They say, "What happens in Vegas, stays in Vegas." But when it comes to the tremors associated with housing's downturn, sometimes what happens in Vegas occurs in a bunch of other places. Especially as credit woes exacerbate already enfeebled new-home sales trends, big builders in particular are awakening to the perils of trying to sell their "boom market" products in a market that's just the opposite.
"It's all about community, and it is very different for the Las Vegas market," says Michelle McAlpine with Hanley Wood Market Intelligence. "This has typically been a town where people drive into their garages and close the door."
The project has been generating a lot of interest since Focus Property Group, the master developer for a partnership of seven home builders, bought the site in a June 2004 federal auction for $557 million–double the appraised value.
Driven by the land-constrained region's steep land prices, a design emerged for dense, pedestrian-friendly neighborhoods interconnected with narrow streets, village squares, parks, and open space. Upon completion, the community is expected to include seven villages, each about 200 acres to 250 acres in size. Each will contain at least four mini-neighborhoods, known as pods, of 20 acres to 60 acres. Each pod will be built around parks and village squares.
Toll Brothers, KB Home, and Meritage opened their sales centers earlier this year, hoping to capitalize on the unique concept that market research showed would appeal to Las Vegas buyers. Yet despite all the excitement at the Sept. 22 community grand opening, one of the three inaugural builders selling in Inspirada's first phase was clearly missing the party.
The move may seem drastic, but it's a tactic other volume builders are opting for more often as competition increases and home prices continue to fall. In an attempt to hold onto the value of their acreage, they're retooling their strategy and business models by generating new product types–and often initiating new densification initiatives.
"You can drop prices and try to force product down buyers' throats, but that is not our intention for that community," says Robb Beville, Meritage's division president. "We realized we didn't hit the market. We have a couple of years ahead of us in here, and it makes more sense to take our medicine today and feel great going forward." A temporary sales center will open this month, with general information on the new offerings. By March 2008, Beville plans to open new models with more design appeal for a broader audience. More importantly, they'll come at a better price.
Alhough it was sidelined by fire during construction, a D.R. Horton division is using the downtime to revise its design plans for a project in Escondido, Calif. While unit sizes will remain the same, additional bedrooms are being incorporated into the designs, and garages are being reconfigured. Though bells and whistles will get stripped out, the new designs are more in tune with current market trends in the area and will allow D.R. Horton to compete more effectively with other successful projects.
According to real estate consultant John Burns, his staff makes frequent adjustments to keep up with communities that shut down and reopen with different product–and sometimes even with a different name. A lot of such activity is happening in Florida, while California has seen many additions/modifications to floor plan lineups, if not full project closings. Even in other parts of Las Vegas, both KB Home and Toll Brothers have redesigned product offerings.
"This is not our first experience with builders going back and redesigning. Others are knocking down models and starting over. Builders have to figure out how to create a product buyers like," says Focus Property Group's CEO John Ritter, citing that KB Home sold six homes in a recent week in Inspirada's first phase. "Granted, they have dropped their prices and probably aren't making much money, but they are driving absorption with garden homes on tiny lots in the $250,000 range. Right now, price and product offerings go hand-in-hand."
According to consumer feedback, buyers want more open space than was offered in the original Meritage models. Buyers also prefer a downstairs master bedroom and the option of adding an extra bedroom or a larger garage. Beville says that incorporating these changes will hold down costs and allow the company to substantially cut its prices. In an effort to capitalize on KB's success, Meritage will introduce a 1,600- to 2,000-square-foot garden home, priced in the mid $200,000s.
–Lisa Marquis Jackson