In 2005, Carlos Beruff watched in amazement as the large public home builders kept paying ever higher prices for land in Florida's Sarasota area.
"I knew I couldn't make money selling houses on land that cost that much," said the president of Sarasota-based Medallion Homes. "I thought if they could make those numbers work, they knew something that I didn't."
So Beruff decided to sell the majority of his land assets to the land hungry buyers.
"We had a great run, but we thought asset prices were getting disconnected from what we thought the market could afford," said Beruff. "We sold into that frenzy that was created only because we couldn't understand it."
In moves that Beruff said had as much to do with luck as smarts, between April and November 2005--at what would later turn out to be the absolute peak of the Florida market--Beruff sold five of his company's projects and closed on another in June 2006. Then he banked the cash and downsized his company from 40 to 14 employees over the next couple of years. He took a lot of time off in 2008.
The company is back up to 22 employees, and it's in the enviable and unusual position of being a private builder with cash to take advantage of rock-bottom land prices. Beruff said Medallion has spent $7 million in the past eight months to buy some 300 finished home lots in three developments in the Sarasota area where he's built homes for 25 years. Medallion's been paying cash and, in a couple of cases, outbid some pretty heavy financial players for the land.
As a builder, Medallion doesn't need the extraordinarily high rate of returns that private equity funds or even middlemen buyers planning to resell to home builders need, so he can pay a bit more. Still, he thinks the prices he paid "are unmatchable."
All the purchases were for finished lots in University Groves, Gamble Creek, and Levitt's former Cascades community in Sarasota. "We are buying the property for less than what we would have to pay to put in the infrastructure," in essence getting the land itself for free, he said.
Beruff said he figures the 300 lots will give him enough inventory to last his company for 42 to 60 months, but that's just a guess. He expects to close 35 houses in 2009 and between 110 and 120 in 2010. Medallion has a 60-home backlog now.
Beruff credits Medallion's sales uptick to the fact that much of his competition disappeared over the last couple of years and isn't around to participate in the market recovery.
Medallion is looking to buy even more land at the right price. Beruff said he has tried to buy back some of the land he sold off before the market collapse but hasn't been successful yet.
However, Beruff said he does have one regret. "We kept some of our land. In hindsight, I would have sold it all."