Huffines Communities and its new Dallas master planned community Viridian easily could have been as extinct as the crocodile species that left behind fossils of its teeth and snouts buried in the 2,300-acre site’s sand. Instead, the developer persevered, opening a new community that serves as a model for the types of new subdivision opportunities likely to face builders in the future.
Master planned community developers such as Huffines became an endangered species themselves during the housing depression, downsizing, hibernating, and even disappearing as housing demand dried up and funding for expensive long-term development projects all but evaporated. Survivors learned how to adapt and evolve. They found new sources of cash to build communities, reduced the size of homes and phases to meet new market demands, and worked closely with builder clients to draft a new generation of home designs that resonate with today’s value-conscious buyers.
“We are the best in the business at adapting to the market,” boasts Robert Kembel, president of Dallas-based Huffines. “The fact that a development company in this business could go through the worst housing recession in our history and not one of our staff was laid off speaks volumes about adaptation. Divine intervention and miracle also come to mind.”
Huffines most recent marvel was the May groundbreaking of Viridian, a master planned community in the backyard of the Dallas/Fort Worth International Airport. It took several years for the company to piece together enough capital to get to that groundbreaking. In the end, the money came from Huffines’ own cash, private equity from CrossHarbor Capital Partners, debt financing from Plains Capital Bank, and bonds issued with the help of local governments.
“What I’ve heard [consultants, lawyers, and bond underwriters] say is that they don’t know of another developer in the country, or only maybe a handful, that could really have attracted the capital, bank financing, and bonds,” says Kembel.
Huffines definitely had a hand in its miracle. The company, which also survived the 1980s housing crash in Texas, spotted trouble early on in the current downturn and acted quickly. “We had nine master plans in the pipeline, and we sold five of them,” Kembel says. “We took our resources out of the outer ring [of the cities] and shifted to [the Viridian] site.”
An aerial photo (left) makes clear just how well located Viridian is. It is surrounded by affluent suburbs with good schools, flourishing businesses, and the Dallas/Fort Worth Airport. “If you threw a dart at the middle of the [Dallas-Fort Worth] metroplex you would land just south of the Dallas/Fort Worth Airport, and that is where our site is,” Kembel says. There are reasons it wasn’t developed before now. The former sand mine has a wealth of factors complicating its development, from costly dirt moving, to a historical site, and the aforementioned fossils. “It had so much hair on it when we bought it no one [else] would touch it,” says Kembel.
But where others see problems, Huffines sees opportunity for eventual outsized returns if it can solve troublesome development issues. “It’s what we do,” says Kembel. “We look for these kinds of sites, frankly, because there is usually an opportunity when they are well located but difficult” to develop.
And Viridian has been difficult. It took 200-plus people working together from five taxing jurisdictions, two cities, two neighborhood groups, the local school board, and “countless consultants and engineers” to get thoroughfares realigned and new plans and zoning in place, says Kembel. Not to mention the difficulties of putting together the sizeable pot of development money. The bonds funding the project required the enactment of a new law by the Texas legislature. “We are so excited we can’t hardly stand it,” said Kembel shortly after the groundbreaking ceremony.
Foreign Aid
“We believe that in the Seattle-Tacoma area it is the last large entitled master planned community that they are going to allow,” says McLeod. Newland partnered with North America Sekisui, Japan’s largest home builder, to buy the project in March from a bank that had repossessed it. The partnership’s first joint land buy was in September when it bought 492 acres adjacent to Newland’s Cinco Ranch community in Houston. “We got lucky, and Sekisui found us,” says McLeod.
Even with Cascadia’s ideal location, if it hadn’t already been entitled with 400 lots ready to go, Newland probably would have passed on the opportunity considering the costs and weakness of the home building market. “The markets are coming back, but they have to come back stronger to justify the money you have to spend on a brand-new project,” says McLeod.
Especially since pension funds and insurance companies, former mainstay capital providers for master planned community development, have moved out of the space. The better master planned developers have been able to replace them with foreign investors, private equity funding, and loans from “high net worth individuals,” McLeod says.
But to attract any investment at all, master planned developments have had to prove that they can produce a product that will sell today. “The product that [buyers] want has really changed,” says McLeod. “And the number of customers and type of customers has changed.”
In short, almost everything has gotten smaller. Lots are smaller, phases are smaller, the number of products is fewer, and the pools of builders and buyers has shrunk. For example, the size of each phase of development has fallen from 300 to 400 acres at a time to maybe 150 to 175 acres, McLeod says.
The amenities offered in communities have changed as well. Golf courses, expensive to maintain and often not used by many residents, are disappearing in favor of large community open spaces and other parks. Clubhouses, too, are smaller and less fancy. “I think we have ratcheted that down because we think people simply don’t want to pay for it anymore in terms of homeowner fees,” says McLeod. Newland has worked closely with builders in its communities, providing them with location-specific research, boiling down who the consumers are and what they want. “It’s all very localized,” says McLeod. “What’s happening in San Diego, Houston, Raleigh-Durham, N.C., believe me, it’s all different.”
However, across the country there are some general trends among buyers, says McLeod. “Product has gotten smaller, but we also know that [buyers] don’t want it to be cheap,” says McLeod. “Certainly they want the house cheaper, but the interiors need to reflect who they think they are.”
Suburbia Survives
The most successful master planned communities in the country have figured out what buyers want now, says Gregg Logan, managing director of Robert Charles Lesser & Co. (RCLCO) development practice group. Every year RCLCO surveys the managers of the 20 top-selling master planned developments to discern what led to their success.
“There does seem to be a flight to quality during the downturn,” says Logan. “The communities that seem to have done better were those that were more innovative, that found ways of getting product on the ground that was nice quality and better priced to compete with resales.”
There’s no question in Logan’s mind that sales in the high-quality master planned communities held up better in the downturn than smaller, less amenitized neighborhood developments did. And, despite what is touted as a desire among many buyers to return to more urban environments, Logan estimates between 50 percent and 70 percent of buyers still like suburban living.
At Viridian, seven home builders have already signed up to build in the first phase, signaling their faith in that development. For Kembel, the hard work of adaptation and survival is over. Now it’s on to the next 15 years of build-out for the community.
“I think the good Lord was looking after us,” he says. “There are too many things that have happened to us on this project just the day we needed it or it would have blown up.”
Learn more about markets featured in this article: Seattle, WA, Dallas, TX, Durham, NC.
