WHEN IBM MOVED FROM NEWBURGH, N.Y., a small suburban town about 90 minutes from New York City, a few years ago, the company left an economic black hole in the community. But a group of investors, led by a wealthy Israeli, bet on the area bouncing back fast. They broke ground and quickly built 102 townhouses. To their dismay, sales were slow. New homeowners complained about the shoddy construction quality and slow response from builders. The investors looked for a way out.
That's when the Teicher Organization, an East Brunswick, N.J.–based developer, made its move and bought the troubled project, renaming it Meadow Winds. Another developer might have run from the disgruntled residents, but Teicher has a knack for reversing troubled projects and calming frustrated buyers. The company quickly adjusted the overall project plan to include a mix of single-family homes, condominium flats, and townhomes.
As Stuart Teicher, senior vice president of the family-run company, explains it, his firm has learned to see the silver lining in undervalued properties. He felt sure his company could turn around bad feelings and build a profitable project, despite the missteps of the previous developer.
“We quickly realized that the condo associations weren't happy,” Teicher recalls. “To make matters worse, the town wasn't happy either.”
The first step: Pacify the current residents. “The key thing we used in that process was constant communication,” he says. “And we would deal with them directly—through sending in someone like myself rather than sending someone else in to address problems.”
Teicher says he eventually gained civic support from the town, in part, because they were still reeling from the IBM pull-out. “They were eager for development in the town, and we never really encountered any NIMBY reactions.”
Local Challenges Of course, good intentions don't guarantee a profitable building process. A few months into construction, a major roadblock stalled the sale of several homes for weeks.
“We benefited from a town eager for development and sped through the first phase, but they weren't accustomed to development. We were right at our goal of 16-week delivery of the single-family homes when we knew we had to build a water tower. That was part of our initial plan. But the town of Newburgh had never inspected one before. The inspections and reviews dragged out and slowed us down. It got to the point where we would be done with a home and couldn't close. We ended up with several homes sitting vacant for months.”
Fortunately, Teicher says, the market for homes at Meadow Winds had become so hot that his company could afford to absorb this costly delay. People from New York City especially began to flock to the new community. “Some have called it the Sept. 11 effect, but I'm not so sure. I think it was just people who can't afford housing in New York saying, ‘I want to own my own home.'”
Compared with the price of housing in New York, he says, Teicher's single-family homes in the Meadow Winds community seemed like a steal. “We started out offering single-family homes at $199,000,” says Teicher. “Three years later, homes start at $329,900.” They're not exactly the same houses (they are somewhat larger and have more amenities), but the values have gone up tremendously as the community has gained in stature.
Even more impressive, the value of condominium flats at Meadow Winds now starts at $189,900, about $60,000 more than the original condos cost when they first became available in 2002.
Creating Value So how did a struggling development rise from uncertainty to a hot commodity? Teicher says his firm focused on improving the image of the overall project first by offering more mainstream single-family detached homes that would appeal to the traditional “American Dream” contingent of buyers.
“We didn't really make any money on those first homes,” he confides. “But we looked at them as a sort of loss leader for the rest of the project.”
At the same time, having a cadre of single-family homes sent a clear message to potential townhome and condo buyers—they'd be moving into a safe, stable neighborhood.
“As soon as we started to market the single-family homes, we began to sell the condominiums,” Teicher recalls. “We control costs by maintaining standardization on a job. We developed a portfolio of seven or eight standard homes and built a couple of models on spec. The rest were presold but at the same time as the condos.”
Of course, it wasn't quite that easy. Marketing the revamped plan called for an aggressive and organized push in daily and weekly publications, signs, direct mailings, and first-person community outreach. And the effort extended well beyond the confines of Orange County, N.Y., all the way to New York City and Westchester County.
Mixed Blessings With a total build-out of 490 units, including 180 condominium high-rise flats, 130 townhomes, and 180 single-family homes, Teicher says all categories have been selling fast. It continues to alternate completion of single-family units with multifamily units, however, to sustain the impression of a true neighborhood.
In addition, Teicher has hired a new management firm for the community and created two separate associations: one for single-family homes and the other for condominiums. The townhomes already had an association in place. This separate-but-equal arrangement seems to have worked well thus far.
But Teicher's uncanny ability to spot and revitalize undervalued properties has had one unfortunate, if inevitable, side effect: It attracts the interest of market-hungry national builders who immediately camp out in the area in their endless quest for the next big thing.
“We're fortunate in that we're a family-owned company,” notes Teicher. “We can do things like build homes that don't make us any profit as a loss leader, because we don't have to answer to stockholders. And that makes us a lot more flexible than the big firms.
“We're seeing the same thing happen in other areas where we've come in and created a market, and the big guys have followed us,” Teicher adds. “I guess that's part of the price of success.”
Learn more about markets featured in this article: New York, NY.