What makes a move-up subdivision with a wobbly reputation worth a full year of three-way negotiation amid public pressure to create a community with budget-busting requirements? Well, location may be everything, but a screaming deal certainly helps.
For Pulte Homes' Tucson division, location certainly ignited interest in Tucson's much-touted sustainable/new urbanist Civano subdivision. It wasn't always a hot location though—21 miles southeast of downtown Tucson, Civano was long dismissed as too remote from local job markets. But the growth wave finally arrived, converting Civano's 1,500 remaining unbuilt homesites into a big opportunity.
So what made it a great deal? A motivated seller, of course—Fannie Mae had owned the project since 1998 and found that the master developer's seat was uncomfortable. Ultimately, Pulte got 476 acres for just $8.57 million, well below one competitor's near $30,000,000 valuation.
Pulte now has excellent field position, says local market researcher John Strobeck, of Bright Future Builder Consultants: By sidestepping lot scarcity and ever-longer approval cycles, Pulte could dominate local markets for perhaps the next three years—those 1,500 lots are 20 percent of the current total local inventory, and less than 9 percent of rapidly growing eastern Pima County remains open for development.
But Civano is much more than just another “turn-around.” Launched to international fanfare, the public/private proof-of-concept for solar energy “best practices” had morphed into a new-urbanist poster child. Everything from platting and “solar access” to energy and water use is governed by a complex Memorandum of Understanding (MOU) mandating oft-conflicting goals for solar-energy, building science, and new urbanism, created and overseen by multiple State and local agencies. The combination of restrictive planning doctrine on top of new technology proved wildly unpopular with builders attuned to Tucson's “extremely price sensitive production market,” according to Strobeck. Several small builders enjoyed success at Civano, but two went bankrupt, tainting the project's reputation. Larger players stayed out in droves, building thousands of homes in surrounding developments instead. Six years after approvals, just 400 of Civano's 1,900 zoned lots had houses—leaving a beckoning island of raw but approved land in the middle of Tucson's now-hottest market.
Brave Builder Pulte snatched the prize only after navigating a gauntlet other builders might prefer to forego. While both Fannie Mae and the City of Tucson saw Pulte as a potential savior, Civano also has a wildly passionate resident population of highly educated “cultural creative” families, firmly united for new urbanist “community values” and against grid-platted front-loaded production housing. They organized as “Civano Neighbors” and then applied considerable political muscle to Pulte's negotiations with Fannie Mae and the City of Tucson. Fannie Mae pushed to abandon the ambitious energy performance standards and new urbanist detailing at the core of Civano's international reputation, but Civano Neighbors were adamant—pedestrian-oriented high-performance housing was non-negotiable. Pulte's regular product met the current energy standards with little more added than a solar-water heater, but stricter future standards, streetscapes, requirements for mixed-use development, and parking remained stumbling blocks until Pulte pleased the Neighbors.
In the end, Civano was severed, with Fannie Mae retaining the mostly built-out first phase (and the Neighbors), while Pulte bought only unfinished land. But even after the sale, Civano Neighbors' influence continues. Pulte's new MOU with the City requires public approval of any new master plan plan, keeping the Neighbors in the game until build-out. Nevertheless, Jacque Petroulakis, Pulte's public affairs director in Arizona, says: “That's great. They're very passionate about the community and we're very excited to be there.”
Hector F. Martinez, the City of Tucson's lead negotiator, is enthusiastic: “The market is finally catching up with Civano,” he says. “It's great that a production builder is saying ‘this is the right time.' ” The City negotiated to abolish Civano's exemption from development fees, so Pulte's new Civano will pay recent and future impact fees.
Decisions, Decisions What will Pulte do with this prize—however cheaply bought—over which it may have less than total control? So far, the builder seems surprisingly comfortable with the restrictions. According to Simmons Buntin, contact person for Civano Neighbors, Pulte agreed to cap traditional front-loaded single-family product (primarily drawn from other local developments) at 33 percent and will build more varied types of higher density products including “2-pack” homes sharing common driveways and “3-pack” triplex town-homes featuring rear-loaded parking. Additional Pulte lots adjoining commercial property (retained after legal battles by original developer Case Enterprises) are reserved for “transitional” products or uses; Buntin and Petroulakis mention live/work lofts or access to the commercial area. Yet, Buntin warns, Pulte still “needs to focus on the streetscapes, which are critical for Civano.”
To succeed, Pulte must look first to the local market, says Strobeck. His 2003 data peg 85 percent of all Tucson area home sales to local buyers. Had the original developers heeded that trend, Strobeck says he firmly believes Civano would be sold out today—as are bigger neighboring developments that opened much later. Yet half of Civano's latest buyers are out-of-towners who shopped the Internet, suggesting either the concept or the marketing missed the local sweet spot.
If Pulte's new products don't entice locals, the builder's vast inventory also includes green and urbanist products created for green-streamer Ladera Ranch (in South Orange County, Calif.,) and Northern California urban infill projects. Where one fails, another will surely fly—Strobeck notes that local 3.3 percent annual population growth far exceeds the area's 2.9 percent annual growth in housing stock, driving total for-sale inventories down to a very energetic 51 days.
Still, “motivated seller” Fannie Mae remains yoked to Civano's existing Phase One, leaving observers wondering why the mortgage giant liquidated $30 million in raw land while hanging on to the project's liabilities? Perhaps a trillion-dollar company needs no rational economic reason to sell out. But for Pulte, proving it was the right outfit in the right place at the right time created a screaming deal.