Through the first three months of this year, Seda Construction’s off-site division, which handles its sales to buyers who own their lots, had booked more business than the 20 homes it built in all of 2008. “We’re having a great year,” says Linda Semanik, the division’s president and co-owner of this Jacksonville, Fla.-based builder. Since launching an off-site division in 1997, David Weekley Homes in Houston has averaged 90 home sales per year, at prices that recently have ranged from $180,000 for a 2,000-square-foot unit to $1.5 million for a 5,900-square-foot home. “It’s a very profitable part of our business,” says Tom Wadley, Weekley’s Houston division president. And where this builder’s salespeople might have between five and 10 prospects to call upon, one of its off-site salespeople has 1,400 on-your-lot prospects in his database.
The demise of Jim Walter Homes—once the industry’s largest on-your-lot builder, which closed in January—did not necessarily reflect the relative health of what other builders say is a small but robust sliver of the housing sector. “It’s a good business model to be in right now,” says Bill Post, COO and co-owner of Wayne Homes of Green, Ohio, near Akron, who with his partner Dave Logsdon bought back their company from Centex last year. Post explains that the main advantage for on-your-lot builders is they aren't encumbered by land assets, whose eroding values in the downturn have crippled other builders’ balance sheets.
The Census Bureau estimates that owners contracted to build 74,000 single-family homes on their lots last year, with another 32,000 units built for rental. That compares to 103,000 and 31,000, respectively, in 2007.
Still, it does appear that on-your-lot builders are weathering the recession a bit better than others. Wayne Homes’ sales were off 11% in 2008, to about 450 units. However, the markets where it builds were down 42%, “so we’re definitely outperforming” many of its production-builder competitors, Post says. Another Ohio-based on-your-lot builder, Schumacher Homes, saw its unit sales fall by 15%, to around 500, last year, “which isn’t so bad,” says owner John Schumacher, whose 18-year-old company operates in 10 states.
These builders concede that off-site construction is very different from conventional production building. For one thing, lot owners aren’t always the easiest prospects to bring to contract, partly because there’s no urgency for them to buy. Many are also taken aback by site costs like utility and sewer hookups or septic system installations. Wadley notes that David Weekley often builds on lots within flood plains, or in established neighborhoods in Houston that have strict drainage requirements. “Buyers just aren’t ready for those expenses, so we have to manage their expectations,” says Danny Britt, off-site division manager for Collins Builders in Jacksonville. Last year, Collins closed 138 homes that it built on developer-owned finished lot. But in 2007, it launched an off-site division “because we were getting so much interest from customers,” recalls Britt. Last year, that division wrote 10 contracts with lot owners and expects to write 15 in 2009. Often, these owners have owned the land for decades, and it’s not uncommon for them to be living in manufactured housing on the property. Others might have riverfront property they want to monetize. What Britt hasn’t been seeing much of lately, though, are owners with lots within existing subdivisions. “I guess developers aren’t releasing those for sale,” he speculates.