In the past, The Corky Mc-Millin Cos. would almost always sell to other builders and developers parcels within its master planned communities that were zoned for attached-home construction. Not anymore.
“As we continue to operate in a more [land] constrained market, we're seeing the need to augment what we develop and build with attached product,” explains Guy Asaro, the San Diego–based builder's first senior vice president for land development. He notes that Corky McMillin has several attached projects under development, including one that's part of a larger community in Chula Vista, Calif., that could yield up to 100 units per acre; and another called Lonestar, in Otay Mesa, Calif., that allows for between 12 and 30 units per acre.
Other production builders are, well, becoming more attached to selling attached homes, too, and not just because finding large land tracts is difficult and expensive. They see a genuine opportunity that, up until recently, few builders have exploited. In 2005, attached sales represented a sliver of Royce Homes' closings; now, the company is building attached townhouses in Houston and Atlanta that average 1,760 to 1,920 square feet and two to six units per building. In 2007, attached homes should make up 8 percent of its closings, says Shawn Speer, Royce's Houston division president.
In 2006, 42 percent of McBride & Son Homes' estimated 2,050 closings were attached homes, up from 28 percent the previous year. “We're seeing that more municipalities are receptive to the concept of providing housing to keep empty-nesters in the community,” says John F. Eilermann Jr., CEO for the Chesterfield, Mo.–based builder, which has been in the attached game since the 1980s. The company focuses on villas that range from 1,000 to 1,850 square feet and two to three units per building.
About half of the estimated 1,000 units Pulte Homes closed in 2006 in the San Francisco Bay Area were attached (compared with about 30 percent across all of its divisions). Pulte's multifamily product there is different because it ascends three stories or higher, versus its mostly two-story buildings in other parts of the country. Merry Sedlak, the division's vice president of marketing, says Pulte got into attached in a bigger way in the San Francisco market five years ago when it hired Steve Kalmbach from Catellus Development Corp. for his expertise in acquiring land zoned for attached construction. Kalmbach is now that division's president.
Around the time Kalmbach joined Pulte, Centex acquired Dallas-based City-Homes, which had been building upscale urban townhomes since 1997. This year, Centex is expanding CityHomes' activities to the Houston market, where it eventually plans to have 10 to 12 communities selling attached homes ranging from 1,700 to 2,400 square feet and from the mid-$200s to the mid-$400s. In Dallas, CityHomes sells three-story brownstones that borrow design elements from downtown San Francisco and the Rainbow Row community in Charleston, S.C. Don Barrineau, CityHomes' president, says Centex's divisions in Denver and metro D.C. are also developing attached communities. “This is a growth area for the country, and we're poised to do a lot more interesting housing over the next decade.”
RISKY VENTURES Barrineau thinks that by tapping into demand for attached homes, Centex has a clear competitive advantage, because he's not seeing other production builders diving into this market with the same fervor. But attached could become more than an afterthought for the housing industry. Through September 2006, 19 percent of homes started nationwide in that year were attached. That's a far cry from the 28 percent that multifamily represented in all of 1998 but up from 17 percent in September 2005, according to Census Bureau data. According to the Joint Center for Housing Studies' “State of the Nation's Housing: 1998,” that year represented an eight-year peak for multifamily sales, at 340,000 units. The Joint Center attributes this to several factors: Rising rents were making ownership more attractive; the overbuilding during the 1980s had steadily depleted itself; and echo boomers were coming into the market. All that started changing, however, after 2000, when, according to data on the NAHB's Web site, there was a dramatic, five-year-long increase in single-family starts, which one presumes made multifamily construction less pressing for builders.
Some builders, though, continue to view attached housing skeptically, and practically no one believes multifamily will supplant single-family homes as the purchase of choice for most buyers. Building two- to four-story structures over parking garages or retail stores remains outside most production builders' strike zones. “We'll probably be moving in the other direction,” says Troy Black, a spokesperson for Federal Way, Wash.–based Weyerhaeuser Real Estate Co., whose Pardee Homes and Winchester Homes divisions build attached product to counter land-constraint issues in Southern California and Washington, D.C. Nonetheless, attached remains a small part of the builder's business.