Turning pain into gain; Buyers emerge amid land bust

KATY STECH, The Post and Courier

Three times a year, William Lattimore III drives the streets of the roughly 700 unfinished subdivisions in the Charleston area, charting their progress for a real estate research firm.

With the local housing market in a severe slump, the scenery hasn't changed much in some neighborhoods. The economic health of each community varies, he said, but it's easy to spot those in financial distress by the overgrown weeds and idle sales centers.

"It's something you can perceive immediately when you enter the community," said Lattimore, whose employer, Savannah-based Coastal MarketGraphics, estimates the three-county area now has 16,728 developed residential lots that are served by roads and utilities but haven't been built upon yet.

But where Lattimore sees empty fields, some developers are starting to see opportunity.

As the real estate market shows signs of perking up and as builders run out of new homes to sell, investors with cash on hand are starting to eye the large swaths of developable land in the Charleston area. Financially distressed properties, some of which are now lender-owned, are particularly attractive to developers who see room for negotiation as they swoop in to pick up the pieces.

And in the grander scheme, these types of bottom-level buys play a wholesale role in the gradual lowering of home values during the housing market slump.

Slash and turn

Take, for example, Augusta-based developer Vic Mills.

Mills, known locally for developing Poplar Grove, has taken over two Mount Pleasant housing developments and is finalizing a deal to take over a partially developed subdivision on Johns Island. At each, he has slashed home prices by as much as 40 percent to attract buyers.

"If you look at the Mount Pleasant market and the Charleston market as a whole, depending on the geographic area, prices have declined in the past 24 months by 25 to 30 percent or more," Mills said. "We have adjusted the prices to today's reality."

Mills' firm, Southeastern Recapitalization Group II LLC, negotiated a lower undisclosed price with The Residences at Etiwan Pointe's lenders to buy the development's 35 unsold townhomes and 73 lots.

Then came the slashing. Prices at the Etiwan Pointe townhouses, which are near U.S. Interstate 526 and the Wando River, now start at $189,000. At a second development, Six-Fifty-Six Coleman near Shem Creek, townhome units formerly priced at $590,000 were lowered to $395,000.

Mills' strategy isn't about buying low and waiting for values to increase again. He said his plan is to sell the remaining units at Etiwan Pointe, which logged five sales during the initial marketing push, over the next 12 months.

Not all distressed properties are picked up immediately by another developer.

Since the real estate market crashed and commercial borrowing markets turned unfavorable, large tracts of either untouched or partially developed land have cycled through the court-supervised foreclosure system. Few sell at county auctions to developers or builders who have plans to complete them.

Instead, many go back to their lenders.

At Cane Bay near Goose Creek, a Georgia-based firm owing about $3.6 million recently saw its roughly 150-acre undeveloped residential parcel weave its way through Berkeley County's foreclosure system. Cane Bay developer Ben Gramling, who sold the land to the group that ran into financial trouble, declined to comment on the matter, saying only through a spokeswoman that the next owners will have to get any development approvals through his company.

Next month, a parcel of at least 38 acres owned by Portrait Homes in West Ashley's Grand Oaks community is scheduled for auction in Charleston County.

Against that backdrop, sophisticated investors smell opportunity in the air, said Jeff Vinzani, a Charleston attorney who focuses on real estate and commercial deals.

Vinzani said "a lot" of professional real estate buyers and builders "have been raising capital to jump in and buy this stuff up."

Large parcels that are already equipped with roads, utilities and other basic infrastructure are most attractive to developers.

"That's probably the place that the tract builders will go first because they can start building immediately," said Vinzani, adding that any buyers will most likely have to pay with cash because other financing options have dried up.

Mills said if a lender is willing to negotiate the price of a soured land loan, a developer can "still make a good margin and give tremendous value" even if the prices are cut for any existing housing units on the property.

His group used the same tactic to buy the loan secured by land at the half-built Whitney Lake community on Johns Island. The developer of that tract sought bankruptcy protection last September with a plan to reorganize, but the filing still worried some residents, who were concerned about their property values and how, or if, the development would be completed.

Pool cue

That cloud of uncertainty hasn't entirely been lifted with the emergence of a new buyer who is willing to cut prices to spur sales activity, thereby reducing the value of existing homes nearby.

Homeowner Cameron Blazer said the degree that residents and other owners will scoff at lower prices depends on their intentions when they bought their properties.

"If your purpose was to buy your house and live in it, you probably don't really care what your value is," she said.

But more broadly, Blazer said, the financial troubles at Whitney Lake demonstrate how ordinary homeowners have been affected by the recession.

"Anybody who's been awake and breathing in the last three years has felt powerless about their economic situation. And this is one more example of being powerless," she said. "I'll go to bed tonight knowing this is happening and hope that he (Mills) has taste."

Mills doesn't have any firm plans yet for finishing Whitney Lake, as his group is not technically the land owner yet. It only owns the loan but plans to acquire the property through the foreclosure process. But he said any future development would be on par with the neighborhood's existing quality.

To wit, Mills said, he was able to not only ease uncertainty but restore a bit of homeowner pride at another newly acquired local community. At Etiwan Pointe, the original developer built the townhome units with hardwood floors, granite counter tops and high ceilings. But despite the high-end fixtures, the community pool had to be closed after the homeowner association had stopped paying for routine maintenance.

Mills got the pool back in working order this year in time for the summer months.

"It can be rewarding financially but it's also rewarding that when we go into a community that's in disarray - where taxes aren't being paid, with liens on properties - we can clean all that up and recapitalize the community," he said. "We can

put the amenity package back in place, get the pool back in top condition and bring a positive attitude back to citizens in the community. We've been able to make a lot of friends."

Reach Katy Stech at 937-5549 or kstech@postandcourier.com