Even in hard-hit markets riddled with foreclosures and stalled developments there are pockets of opportunity.
One case in point is a little distressed plot of land in California’s Inland Empire that Trumark Cos. bought in late 2009. The infill parcel in Upland, Calif., didn’t fit Trumark’s business model. It was barely within the company’s criteria for commutability to Los Angeles. And approvals called for 39 motor-court homes, a ho-hum format in the region.
“It’s a product that we probably wouldn’t choose for this area,” says Michael Maples, principal of the Danville, Calif.–based Trumark. “You see [motor-court homes] all day long. But it’s what we had, and it was a little further out than we like. But the price was right, so we went with it.”
Trumark bought the parcel called Wyeth Cove for so little that it essentially got the land for free and the development’s infrastructure and lot pads at about 60 cents on the dollar.
Trumark started selling at Wyeth Cove in February 2010 and was nearly sold out by the end of the summer in 2011. While the two-home-a-month pace was by no means fast, Maples was happy with it because the company never discounted the houses, which sold between $360,000 and $440,000.
“We know we could have moved the homes quicker, but we have chosen to hold the prices, which means you have to go through more buyers,” Maples explains.
“I think the success story is we are making money,” says Maples. “We paid off the bank a while ago, so it’s all about profit now. It’s going to return an [investment] in the very high 20s [percent] range.
Despite the parcel’s negatives—the already existing infrastructure that would be too expensive to redo, and a location near an industrial building and a noisy road—it had some strong positives as well.
The Inland Empire has been hard-hit by the housing recession, but the city of Upland remains a desirable location where most homes were bought before the housing boom, so there are fewer homeowners upside down in their mortgages and fewer foreclosures to compete with. Also, because the housing stock is relatively old and there were few new-home builders in town, there is a built-in demand for new homes.
“If they wanted to be in Upland in something new, we had the ticket,” says Maples.
However, since most of the homes in town are on larger traditional single-family lots, Trumark had to find a way to appeal to a niche group of local buyers who weren’t interested in large yards. And, with so many stalled projects around the county, it also had to convince buyers that they wouldn’t be buying into a community that might not sell out and remain unfinished.
To combat those problems Trumark built a private park with amenities in the middle of the development first, even before the model homes, to help potential buyers realize that the common area would extend their visual outside space and to show an investment in the project big enough to convince visitors that it would be a success.
“We couldn’t afford to put off the common amenities, because no one would believe you would get to the finish line” with the project, says Maples.
To create some interior “wow,” Trumark added a variety of high-end features to the homes such as granite countertops, oil-rubbed bronze hardware, and ceramic tile in the entry.
“We probably over-specced the homes to prove that they were really good,” says Maples. “I’m not sure we got that [investment] out of it.”
To quell buyer nervousness, Trumark made greater use of real estate agents than it typically does. “They need a third party to tell them that they have looked at everything, and they can tell them it’s a good deal.”