Homebuilder David Weekley plans aggressive move into infill, high-density housing

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Houston-based housing Giant David Weekley is reshaping his company to emphasize building more infill attached housing—from townhouses to mid-rise condo buildings—at densities from 6 to 80 units per acre. He believes that when housing markets recover from their current slump, the long era of dominance of suburban detached homes, built at four units per acre, will be over.

December 01, 2007

Houston-based builder David Weekley believes attached housing — especially in A+ infill locations — will be the hot product when housing markets across the country emerge from the current downturn.

That's why he's reshaping his company to build more attached and mid-rise condo buildings at densities of 75 to 80 units per acre. The company's attached volume this year will be about 100 units, Weekley says, and the expectation is to have attached homes represent 15 to 20 percent of the business in three to four years. "We're working to acquire the expertise we need to make this shift — everything from site acquisition and land development to land planning and high-density product development."

Right now, Weekley is in an advantageous position among large builders because more than 70 percent of the firm's anticipated 4,500 closings this year (down from 5,360 in 2006) are in Texas, where an energy-driven economy and low housing price appreciation keep home sales humming. David Weekley Homes moved from No. 27 to No. 21 in this year's Giant 400 rankings because of the strength of operations in Houston, San Antonio, Austin and Dallas/Ft. Worth. Weekley anticipates moving up again next year, perhaps as high as 17, based on 2007 revenues of $1.3 billion (down from $1.54 billion). Obviously, he believes other Giants, with more dependence on markets outside Texas, will drop even more precipitously in revenues.

Why is he willing to bet the future of his home building empire on a swing to density developments?

Boomers, Traffic and $3 Gas

"Our strategy is based on demographics, traffic and lifestyle changes," Weekley reveals. "Tons of baby boomers like me are now empty nesters. They have a degree of freedom they haven't had in 40 years. If you get tired of sitting in traffic for 45 minutes or mowing the lawn, or paying large utility bills on a big, old suburban home, you start thinking about moving somewhere to get away from all those hassles."

He says it isn't just boomers who are concerned about traffic as gas prices climb. "Everyone will be much more location-sensitive when the markets come back," Weekley opines. "Sitting in traffic drives us all nuts when we're burning $3 gas. If 10 percent of the American housing stock is now attached, I wouldn't be surprised if it's 30 percent 10 years from now."

Weekley believes his firm has an advantage over public builders when it comes to making the move into high-density products. The big publics are used to building the same house plans in different locations, he says. "We've always designed location-specific floor plans — different products for each community, depending on the attributes of the site and how those mesh with the target market. On high-priced infill sites, with high-density product, you have to design plans that are location and target-market specific. This plays to our strength."

Going Green

Weekley says all the homes his firm builds in 2008, whether attached or detached, will be greener than ever before. "We're going green in a big way to try to obsolete all those existing homes on the market. It gives us a chance to differentiate our new homes from the huge inventories of resale homes." Energy efficiency is the most important aspect of this, but indoor air quality is also important. "In the boom days, you could just throw something up and it would sell, but that won't cut it anymore," Weekley says. "This slowdown gives us a chance to catch our breath and make sure our market presentations are all right-on."

In five years, he promises his firm will have a spectacularly expanded breadth of product. "It will still be known for high-style and design, but our product lines will be much broader. Our mid-rise stuff won't hit the market for another year, but that's a big point of emphasis for us today."

Many markets got so hot at the end of the boom that they skipped directly from detached homes to high-rise condo product, Weekley says, listing Atlanta and Tampa as examples. "We want to go back into those markets and hit the product categories that were skipped when prices shot through the roof. We think we can find infill sites where mid-density products will work."

For years, Weekley refused to develop land but relented several years ago when the housing boom drove a land-acquisition frenzy. "We got into land development, but in a very small way," he says. "On some of those deals, I feel great. On others, I feel stupid. But we are only providing 20 percent to 30 percent of the lots to our home building operation, not 60 percent or 70 percent like most of the public builders."

And most of Weekley's development activities are in Texas, where the market is still strong and land prices never went up as fast or as far as in Florida. Still, the retail price of lots was affected by the activities of public builders, which squeezed margins and led Weekley to bite the bullet and go into developing land. Today, with his new emphasis on higher density housing, he's glad he already has some of that expertise.

Cycles Are Back?

Weekley believes that when housing markets come back to life, they may return to the historic pattern of intermittent business cycles that prevailed for 30 years before the 13-year boom from 1992 to 2005. "Projects will be smaller," he predicts. "Even the public builders will scale back. Wall Street won't want to see big developments where the land risk is accentuated. There will be a fundamental shift for a while — maybe forever — where nobody will want to get long on land."

It was only the decade-long boom without a down cycle that made long on land tolerable, he says. "If we go back to the historic sequence of four-year cycles, no one will ever be as aggressive on land as they were for the last 15 years."

He says he believes there's a higher likelihood of markets reverting to historic norms than going back to another 13-year run without a cycle.

CLOSINGS:
Type SFD, SFA
Units 5,360
MARKET SEGMENTS:
Starter 38%
First and Second Move Up 72%
Second home 12%
REVENUE:
Housing $1.54 billion
STRATEGY:
More attached housing, including infill mid-rise buildings at densities of 75 to 80 units per acre. Now a miniscule share, attached housing may be 20 percent of closings within three years.
Source: Professional Builder Giant 400 Report, April 2007

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