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Posted: March 01, 2011

Builders in survival mode

Frugality may be rewarded as signs suggest Front Range real estate recovery

David Lewis

WhoOwnesCO_Mar11.jpg

Front Range real estate has turned the corner.

There, we said it.

The market remains a buyer's market, but still.

Who Owns Colorado bases this semi-bold announcement on two sources of evidence: statistical and anecdotal.

Statistical evidence tends to be kind of boring even when it's dramatic, as it is in Front Range real estate today.

So we'll start with a couple of anecdotes.

Some years ago MDC Holdings Inc., parent of Colorado's biggest homebuilder, Richmond American Homes, had its headquarters in southeast Denver near the intersection of South Yosemite Street and East Hampden Avenue.

The company acquired a couple of vacant lots, one to the rear of the office, one across the street next to a fire station.

Decades passed. Richmond American Homes became one of the top 10 U.S. homebuilders. The company moved 10 minutes south. The government built a post office next door to the lot across the street.

Recessions came and went, and then the big one hit a few years ago.

And come 2010, Richmond American finally built a couple of small developments on the vacant lots it had held for about 20 years.

One, Sunset Village, has six home models on 22 lots selling for up to $459,950 plus options. The other, Creekview, has two models on 15 lots selling for between $269,950 and $324,256 plus options. Average lot size is about 7,000 square feet.

Sunset Village and Creekside are going to be shiny and new, and they are located within the Denver city limits. As of mid-February, seven had sold between the two, and tire-kickers were buzzing all over their respective model homes.

Richmond American also has been buying land around the metro area, our sources say. Do they know something?

Remington Homes has been building houses around the metro area for four generations, including Ron Hauptman.

Hauptman ceded the reins to son Regan Hauptman some years ago. But Ron remains on the board and works day-to-day as well.

This has been his fourth major recession in 45 years in the homebuilding business, he says. He started after graduating from the University of Colorado in 1968, when dad, "was branching out to build a few new developments," Ron Hauptman recalls.

The big one was the Jimmy Carter recession, Ron says, when construction loans ran around 20 percent; today lenders charge around 5 percent, he says.

For Remington Homes, maybe the main thing about this last downturn was its readiness for it.

"It's tight, obviously. We've been lucky because at the start of that last recession we had almost no debt. Anybody who carried a lot of debt was in trouble," Ron says.

"And we were active in some subdivisions where we were able to partner with banks to get them out of their debt situation that they had incurred with investors," Ron says, "So the timing was great for us because we were able to stay in projects that are in Jefferson County, where the market wasn't as depressed as in other places, and had financing in place, so we were able to carry on."

The changes since have been painful but not entirely negative.

"It's back to where it should have been prior to this," Ron says. "Throughout my career you always had to have a down payment and decent credit to buy a house. But in the financial subprime debacle that wasn't the case."

Remington Homes has made some adjustments to the times in its projects, products and prices, "making it more value-oriented," Ron says. Remington doesn't build spec homes; the company only builds pre-sold homes. Last year the company tallied 93 closings and about 100 starts "and this year looks to be about the same," Hauptman says.

It must be said that Remington is not Richmond American in size. Perhaps its frugal ways saved it. In any case pardon the digression while we note that most independent homebuilders are gone, defunct.

"The larger, mostly publicly owned homebuilding companies dramatically increased market share over the last three years," says Mike Rinner, executive vice president of Englewood-based residential real estate consultants the Genesis Group. "Smaller builders are less financially able to survive, and now even the ones who survived are less financially able to move forward because of the difficulty of raising capital.

"This concentration will continue for a bit longer," Rinner says. "There are some decent small builders out there that are doing whatever they can to survive. I know of one builder who has five projects where they build the house, they sell it, they do the closing and they send the money to the landowner, an involuntary landowner who wasn't planning on being the landowner of a failed project. So the independent homebuilder is trying to build though it, sell homes for that landowner, and take a modest fee for doing so to keep their doors open."

Oh, yeah, statistics: Housing starts in the Denver metro area hit a historic low in 2009 and rebounded to the all-time second worst number in 2010. In January, metro-area home prices rose and sales fell.

Do these mid-winter trends really add up to a real estate market that is turning the proverbial corner?

Yes.

"I feel more confident than I have in the past," Ron Hauptman says. "When you are in business for yourself you have to make the tough choices. We have been driving around junker kind of cars because they are the cheapest. We defray HOA expenses, because we end up subsidizing communities from a homeowners' association perspective. Well, our guys were out there shoveling snow; people took 20 percent pay cuts. I mean, that's what you end up doing on the private (business) side."
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David Lewis is a freelance writer based in Denver.

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