FrontDoor Communities isn’t a typical startup.
The Atlanta-based company, which launched about 75 days ago, is positioning itself as a full-service operation capable of developing, building, and managing communities. The resumes of its two principals, Terry Russell and Michael Langella, include executive stints with John Wieland Homes and Neighborhoods and Reynolds Signature Communities, the latter of which they helped start three and a half years ago. And the new company already has a solid fee business to manage the completion of several golf course and resort communities in Florida and South Carolina.
“We have no legacy issues and we have access to capital,” says Langella, who previously was executive vice president with Reynolds Development & Management Group, and worked with Russell at Wieland for 12 years. “That’s a huge, huge plus for us.”
Russell, who once ran Wieland’s and Reynolds’ home building operations, on Wednesday detailed FrontDoor’s three-pronged business model:
•The company, he says, already has a “considerable fee business,” primarily in Florida and South Carolina, with Lubert Adler, a Philadelphia-based real estate investment firm with $16 billion in assets. The projects that FrontDoor is overseeing include 10 golf courses and an oceanfront resort “that still have building to be done on them,” says Russell. He pointed specifically to Hammock Beach near St. Augustine. Fla.; and Reunion Resort & Club in Orlando.
In several cases, former Wieland executives are managing these clubs and resorts. Langella says one of the reasons why it’s likely FrontDoor will focus its activities in the Southeast is that “we have human assets there, people we’ve worked with before who are in markets like Raleigh, Nashville, and Charleston.”
Russell says there’s “plenty of fee work” available because “there’s still plenty of distressed communities.” He adds that the trick is “rightsizing” club communities “to fit today’s model.” Langella elaborates that many clubs are “financially challenged” partly because their memberships are too limited. He points to one club FrontDoor is managing—Cobblestone Park in Columbia, S.C.—whose previous developer kicked out all 1,500 members who weren’t residents, without realizing that the owners were mostly investors who fled when the economy softened. “Membership has to include corporations and nonresidents,” he says.
•The second prong in FrontDoor’s business model is redevelopment, financed either internally by the sale of land and homes or through private equity. Russell says at least a dozen private equity firms have approached him about providing financing. “There’s a lot of money looking for opportunities, but finding the right project is a challenge.” (He also notes, parenthetically, that any developer looking to start a greenfield project in this economy “really needs to think twice.”)
Langella adds that a number of banks have also offered to provide both horizontal and vertical development financing. But Russell says banks expect borrowers to own their land “free and clear,” and are not disposed to finance the construction of specs.
That being said, Russell says he’s looked at a dozen or so potential redevelopment projects in Georgia, Florida, and South Carolina. He hopes to have a contract on his first deal in the next 30 days: a 62-homesite infill project in the Charleston, S.C., suburb of Mount Pleasant that’s part of the RiverTowne County Club, a property that FrontDoor is managing. (Coincidentially, RiverTowne is across the street from Dunes West Country Club, a Wieland project.)
If this deal goes through, Russell expects to build homes there that are between 2,200 and 3,000 square feet, and that start in the low $300s.
FrontDoor’s redevelopment focus will be on urban and suburban infill, “and we’ll be more deal oriented than price point oriented,” says Russell. While he suspects that much of what gets built at communities FrontDoor redevelops will range from the high $200s to the high $300s, he’s also looked at one deal “in a superb location” in Atlanta whose homes would start in the $700s.
•The third prong in FrontDoor’s game plan is home building, and much of that is likely to occur on properties the company redevelops. Right now, FrontDoor is looking mainly “at smaller stuff,” says Russell: projects with anywhere from 24 to 62 lots. (He is also looking at one 400-acre site, “but that’s going to be two years of entitlement work.”)
What he wants his new company to avoid, he says, is “chasing volume” at the expense of profitability. “We all made that mistake. But I think it will be easier [to resist] this time around because we’ve all had a humility check.”
John Caulfield is senior editor for Builder magazine.