Most economists and industry pundits agree that the housing market in 2014 will continue to improve but there is no doubt that we will still be faced with strong competitive conditions and cautious buyers. My recommendation to my developer and homebuilding clients throughout the country to assure their success is to return to the basics and create a strategy for every new community prior to commencing development and also for every existing community reflecting the current market conditions, just as if they were starting the community from scratch as of today.
For every community, an examination of the specific site conditions, the existing and probable future competition, the local economy and the market conditions is essential to provide the analysis that defines the “playing field” from which a realistic strategy for success can be developed.
Although most housing markets are performing well, certainly in comparison to recent years, over the past few months I have been asked to evaluate several communities in several different geographic locations that were not performing to the homebuilder‘s and developer’s expectations. As part of the background data I had requested each client to send me the original research and strategy documents. The replies, which were amazing similar from each developer, was that as they had been building in their markets for several years, they had seen no need to do any research or prepare a written strategy.
When I completed my analysis of these developments and their markets, the reasons for the lack of sales were crystal clear and, not surprisingly, consistent throughout most of these communities:
– They were offering stale, dated home designs that had not been changed for the past five years, or more;
– Their product lines failed to provide a full spread of designs, styles and pricing to satisfy the target markets within a given segment;
– Their locations were often further “out” than anything that had been fully accepted by the market and newer, competing developments were now available that were closer “in”;
– More importantly, many of their new developments had been purchased primarily due to the attractive land pricing, often distressed existing communities wherein other builders had failed but were brought to them at a substantial discount that was simply “too good to pass up”;
– There were four or more other builders in nearby locations competing directly with their communities, many with almost identical product and most offering something “special” (better pricing, better value, better features);
– Their sales staffs had been with them for some time and, as they were “experienced”, had not received any training in years;
– Their advertising and promotional strategies and budgets were the same that they had used ten years ago when their markets were very strong.
As my primary business is as a consultant, I am loathe to turn away business but it was sad to see that every situation was almost identical and that most of the problems should have been foreseen and could have been prevented. Having not been prevented up-front, the cost and effort to correct these failings was now substantially greater than if they had been recognized and addressed in the beginning.
For every community, there is one optimal development and marketing strategy that will maximize sales and profitability under foreseeable market conditions. While it may take a little time and effort to properly create such a strategy, the value is immeasurable and well worth the effort. Read the rest of this entry »
Recent events have convinced me that there is still a major opportunity for improvement in communication so I am reprising (with some current updates) an “oldie but goodie” blog.
Cool Hand Luke, the source of the headline for this blog, is a truly great movie. For those of my readers who are too young to have seen it when issued in 1967, I would recommend renting it one night or downloading it from “on demand”. The film earned Paul Newman one of his ten Academy Award nominations and won George Kennedy the Academy Award for Best Supporting Actor. It is included in the American Film Institute’s “100 Years…100 Heroes and Villains” (number 30 greatest hero) and “100 Years…100 Cheers – America’s Most Inspiring Movies (number 71) and was placed in the Smithsonian’s United States National Film Registry in 2005. It is classic Paul Newman at his best playing the role of an anti-hero with an indomitable spirit. And the tag line captioned above is outstanding, applicable to almost every aspect of life these days but, perhaps, especially relevant to the homebuilding industry.
Lack of proper communication continues to be pandemic these days and, in my opinion, is at least equally, if not more, the fault of the speaker as that of the listener. Saturday evening I stopped at the local Walgreens to purchase spirits of camphor. Not being able to locate the item and as the pharmacy was closed I asked a clerk for assistance. As she was several decades younger than I and apparently not familiar with the product she asked me what it was and I replied “an astringent”. Her reaction was an immediate blank look followed by a repeat of her question, “what is it?” and, I without thinking, responded, “spirits of camphor, it is an astringent”.
I admit it, the fault was mine. I should have realized this person was unfamiliar with spirits of camphor and, as she no doubt was a product of the esteemed Florida public school system and apparently not having been provided with even elementary training in the basic products of a drug store, she was also unfamiliar with the word “astringent”. When she once more asked “what is it?”, to prevent what I saw evolving into an Abbot and Costello routine of “Who’s on first…”, I did not repeat my answer but explained that it was a liquid in a small bottle typically applied to tighten the skin. When I was then led to the cosmetics aisle I knew that I still had failed to properly communicate and asked where the rubbing alcohol was located. I had no success there as the Walgreens in our area no longer stock spirits of camphor but thanks to the miracles of modern technology I ordered it from Amazon.com where it seems you can purchase almost anything.
Monday evening I attended a city council meeting in a town near where I live. I am involved in the proposed redevelopment of a 30 year old community and this was a special council meeting called specifically to consider our request for rezoning, following two prior meetings of the Planning Board which had lasted four and three hours, respectively.
We were proposing to develop 150 single family homes on 9 holes of a defunct golf course and to reinstall the other 9 holes creating a new 27 hole golf course with new clubhouse, swimming pool, fitness facilities, etc. Prior to starting our planning for this development my team and I had met with the leaders of the various homeowner associations within the community to solicit their input and determine what needed to be done to garner community support for our plan as several previous attempts to receive approval for redevelopment had been unsuccessful.
Utilizing the information from this first meeting we met with our planners and created a plan for the development which, I believe, was as close to perfect as is possible. Every existing home in the community that previously enjoyed a golf or water view but now overlooked a rat-infested unkempt field would again have a premium golf or water view as well as substantial buffering from any new development. A 30 year old dilapidated clubhouse in need of major repairs would be replaced with a new and far more functional facility and all amenities would be new or refurbished. Our new purchasers would automatically become club members virtually assuring the ongoing country club operation that now was teetering on dissolution. And our new development, with home prices well above the median in the community, would revitalize the housing market and stimulate price growth for the existing residents. I truly believe that this is a “win-win” for all concerned – the existing residents, the city and my client. Read the rest of this entry »
Leaving my home to drive to my office this morning I noticed that a motorist had been pulled over across the street by a policeman, the same location in which I had seen several similar situations over the past few weeks and I realized that my neighborhood was apparently the location of a new speed trap. While I welcomed the fact that the local constabulary was doing their part to make the streets safe, I wondered “who were these drivers that felt it necessary to drive at excess speeds in a residential area?”
I have been driving since I was 16 and although I may from time to time marginally exceed the posted speed limit, I have never been stopped for speeding. But I also never text while driving nor meander along the road with a cell phone stuck to my ear, so I have avoided accidents and traffic tickets.
I was shopping a housing market last week and came to a community that arguably had the best salesperson in the marketplace. If I was hiring a sales team, based solely on the 45 minute presentation I received, this person would be at the top of my list. The development was easy to find and the homes were attractive, competitively priced and offered above-average features and good value. Yet sales were well below the level being achieved by the competition and I wondered why.
Not being a “local”, the specific location may have challenges that were not visible when I drove to the site but it appeared to me that access was convenient, right off a main road, and superior to the majority of the competition. The property was also proximate to good commutation routes and near a state park which I perceived as a further benefit. I checked the local area housing demographics and the incomes, although not high, were generally adequate to support the new home pricing and the existing housing values were also adequate to support the new home values.
I am a great believer in knowledge and am constantly working to acquire as much as I can. I knew that I was still missing facts, specifically the local perspective, so I contacted a friend who is a prominent broker in the area. She confirmed that the location was easily accessible but that although the county schools are generally considered excellent, this community was unfortunately located in what was widely perceived as the least desirable school district in the market. And I had my answer.