As developers struggle, Dallas-based Huffines Communities is seeking to expand beyond its successful Texas base.
"We've wanted to expand for years, and we started looking at expansion markets in '04, but we couldn't make any deals work," said Robert Kembel, Huffines' president. "We were having to compete with builders getting into the development business."
But now, with many builders out of land development and developers out of business entirely, other home builders want to buy turnkey lots again, and Huffines hopes to capitalize on that demand in Dallas and in other parts of the country.
"We are out actively looking," Kembel said. "Now is the time to buy." But that hasn't been easy; Huffines has been looking for the right land to buy at the right price in markets other than Texas for two years now with no success, according to Kembel.
"Well-located, quality master-planned communities, the kind of product that we really have liked--they are not available," said Kembel.
But Huffines is pretty picky. It's looking in larger markets where its builder customers want to be. It also seeks markets with job growth and relatively close-in land parcels located in good transportation corridors. And it favors Sunbelt markets such as Phoenix, Florida, the Carolinas, and Atlanta.
Huffines' capital for purchasing land comes from the company itself and institutional equity funds out of New York, Boston, and Dallas. "There are quite few private equity groups, and we talk to all of them," said Kembel. "We usually have been exclusive once we latch onto a group. We've had three equity groups since the early '90s."
"There's more capital out there looking today than there has been in a long time," Kembel added. "It's just very difficult to get them to make a decision. There's tons of committed capital sitting on the sidelines looking for opportunities."
Whatever land deals Huffines does will be without debt, according to the company president. "We survived the '80s in Texas," Kembel said. "We've made some mistakes; that's why we are so debt-averse. So we write all of our analysis on an unleveraged basis. It has to work without a debt structure. That keeps us out of a lot of projects."
While it looks for out-of-state opportunities, Huffiness continues the work it knows the best: building masterplan communities in the Dallas-Fort Worth metroplex.
Three developments--Providence, Savannah, and Artesia--in particular appear to have sidestepped the worst of the housing fallout. As the national economy tanked, sales still continued in Huffines' Providence and Savannah communities in the Dallas area, which came online in 2004 and 2005. Lots are still selling in those communities, plus nearby Artesia, for replacement costs plus a margin, while lots elsewhere are selling for less than replacement cost, said Jim Jenkins, a Huffines senior vice president.
"At Artesia, the level of activity is really quite fun," said Jenkins. Because the company has a low land cost for the communities, Huffines can hold the line on lot prices. "We will only begin development when we have the buyers and we can make money."
Huffines is in the process of bringing on two more Dallas-Fort Worth communities. Hebron 121 Station is a 59-acre mixed-use urban development in Lewisville, with 1,700 apartments built around Denton County's first rail station.
A much bigger development called Viridian, a 2,000-acre infill master-planned community, is being developed in partnership with the city of Arlington, Texas. Huffines is expected to begin delivering lots next summer with a full grand opening in spring 2012. The project is bordered on the south and east by the Trinity River. The city's $40 million River Legacy Park runs through the development, which will be Texas' first Audubon Gold Standard community.
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.
Learn more about markets featured in this article: Dallas, TX.