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8 Essentials to Restarting a Failed Community

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Community Development

8 Essentials to Restarting a Failed Community

Learn what the best professionals are doing to ensure success when entering a community that was abandoned by the previous builder

By John Rymer, Contributing Editor February 20, 2011
Single-family home in a failed community
This article first appeared in the PB February 2011 issue of Pro Builder.

First the good news: Your company just successfully purchased a failed community for pennies on the dollar. And that price can’t be beat, right? But before you jump for too much joy, remember that impaired lot pricing is no guarantee for success in today’s housing market. Getting dirt at bargain prices simply, as the saying goes, “gets you up to bat.”

Whether you strike out or knock the ball out of the park depends on maintaining your focus and learning to swing at the right pitches. I reached out to several experts to see how they have successfully revived a failed community. They offer the following advice:

1. Have cost-basis amnesia. Price and terms are all important during negotiations. But the day after the deal closes, put the home site price you paid in your rearview mirror and focus on the things for which you are now in control. Don’t allow a great price lull you into believing that you can sit back and let the cost basis assure you of success.

      8 rules for reviving a failed community
  1. Have cost-basis amnesia
  2. Re-think positioning
  3. Meet with homeowners early
  4. Promote your strength and staying power
  5. Be ready to listen
  6. Leverage pent-up demand
  7. Utilize the ready-made Realtor VIP list
  8. Re-open with a bang

“The best way to screw up a good lot purchase is to believe that your discounted price is going to guarantee you a profitable venture,” says Gregg Goldenberg, president of Acadia Homes and Neighborhoods, an Atlanta home builder that specializes in restarting failed communities. “Getting the land at the right price is only the first step in a long process toward achieving your financial goals. Too many builders do a good job on negotiating lot price and then fall short when it comes to reintroducing the community to the marketplace.”

2. Rethink positioning. Failed communities are not just the result of a declining real estate market. Many communities were poorly positioned from the start. Plenty of builders and developers overshot and under-delivered, or targeted market segments and buyers who have since abandoned the new-home market. Don’t make the same mistake twice. Re-think your best chance of success. Don’t simply dust off the original market study at lower prices.

“It’s all back to basics today,” says Barry Karpay, vice president of land operations for Standard Pacific Homes, Tampa Bay, Fla. “We see communities where the lot sizes are far too big for today’s buyers’ pocketbooks. We’re doing feasibilities on converting 80-foot lots into twice as many 40s. Conversely, we’re doing due diligence on townhome communities in locations for which there is little or no current demand, with the idea of ganging townhome lots into single-family detached home sites. It all comes down finding creative solutions to add value to distressed land opportunities.”

3. Meet with homeowners early. “Job one for the new builder is to meet with the current homeowners in the community,” says Tamara Lynch, regional VP of sales and marketing for MI Homes, Charlotte, N.C. “The new builder will likely offer product that is lower priced than the original home prices due to market conditions. This must be handled delicately if the builder wants the support of the community. At the same time, the current homeowners can be supportive of a new builder coming into the community because they expect improvements to be made to the community, including repairs to the streets, the common areas, etc.” 

The key is to let them hear the new plans from the builder first in a controlled setting rather than as gossip from dissatisfied homeowners.

4. Promote your strength and staying power. It’s easy to understand why the public is cynical. When you re-start an existing community, it’s not uncommon for the original builder or developer to have gone out of business. If they’re still around, they may be less than proactive in attending to maintenance issues or warranty concerns. Presenting your strengths and the planned improvements to the community is essential to gaining the Realtor, homeowner, and local area support. It also reinforces why your new prices need to be market driven. Homeowners will see that it is in their best interest that the community is financially sustainable through build-out.   

5. Be ready to listen. As the new builder, you need to learn from the interested parties regarding existing community concerns. Give them a voice. Listen. Just knowing that the builder cares enough to ask them about their concerns and to get their opinions goes a long way toward gaining their confidence. It can also uncover issues that did not surface in due diligence, such as proposed changes in school districting, unusually high utility costs, or promises made by the original builder. In these cases, knowing sooner is better than knowing later. Whether needing residents’ help on asking the municipality to remove an unneeded offsite improvement requirement or just asking for referrals, having them on your side is a huge plus.  

6. Leverage pent-up demand. Chances are by the time the new builder is ready to re-open the community, it has been many months or even years since the pervious builder was open for sales.

“Before failing, most communities suffer from a lingering paralysis where the original developer is unable to reposition to the new pricing realities of the market,” says Tom Stokes, executive vice president with SterlingCrest Homes, Acworth, Ga. “Construction stops, sales pace stalls, and inventory becomes stale. This is why you re-enter a failed community with pent-up demand. Contact the previous on-site salesperson. In many cases, they will have a list of potential buyers that want to buy and have been waiting for the pricing reset and a financially sound builder to place their trust in. It is not uncommon to have several buyers appear when the new signs go up.” 

An added bonus could include the previous salesperson as a candidate to join your team. The combination of their eagerness to get back to “unrestrained” sales and their relationships with the existing homeowners and prospect base can help jump-start your re-launch efforts. 

7. Utilize the ready-made Realtor VIP list. One of the biggest and often overlooked opportunities in a community re-opening is utilizing the Realtors who sold homes for the original builder. The process is easy and the results can be fruitful, according to Stokes.
“Research the local MLS data and reach out to the specific Realtors that have sold in the community,” he says. “This group can be your early ambassadors — they already know the community and may have other customers that fit your new price point and target market.”

Make sure your VIP Realtors are updated on your plan for the community and they realize the benefits of having a sound builder “invest” in the continued success of the community. Having a core group of knowledgeable Realtors on your side before you re-open can create considerable buzz in their sphere of influence and generate community leads.

8. Re-open with a bang. As the saying goes, “You never get a second chance to make a first impression.” As it applies to community re-openings, it might be correct to say, “It takes twice the effort by the second builder to overcome the first impression that failed.”

“A mistake many builders make is not appreciating that fact that re-establishing a community in a failed setting is much harder than creating a community brand from scratch,” says Acadia’s Goldenberg. “When a Realtor or customer drives by a new community, they immediately want to stop in and learn about the community, the floor plans, and prices. With a re-introduction, you often don’t get the sense of urgency to learn what’s new, while at the same time you have a failed community image and old prices to overcome.”

With marketing dollars scarce, bootstrap marketing and “grand-opening specials” are often the best way to get the new message out. “The grand-opening offer really needs to be compelling,” says Goldenberg. Large opening-weekend discounts, below-market financing, and discounted closing costs can help grab the attention of the audience. It’s better to open up with a couple of sales at below-budget margins than to sit for a few months with little traffic and no sales.

Those with experience in re-starting failed communities caution that the hard work really begins the day you commit to the re-opening. Sure, lower land costs and reduced prices are an important first step. But a careful approach to enlisting the help of existing homeowners, original Realtors, and local area residents, and emphasis on awareness of the new price and product offering are far more important ingredients for ultimate sales success.

John Rymer is president of Rymer Strategies Inc., a Tampa, Fla.-based real estate marketing and sales consulting firm. He can be reached at john@rymerstrategies.com.

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