BY DAVID BRACKEN - Staff Writer
www.newsobserver.com
In late 2007, as the local residential real estate market was beginning to nose-dive, Mark Ward and Larry Lippincott decided this was an opportunity not to be missed.
Instead of running away from the coming train wreck, they and partners Judith Adams and Edythe Poyner created a new company called Imagine Holdings to buy and develop distressed land.
“We actually formed the company with the idea in mind that with the downturn a lot of people would be in trouble and it was a good chance for a new company with no baggage to take advantage of the market,” Ward said.
Over the last two years Imagine and its home building arm, ForeverHome, have scooped up hundreds of discounted lots in Cary, Morrisville and Durham and built new single-family homes and townhouses, most priced between $170,000 and $250,000.
The company’s success — it sold 58 homes in 2009 — speaks to how much the economics of building and selling homes has changed in recent years.
Ed Dunnavant, who tracks Triangle housing trends for the research firm Metrostudy, said when the housing market was humming builders would often let the cost of a lot dictate what type of home they built.
Because the lot typically accounts for about 20 percent of the cost of a home, an $80,000 lot would often result in a $400,000 home.
But with the market for homes priced at $400,000 and above extremely soft in the Triangle, builders can no longer expect homes priced in that range to sell.
Now, Dunnavant said, builders are looking at what type of homes are selling — $300,000 and under — and working their way back to figure out how much they can pay for the dirt underneath.
“We’re going back to what I call the fundamentals of building 101,” he said.
The average lot price for a single-family home in the Triangle was $46,247 in the third quarter of 2009, down 27 percent from the same period in 2008, according to Market Opportunity Research Enterprises, a Rocky Mount group that tracks Triangle housing trends. The year-over-year declines in average lot prices in the Triangle during the first three quarters of 2009 were the three biggest percentage drops in the past 20 years.
Imagine and other active residential land buyers are now taking advantage of people who paid a premium for dirt during the boom and find themselves with a project that no longer makes economic sense. Some sellers simply want to cut their losses; others are being squeezed by lenders.
Imagine competes for land with national builders such as Pulte Homes and KB Homes, and many of the company’s dozen employees have experience working for those behemoths. Lippincott, for example, worked as both the Raleigh division president for Pulte and North Carolina division president for KB Homes.
Ward said the company has private investors who help with its land purchases and a collection of eight different banks that finance construction.
Imagine targets residential areas close to Research Triangle Park. It has passed on a number of buying opportunities in nice subdivisions that it deemed too far from job centers.
Imagine’s recent deals include paying about $2 million, or $20,000 a lot, for 101 lots in the Weston Place subdivision in Cary, and paying $1.49 million for a 22-acre residential plot off Sherron Road in Durham.
The Durham property is across from the Brightleaf at the Park subdivision. Imagine paid 15 percent less than the seller paid in 2007. And the seller had already gotten site plan approval for 110 units, which means ForeverHome can begin developing the property immediately.
Imagine’s purchase price on the Sherron Road property works out to less than $15,000 a lot, a deal that would have been unthinkable a few years ago.
“These days, with the market being what it is, you truly do have to decide what the market will bear in terms of price and back in to the land price from there,” Ward said. “We just try to be really, really careful and make the best land decisions.”