In this week's Digital Dirt, Big Builder profiles a group of "land management" (read: former land acquisition) professionals in Orange County Calif. Challenged by the conditions of their market, these former competitors have come together as allies in an effort to strategize their survival in the current downturn.
"It's lonely out here."
Those are the words of a young land management talent in one of the nation's ground zero markets talking about his position amid the environs of the latest downturn.
Like almost everyone associated with the real estate industry, his job has changed since 2005--what he does, who he works for, and what opportunity looks like.
There's more financial analysis involved in land these days, and deal makers have to consider multiple scenarios to determine what should be done. It's no longer obvious.
Land acquisition departments have thinned greatly in the past 18 months. And today, people who want to stay employed in the land business have to wear a lot of hats in order to prove their continued value to employers. So in Orange County, Calif.--against the concerns, advice, and, in one case, forbiddance by managers--they are banding together.
What has emerged is a group full of titles and companies that in years past would have typically been competitive and distrustful of each other. But if you happened upon the 25-plus members that gather socially each month around an outdoor firepit on the patio of a local bar, you'd be hard pressed to find contention. Instead, you'd feel the camaraderie, almost a bond that ties them together in spite of their once-opposing interests.
They are, to some degree, a self-help group assembled from several public home builders, developing powerhouses, instrumental regional builders, and even brokerage firms. And they're looking to each other for salvation.
"As people are getting laid off left and right, we are trying to figure out how we can stay alive," said Justin Esayian, a land broker with The Hoffman Group. "At one point, we were all competitors. The thought of passing off a land deal from [a public] over to [a developer] was unheard of. Now it comes down to jobs. The more of us that can make it through, the better for all of us. We are the generation that will be leading home building in Southern California for the next 30 years. It's a unique opportunity to build relationships and help move forward."
If you buy into the assumption that land acquisition positions are a stepping stone to the role of division president, then it's conceivable to say this is the future braintrust for residential real estate in Southern California--and they are changing the way they do business.
"We're from a different school," said one member. "We're comfortable with technology, we understand linear regression, we know about other business models, and we have a grasp of finance."
"We often have to push our companies to try new approaches, think about what works and doesn't work today," noted another.
They're similar in age (all well under 40) and approach, and they all claim to "speak the same language." Unlike the generation before them, nearly half of this group is female.
And not one has ever been through a down cycle in residential real estate.
In many cases, there is no one left in the company to impart experienced wisdom to the individual members. So they look for insight as a group, inviting seasoned real estate veterans to attend their meetings as speakers. They want information on how deals can get done and how people are approaching strategies today. But they are also hoping to hear tales of what the business was like in the '90s, '80s, and even the '70s.
While most agree that the current state of the market is anything but fun, a continued commitment to the industry runs through the group. And those that view it as a great time to learn are taking away valuable lessons and, more importantly, building relationships for the future. "Someday we'll look back and say, 'I remember the crash of 2006,'... and I'll remember who helped me through it," said a public home builder member.
Across the country, tough conditions are spawning unconventional strategies for survival. E-mail me at firstname.lastname@example.org with insight on strategies being employed in your markets.
In the meantime, here's more of what's happening in the trenches:
SOUTHERN CALIFORNIA Barratt American is searching for investors. After struggling to pay its bills over the last several months, the builder now faces over 40 lawsuits for failure to pay.
SOUTH FLORIDA TOUSA, which filed Chapter 11 in January, claims that reorganization is going successfully, due in part to a $207.3 million carry-back from 2007 losses. In court documents filed last week, the company released details of the federal refund and requested court permission to use the funds for ongoing operations. TOUSA has been locked in a contentious battle regarding debtor-in-possession financing needed to support the company as it continues to sell and deliver homes.
In its latest monthly operating statement, TOUSA reported that it signed 448 net new sales contracts in March and closed 512 homes during the month. Both numbers were up from the month prior.
THE CAROLINAS Youngsville, N.C.-based DenMark Homes filed for Chapter 11 protection last week. The company is planning to sell off some of its land to help pay back creditors in the short term and hopes to find a national partner to help on some of its projects in the Raleigh/Durham area as well as in Myrtle Beach, S.C.
SPOKANE, WASH. A local builder in Spokane Valley announced that it would cease operations after finishing projects in progress. The company's top three managers have spun off a new company, Camden Homes, that will build in the area.
Learn more about markets featured in this article: Los Angeles, CA.