"Want some coffee?” John Wieland asks before setting out on a morning tour of some broken subdivision deals he’s attempting to fix.
“Sure,” says this reporter, searching the strip malls in this close-in Atlanta suburb for a Starbucks, a Caribou, or a Pete’s.
Wieland pulls into the drive-thru lane of McDonald’s.
“What size would you like?” he asks.
“That’s what I like about this place—everything’s a dollar whether you get a large or small,” Wieland says.
The stop sets the tone for the rest of the day. The coffee does the trick, and it’s 40 percent less than a boutique brew. Same goes for the neighborhoods that Wieland is building out within these troubled subdivisions. The streetscapes and homes look pretty close to what was built previously. But the floor plans are typically better. And at today’s prices, that makes the homes quite a bargain.
By the Time We Get to Woodstock
Nothing less than the survival of Wieland’s company is at stake in the success of these bank work-out deals. When the housing recession started, John Wieland Homes and Neighborhoods was one of the largest private builders in the country, with extensive land holdings and a stunning debt load. The company is now joined at the hip with a consortia of banks and a private equity firm that closely monitor its progress. They don’t want the company to fail, but Wieland must still meet financial hurdles, including one this month.
The principals have set up a new entity, Wieland Communities, to pursue new deals. The new company, free of debt so that it can borrow, draws on the personnel and assets of the old company, John Wieland Homes and Neighborhoods. Proceeds from the new deals are used to pay off the debts of the mothership. Key to the strategy is doing debt-light subdivision workouts in Class A locations.
Properly caffeinated for this run among Atlanta’s ruins, Wieland’s first stop is Woodstock Downtown. Developed by Hedgewood Properties during the height of the housing boom, this gorgeous infill subdivision was about as ambitious as they came, with highly customized production homes that reached to $800,000. After the downturn sucked the life out of move-up housing, First Cherokee State Bank foreclosed on most of the land.
It’s quickly apparent, as Wieland wheels his sky-blue GMC Acadia down a quaint Main Street, that something special is going on in this refurbished first-ring suburb. The local government, through state and federal grants, financed improvements to create what now looks like a finely remodeled small town. Driving beside the train tracks—light rail was supposed to go in but never did—Wieland points to what looks like an old six-story, brick warehouse building anchoring a strip shopping center. On closer inspection, it turns out to be recent-vintage mixed-use (condominiums above first-floor retail).
The new-home neighborhood is nestled in an alcove behind the condo building. Wieland drives past a gazebo with a concert stage, a sunken tot lot, and a park with trails. He wheels into the first neighborhood built here. A compelling home in the distance marks the end of the street. Turn the corner and a streetscape comes into view.
“Isn’t it fabulous?” says Wieland, driving slowly and appreciatively, soaking in the details. Stone-clad production homes, with wood roofs and overhanging porches, hug the narrow, winding street. No two entries are alike. “You could never do this today,” says Wieland, clearly appreciative of the work done by Hedgewood and designer Lew Oliver.
The trick for builders doing subdivision workouts is to replicate the look and feel of what was there before, at today’s prices. Wieland, who is a master at envisioning new neighborhoods, having built some of Atlanta’s finest, has taken to this new challenge with gusto. The most vital element of it, though, may be obtaining a more realistic lot price.
Wieland Communities worked for more than a year to obtain the right to build out Woodstock Downtown. Before committing to a lot price, the company did market comparison studies to determine what home prices the project could bear, says Barry Gittleman, vice president for finance and strategy, who does most of the land acquisition. “We found that we needed to sell detached homes starting in the low- to mid-$300s and townhomes in the low- to mid-$200s,” he says.
Initially, First Cherokee wanted to do a joint venture. Gittleman instead suggested that Wieland set up an LLC to which the bank could sell the roughly 100 lots on a take-down basis, make construction loans, and earn interest. “That’s the way they are accustomed to doing business,” he says, adding that the bank gets more per lot doing options than if it did a batch sale. Wieland also gets to buy lots when it needs them, without incurring a lot of debt.
“It’s been an extremely successful project for us,” says Carl Haynes of First Cherokee, noting that the bank sold the lots to Wieland at the prices to which they had been written down. “There are submarkets in Atlanta performing very well, where there’s very little new product in the ground. We have three others in the same category.”
Once Wieland established a realistic land price, the fun could begin—designing homes that mesh with what’s there but won’t cost an arm and a leg to build. Narrower-than-normal lots required the company to develop a new series of plans, which has been the case with most of its workout deals.
Building forms were simplified to be economically trussed. Strong entries and porches were kept, just not as many. Wood roofs, a clear extravagance for production housing, were replaced by asphalt shingles, since the roofs are hard to see from the narrow streets anyway. The Wieland homes are still clad with stone but typically only along the foundation or on the front elevation.
The subdivision plot, inherited with the deal, remains a work in progress. As Wieland passes by a series of old English brick townhomes, he notes that “we didn’t make any money on the first two we sold.” He’d like to convert the remaining townhouse lots to single-family. But on the other side of the neighborhood, where the warehouse condo building towers over what are supposed to be detached homes, Wieland thinks that duets at a lower price point would work better. The good thing about working with a community bank, he points out, is that it is amenable to changes like this and, with its close ties to the community, can make them happen.
Which raises the single biggest issue when doing subdivision workouts: How did the existing homeowners feel when you came in to finish the neighborhood with less-expensive homes? “They knew that we’d build the nicest homes that the market could afford, unlike some other builders who would try to achieve the lowest price point,” says Wieland, who notes that the mayor of Woodstock lives in the “old” part of the community.
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Learn more about markets featured in this article: Atlanta, GA.