Two California real estate veterans have come fast out of the gate with a new home building start-up company focused on turning distressed urban properties in California into desirable yet affordable communities.
City Ventures partners Mark Buckland, former president and COO of urban infill builder The Olson Co., and Craig Atkins, former CEO of O'Donnell/Atkins land brokerage, said the new company made its first 10 sales in January. All of the sales took place in the Viscaya community at Scripps Ranch in suburban San Diego and had an average contract price of $750,000 for homes ranging from 3,800 square feet to 4,000 square feet. First closings are expected in April.
The initial sales success showcases Buckland and Atkins's business method at work. The community launch is in effect a relaunch, as City Ventures is selling out the remaining 19 lots of a stalled Warmington Homes community. By picking up the petite parcel in distress, the company is able to bring homes to market at about $192 a square foot, a level significantly lower than much of the competition in the area, which is home to some of the highest average price per square foot levels in the San Diego metro area. According to Trulia.com, the average price per square foot for homes in Scripps Ranch falls in the $376 and up range.
"There is pent-up demand where there's value," said Buckland. However, he was quick to note that the company's value play comes mostly from its land strategy rather than down spec-ing its product to reach lower price points.
This ability to combine value with location should net the company about 50 closings for about $35 million in revenue, the pair said. However, with several parcels going through the entitlement process, the company has a solid land pipeline in place that suggests that, beginning next year, closing and revenue growth could begin to jump significantly year over year for the next couple of years. For 2011, Atkins predicted the company is likely to be doing in the ballpark of $100 million in revenue.
Atkins said a typical land deal for the company is a 50-lot deal that "we can burn through quickly." However, he noted the company also has the ability to invest in much larger parcels, when and if management sees opportunity. At the other end of the spectrum, for example, the company's under contract on a 1,000-lot deal in Newport Beach, he said. However, those big deals are harder to come by, he noted.
"The 1,000-lot deals are home runs, but you do a lot of singles and doubles, and you can win the game," he said.
The company's bread-and-butter product will be an 18- to 20-unit per acre townhome product, which Buckland said offered the best price point opportunities. However, he also noted that while the company's core product would be attached townhomes, he wouldn't shy away from other product types--from traditional single-family detached to podium, given a specific land opportunity. In fact, he said, the company had recently entered into a unique partnership with a city to build a 60-unit podium project. "To be competitive, you have to be able to do that kind of product," he explained.
Although Buckland and Atkins have some aggressive growth goals in mind for the new company, they believe they are managing the small 20-person staff conservatively, keeping everything from overhead to leverage low. At the company's foundation is a strong balance sheet, rife with what they like to call "clean capital." In addition to putting up a significant amount of equity individually, Buckland and Atkins also have found a financial partner in private equity firm Imperial Capital. "Builders tie up land and then find financing," explained Atkins. "Our partner is an actual owner in the company."