A land consultant that has worked on more than 8,000 projects has joined forces with a California builder who recently wound down his business, to offer a “one-stop shop for asset management” to banks that find themselves struggling to figure out what to do with the acres of unfinished real estate with uncertain values stuck in their portfolios.
Developers Research, an Irvine, Calif.–based developer, combined in February with Irvine-based Classic Pacific Construction, a newly formed builder whose president, John Patterson, two months earlier had closed his eight-year-old home building company, Classic Pacific Homes, a one-time division of Classic Homes of Colorado. During those eight years, Classic Pacific built more than 1,000 homes and developed 3,100 lots.
Patterson has been building homes since 1986 and says he always used Developers Research as “a second set of eyes,” which was only natural given that Patterson and Barry Gross, Developers Research’s president, have been friends since 1982.
There are slews of idled builders angling for contract-for-fee work from banks. What makes Developers Research different, says Gross, is the expertise it can bring to help financial institutions decide whether to take control of the distressed projects they’ve foreclosed on. “Many of these projects are based on plans that are four or five years old, and the product isn’t contemporary, either,” he explains. So Developers Research would come up with a new plan, present it to the bank, and then get the land re-entitled, often with an eye toward greater density and volume.
With Classic Pacific in tow, Developers Research can offer construction management services to complete the project, but that won’t be a prerequisite for taking assignments from banks initially, Gross says.
Right now, the biggest problem banks face is calculating what their distressed assets are worth. Gross believes the bid-ask gap hasn’t closed significantly yet because banks haven’t been realistic, but also because “no one buying land today has an exit strategy,” a problem that the lack of available construction financing magnifies. Gross envisions Developers Research eventually extending its services to municipalities that end up with patchy, unfinished subdivisions that builders and lenders have left for dead.
Learn more about markets featured in this article: Los Angeles, CA.