure the deal to meet buyer’s requirements. But every time you do that, it knocks down your net and, at some point, the net just can’t go any lower.”
Young doesn’t expect Oak Leaf Ranch to build more homes for a while. “The banks have a required net,” he says, “so each time a house is sold, the bank needs to approve the sale. And because houses are being sold for $200,000 less than a couple years ago, the builder is being paid a small, flat fee. There’s no profit at this point,” Young explains.
As with every economic situation, there’s money to be made somewhere along the food chain. Young sees “the big boys,” (Standard Pacific, Del Webb and such) in the market buying land for 25 cents on the dollar. “They might be hurting a little now, but in four or five years, they’ll be making beaucoup bucks. They’ll get through this and be in good shape. It’s the mid-sized guys getting squeezed out.”
Coldwell Banker’s Cooper echoed Young’s comments, noting that, before the downturn, lots in Healdsburg were selling for $300,000. “Today, those same lots are going for about $115,000. Right now, the only way to make money with a new development is if you happened to own the land free and clear before the boom,” Cooper says.
A steady Landing
Michael Barker, managing director of Barker Pacific Group
(with offices in Los Angeles and San Francisco), is one such lucky guy.
Twelve years ago, his firm acquired land at Novato’s Hamilton Landing
—one of Marin County’s very last housing developments, located on the site of a former Air Force Base that was decommissioned in 1974. Barker Pacific Group built Hamilton Landing, a 450,000-square-foot office park that houses a variety of businesses, including Birkenstock and Marin IPA, among others. Until now, a five-acre parcel—originally zoned for commercial—has gone undeveloped. It once was to have been the new home of an AT&T Broadband office, and while the Novato City Council actually approved the AT&T project, the council took neighbors’ complaints into account and denied the company the right to park its service vans on the property, which, in effect, killed the project.
“This parcel, which is bordered by two Coast Guard hangars and a levee that’s next to a wetlands reclamation project, has very nice homes to the south and west,” explains Barker. With an “if you can’t beat ’em, join ’em” attitude, Barker Pacific Group went back to the city of Novato with a proposal for a residential development, which took three years to work its way through approvals and a tract map.
Last fall, the company began construction on a new, 27 single-family home community at Hamilton—the last parcel to be zoned for residential development—called the Landing at Hamilton. According to Barker Pacific Group’s publicist, Gary Pike, APR of Pike and Company
in San Francisco, substantial increases in affordable housing fees imposed by the city of Novato, along with recent sewer and water fee increases assessed on new home construction by the Novato utility districts, means the project will likely be one of the last single-family detached home permits to be granted by the city “for the foreseeable future.”
Barker notes that Marin is unique, which has him upbeat about the prospects for his development. “In terms of housing supply [in Marin], we believe development opportunities are so limited that even with the least bit of demand, there’s an appetite for housing. People who live here want and can afford nice homes,” Barker says.
As far as the economy is concerned, “we believe our timing is excellent, but time will tell. Our project hits a market receptivity that’s needed in the way of price rage, size and quality.” Three models will be offered in a price range of $850,000 to $900,000—which hovers around the median price point for Marin homes in 2010.
Barker confided that his company isn’t a typical home builder. “We’ve had a history of major office developments. We’re a company that primarily deals in other real estate product types, so this is something we personally want to be very proud of. My instructions were to deliver a product I’d be happy to live in, with great floors, hardware and all sorts of details that make a home much more desirable,” he says.
The homes are being marketed by Kyle Frazier
at Pacific Union
in Novato, and financing for the project is through the Bank of Marin. “The bank came to us,” Barker says. “It’s a strong local, Marin-based bank that hasn’t been hit with the problems that smaller banks have because of where they are and the practices they’ve used. It understands the market and has confidence in what we’re building.”
Marin’s stability also is a plus, Barker says. “When office rents in San Francisco skyrocketed, Marin would go up just a little. When they went down big in San Francisco, Marin dipped just a little. The housing in Marin is in tight supply, and the choices for people who want to live the Marin lifestyle are very limited. No one is doing mass scale housing development,” he says.
Healdsburg success story
Trendy Healdsburg, one of the jewels of Sonoma County, is also limited as far as housing supply. As more and more people discover its charms, it’s becoming a magnet for Wine Country retreats and second homes.
In 2006, Michael Houlihan and his partners in Foss Creek Villas
LLC purchased a run-down apartment building, which he candidly refers to as “a challenged property that was not at its highest and best use.” Located just blocks to the north and west of Healdsburg’s Plaza—in a great location close to a health club, hotels, restaurants and grocery stores—the apartment building soon began a magical, two-year transformation into 40 luxury condos with high-efficiency windows; a new roof; new gutters, downspouts and storm drains; underground conduit; remodeled kitchens, living rooms, baths and bedrooms; and sound-dampening insulation. They put in oversized air conditioners (Healdsburg can get hot!), remodeled the swimming pool and clubhouse area, built new garages, repaved the parking lot and spent considerable time, effort and money on extensive new landscaping. In other words, it was a Cinderella Story.
The condos came on the market in October of 2008—“the worst possible timing,” says Houlihan—priced at $449,000. There were about seven or eight sales in the first few months, then they sat…and they sat…and they sat.
Enter Jo Healey in August 2009. Healey is a real estate marketing consultant with her own company, Eclat!, which is headquartered in Marin. “Eclat” is a French word that translates to “the dazzling effect.” And Healey’s marketing ideas with regards to selling Foss Creek Villas were nothing short of dazzling.
“The first thing we did was hone in on a target market and give the project a brand. We listed it in regular ad placements, but we tied it to a lifestyle and made that come alive in the ads [which appeared in the Press Democrat
and the San Francisco Chronicle
]. We went for the second-home buyer market, because Healdsburg is a destination town. We actually packaged Healdsburg as part of the project and generated lots of leads through Horizon and Alaska Airlines in-flight magazines. We sold the resort lifestyle in downtown Healdsburg. We highlighted the pool, interior shots, granite counters, cherry cabinets and all the green [environmentally friendly] features in the units and on the property,” she explains.
But one of the most creative marketing ploys was a “local economic stimulus plan,” devised by Houlihan, that engaged Healdsburg merchants in promoting the Villas. Brochures with serially numbered stickers were distributed to various local merchants, who also agreed to put a link to the development on their websites. Foss Creek Villas allocated $35,000 in gift certificates with a face value of $1,000 each. If someone purchased a condo and showed the brochure, he or she received a $1,000 gift certificate for the business where they picked up the brochure. They also enlisted their current condo owners into a referral program; for everyone they referred who purchased, both the buyer and the referring condo owner received a $1,000 certificate to spend at one of the participating merchants. Scores of Healdsburg merchants participated, including Garrett Hardware, Hudson Street Design, Healdsburg Furniture and Costeaux French Bakery.
Coldwell Banker’s Cooper described the promotion as “very creative” and says such offers generate “quite a buzz” when they kick back into the community. “Overall, the Foss Creek Villas renovation has been good for the real estate market throughout Healdsburg. People viewing them, if they didn’t find a match, went to other properties and bought,” Cooper says, noting another local condo project, The Groves, as one that benefited.
“If a developer is going to spend money to market his products anyway, why not spend it locally,” says Houlihan. “It’s a great way to introduce 40 new families to the community.”
Of course, Foss Creek Villas was forced to reduce its prices to $349,000 to $359,000 to adjust to market price, and Houlihan expects all the units will be sold by the time this article appears. “The good news is we now have multiple offers,’ he says.
Commenting about his unique marketing efforts, Houlihan replies, “Obviously, we’re not going to make any money on this deal, so maybe we can make a good reputation.”
Don’t stop thinking about tomorrow
Despite the rough times in recent years, there are those who see light at the end of the tunnel and are going forward with proposals for new developments. But creative marketing continues to play an important role. One proposal before the Windsor City Council has a very unique twist. If you buy a home, you get a free electric car.
John and Deborah Emery own the land on Conde Lane, facing Highway 101, that was once occupied by Windsor Waterworks and now houses an RV Park. They’ve hired Odyssey Development Company LLC of Sonoma, which focuses on smart growth projects. Rick Deringer, development consultant with the company, is an expert on smart growth, green development, urban transit village concepts and urban design expertise.
The Emerys’ proposal for Windsor Creekside Village calls for 179 apartments, attached single-family townhouses and single-family, small courtyard cluster detached homes, plus 65,000 square feet of retail, commercial and residential space, designed similar to the successful mixed-use development project Santana Row in Santa Clara. The project will also incorporate a new sustainable practice called “agriburbia,” meaning housing and commercial buildings will be clustered into tight-knit villages, thereby preserving larger chunks of land for green space and shared community gardens (with produce to be sold at framers markets and shared among residents).
“There’s virtually no debt on the land, which gives us the ability to develop in phases immediately after approval of all building permits, sell off and go to the next phase,” Deringer says. The idea is for a retail, office and residential community that would appeal to first-time homeowners and “workforce” personnel (teachers, firefighters and so forth) by creating a walkable development where individuals can both work and live, thereby reducing auto impact and substantially reducing green house gas emissions.
The community would use solar power and lithium batteries through a partnership with PG&E (“federal stimulus money goes to projects like this, mainly due to the reduction of energy consumption,” Deringer says). Through a special agreement, ZAP Cars
will provide the electric vehicles for each homeowner, plus a fleet for the commercial buildings.
“Twenty-one percent of a person’s income, on average, goes toward transportation—and the costs of transportation are only going to go up,” Deringer says. “If we can eliminate transportation costs, we can free up money that they can use elsewhere."
Deringer is banking on the SMART
train as well. “We’re building for the train and for the people who take the train. Workers take trains on weekdays. More affluent people only take them on weekends. Our market is the weekday worker,” he says.
If approved by the town of Windsor, Windsor Creekside Village would break ground in 2011 and be complete by 2014, which is when the railroad is due to come online.
Hopefully by then—or perhaps even earlier—this crazy real estate ride will have abated and the new train won’t be the only thing back on track in the North Bay.