In another sign that the local housing market is improving, homebuilders are scrambling to snap up vacant lots.
Just 18 months ago, developers were trying to dump lots in a feverish attempt to cope with the worst housing crisis in decades. The last thing they wanted was to get caught with unsold property.
That was then. Today, finished lots — those with curbs, gutters and other improvements — are scarce in Fresno and Clovis. Developers have almost depleted their inventories and are sniffing around for more.
They also are dusting off stalled subdivision applications and submitting them to planners in Clovis and Fresno.
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Despite sluggish sales, builders are seeing early signs of a recovery: Prices are stabilizing, and the supply of homes for sale is shrinking. Developers are starting to look toward the future.
Consider Clovis: Developers have submitted or reworked 10 applications for projects with a total of 761 homes this year. In all of 2008, they submitted half that many, said David Fey, deputy city planner.
“You have to keep the machine alive to generate cash to cover operations,” said Mike Miller, division president of Lennar Homes in Fresno. “You have to stay alive until the market rebounds and then be in a good position. You look for good and inexpensive dirt to set the stage for a good market rebound.”
Miller said he is in negotiation for more lots, but he declined to be more specific.
Finished lots are more desirable because developers don’t have to spend time and money taking them through the planning process.
“Somebody’s already taken the haircut,” said Fresno developer John Bonadelle, president of the Building Industry Association of the San Joaquin Valley.
Investment groups also are in the market for lots. They buy parcels when the market is slow and hold onto them until prices rise. Some are already reselling them at a profit.
One entity, Union Community Partners of San Jose, controls 430 finished lots (including three model homes and 12 partially finished houses) and 1,736 potentially finished lots, primarily in the Central Valley.
“Fresno is one of our No. 1 markets,” said UCP President Dustin Bogue, who just completed the purchase of 121 undeveloped lots at Barstow and Locan avenues in Clovis.
The lots were originally slated for a project by Ennis Homes of Porterville. UCP will finish developing the lots and then resell them, Bogue said. Tractors should start grading the site in March.
UCP sold 32 finished lots in two Fresno-area developments in the first half of this year for $1.7 million, or a 32% profit, after holding them for 14 months and six months respectively, according to filings with the Securities and Exchange Commission.
In addition, it has contracts to sell 37 more lots in the rest of 2009 and 2010.
Bonadelle bought 17 finished lots near Shepherd and Sunnyside avenues from UCP because he felt buyers would snap up the homes, which he called the Shepherd Series.
“We knew there was a niche where people wanted to buy and there were not enough sellers,” he said.
Almost all have been sold to homebuyers.
“We are not out of finished lots,” he said. “But we are very close.”
That’s why Bonadelle resumed work on a tract map he had mothballed. The map applies to land at Clinton and Temperance avenues, which he figures could be ready to build on when his current inventory of finished lots dries up in mid-2010.
“We’re trying to time it so it is ready the minute we run out of lots,” he said.
It can be a high-stakes juggling act. Builders need to have enough lots to satisfy demand, but in this real estate market — the worst in decades — they don’t want to be caught with too many.
“We think the worst is over, but you have to have the right product, priced correctly with the right amenities in the right community,” said Darius Assemi, vice president of Granville Homes in Fresno.
The planning process is particularly complex because development is expensive. Including fees, purchase price and other costs, a builder could spend $80,000 to get a lot ready to sell.
And developers are finding that commercial loan appraisals are coming in lower than expected, which means builders can’t get large enough loans, or they have to make a higher down payment. In some cases, they’ve had to buy finished lots in stages to appease their lenders.
“Financing is the biggest problem in the industry,” said Rich Wathen of Wathen-Castanos, co-developer of Harlan Ranch, a master-planned community northeast of Clovis.
“It’s so hard to get a loan for any project,” he said. “So much more capital is going into these deals.”
Wathen stopped short of saying there is a shortage of finished lots. He said that builders can increase the stockpile fairly quickly by processing shelved tract maps. But he did say late 2009 is different from 2008.
“Almost any inventory [in 2008] was too much inventory,” he said. “Everyone was so panic-stricken. We sold lots, reduced debt and were thrilled to do so. It was hand-to-hand combat then.”
Today, Wathen-Castanos is back in the game. The company recently bought a piece of a stalled Dunmore Homes tract in Dinuba from a lender and is selling houses there.
Dunmore imploded early in the real estate downturn, leaving orphaned projects. Investors and other builders swoop in on those properties when they sense the market has hit bottom.
In some cases, Bogue said, developers who abandoned a project are teaming up with a lender to purchase the property back and finish it out under a new name.
Every opportunity is being considered in the early stages of this recovery.
“Every one of us is looking and seeing if it makes sense,” said veteran developer Leo Wilson of Wilson Homes, who is resurrecting a tract map for a project in Clovis.