As housing markets recover, more of the industry’s national and regional builders are expanding again. Several builders are stepping into new markets via land acquisition. And a closer look at three builders’ recent advances— D.R. Horton into Nashville, Tenn., Ashton Woods Homes into Sarasota-Bradenton, Fla., and Gehan Homes into Phoenix—reveals that the competition for quality land is heightening and putting pressure on these markets’ finished lot inventories.
Horton is staging its return to Nashville after being in and out of that market in the 1990s. In February, it paid $1.4 million to acquire 28 residential lots in a subdivision called Woodmont in suburban Smyrna, Tenn., according to The Tennessean. The builder reportedly plans to offer five floor plans that will start in the mid $200s.
Horton did not respond to requests for comment. But the developer from whom it bought the land, Scott Sohr, tells BUILDER that 200 of Woodmont’s 800 home sites have been developed and mostly built on. Horton is the only national builder he’s sold lots to so far there, but Sohr—who runs a company called Stonegate Land—notes that M/I Homes has been “nosing around Nashville,” and NVR already has a presence there.
John Sheley, executive director of the HBA of Middle Tennessee, recalls when Nashville had a similar influx of national builders in the mid 1990s. Back then this market competed with Charlotte as places for growth-minded builders to expand. Now, the Nashville market is strong on entry-level and higher-end homes, but it's a bit short on move-up product, a hole that production builders might fill, he suggests.
“We feel we’re getting back on track, so there’s been more talk about permit-ready lots,” Sheley says.
Alan Looney isn’t too worried about public builders flooding into Nashville because he rarely goes head-to-head with them. Looney’s company, Castle Homes in Brentwood, Tenn., builds 12 to 15 homes per year that range from 4,500 to 5,500 square feet and from $800,000 to $1.3 million. Castle also does four or five big remodeling projects annually.
Since 2010, “we’ve been growing every year,” says Looney, whose company holds some lots, and builds on its customers’ land. He is concerned, though, about the number of finished lots available, so Castle will develop real estate when necessary.
Sohr has other communities under development in Williamson County, which he believes is Nashville’s strongest economically and could attract the publics. These include Arrington Retreat, which will have 223 homes when completed; Winterset Woods, with 200-plus home sites; and Courtside, with 250.
Developed lot prices around Nashville, Sohr says, generally run about 20% of the selling price of the house. While builders are seeking finished lots, Sohr says Pulte, Nashville’s market leader, is among the builders that “will buy land and do their own development.”
Moving into Sarasota-Bradenton “was pretty natural” for Roswell, Ga.-based Ashton Woods, says John Reny, its Florida president. “We were already operating in Tampa, and some developers were also looking to move south.”
Within the past 60 days, Ashton Woods closed on 78 home sites on 18 acres in the Whitaker Park community in Sarasota, which it put under contract a year ago, Reny says. It acquired those sites from a developer, Tom Chapman, with whom Ashton Woods has done a total of five deals. Ashton Woods paid $1,200 per frontage foot for those home sites, which Reny says is “under market value”; other sites in Sarasota have been going for at least $1,500 per foot. The builder expects to start its first model there in May.
At Whitaker Park, Ashton Woods will target family buyers with one- and two-story houses that will range from 1,850 to 3,000 square feet and start in the low $200s. Ashton Woods also recently acquired 23 home sites in the Palma Vista community in Bradenton and 142 sites at the Rosedale Country Club in East Bradenton, of which it’s already closed 42. Those latter two communities lean more toward active-adult buyers, so Ashton Woods’ homes at Palma Vista will be 2,000 to 3,000 square feet and start in the mid $300s, which also will be the starting price for its 1,862- to 2,580-square-foot houses at Rosedale.
Reny says the new home designs Ashton Woods will offer at Palma Vista and Rosedale were informed by focus groups with local Realtors and buyers. For example, all of the houses there will be one story and have open interiors with 11- to 12-foot-high ceilings. These homes also will offer a “bonus room” or casita option.
Reny says competition in these markets is “fierce,” as public builders are paying premiums for land. “The reality is that we’re more of a niche builder, so we’re looking for quality developments for controlled growth.” Ashton Woods is looking to expand in Sarasota-Bradenton, and has letters of commitment signed for at least two more deals. It also wants to “expand our footprint” throughout Florida, says Reny, and the deals it’s leaning towards typically have 23 to 35 lots each.
Moving Beyond Its Comfort Zone
Since opening in 1991, Dallas-based Gehan Homes had built exclusively in Texas until its decision to expand into greater Phoenix, where it has purchased land in three suburbs: Surprise, Peoria, and Gilbert.
“We’ve been aware of other markets outside of Texas for a while, but Phoenix was at the top of my list because of its positive long-term demographics,” Tim Gehan, the builder’s CEO, tells BUILDER. He was particularly attracted to Phoenix as a job-creating center, and by the fact that its housing market seemed like it was coming off the bottom. ( Phoenix started around 12,000 homes in 2012, and projects 18,000 this year.)
Gehan Homes expects to open its first model at the Greer Ranch master planned community in Surprise on April 16. The builder has purchased 66 nearly finished home sites there from an investor. In Peoria, it purchased around 55 underdeveloped lots, each 55 feet to 60 feet wide, at the master planned community Vistancia. Gehan expects these sites to be ready for construction in June or July. And in Gilbert, the builder purchased roughly 70 partially developed sites on 70-foot-by-120-foot lots that had been owned by multiple investors and held by an entity of Wells Fargo. He expects this lots to be delivered for construction by July, too.
To introduce itself to the Phoenix market, Gehan Homes hired BSB Design, which has an office in Scottsdale, to come up with new house plans for this market. The houses, for the most part, will be 45 feet to 50 feet wide and range from 2,000 to 4,500 square feet. All of the houses will have three-car garages, with an option to turn one of those spaces into a casita for living quarters. The houses will be priced from $200,000 to $600,000.
“We wanted to enter the market as a move-up builder, and give customers the idea that our product is an upscale, move-up experience,” Gehan says. Gehan Homes plans to expand its presence in Phoenix, albeit “incrementally and within what our balance sheet will allow us to do.”
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: Phoenix, AZ.