Muggles have something better than magical powers

The final Harry Potter film opened at 12:01 AM Friday to record crowds and rave critical reviews.  Being a fan of both the series and movies, I of course took the afternoon off and saw the film.  For those readers who have not yet seen the conclusion, I will not spoil the experience but would suggest that perhaps you will wish to save the $4.00 extra that they charge for 3-D before you take your seat and enjoy.

There are many lessons to be learned from the Harry Potter phenomenon but perhaps the best of which is that a good concept and proper execution leads to success as best exemplified by the extent of that success for Joanne Rowling.

In the world of residential development and homebuilding I believe that it is the national builders who are equivalent to those in the “magical community” of Harry Potter as they have the “elder wand” and with it comes better access to the capital markets so that they are limited only by the conditions of the marketplace and their own actions.  But smaller homebuilders and developers are able to succeed and prosper, even in these challenging times, if they use their own abilities that are often better than magic – hard work including strong doses of common sense, sound research, intelligent strategy and professional implementation.

Three years ago I analyzed a distressed residential community on behalf of a client who had an interest in acquiring the property and redeveloping it. Located in one of the more challenged housing markets in the country, it was obvious to me that the property would need to be held for a few years before the market would allow the development to proceed and, even then, a repositioning was required that would substantially lower previous pricing.  With the extensive costs of carry further depressing the present values, my client’s offer to the bank was substantially below their book value and was not accepted, even though we had submitted all of our research to support the value of the offer.

Six months later, the property was sold to one of the national homebuilders at more than twice the price we had offered.  Shortly thereafter my client and I had a friendly but lengthy conversation regarding the validity of my analysis and we both kept an eye on that community over the following two years as the “winning bidder” proceeded to bring its new community to the marketplace.  Last week a story appeared in that market’s local newspaper reporting that this national homebuilder, after selling only three homes in 18 months, had “taken a chain saw to its pricing” and reduced prices by nearly $200,000. The new pricing is now within 10% of what our analysis had originally suggested was appropriate for the market but that pricing had assumed a much lower land cost so it seems that the “magic” failed to work here.

One of the communities in which I have been actively consulting since its inception was reported earlier this week in national news as being in the top 20 of all planned residential developments across the country in sales for 2010.  The developer is a local company and there are no national or even large regional homebuilders active in the community so there is no “magic” at work here 

Even though this marketplace is extremely “challenged”, with permits and new home sales down well over 60% from historical averages, this property has continued to sell extremely well, reaching or exceeding its projected sales every year since opening. Common sense, sound research, intelligent strategy and professional implementation have proven once again to be more powerful than magic.  But that’s just my opinion.

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