Real Estate Wars: Battle Of The Developers
Tom Van Riper, 12.01.05, 6:00 AM ET
NEW YORK - One of these days, so the theory goes, rising interest rates will take a bite of out torrid home sales. To brace against slowing demand, national builders like Toll Brothers and Pulte Homes are now going after everyone's favorite cash cow, retiring baby boomers, by erecting gated condominium communities in non-traditional retirement areas like the Midwest and the eastern seaboard.
That could put the squeeze on local builders who don't have the scale to compete against the deep-pocketed McMansion builders. Pulte's Del Webb unit, for example, has built 41 of these boomer complexes--in the suburbs of Boston, New York and Chicago, among other places--and now plans to invade metro Atlanta and Minneapolis.
"How can anyone recreate what Del Webb has been doing for 45 years?" says Pulte spokesman Mark Marymee.
Not so fast. Unlike mom-and-pop drugstores that fear last rites as soon as CVS or Wal-Mart Stores (WMT) comes to town, local developers may stand a better chance against the big boys. "Planning boards like dealing with local builders," says Michael Staiti, owner of Keystone Development (sales: $15 million) in Marlboro, Mass. The economics can be more favorable for small fries, too, especially in densely populated areas like New England where large developers can't secure sprawling tracts for mammoth retirement communities. Another advantage: Small builders are more willing to offer extra services such as flexible floor plans, as opposed to a handful of cookie-cutter layouts.
Keystone has built two boomer communities in West Boylston, Mass., and is now gearing up for a 95-unit project in Northbridge, Mass., pitting the developer head-to-head with Del Webb, which is building in the same town. Staiti is counting on his long-standing relationships with planning board members to give him an edge over lawyers and engineers who parachute into town on behalf on national builders. He also plans to allow buyers the flexibility of, say, adding a bathroom or moving walls to taste. A little extra hand-holding never hurts, too. "I'm involved with the customer, whether it's doing the walk-throughs or answering questions," he says. "We do 'meet your neighbor' wine and cheese parties."
When it comes to making money in real estate, size doesn't always matter. Consider that ten homebuilders account for 23% of the U.S. market, while 35% of the personal computer market is dominated by two players, Dell and Hewlett-Packard (HPQ). That means smaller, local builders who focus on service and understand the nuances of the local market can get a bigger piece of the action.
Take Daniel Green, a third-generation builder in Massachusetts, who has built 20 active-adult communities across the state. He aims to court empty nesters looking for a downscaled lifestyle but who cringe at the notion they have become blue-haired senior citizens who play bingo and line up for the early bird special. Many of Green's properties tend to be "age-targeted" rather than "age-restricted," with a small percentage of units reserved for younger buyers. "The most successful way to compete is to go after a certain subset of the target market," says Green.
Building a reputation through smaller projects can even open the door to the big ones. Green's company is one of ten builders breaking ground on a 3,000-home, 3,000-acre development in Plymouth, Mass. Green is trying to set his units apart by offering rear views, rather than a "backyard to backyard" setup, and by taking an "inside out" approach that starts with building homes and putting in access roads later, rather than limiting the locations to those that already have good access.
For his part, Green isn't sweating the big guys. And while some experts expect consolidation among builders in the Northeast, he isn't soliciting buyout offers yet. "The prospect of [financial] quarterly reporting is not exactly appealing," he says.
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