By Cati O'Keefe.
Can you make money building TNDs? The short answer is yes; the long answer goes back to the issue of commitment and a willingness to suffer the learning curve.
Take I'On's Burton. "As much of the positive you hear about building in TNDs, there are pitfalls," he admits. "Everyone you bring on site has to do things differently than the status quo."
Burton learned some lessons the hard way: "Once, we were doing cherry flooring, and I got a great price. The product showed up, and the semi couldn't get anywhere near the jobsite. My 'great price' was quickly spent off-loading stuff into pick-up trucks."
Developer David Tomes, vice president of Triad Development, remembers builders looking around a site at Asbury Park in Louisville, Ky., and wondering where to put the dirt from a basement dig.
Not only do builders need to educate themselves on TND details and logistics, but they also have to teach their subs. "It's cost effective to use the same subs continually, so you don't have to reteach the same details," says Burton. "Even if your framer costs more, it's less expensive to pay him more than to have things done wrong."
Of course, subcontractors recognize that many new procedures will cost them time and money. "Plan to see costs rise as subcontractors figure this out," Burton warns.
Although some TNDs were designed for production efficiencies--like Lakelands and Daniel Island--others make the going tough. "We won't give builders entire neighborhoods," says Stapleton's Gleason. "We require different builders across the street so we can have diversity of pricing, square footage, and architecture." It's tough to realize production efficiencies in this scenario.
Burton hit the same problem in I'On. "When you build house 'a' and 'c' then come back to do 'b', you're trampling landscaping and ruining paint jobs. It's frustrating for everyone," he says.
Weekley claims that the TND home styles cost more to build. "You pay a premium depending on what the developer charges and what the architectural requirements are," he says. "Some developers decide they paid too much for land, so they take it TND. I've seen a developer charge more for a lot, which ended up making the houses cost $30,000 more. You can get into trouble."
Weekley advises builders to study every market to ensure the project makes economic sense--just as they would do with a conventional deal.
Sometimes builders aren't in a position to make demands. In some of the larger TNDs, like Stapleton, issues like centralized sales (developers prefer this; builders typically do not), number of lots released, and control over design rest squarely in the hands of the developer.
"We are dealing from a position of strength," admits developer Gleason, noting that Stapleton had about a hundred builders vying for seven slots. When the builders were chosen, they had virtually no say in the plan. Gleason thinks it doesn't matter because builders benefited in the end: "In phase one of the build-out, all seven builders had to resort to lotteries."
Pearls of wisdom
Then there are the product costs. "We use nicer windows and 8-foot custom doors, which are not usually in stock," says Burton. "There's tons of painting for all the wooden handrails and porch ceilings. If your paint job isn't good, before you finish the back end of the project you'll be looking worn on the front end, and if buyers see scaffolding they'll be scared by maintenance."
"The fact is the quality of TND must be higher than conventional because people are walking, touching, and feeling it--not driving by at 45 mph," says Leinberger, "So the cost of construction is higher."
Some proponents claim that TND exteriors actually cost less. "Many mid- to high-end houses have unnecessarily complicated designs to achieve 'curb appeal': many more than four foundation corners, complex cascading roof forms, and the entire window supplier's catalog on the front of the house," says Zimmerman. "Now, with the return of the traditional street, architecture can be calmer."
But most builders think it's net-net. "Just because you're doing things like building a simple roof, it doesn't cut the price overall," says builder Rick Buttorff of Louisville, Ky.-based The Builders Group. "For example, at Norton Commons we doubled our landscaping bill dealing with a side entry."
Buttorff urges builders to think outside the box when considering costs: "We worried about price per square foot, but then threw [that metric] out the window because we realized that in the end, the homes will sell--people will pay for quality."
"It's true, the costs can be passed along," adds Steuteville. "It's hard for the accountants to figure this out. There is an intangible to good design, and if buyers say, 'I like walking on these streets,' builders can get a premium."
McClellan's advice to builders? Patience: "Builders will make more money building TNDs over a five-year period vs. a two-year period for conventional."
"This game," he cautions, "is not for the short-term visionary."