Luxury Home for Sale:
6 Bdrms, Dumpster Vu
With Market Still Hot, Developers Start
Building Near Undesirable Spots
By JAMES R. HAGERTY and QUEENA SOOK KIM
Staff Reporters of THE WALL STREET JOURNAL
August 5, 2004
Mitchell C. Hochberg proudly shows off the luxury townhouses his company recently built in Croton-on-Hudson, N.Y. On one side, the homes have panoramic views of the Hudson River, just a few yards away. On the other: a commuter-train repair yard strewn with rusty pipes and rails.
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The noise? "Oh, it's terrible," says Mr. Hochberg. "Clang, clang, clang." Yet the company says it has sold a dozen of the homes this year at prices ranging from about $400,000 to more than $1.6 million.
It's common knowledge that the key to real-estate value is location. However, amid the surge in demand for housing that has sent home prices soaring during the past five years, prime locations for building have become almost impossible to find in the nation's hottest markets. As a result, builders of upscale homes are resorting to what once would have been considered undesirable spots -- such as near airports, low-income housing, noisy highways, train lines and even cemeteries.
Land available for building homes is particularly scarce in such metropolitan areas as New York, Washington, Los Angeles, San Francisco, San Diego and Boston, says Gopal Ahluwalia, an economist at the National Association of Home Builders. Those land shortages help explain why home prices have been surging on the East Coast and in California, while rising more moderately in most other parts of the country. The value of a typical residential lot (excluding the house) in San Francisco was about 15 times as high as a similar lot in more sprawling Atlanta, according to a 2002 study commissioned by Hearthstone, a San Rafael, Calif., investment company specializing in residential development.
One major reason for high land costs is that local governments in upscale areas often enforce tight restrictions on new development. Those restrictions, generally popular with those who already own homes, drive up the prices of any land that becomes available. An "antidevelopment perspective" has become ingrained in the minds of many people who live in these desirable areas, says Nicolas P. Retsinas, director of Harvard University's Joint Center for Housing Studies.
That means people who don't want frustratingly long commutes are having to be more flexible about what they will accept in their backyards. "Unless you have an amount of money that knows no bounds, you're going to have to make certain compromises" to live in some metropolitan areas, says Mr. Hochberg, chief executive officer of WCI Spectrum Communities, a builder of upscale homes in New York's Westchester County and nearby areas.
In Florida, luxury builders used to try to stick near the beaches but now are moving further inland. Toll Brothers Inc. is developing a community called Mizner Country Club, with homes costing as much as $4 million, in Delray Beach, Fla., near Palm Beach. To reach the Atlantic Ocean, homeowners will need to cross over two major highways, Florida's Turnpike and Interstate 95. Some of the Mizner homes are within 250 feet of the turnpike, but Toll Brothers officials say golf fairways separate the houses from the roar of the highway.
California is starting to see building in busy locations, too. In downtown Los Angeles, Lee Group, a closely held builder, has nearly sold out a 91-unit condo project where prices range as high as $1 million, even though the converted building is in a noisy area surrounded by the 110 freeway, the Staples Sports Arena and a train line. "When I have my windows open and I'm on the phone, I have to say, 'Hold on a minute, the train is coming by,' " says resident Faith Oswald, who owns one of the condos.
John Laing Homes is putting up 20 single-family houses that are expected to start at $600,000 in an abandoned industrial section of Anaheim, Calif. The homes are across the street from an abandoned T-shirt factory and next to a railroad track on which freight trains run day and night. Though the neighborhood is downtrodden, the Arts and Crafts-style houses will come with upscale options like Sub-Zero refrigerators and whirlpool tubs.
The closely held home builder's Orange County division searches out relatively small plots of land -- so-called infill development -- because it cannot find many large parcels. Traditionally, the Orange County division has built in green fields, but it expects that infill development will eventually make up half of its business.
WCI Communities Inc., the parent of WCI Spectrum, plans to build houses costing as much as $1 million on land abutting I-75 in Bradenton, Fla. A decade ago, Al Hoffman, WCI's CEO, says he would have passed on the land. "Will you hear the traffic? Yes, of course you will," he says, but the views of the Manatee River will be excellent.
WCI Spectrum has made a specialty of finding unlikely spots for upscale housing. In Rye Brook, N.Y., the company built luxurious houses in a development called BelleFair on the site of a former psychiatric hospital, adjacent to the county airport. Joseph Cerrato, a real-estate agent for Prudential Rand Realty, says he recently sold a four-bedroom house there for $1 million, up from about $725,000 three years ago. Though the noise can be annoying at times, says Andrew Sachs, a BelleFair resident, the public schools are good, and he can reach New York's Grand Central Station in 40 minutes.
About 10 miles away, in White Plains, the company built the Valimar community on a reclaimed dump, surrounded by a cemetery, low-income housing and a highway. Mr. Cerrato, the real-estate agent, says prices have risen fast there, too.
In the posh Hamptons area of New York's Long Island, some people are paying as much $3 million for homes right on Route 27, with gas stations for near neighbors, says Diane Saatchi, a regional vice president in the East Hampton office of Corcoran Group, a real-estate broker.
Even in the vicinity of a garbage-collection and recycling center in East Hampton, builders are putting up fancy new homes -- despite a stench one frequent visitor likens to "rancid cat food" that often pervades the area. William Kalbacher, a local builder, plans to put up a 4,000-square-foot home nearly across the street from the dump. He figures it will be worth more than $1 million.
Buyers find ways to make a virtue out of their less-than-pristine surroundings. Jo Ann Marone, who paid $639,000 for a three-bedroom home in WCI Spectrum's Croton development in May, loves watching sunsets over the Hudson as she unwinds with a glass of wine from her job as a counselor for middle-school students. She generally ignores her "other view." Sure, there's some noise from the railyard, Ms. Marone says, but she describes it as a "soothing" sound.
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