Waiting for the recovery
When I ran into Steve Maun a few weeks ago, I asked how Warwick Grove, his traditional neighborhood development 55 miles north-northwest of Midtown Manhattan, was faring. “Getting people to come out to Warwick to buy homes is like pulling teeth,” he candidly replied.
“It’s a painful business,” Maun, president of LeylandAlliance, said of his specialty—developing traditional neighborhood developments such as the 130-acre project in Warwick, New York, and the 200-acre Hammond’s Ferry TND in North Augusta, South Carolina.
No surprise there. Five years after the beginning of the nation’s housing bust and nearly four years after the global financial crisis, most developers of TNDs are struggling. Some are doing better than developers of conventional, separate-use subdivisions, but generally, 2012 is shaping up to be another fairly sparse year for homebuilding in the suburbs, including TNDs.
Total sales of new housing in the US will surpass last year’s performance, most analysts predict, but will still be much lower than in the years before the bust.
“New urbanist developers are hanging on,” Maun observed. ”Their definition of success is ‘not handing the keys over to the bank.’ Sales are very slow.”
In the years ahead, he suggested, “There will be no more new TNDs. Developers are not going to go out and buy a farm,” install streets and utilities, and orchestrate a range of housing, retail, civic structures, public spaces—the full panoply of uses and building types for which New Urbanism is known.
Instead, he predicted, builders and developers of a new urbanist bent are going to move closer in and do smaller projects.
Some time later, Maun visited Norton Commons, a TND that David Tomes and partners have been developing for over a decade on 600 acres about 11 miles northeast of the center of Louisville, Kentucky. Tomes had a different story to tell: “We’ve been busy all through this downturn.”
Many conventional developments in the Louisville area have had trouble, Tomes says, but Norton Commons, with more than 500 homes occupied and more than a quarter of its 560,000 square feet of retail and office constructed, is doing all right. The development has “15 or 16 active builders,” almost as many as the 20 builders at the economy’s peak, according to Tomes. “A fairly substantial YMCA is being built. A Catholic church with seating for 1,200 to 1,500 is being built,” he noted. “We have 50 houses started at all price points—big ones, small ones.”
Among developers of TNDs around the country, Maun’s experience seems more typical than Tomes’s. Keith McCoy, principal in Berkeley, California-based Urban Community Partners, reports that Laurel, a 220-acre TND that his company worked on in Yuma, Arizona (see January 2010 New Urban News), is on hold until the market recovers. “However,” he says, “we are confident that when things turn around, Laurel will be in a great position to appeal to what people are wanting more and more of: walkable, mixed use, variety of housing types including smaller homes, and unique amenities such as the proposed local farm and community gardens.”
“While our previous projects included larger-scale master-planned TNDs, over the past couple of years we have focused on finding infill locations in the San Francisco Bay Area that are near transit and public facilities,” McCoy says. “These typically have available infrastructure and are easier to finance.”
One of the projects his company is involved in is senior housing and a new town center on 15 acres adjacent to an existing public library, City Hall, teen recreation center, Jewish community center, and other amenities in Foster City, on the peninsula south of San Francisco. The project, called Civic Center, is designed to include more than 400 market-rate townhouses, condos, apartments, and assisted-living and affordable units, plus a town square and 30,000 square feet of retail. Now going through the entitlement process, it is expected to begin construction within 18 months.
How to make infill succeed
“I think that large-scale TNDs predicated upon the sale of detached houses and rowhouses are going to have to wait out the depressed values that appraisers will be working with,” says R. John Anderson, principal in Anderson|Kim Architecture in Chico, California. The supply of foreclosed properties, when combined with continuing output from publicly traded production homebuilders that emphasize providing as much square footage per dollar as possible, constitutes “a big threat, making it hard to point to the value of place for somebody trying to qualify for a mortgage,” he explains.
“Lenders who have taken back TND projects that were predicated upon sales absorption are having a hard time figuring out the value of those assets,” Anderson says.
“There are lots of infill plays that make regional sense as a TND, but they will be tough to hold onto without partnering with the current landowners,” he adds. “Building a portfolio of apartments and workspace buildings may be the only option for projects trying to achieve critical mass and provide place amenity.”
Fortunately for developers gravitating to apartments, it appears that demand for rental housing will be strong for a long time to come. Apartments have become a bright spot in the residential field. With the unemployment remaining above 8 percent, large numbers of people feel their best option is to rent an apartment until their finances are stronger.
Apartments form the bulk of the construction that’s occurred in recent months at Storrs Center, a pedestrian-oriented $200 million project that Leyland and its partners are developing adjacent to the University of Connecticut’s main campus in Storrs. The first phase of 125 apartments over 25,000 square feet of shops and restaurants will open this August.
Marketing specialist Monica Quigley says Storrs Center shifted its initial offerings toward rental, and the strategy is proving successful. The first apartments, named Oaks on the Square, were fully leased as of late May, more than two months before they’ll be ready for move-in. Studios rent from $999 a month and one-bedroom apartments start at $1,399. The largest units, 3 bedrooms with 3 baths, start at $2,654 a month.
Nineteen of the first 20 commercial spaces at Storrs Center have also been spoken for. Montreal-based Live Work Learn Play led the recruitment of store and restaurant operators.
Regional variations
The difficulties for developers are acute in metropolitan areas where the economy remains sluggish and there’s little population growth. The St. Louis region has suffered heavily.
Whittaker Builders once made New Town at St. Charles, northwest of St. Louis, the top-selling TND in the Midwest, but the collapse of the region’s homebuilding and the troubles of some of its banks plunged the company into Chapter 11 bankruptcy in October 2009.
“It has been brutal,” says Tim Busse, town architect for New Town. “If you’re still standing, it’s a miracle.” The region is said to contain so many finished lots without houses, almost all of them in conventional developments, that theoretically there’s no need to develop another lot in greater St. Louis for five years.
In the midst of this dismal situation, Busse says, “New Town’s houses seem to be on the market half the time of conventional houses. The smaller, more affordable houses in New Town have done better in the recession than higher-end houses.”
Greg Whittaker is still in business, operating now as “Homes by Whittaker.” His company has constructed about 14 houses since June of last year, according to Busse. This spring a second builder started operating in New Town. The pace is nothing like New Town’s best year, when closings for 1,000 houses took place, but, says Busse, “the last couple of months have been as good as we’ve seen in probably three years. New Town is still on people’s radar, homebuyers’ radar.” About 2,600 people live in the community, which has more than 1,000 occupied dwellings.
If Missouri is dragging, the outlook in Maryland is more active. Stuart Sirota, principal of TND Planning Group in the Baltimore area, says that in his state there are many restrictions on where people can build. Thus, projects that won their government approvals several years ago and then stalled have a good chance of being revived. A number of greenfield developments that started around 2005-06 and had TND-like street and park features (but lacked a new urbanist mix of uses) may come back to life. “It varies regionally,” he says.
The Waters, near Montgomery, Alabama, changed hands in 2010, and within the past year the new owners have seen sales in the lower end of the market pick up, says Nathan Norris of PlaceMakers. Recently 15 houses were under construction—“probably as much activity as any development in the region,” he says. “Some would argue that we are back to the normal 2002 real estate world.” Norris expects a substantial migration to cities in the next 20 years, and he thinks greenfield TNDs will be rarer than in the past, but he adds, “I do not see them going away. It all depends upon the context.”
The obstinacy of big builders
Frank Starkey, co-founder of Longleaf, in Odessa, Florida, says his 568-acre TND is about half-built and “doing fine.” But the Starkey Ranch nearby is encountering problems.
Because the ranch, at 2,500 acres, is too big for the family to develop, the intention had been to obtain entitlements for it as a new urbanist undertaking and then transfer the tract to a master developer who would carry through on the plan. Finding another developer willing to build it as a TND is proving exceedingly difficult.
“It’s the same thing that we heard in 1997: We might do a pod of [TND] to hedge our bets.” That would amount to a token, Starkey says, dismayed by the unwillingness of the building and development industry to embrace New Urbanism wholeheartedly.
“They’re disregarding the market research,” he says. Research respected by the Urban Land Institute, the National Association of Home Builders, and other organizations affirms the idea that “people want to live near a town center,” if not in the center itself, he says. Nonetheless, the nation’s big builders “have doubled down on sprawl,” Starkey fumes. “The market is moving to the city and to sprawl repair,” but the big builders remain largely wedded to their old ways.
The Starkeys are consequently selling off their land, and removing the TND requirements because they can’t sell it otherwise. They are trying to keep the modified grid of streets. In Starkey’s view, national builders will not do TND now, at least in the Tampa area; the companies have urban divisions, but those operate in urban locations.
Big builders, publicly traded companies, “were able to write their land basis down to zero” after the industry’s collapse, he says. The value of much of the distant land they’d purchased and entitled was written off; their shareholders took the hit. Now those companies have the advantage of selling houses with no land value factored into the price.
The builders have also reduced their construction costs as much as possible, with all quality items and upgrades stripped out of the base models, Starkey reports. They are selling distant suburban houses in the Tampa region for $150,000 to $200,000—and finding buyers. Essentially, TND is viewed as an upgrade, like granite countertops—and the big builders have stripped out upgrades.
After years in TND development, Starkey is getting his architecture degree. “The next opportunity I’m looking for,” he says, “is small infill.” As for the market as a whole, “I think it’s going to be a slow and bumpy incline for a long time.”