In a land deal that local housing experts say exceeds $50 million, a prime piece of property on the north side of Houston is now a Texas two-step closer to its future life as a master planned community.
In late December, acquisition entities formed by two separate buyers–The Avex Group of Dallas and The Cardon Group of Mesa, Ariz.–closed on combined acreage of 6,634 acres of property known as Woodard Ranch.
Individually, Avex holds 5,700 acres under the new deal, with the remaining 900 acres controlled by The Cardon Group. Although the deal was structured as two separate transactions, Wilford Cardon, CEO of The Cardon Group, predicts the companies will partner in some manner going forward. "I anticipate that, eventually, we will be working on this project together."
"As it worked out, two other parties that we had not originally contacted learned about it, came forward, and were interested. We were able to create a situation that worked for them. These developers have a pretty substantial portfolio of holdings in Texas," says Galatas. "They saw an opportunity to acquire land in a favorably located place, at a fair price today, with an opportunity to do some things to enhance the value. The whole process went really well and both the buyers and seller saw it as a success."
Market experts speculated that the parcel might fetch anywhere from $30 million to upwards of $125 million, primarily because of its topographical similarities and close proximity to The Woodlands, a wildly successful, 28,000-acre master planned community.
But the biggest hurdle was, and remains, highway accessibility. Where The Woodlands directly links residents to I-45, Woodard Ranch remains a bit more remote. Still, developers are confident that the proposed thoroughfares and an expressway project will materialize in time to deliver access to would-be residents.
"The market presented a great opportunity for us," says Cardon. "When you invest in and entitle land that is [located] that far out from the city's core, which is what we do, it's the first place land prices start to drop off. Houston's demographics are strong. It's a project we're excited about."
Although both developers have experience in commercial and residential development, Cardon says his stake in Woodard Ranch will be "strictly residential." There is some anticipation that, in addition to some finished lots, the new owners could also offer small parcels for sale to builder/developers.
During the time he brokered the land, Galatas shepherded the parcel through a land-use assessment–the coordination of a master land-use plan–and secured right-of-ways for planned major thoroughfares, including a proposed expressway. At the direction of the land's seller, Galatas also imposed protective covenants, such as a prohibition of billboards, to ensure that the integrity of the developed property closely mirrored that of the The Woodlands.
It seems smart from a business perspective to capitalize on the success of The Woodlands, especially since the two properties have parallel histories. "George Mitchell, the founding visionary of The Woodlands, once owned the Woodard Ranch property and envisioned its development as the next in a series of high-quality master planned communities in the north Houston region," says Galatas. "The new owners [are] willing to impose similar development standards, preserving the opportunity to advance Mr. Mitchell's vision."
With the entitlements achieved by Galatas already in hand, it is conceivable that, in an aggressive scenario, the developers could quickly turn the dirt into rooftops. In fact, housing could be on the ground at Woodard Ranch within 18 months. But, at this point, neither one of the property's new owners are ready to commit to a detailed timeline. "Right now we're doing our utility district work and conducting market studies, buyer profile and demographic assessments," says Cardon. "We'll take it one step at a time."
–Lisa Marquis Jackson
In Plane View
Frontier Homes expands in Phoenix with a $29 million minimum bid in a bankruptcy auction for five subdivisions.
For Doug Stewart, Dec. 11, 2006, started like any regular manic Monday. The California division president for Frontier Homes began his daily commute, driving from his home outside Phoenix to the airport to catch the one hour and change Southwest Airlines flight to Ontario, Calif. But along the way, a radio advertisement caught his attention, triggering an 11-day whirlwind to secure a $29 million deal that stripped a bankrupt builder of five subdivisions, gave hope to about 150 abandoned home buyers, and brought a new home builder to Arizona.
Although Stewart had spent the past three months looking for good deals in the Phoenix market, he was hesitant to bring the news immediately to the attention of Frontier's CEO and CFO. Unsure of the condition of the lots and their locations in the cities of Casa Grande and Maricopa, Stewart went to check out the sites for himself.
"My first impression was, 'Wow, how could this builder go bankrupt?'" remembers Stewart. "Because they did a lot of things right."
To Stewart, the original builder, Turner-Dunn Homes, had done a nice job on presentation throughout the communities, built appealing models, used quality subcontractors, and offered attractive pricing. And the locations fit Frontier's first-time and first-time move-up buyer business model to a T. At roughly 30 to 45 minutes from the Phoenix airport, Stewart says the communities are "commuter friendly" but give target buyers better value for a home by going distance for dollars.
Convinced that Frontier should throw its hat into the ring and bid for the land, Stewart pitched the idea to top management. Immediately CEO James Previti and some of his key staffers flew out to Phoenix to see for themselves. "From a strategic standpoint, we've been looking to grow the company, but the prices of economically buildable land in Southern California were such that it wasn't feasible for an entry-level builder," says Mike Dwight, Frontier's vice president for sales and marketing. "We looked at it and said, 'Gee, this makes too much sense.'"
Liking what they saw, the team moved at lightening speed to prepare a bid for the auction just days away. On Dec. 21, 2006, Frontier management arrived at 10 a.m. at the U.S. Bankruptcy Court in Phoenix to find that Frontier was the only bidder.
Charlevoix Homes, a builder based in Scottsdale, Ariz., had reneged at the 11th hour on its offer to buy the properties for $29 million. Plus, the judge refused a last-ditch plea by Turner-Dunn owner Marc Dunn to retain the properties, claiming he had found a financial backer and could continue building. Frontier secured the parcels by matching the $29 million offer.
Frontier believes no other bidders showed up for two reasons. First, other builders were interested in the land but were unwilling or unable to simultaneously take on all five parcels–nearly 450 home sites. Second, builders with enough financial capital to build on that scale already had an ample land supply in the area. Beazer Homes, D.R. Horton, Greystone Homes, Meritage Homes, Ryland Homes, and U.S. Home all build in the vicinity.
"Everyone's got their plate full," explains Dwight. "So many builders went long on land, especially in the Phoenix area."
The purchase is Frontier's first foray outside the Southern California market, but the company says it's going to hit the ground running. In fact, Dwight estimates that the new Arizona division, headed of course by Stewart, will start delivering homes as early as mid-February.
And by year end, he expects these purchases to produce more than 200 homes for the company. Home prices are expected to start around the $170,000 mark.
Contributing to the fast delivery pace is that Turner-Dunn already had done most of the heavy lifting in getting the sites ready for construction before it ran into a cash crisis. Frontier steps into the market with 355 finished lots and numerous homes close to construction completion.
Moreover, Frontier evades some of the usual market entry hurdles through its many personal ties to the Phoenix market. Not only is Stewart a 20-year resident of Gilbert with years of local home building experience, but COO Frank Glankler is a former Scottsdale local. And the team also has experience building homes in the area with Empire Cos. and K. Hovnanian.
"Seventy-five percent of the trade contractors that Turner-Dunn was using, we knew them," says Dwight.
A New Order
Although the operations' wheels might be greased in some respects, Frontier still faces several challenges, not the least of which is the severe dive that the local housing market's been in.
Posing a more immediate issue are the roughly 150 unhappy home buyers who collectively are out at least $650,000 in earnest money and deposits that they gave to Turner-Dunn to build their homes. Several home buyers have filed lawsuits to recover the money, but the company's filing for Chapter 11 bankruptcy protection, experts say, pushes them to the end of the growing list of creditors seeking repayment of monies owed.
According to a local news Web site, www.azcentral.com, Ohio Savings Bank and Weyerhaeuser Realty Investments will have first dibs on repayments. However, Turner-Dunn's bankruptcy filing lists roughly 100 creditors, including unpaid subcontractors, many of whom have slapped liens on lots and already occupied new homes, in some cases.
But Dwight says he's already been talking to dozens of these homeowners, and he thinks he's got a proposition that they can't refuse. Most of these buyers can pretty much kiss any money they gave Turner-Dunn good-bye, since Frontier didn't inherit any escrows with the purchase. But because of Frontier's ability to build more affordable homes, these buyers can still get the homes they contracted for without totally losing out.
"We will go back to them and [for example] say, 'You contracted to buy Plan 2293 on lot 81, and the house is half done. Would you want to go forward on that purchase?'" explains Dwight. "If that answer is 'yes,' we write a new agreement with them at a better price than they were going to pay. ? If that answer is 'no,' we have a home that can be delivered in a very short order at below market price."
How this will play out with the homeowners, some of whom have waited as many as 18 months for their new homes, remains to be seen.
In the meantime, the Frontier team remains excited about the future of its newest division outside the California state line, full well knowing that the deal all came down to being in the right place the right time to make it happen.
"This is probably a one-time opportunity," acknowledges Dwight. "And if all goes as planned, everybody is going to be happy.
Developer plans to transform blighted Brooklyn property into a hot spot for residential living and entertainment.
Architect Frank Gehry's fingerprints will be all over the major transformation of Atlantic Yards, a 22-acre, mixed-use site and railroad storage facility in Brooklyn, N.Y. The currently blighted property will undergo a face lift, turning it into local hot spot for sports and entertainment. The estimated $4 billion project is expected to spur an economic boom and create new businesses for the borough and city.
Much of the tract is now covered by a four-block Long Island Railroad storage facility and rail yards. The rest is comprised of empty lots, gas stations, auto repair shops, underutilized or vacant industrial, manufacturing buildings, and some residences.
About a year and a half ago, the Metropolitan Transportation Authority put the property out for bid and chose Forest City over two other finalists, Twining Properties of New York City, and a joint venture between Florida-based WCI Communities and G&S Investors of Old Bethpage, N.Y. Forest City sealed the deal with a $492 million bid that included $100 million in cash and $392 million to construct a new, improved rail facility, environmental clean-up, payments to covered increased operating expenses, and other improvements.
As the project progressed, the company had to alter its original plans by reducing the height of the project's signature "Miss Brooklyn" office building at the corner of Flatbush and Atlantic avenues to 511 feet, thereby ensuring that no structure will be taller than the 512-foot Williamsburg Savings Bank. Of the 6,000-plus housing units, 4,500 will be rent-stabilized rentals with the rest listed as market-rate condominiums. According to the latest figures from the Real Estate Board of New York, the median sales price for co-op and condo apartments in Brooklyn is $439,000.
However, Forest City Ratner still faces legal challenges by about a dozen land owners who will lose their property through eminent domain proceedings, as well as suits by others who claim the project is "too grandiose" for the area.
The approval to move forward on the site was just one of several that the $8.5-billion public developer received as 2006 came to a close. The company also won the competition to recreate the shoreline in New Rochelle, N.Y., as well as an extension of an agreement with Fresno, Calif., to build a mixed-use urban core for the city.