WHERE WILL THE LOTS COME FROM-PCBC 2019

I attended the above titled conference panel discussion where it was pronounced that master planned communities where dead on arrival. The panel included moderator Terry Ruckle-Land advisors, Dan Miller-Intracorp, Jason Keller-Oaktree Capital and Nicole Burdette-Brookfield.

The issue was that there was no profit left in master planned communities (coastal communities not included). Costs inflation for both home building and land development has eaten into the profit to the tune of 30-40%, finished lot values are stagnant based on relatively low home sale absorption, entitlement and permitting can take from three to five years.

The solution according to the panel is buy more smaller individual tracts. Sounds good but again each tract is still subject to the surrounding infrastructure needs, some high some low. Now you have to deal with multiple individual entitlement/permitting management resource needs and processing time. More importantly you have to deal with multiple land owners expectations, who have not yet heard we are in a mini recession.

The bigger issue for me is how do supply the ever-growing demand for active adult or AQ lots. Here the buyer preferably wants amenities in a large secure branded community known as a master plan. According to SCAG 275,000 people retire per month (3.3 million per year). These “baby boomers” who own two thirds of the country’s wealth already have a plan for retirement, but will they have options?

Based on the foregoing panel, Pulte (Del Webb), Shea and K. Hovnanian to name a few active adult builders are now on their own!

If I was focused on market rate sales versus active adult, I would be concerned. The “millennial's” are the emerging single-family buyer and according to Edwin Wong-Vox Media (PCBC presentation), the thought of being an adult is scary to a millennial. They call it “adulting”, they grew up too fast in and age of too much information. Edwin’s quote was “in the next 40 years we are going to experience 1,000 years of change”. They are more into a “creation and curation” process derived from a digital foundation rather than a physical one. 

In contrast the baby boomers had time to grow up and were “born to be adults”, their adulthood built on tangible growth given by engaged parents.

So, back to active adults, what is the solution to supplying the ever-growing active adult market demand, preferably with a pipeline of master plans? I do not have the answers but maybe some thoughts:

1. A more intensive land acquisition analysis that grades the land on severity of the infrastructure needs. 

? An infill situation would be more preferable but larger/older water districts have significant buy in costs. Look for medium/younger districts with most of the water zones established for the project. Building Water District infrastructure is a thankless and expensive proposition.

? Active adult consumption is usually 35-40% less than market rate so buy in to water districts should be less that a market rate buy-in. Traffic fees are usually already reduced for active adult.

? No bridge access if possible.

? Most of the easy land is gone, look for land that is less hillside and avoid rock where possible or reduce cuts significantly in rock locations. This requires a great land planner/engineer.

? Storm drain systems and water quality measures are extremely expensive, you need a good hydraulic engineer, also maybe sub regional drainage/water quality systems are more expensive that on lot LID treatment?

2. Try to negotiate with the land seller to agree to back end participation for some front end take downs and softening of up-front price.

I was working with a well-known golf course Architect, Desmond Muirhead in the 90’s on a target golf course design. He said most developers take a piece of land, design their project and then give the remainder land to the golf course Architect. It never yields a good course let alone a great course. From his point of view, he was saying “begin with the end in mind”!