Strategic Residential Marketing

My uncle, who is 101 years old, was admitted to the hospital with pneumonia last week.  Although he is as sharp as ever, he has been experiencing some medical “issues” for the past few years and after preliminary tests the doctors decided that there were indications of a possible malfunction in his heart.  They requested his permission to do another test which, due to his age, bears some risk.  He agreed to the test but to the surprise of his doctors declined to sign a DNR (Do Not Resuscitate order).  The last of his six grandchildren is getting married later this month and his first great-grandchild is celebrating his Bar Mitzvah the following month and he has every intention of attending both functions.  I am certain that I will be seeing him at both the wedding and the Bar Mitzvah as my uncle is a fighter and does not know the meaning of giving up. 

My uncle used to be a homebuilder in the Chicago area and gave me my first job in the business.  He was my role model in the industry, an intelligent entrepreneur who took the time to understand his market and provide what was required to satisfy the indicated demand.  The standard new home in the inner city at that time was a three bedroom/two bath tri-level, designed to fit the prevailing narrow urban homesites. In fact my family lived in one of his homes.  But when every other builder was selling the almost identical product, my uncle re-subdivided some of his homesites and had a new plan designed, a two story home that effectively maximized the living space available, creating what is now the popular “big box” design, but which he brought to market well over 50 years ago.  The new plan doubled his sales.    

In one economic downturn several decades ago, mortgage financing required high downpayments and was difficult to obtain so instead of just accepting reduced sales, my uncle arranged for a pool of private investors to provide second mortgages for his buyers and created far more attractive financing terms than the competition could provide.  He had again analyzed his market and implemented an appropriate plan to solve their needs and provide his company with a competitive advantage.  My father served as my uncle’s attorney, making certain that everything was done “by the book” and that my uncle was fully protected at all times.  Under their second mortgage program, they also made certain that the buyers were fully qualified for the purchases and that their investors were also protected and not a single default occurred.  This concept was “rediscovered” a few years ago but unfortunately without the necessary care and safeguards and became known as the sub-prime fiasco.

Although the current housing downturn is arguably more severe than in previous cycles and has its own special and even unique circumstances, my background in the industry has made me somewhat less sympathetic towards homebuilders and developers who encounter difficulties and then just “give up”, effectively signing their own DNRs.

I observed with sadness as a homebuilding company that I have been watching for several years went out of business this summer. Their lender called their A&D loan, even though the interest payments were current, the community was continuing to sell (at the time they had eight firm sales on which they had not even started construction) and the property had little value except as an ongoing homebuilding operation.  The principles agreed to a “friendly” dissolution of the business as they were unsuccessful in their search to obtain replacement financing and they had signed personally for the financing.  As they had not created any asset preservation programs, they had no power in the negotiation with the lender and had no choice but to accept failure even though a continuation of their operation would have been far more profitable to all the parties involved.  Read the rest of this entry »

For those of my readers who may not be into Jazz or are younger than I (that would be the majority), “Take the ‘A’ Train” is a jazz standard by Billy Strayhorn that was the signature tune of the Duke Ellington orchestra and is arguably the most famous of the many compositions to emerge from the collaboration of Ellington and Strayhorn.  Composed in 1933, after Ellington offered Strayhorn a job in his organization and gave him money to travel from Pittsburgh to New York City, Ellington wrote directions for Strayhorn to get to his house by subway, beginning “Take the A Train.”  Interestingly, NASA honored the composition with the creation of the A-Train satellite formation which placed 5 satellites in sequential orbit, providing scientists with different sets of nearly simultaneous observations so they were able to improve their study of climate change.

There was an interesting article posted today on Reuters.com with the headline “Homeowner confidence fell in second quarter: Zillow”. The story went on to state that “Homeowners were less confident about the value of their homes in the second quarter, with one-third believing home prices had not yet reached a bottom…Nevertheless, a significant number of homeowners said they planned to put their home up for sale in the next six months if they saw signs of a real estate market turnaround.”

I was sitting in a community sales office today waiting for the sales team to finish their morning chores.  This community is well conceived and professionally marketed and continues to maintain a healthy sales pace and profitability for the developer and the homebuilders.  When the sales team and I got together I started our discussion by sharing this article with them and asking their opinion.  Universally, the immediate response was negative, ranging from “that’s why we are having trouble selling Windstone (a move up village)” to “it seems that this bad market will never end”.  

My immediate thought was “we need a new sales team”.  But after a moment’s reflection and recognition of the reality of the marketplace today, that thought changed to “we need more sales training”. Read the rest of this entry »

The quotation above is attributed to John Heywood, a fifteenth century English writer. It closely resembles several Old and New Testament verses, most notably Jeremiah 5:21 (“Hear now this, O foolish people, and without understanding; which have eyes, and see not; which have ears, and hear not”) and Matthew 13:13 (“Therefore I speak to them in parables: because they seeing see not; and hearing they hear not, neither do they understand”). So this concept has been around for quite some time.

Yet it appears that the message is not being received and I am now well past the point of frustration in advising homebuilders and developers to simply look at the market to determine what will sell and hearing their automatic response of “you do not understand that things are different here and we cannot do that”. The fact is, things are not different here, there or anywhere else as the market is the sole determinant of where our buyers will live, what size and type of home they want and what they will pay. It does not matter what was the cost of the land or improvements, what the architect believed to be an attractive or appropriate design, or even who the builder is or how they do business. While the specifics of the consumers’ decisions will vary somewhat depending on geographic location, the national and local economy, the job market, interest rates and consumer sentiment, the homebuying market will always make their desires quite clear and all we need to do to succeed is look, listen and comply.

When homebuilders and developers fail to see, the only available course of action to sell the homesites or homes is to lower the price (or otherwise enhance the offering) until they have created such a visibly superior value that it overcomes all other concerns. But that typically results in losing money which has an obvious and undesirable long-term result. We can provide a superior sales environment and selling process, better merchandising, advertising and promotion and those efforts will certainly produce benefits and are worth pursuing. But without the underlying correct location, acceptable home design and features, and proper pricing, we are at best merely spinning our wheels while on the inevitable road to failure. Read the rest of this entry »