To hear of the effort Fauquier County planning commissioner John Meadows put into the plan for Freedom Place, a 344-acre mixed-use development in Bealeton, Va., one can understand the disappointment he felt when he heard the project was a no-go.
Though builders are now keenly aware, municipalities are surprised to learn that the amenity-rich packages that made sense in 2005 and 2006 don't quite stack up in today's housing environment. "The cities still don't get what has happened to this market," says real estate consultant John Burns. "They are still asking for four-sided architecture, raising their fees. On top of that, they are also asking for all kinds of perks."
But county officials feel they've been left high and dry. Just days before Centex division manager Joseph Ricketts gave Meadows the bad news, the county had received reassurance of Centex's commitment to Freedom Place. As a result, they never saw the withdrawal coming.
"Most builders are walking away from any and all suburban developments currently working through the entitlement process as long as they don't own the property outright," says Meyers Market Advisors' Lance Ramella. "In many cases, builders are simply letting the expiration dates of their entitlements expire. Many others are withdrawing their projects from the entitlement process."
Consequently, smaller builders may find themselves with a significant competitive edge over their larger counterparts, according to Burns. "The local rep may go in on a Wednesday and say, 'Things are a-go.' Then the axe falls from corporate on Friday," he says. "That doesn't happen with a smaller builder because he knows about axes that are about to fall."
Neighboring counties may grow suspicious of their own deals as builders walk away from other projects that no longer pencil. Just weeks after announcing Centex's decision regarding Freedom Place, Ricketts found himself in contentious negotiations for another high-profile project: the 298-home, age-qualified Arrington Knolls proposal in the city of Warrenton. The builder has been seeking approval of an annexation proposal to include a portion of the Arrington Knolls site within Warrenton town lines, a necessity to acquire municipal sewer connections to serve the project.
Recognizing that putting the kibosh on Freedom Place would likely affect public perception regarding the home builder's willingness and ability to continue to develop Arrington Knolls, Centex issued a statement: "We have invested significant capital into this proposed community over the past three months, and we continue to do so. Like every Centex project, Arrington Knolls is undergoing review by corporate management, but at present, the Centex D.C. Metro division has been instructed to proceed with this application."
Citing the builder's "horrendous track record" in the area, the county's supervisor Bill Downey says it is difficult to believe that the Centex will make good on its word.
Builders are in survival mode, so undoubtedly they won't proceed with a project that has no viability. Gone are the days of transaction-oriented quid pro quos such as a $22 million cash award Centex had offered–and eventually withdrew from–the city of Warrenton in exchange for support of the Arrington Knolls annexation. But the question remains: Can builders succesfully resecure approvals on county projects when the market rebounds?
While he doesn't anticipate a reluctance on the part of municipalities to have builders resubmit, Ramella notes there are potential ramifications, such as "an administration change and a no- or slow-growth sentiment taking over."
"This is the time of the cycle where you have to make tough decisions, and ultimately some of those are going to negatively impact your brand," Burns says. "You can't continue to fund a land deal that makes no sense ... That being said, these are political organizations, and if you burn bridges in politics, you are done forever."
–Lisa Marquis Jackson
Reevaluation and Relationships
KTGY Group principal Ken Ryan, who has shepherded high-profile projects across the country through the approval process, suggests these key relationship tips should be considered. Though they apply in the good times, they are especially important during challenging periods:
- Maintaining a good builder-developer/community relationship is about trust first, and the project's benefits second.
- Trust is established by sharing information, listening, and responding. Even in small ways, from the beginning of a process, through approvals, through development, or during project reevaluation, the communication component is critical.
- Be realistic about expectations and delivery of the amenity package. Don't oversell a project; the reality has to live up to the promise.
- There is no line of distinction between a local representative and "corporate" decision makers. The public and the municipality see it as the same. The front line representative is the company. The disappointment of a good project not moving forward cannot be avoided. Without disclosing proprietary information or setting off alarms, keep key local leaders informed of a project's design and financial complexities. In most cases, you'll garner more assistance behind the scenes, nurture realistic expectations, and develop a better understanding if a project shifts direction or is put on hold.