Publication Date:
Sat, 2009-02-14 18:00
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In life there is seldom opportunity for a “do over,” so it's best to get things right the first time. Of course, this isn't always possible. And the consequences — say, for an unsuccessful land development plan — can be costly.
Coming up with a great multifamily marketing plan for your land doesn't mean it will sell. So before you take the plunge, hear from land developers whose best laid plans went awry. They describe high-density marketing plansthat they'd like to do over (and in one case, the developer got the chance to do just that!). Listen and learn before planning your next high-density venture.
  BEFORE AFTER Eliminating curved streets adds square footage, says Mollie Carmichael of John Burns Real Estate Consulting. Photo: John Burns Real Estate Consulting |
Mollie Carmichael worked in sales and marketing research positions with several public builders before becoming a senior vice president with John Burns Real Estate Consulting, which contributes a column to Housing Giants. From her former role, she can recall quite a few high-density projects in Southern California that missed the mark. Many of the more suburban communities in the area were looking to develop a more urban downtown. One project in Orange County, which she prefers not to name, was on a site that was attractive and appealing. It was near the airport, had a thriving business climate and was close to the ocean.
“A lot of people want to live there,” says Carmichael. “Frankly, if it had opened in 2004, we would have all been high-fiving each other and talking about what a great community it was.”
But the community opened between 2006 and 2007 instead, when the housing market was starting to go south.
“It was a good example of bad timing,” she explains. “I think the plan is really well done. If there was something I would have done differently, there are some really simple things.”
Anticipate skyrocketing home owner association fees
 "Everyone's back to doing what we do best, which was making small spaces feel large." —Laura Giardino, L&M Design Listen to what Giardino has to say. |
Management costs have gone up across the board in the last few years. Carmichael says there were serious miscalculations as to what HOA costs would be.
“Although there were estimates on mid-rise and high-rise of anywhere from $250 to $500 a month,” says Carmichael, “the reality was they came out at $450 to $1,400 a month.
“When you think affordable housing, you think more density, more people living there — they are going to share the land expense,” she adds. “The reality was the HOA fees alone in most cases were greater than rents. I go back to the original pricing phase now and chuckle, because the assumptions on the HOAs were significantly off.
“The high costs of HOAs has been one of the greatest disadvantages for the entry of urban products over the last several years,” she says. “The design of your HOA, amenities and management company is as important as your building design.”
Target a more diverse buyer profile
The demographic this community was designed to attract — younger single buyers and “cool, hip” couples — were not buying. The buyer who could afford it was the move-down couple, so this new product was competing with the home they already lived in. Also, many of these buyers bought if they were in the market for a second or third residence to use as an in-town apartment or a place they could rent out now and eventually retire to one day.
“That was the market that was successful,” says Carmichael. “We thought it was going to be more of a mainstream market like in Chicago, New York or Miami. I think you really have to look at what the demand was for that kind of lifestyle and not just housing within certain price points. … I think we would have made the product more segmented and affordable.”
Lost opportunity for value construction
  A clean street line, as this project, "Santana Row," shows, combined with tall buildings bring a strong urban edge, notes Mollie Carmichael; curving a street has the opposite effect. Plus, curved streets demand curved buildings and other architectural elements, and that costs more. Photo: DesignLens |
Carmichael says curvilinear streets and building designs create less efficient square footages and more expensive construction costs. Some of these structures were used in this development.
“Curves in your building designs will create inefficient square footage throughout your building designs,” says Carmichael. “The cost of these curves is not recaptured in the retail price to the consumer.”
The bottom line: “The most important reason why many of these urban communities haven't been as successful,” says Carmichael, “has less to do with the planning and how great the communities actually were, and more to do with the tolerance and tradeoff for that price point. If I'm going to buy a home for $750,000 with an HOA of $600 a month, my payments can be $5,500 a month. What are my choices for that $5,500? When the market's prices start to shift, there starts to be a lot more choice for that same payment. It's not that that buyer profile or that buyer wasn't excited about that lifestyle, but when it came right down to it, they could just get a better deal doing something else.”
Laura Staines Giardino, co-principal with husband Michael Giardino of L&M Design [1], has an example of a do-over that she actually did over. The development is located in the mid-Atlantic region. It's an age-restricted, three-story community with units that range 1,300 to 2,400 square feet.
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“When the project was approved four years ago, before my client bought it,” Giardino says, “the marketing established a certain sales price, and it was achievable in that market at that time. Every project is predicated on having some sensibility when it gets started, and this particular marketing report indicated that there were competitive projects that were actively selling.”
Giardino says the change that came with the housing bust is that people were not willing or able to pay more just to have more space.
“No one is buying the largest units, although they are absolutely beautiful and the models are just being open right now,” says Giardino. “They can't justify the price.”
The community was designed with two different product types in mind. One was a larger townhome cluster, of which 12 units out of 56 were built. That product was abandoned because it was too expensive. The developer was able to terminate construction of the townhouses before too many foundations were laid, and plans were to replace them with a revised version of the higher density, three-story product originally intended.
For the revised structure, two larger units in the three-story building were tucked into the top floor where attic space was used to add that additional square footage. Giardino suggested her client cut both units in half; the result was two additional units that were slightly more than 1,200 square foot each — perfect for a two bedroom.
“I'm actually increasing the yield in the building by two units in the upper level,” Giardino says. “I'm also taking out the garages on the first floor, and the garages share the first floor with a handful of units. So it's not a parking-under building; it's a parking-integrated building.
 "I think the biggest miss across all markets for urban was ... the cost of what the HOA would be to the consumer."—Mollie Carmichael, John Burns Real Estate Consulting Listen to what Carmichael has to say. |
By taking out some of the parking, she was able to add units to the building.
“What started out as a 15-unit building with 16 garages is now a 21-unit building with no garages.”
“I've eliminated the construction cost of one entire building,” says Giardino, “and I've picked up units. I did this throughout the site. The new plan amortized the client's land cost over an additional 100 units.”
This land plan failure was redeemed to a win/win/win — for Giardino, the developer and the buyer.
The lesson: Giardino says planners and developers for too long held onto the idea that bigger is better. She feels the renewed focus should be on good design, making small spaces feel large and creating spaces that multi-task.
“If I don't use the dining room, could it double as a library or office?” asks Carmichael. “These are things we used to consider when we first got married or got out of school. They are practical, and that is what people are doing now. Space for the sake of space makes no sense.”
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