Road to Recovery

Real Estate Development:

Pop-pop-pop go nail guns as housing slowly revives

By Jim Wasserman
Published May 30, 2010

The pop-pop-pop of nail guns has returned to Cordially Way in Elk Grove.

Madeira, a 1,900-acre planned development at the city's southern edge, was nearly left for dead when the real estate market crashed. But builders have returned, although in a limited way. In recent months, they've bought hundreds of lots that had been repossessed by banks. Now they're finishing model homes for the summer sales season.

Almost overnight, Madeira — formerly known as Laguna Ridge — has become a bargain for new-home builders. Land prices have dropped. The city has cut fees.

The change raises hopes at Elk Grove City Hall for more home building that might help jump-start, among other things, the partially finished Elk Grove Promenade mall nearby, whose owner, General Growth Properties, remains in bankruptcy court.

PROFILE

A worker lays roof tiles at Madeira, a 1,900-acre development in Elk Grove. The city hopes a building boomlet spurs completion of the Elk Grove Promenade nearby.

"We went for a year without talking to landowners," said Becky Craig, Elk Grove assistant city manager. "We're talking with landowners every day now. More intend next fall and spring to pull permits."

Last year, the City Council instituted 30 percent cuts in road and capital facilities fees paid by builders.

For Sacramento, which has suffered terribly from a collapse of residential construction and real estate values, the revival of builder interest in Madeira is another example of how the region is slowly climbing back.

Just as thousands of homeowners moved into foreclosed homes at cheap prices in recent years, home builders have scooped up lots for less.

Finished building lots in Madeira that once cost $200,000 sold for less than $40,000 last year, builders say. The lower prices enable builders to sell smaller houses — priced from the high $200,000s to low $300,000s — and compete against bank repos.

"We had one of the first bank deals that closed out here," said Kevin Carson, Northern California president for The New Home Co. based in Orange County. The firm bought 76 lots previously owned by Corinthian Homes, which lost them to lenders.

Madeira, developed by Sacramento builders Reynen & Bardis, whose owners have since filed for bankruptcy protection, has long been considered Elk Grove's premier new neighborhood. But it opened with room for 7,800 dwellings just as the real estate market crashed.

Sales quickly slowed to a trickle. Elk Grove says it has issued about 630 home permits since 2005. The city is pursuing judicial foreclosure against Reynen & Bardis for unpaid taxes on hundreds of undeveloped lots.

Madeira today is an eclectic suburban mix of new parks, trails and neighborhoods often surrounded by large swaths of open space. The streets, sidewalks, street lights and schools are in place, owing to a city policy that infrastructure be finished before the homes arrive. But it's not uncommon to see jackrabbits hopping in the weeds where houses will rise.

Now a handful of new builders have moved in, with much more modest plans than their predecessors.

The New Home Co., largely owned and run by former John Laing Homes officials, plans to build 76 houses in the next two years.

Carson said the houses would be aimed at first-time buyers and those re-entering the market because of life changes. Many are tired of looking at foreclosures and distress sales, he said. Prices will range from $290,000 to $320,000.

He said the planned houses are also designed with more privacy in mind. Bedrooms have their own bathrooms to accommodate buyers caring for elderly parents and taking adult children back in after college. It's also become more common, he said, to see adult friends or co-workers who have been through separate divorces buying together and blending their children to save money. The overall trend in this new economy, he said, is more adults and children together in a smaller space.

Aaron Saxelid, 13, looks forward to the prospect of new neighbors. He and his family moved into the Madeira community about a year ago.

"There's not many kids around here," he said.

Carson's firm will battle for sales with three other builders at Madeira — Sacramento-based Axios Homes, Arizona-based Taylor Morrison Homes and William Lyon Homes of Newport Beach. All bought bank-owned lots at discount prices last year.

"That's the reason we're out here. The dirt went to a point where you can build an affordable home and have a market for it," said Michael Marks, marketing supervisor for Axios. The builder is an affiliate of Sacramento's Thomas Borge Development.

Axios bought 55 lots from a bank that repossessed them from Roseville builder Syncon Homes, said Marks. He said Axios paid less than $40,000 per lot.

"We've sold eight of our homes so far," Marks said. "We're seeing more people disappointed with the lack of quality of bank-owned homes and short sales."

David McKown, sales and marketing director for William Lyon Homes, said the firm bought about 90 finished lots from a bank that repossessed them from Reynen & Bardis.

"At these prices we can finally make the things pencil out at a price we know we can move at a decent pace," McKown said. He declined to say specifically how much the company paid.

Taylor Morrison Homes last year bought 156 bank-owned lots repossessed from Cambridge Homes, said Dar Ahrens, the firm's Northern California division president. He, too, declined to name a price. But he said it was one-third less than the firm paid years earlier for nearby land.

Based in Arizona, Taylor Morrison has helped lead Madeira's sales scene since it opened, and continued to build homes even as other builders lost their projects to banks. Michigan-based Pulte Homes has also remained dominant, averaging more than seven sales monthly at its Del Webb age-restricted community in Madeira, according to consultant Hanley Wood Market Intelligence.

"It has been the brightest spot for us in the Sacramento market," said Ahrens. "It was the best last year and continues to be a stellar performer for us this year."

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