Warmington Group has grabbed what many builders consider to be a key to surviving the recession: deals with banks and other financial institutions to assess and build out their distressed home building properties.
The Costa Mesa, Calif.-based builder announced it will manage, build, and sell more than 600 homes within five locations for TriPacific Capital Advisors. It’s also analyzing and managing assets in a large portfolio of residential project loans for Dallas-based Comerica Bank and new home project portfolios for Guaranty Bank and Bank of America.
“At this time, I believe that the amount of fee work that Warmington has secured may be unparalleled in the industry,” Jim Warmington, president and CEO of Warmington Residential California and Warmington Residential Nevada said in announcing the agreements. "We consider these fee management arrangements to be a crucial part of our business plan."
The work will offset Warmington's overhead costs and help keep its key employees on its payroll. It also gives the builder the opportunity to build without buying land outright, something difficult to do right now given that financing is nearly unobtainable, Warmington said.
Managing and building out land for banks are not new tools for Warmington. The practice helped save the company during other recessions. But that doesn’t mean it was easy to nab the work, even though Warmington says it has excellent relationships with its bankers.
“It’s a tough row to hoe,” said Matt Tingler, Warmington Residential California and Nevada’s executive vice president. "We’ve been chasing this stuff for the last 18 months. It’s not an easy thing to get your foot in the door. It’s extremely important that your reputation precedes you. There is a high level of trust involved.”
He said that institutions were initially resistant to Warmington’s early offers to assist with such projects. “As these things have accelerated for them, it’s clear that they needed the help," Tingler explained.
Warmington offers a full spectrum of real estate management and development services, from project analysis, asset protection, property management, and entitlement processing to planning, building, selling and servicing new residential production homes, condominiums, and apartments. Being a one-stop shop company appeals to financial institutions, according to Tingler.
Warmington was first hired before foreclosure to assess the TriPacific properties, which include 130 single-family homes in Rancho Cucamonga and Chino Hills in Southern California and 482 single-family homes in three subdivisions within the Providence master-plan community in Las Vegas.
Then Warmington redesigned the product offerings--designed large and highly amenitized for the 2005 housing market--shrinking the plans and stripping off amenities to drop the price point and raise their appeal to today's buyers. Finally, Warmington won the job to build the homes on a fee, plus bonus, basis.
In terms of its own projects, Warmington is actually relatively low on land right now. As the market began to fall off, the company's strategy was to move through projects as quickly as possible, paying of the project-related debt as each community closed. At the beginning of ’08 the company had 30 active projects. It was down to seven by the end of the year.
“We have a handful of assets that we continue to work through,” said Tingler. “Because of our relationships the banks have been willing to work with us, and we have every intention of paying them back. We are in pretty good shape. This strategy has paid off for us.”
As a result, the builder has also been able to purchase land for promising projects. Warmington Residential California, in a joint venture partnership, recently bought a 44-lot infill parcel in San Jose’s Japantown where it plans to offer three, two-story floor plan designs built around community gardens. The homes, which will average 1,900 square feet, are expected to start in the high $700,000s.
Warmington also is in escrow on 40 lots in Grand Marina Village, a waterfront community on Alameda Island. Those homes, which will be offered in one-, two-, and three-level plans, will range in size from 2,152 square feet to 2,373 square feet and be priced in the mid-$700,000s. A sales center and model complex are expected to open by the end of this year.
The company, which manages as well as builds apartments, also bought land in Las Vegas for four separate apartment communities which will eventually total 1,000 rental units. Condominiums were originally planned for the property.