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In the debacle that was the housing market in 2007, strategy took a back seat to serendipity for many builders. When two choice neighborhoods in Baton Rouge, La., opened themselves up to more residential development last year, Robert Clegg pounced. Clegg is president of Baton Rouge–based Penn Construction, one of this market’s leaders in closings last year. During that time, it purchased 11 lots in the Fairhill subdivision in the Bluebonnet neighborhood in the south part of the city, and 10 lots in the Spring Lake subdivision in Claiborne Parish. Penn also acquired 30 lots in nearby Central Parish, where it will build its first starter homes, priced from $180,000 to $200,000. Clegg expects his company to build a total of 50 homes in 2008, versus 30 to 40 in previous years.
The same thing occurred in Louisville, Ky., where Ball Homes recaptured the top spot last year after projects that had been delayed in 2006 finally kicked in. “Some stuff started to come on line,” says vice president of construction Mike Ball, including a 200-lot development in the Flat Rock Ridge neighborhood and a 90-lot development in Oldham County.
That Penn Construction, Ball Homes, and other builders across the country found opportunities to acquire land and construct houses might seem anomalous in a year when permits nationwide were off 33 percent, starts fell 25 percent to their lowest level since 1991, and new-home sales dropped 26 percent, the biggest single-year washout on record.
Builder’s 2007 Local Leaders rankings reflect that volatility in the national housing arena (see charts, page 80). The list, which ranks the top 10 builders in 50 metro markets by their closings as a percentage of permits issued in those metros, bears only the faintest resemblance to the 2006 rankings in several markets. Yet, a good number of builders shook off the industry’s paralysis and picked up market share through luck, timing, and making tough decisions about scaling back their businesses to meet lower demand. A few even made bold moves (and, more commonly, price concessions) with an eye toward future growth. “Now is not the time to run away,” says Jairo Alvarez Botero, president of Alvarez Construction in Baton Rouge, whose business success during this time is a validation of his own personal triumphs over adversity (see “The Impossible Dream”).
Highs and lows
Eight markets fell off of this year’s list, ranging from the resort-focused Myrtle Beach, S.C., to depressed Detroit. Among the industry’s giant production builders, a financially fragile Beazer Homes dropped out of the top 10 in six of the 50 largest metros, and the industry’s largest builder, D.R. Horton, fell off in three others. Former leaders, such as Neumann Homes in Chicago and Trend Homes in Phoenix, succumbed to bankruptcy. And while WCI Communities teetered, other high-rise condo developer/builders were well represented among the top closers in several markets. Magellan Development, for one, was identified by Crain’s Chicago Business as last year’s No. 1 builder in home sales in greater Chicago’s six counties.
But don’t look for a repeat of this trend in 2008, as the condo market’s halcyon days are already a memory in many markets. Hallier Properties, doing business as Panorama Group (Panorama being its brand), ranked ninth in closings in Las Vegas in 2007, when it delivered a 33-story tower with 326 units, in which it closed all but 10 by early April 2008. Its first tower, delivered in 2006, had closed all but four of its 308 units by this spring. But Marc Ehrlich, Hallier’s president and COO, says business conditions for condos in this market are “horrendous,” with more than 3,000 units available on Las Vegas’ Strip alone. His own company will deliver another tower, with 320 units, in the third quarter. “I don’t think another high-rise will be built here for five years,” he predicts.