Monday, April 29, 2013

Small Builders Are on the Outside Looking In

Being a small modular home builder has its perks but obtaining money from lenders is not one of them. The big guys in housing have lenders in their back pockets and are currently gathering up prime development plots at record pace while small builders are increasingly searching for scattered lots and infills to option.

Small builders on the outside looking in
Here is an article from the Orlando Sentinel about a problem a local builder is having that many other builders across the US are also facing:

OAKLAND, FL — Wearing a T-shirt and jeans, Baybrook Homes owner Braxton Green leans over his desk and complains that small home builders are being shut out of the market as it recovers because they still can't get financing to buy land and build.

He recounts the reaction he got from a community bank when he recently tried to borrow construction money to build homes in the low $200,000s on half-acre lots in the northwest Orange County community of Tangerine.

"You would have thought I wanted to build the Taj Mahal in Chuluota," said the longtime home builder, who weathered the housing slump and Great Recession by renovating and flipping foreclosed homes with his son.

Green's plight is common for home-grown builders who cannot find money to build homes at a time when the inventory of available homes listed for sale is at its lowest point in about eight years. The community banks that wrote them checks during the peak of the market almost a decade ago are under increased scrutiny from regulators who now take a dim view of real-estate-heavy loan portfolios.

Across town, the president of Mattamy Homes' U.S. operations, wearing a dress shirt and pressed slacks, leans back in his conference-room chair at the unit's Park Avenue headquarters in Winter Park and rattles off a list of new Mattamy developments. One of them, Millenium Park in Orlando, has sold 74 houses in 30 days.

"I've got bankers calling me and asking: 'Steve, don't you need some money?" a relaxed Steve Parker said. Parker's answer for bankers offering to lend him money? No, thanks, he doesn't need it.
Mattamy, a Canadian-based home-building giant, issued $500 million in bonds last fall for its North American construction projects. Now the company is using that home-grown financing to fuel a buying spree at the height of the biggest home-buyers' market Central Florida has seen in seven years.

"The small guys will probably be pushed out of the market," Parker said. "They can't compete against us."

Mattamy isn't alone: National subdivision developers and builders such as Pulte Homes, Ryland Homes, Ashton Woods Homes, KB Homes, Taylor Morrison and M/I Homes have all found funds to cherry pick the superior pieces of residential land in the local market, while the few small home builders in the region who survived the downturn can only watch as the prime spots are taken.

Brian Dalrymple, vice president of land for the Orlando division of M/I Homes, estimated his company has spent $40 million acquiring land in the past year. He said it's tough to see the small builders who survived the slump now face the challenge of trying to rebuild their businesses when they can't borrow money to do it.

Central Florida's home-construction market peaked in 2007, with almost 16,000 new-home closings in the four-county Orlando metropolitan area. It hit bottom four years later, with barely 4,000 closings.
Then, last year, the recovery became apparent, with 5,752 closed deals. Now, the market is so tight that the supply of existing homes available for resale is less than half what is considered healthy for a market.

Green recounts times during the peak of the market when he could drive past a potential development site and call CNL Bank or another community bank for instant approval on a loan.

"There really wasn't an approval process, because you had a track record of success," said Green, who had a $10 million line of credit with CNL at the height of the market about seven years ago.

When the crash came, financing disappeared. Green said he saved some money and was able to purchase about 200 lots in the Lake Wales area. His niche, he added, has been constructing homes located about a 15-minute drive past the sites where the larger, construction builders have positioned themselves.

Now, he said, he can't get a loan to build on that Lake Wales land.

"I thought, with 30 years of experience, that if I bought the lots with cash, they would loan me the money — or at least part of the money — to build houses there," he said. "I'd like to build them, but I can't get construction loans."

With no construction loans for the property in sight, Green said he is now talking to a national builder who wants to buy and develop the land. That guy, Green added, won't have any problems getting the money to build.

1 comment:

Jennifer Anderson said...

You can either do an equity line of credit or refinance with using equity of your home.