A review of the Valley Partnership ‘Evolution of Master Planned Communities’ Meeting
By Callan Smith Rose Law Group Reporter Social Media Coordinator
Before the bubble burst, it was normal for developers to sell thousands of lots in master planned communities. Amenities would follow soon after- lakes, clubhouses, tennis courts, swimming pools—the works. In the post-housing bubble period, development is evolving, with buyers wanting the amenities up-front (day one!). Builders, too, want fewer lots when purchasing because absorption levels are lower. With higher development costs, master planned community developers are having to evolve to meet new market demands.
At the recent Valley Partnership meeting, more than 300 people listened in as a panel composed of three experienced developers spoke about the changes and challenges in planning and launching master planned communities. Jim Kenny, president of El Dorado Holdings, Inc., Sean Walters, former 2009 chair of Valley Partnership and chief operating officer of Sunbelt Holdings, and Tim Brislin, vice president of Harvard Investments all took the stage. Moderating the event was Jim Belfiore of Belfiore Real Estate Consulting.
When the housing market was really struggling there was talk of the lack of master planned communities in development and the fact that none were in the planning process. Belfiore noted that very few have been developed since that period of time, going on to say, “It’s been a very tough struggle coming down to largely costs, what builders can pay for lots, what home buyers can pay for homes.” He continued with, “during the downturn the home permitting activity reached a 42 year low. Over the past 25 years we’ve built thirty thousand new homes on an annual basis. We got down to 7,200 homes a couple of years in a row, which was devastating.”
During the recovery several Arizona master planned communities have been built-out; others, abandoned by original developers and purchased by other opportunist developers, like Sunbelt, are now being offered.
One of the biggest changes is that developers are now working more with existing infrastructure to provide both builders and homebuyers with a product that suits their needs, while cutting costs.
Amenities still remain a large part of master planned communities. Except amenities in some communities are taking on a different look post-housing-bubble, with a focus on outside space as opposed to indoor space, and affordable living. Some are being developed with gardens, along with community pools, creating value for existing homebuyers and those entering the market.
Builders state that buyers are looking for value and specific home prices. Builders in turn want to provide that home at the lowest price possible. Functional living space versus big photo opportunity amenities, according to one panelist, is the focus. Scaled-down, thoughtful amenities are a growing change in the master plan evolution.
Another big factor is the importance of location among other lessons learned from the last ten years, which Tim Brislin, of Harvard Investments spoke about, “buyers are extremely well-informed. They have everything at their fingertips—Trulia, Zilo, Realtor.com. They can know everything about every community, every builder and master planned developers have everything to gain if they know their buyers.” Buyers want the best floor plan, elevation, great lots, great communities, and they want it on day one. Harvard Investments followed that thought process in planning its master planned community in Mesa called Cadence at Gateway, which features outside and garden spaces. It is also located in an area that is loaded with amenities such as roads, employment, schools to name just a few.
“A lot of research went in up front, over a year or two, regarding what the new buyer wants,” said Brislin. “At Cadence we’re doing 11,000 sq. feet targeted with great fitness, a lot of indoor outdoor space, every room has roll up doors and windows. There is also a café.” Different projects and locations require a different thought process, especially with the amount of available funding to spend on the amenities up-front.
It is clear that builders have a tough job, trying to create products that people will buy while balancing continuing economic changes. Builders no longer want big deals with hundreds of parcels. They’re looking for something smaller, to get in and out in a couple years, which puts the pressure on master planned developers to produce a product that works for all parties, from builder to home buyer.
Developers are also considering the needs of first-time buyers. Most actively-selling master planned communities were not created with those buyers in mind because of the ever-increasing costs involved in developing such communities. “But that’s changing in some ways with builders that are creating new ways to get to them. Such as DR Horton Express and Richmond American Seasons,” said Brislin.
“Master plans are really just starting to come back” said Sean Walters of Sunbelt holdings, “the mid-2000’s Sunbelt holdings was developing 7,000 lots in master planned communities every year. It was a huge business for us.” During that time the company had ten plus master planned communities in the greater Phoenix area, most of which were either done, or weren’t started when the market turned sour. By 2010, Sunbelt diversified what it does as a business, developing condominiums and selling commercial sites.
In 2012, Sunbelt started to get back into the master planned market with the three principal guiding factors of infrastructure, amenities, and structure of the deal. From the infrastructure standpoint, it was looking for properties that had infrastructure already in place, such as roads and grading. This point was echoed by all three speakers.
From an amenity standpoint, developers are looking for what’s already in the area such as employment and parks, avoiding the cost of building costly improvements. Essentially this model works as infill creating value for both communities and homebuyers.
Walters went on to say, “Our deals have gotten smaller, a little more focused, previously they had larger tracts, now projects are smaller, more targeted.” Sunbelt’s acquisition of 525 acres on the I-10 in Tucson, named La Estancia, of which Meritage homes bought 200 lots and began selling in May with homes starting below $200,000- is one of those developments. Per Walters, Meritage is off to a good start and “buyers are looking for value. Especially entry level buyers, who are looking for lower priced homes.” The amenities of La Estancia include a ramada, community pool and an event lawn.
All three developers stressed the need to get the right amenities in place then get it open. Scaled-down amenities that speak to buyers and make sense for the area are important in some areas, while more grandiose, higher-level amenities make sense in other, select areas. Walters put Sunbelt’s goal in perspective, “what we’re looking at these days in order to launch these plans is what number of lots do we need to sell to build the infrastructure that we need to get it open.”
On the west side of town, Sunbelt partnered with Maricopa Water District on phase one on 600 acres at the south end of a master community that was planned in the early 2000’s. Effectively condensing the development into something that will be attractive to builders while creating the infrastructure for a project that meets the number lots they can sell. The project is located in Goodyear. The Southern boundary is Camelback with Perryville road on the eastern boundary. The amenities are scaled down to effectively launch the project. In the Norterra area of North Phoenix, Sunbelt partnered with USAA on 300 acres around the existing campus. The area is heavy in infrastructure such as employment and retail. The project has a probable launch date of 2018.
Walters also discussed subdivision assurances and third party trusts, which create a unique way for developers to create partnership with the community. The county has adopted them to ensure infrastructure and subdivision improvements without bonding or financial assurances, giving the ability to launch projects.
Jim Kenny from El Dorado spoke of their history and focus. It is a small company, located in Phoenix since 1986, specializing in finding land to which they can add value, typically through annexation, zoning, planning and engineering. Projects El Dorado has completed in the past are in Maricopa such as The Lakes at Rancho Eldorado to name one. It helped incorporate the city, bringing in utilities, sewer, water, and more. Per Kenny, El Dorado’s “strategy is to find places that are predictably in the path of growth so that we can unlock and figure it out, adding value.”
Since the housing crash El Dorado diversified, buying and selling six apartment complexes. It is a data center, and built self-storage while considering what was next for master planned communities. It manages 60,000 acres around Arizona, from small pieces to Douglas Ranch in Buckeye at 38,000 acres (larger than the city of Tempe). El Dorado has acquired The Villages at Vigneto a 60,000-acre master planned community in Benson. It came from a former deal that dropped escrow, allowing El Dorado to come in and buy at a substantial discount with “eight million dollars worth of infrastructure already built,” said Kenny.
Kenny went on to say, “that you have to work with builders and the municipalities, and the counties, whatever the governing body is—you have to work with them. When you have 60,000 acres that statement alone will put to rest that developers come and go and don’t care. We have to care. Because if we don’t care about the towns, they’re going to revoke, or change, or make it more difficult to do business there. If we’re not fair and equitable to the builders, the same thing will happen. They’re going to go somewhere else.”
It is clear that partnership plays a huge roll in getting such a challenging development off the ground. Research comes into play as well, looking into what works, talking to builders, and reaching out to home buyers, working with communities and existing infrastructure and traveling and looking at what other developers are doing, or not doing well. It is good sign for the economy that master planned communities are coming back online. Time will tell if they developers continue to target their new communities as infill projects into existing infrastructure, or if one day they begin to take on the size and scoop of the early 2000s. Either way, we missed you—welcome back!
