What it takes to break into Charlotte’s booming housing market
Charlotte Business Journal
RESIDENTIAL REAL ESTATE CHARLOTTE HOME
It starts with patience, a keen sense of demographics and an analytical vision for growth — and ends with lots of cash.
By Laura Williams-Tracy – Contributing Writer March 14, 2019
Homebuilding in the Charlotte region is not keeping up with the growing population, creating a lure for more outside competition.
According to the State of Housing in Charlotte report produced by the Childress Klein Center for Real Estate at UNC Charlotte in February, the region is adding new residents far faster than it is adding housing units. The region’s population grew at 2.03% per year since 2007, but the aggregate number of housing units has grown at just 1.34% per year.
Such an imbalance is pushing up existing home prices and land prices on top of already escalating regulatory costs.
“Therein lies the opportunity for an agile developer,” says Sean Cooney, principal of Suncrest Real Estate & Land, a Phoenix-based developer that is launching its first two projects in the region.
Cooney scoured the market for the right deals for more than five years before landing Suncrest’s first two projects. After 18 months under contract on land in southern Gaston County and in Lancaster County, Suncrest’s projects are finally breaking ground.
“Projects are hard to come by,” Cooney says. “To find deals that pencil you’ve got to find the assets and solve the problems, and it takes time and money.”
The region faces some development challenges, but the strong market fundamentals of a diverse economy that’s adding jobs and residents has drawn in a number of homebuilders and developers based elsewhere.
Taylor Morrison Home Corp. (NYSE: THMC), for example, wasn’t doing any business in Charlotte four years ago but is now the fifth-largest builder in the area by annual closings. Such rapid growth in market share came from its 2015 acquisition of Orleans Homes, which gave Taylor Morrison seven communities in which to build. The 2018 purchase of AV Homes for $1 billion launched Taylor Morrison to 28 local communities where it is building in a ring around the Interstate 485 loop, including Waterside at the Catawba in Fort Mill and at The Retreat at Rayfield in Indian Land. Taylor Morrison’s average sales price is about $400,000.
“With the acquisitions we got an instant platform in Charlotte, and with our AV acquisition in 2018 we doubled our portfolio in the Charlotte market,” says Kevin Granelli, Taylor Morrison’s local market president. “From a strategic perspective it has significantly impacted our market share, jumped us to a top-five builder in the market and given us scale and relevance.”
Taylor Morrison buys about half of its lots from other developers. Granelli says the rising cost of land and entitlements has constrained the ability to meet new housing demand.
“Demand is there, but what puts pressure on it is the ability to find land, entitle it quickly and start development with the end goal of vertical construction of a home,” Granelli says. “All of those drags on the timing have affected the ability to put supply to market.”
Greenwood Village, Colorado-based Century Communities entered the Charlotte market in 2017 with the purchase of UCP through its subsidiary Benchmark Communities, which had been building in the Carolinas, Tennessee, Washington and California.
Century grew here with single-family developments in Concord, Marvin and Midland and with a successful townhome development called Hadley Park near the Lynx Blue Line’s Arrowood Station in south Charlotte.
In 2018, Century bought the remaining 50% of Greensboro-based Wade Jurney Homes after becoming a major investor in 2016. Wade Jurney continues to operate under its previous identity. Outside of the Wade Jurney purchase, Century Communities completed 280 homes in the Charlotte market in 2018, making it the seventh-largest national builder by volume in Charlotte.
Century is building 70 to 80 homes in Carrington in Indian Trail, priced from the high $200,000s to low $300,000s and another 72 single-family homes in Rock Hill in Rhyne Estates.
“Our projections for the year show continued growth for the division,” says Jill Anderson, marketing director for Century Communities. “The biggest challenges are our trade base of framers and dry-wallers and getting on their radar and being their priority.”
Jones Homes USA, an Orlando, Florida-based homebuilder, is another recent entrant to the Charlotte market, breaking ground on its first homes in the Falls at Weddington, a 244-acre community off Antioch Church Road. There, it plans to build 96 homes in the $750,000 price range, says sales manager Rita Fleming-Johnson.
Jones Homes will build another 93 homes at Bent Creek in Indian Land, starting the low $400,000s.
Karla Knotts, vice president and co-owner of Knotts Development Resources, says land prices are escalating faster than home prices, by almost three times as much. But she considers development costs to be a bigger hurdle than land prices.
“We’ve gone up 100% on land development costs. The regulatory burdens are painful, so we are under-producing housing for the job growth,” Knotts says. “If people move here and can’t find housing, prices go up.”
The average price of a building lot in Mecklenburg County is now in the mid $70,000s.
Finding desirable lots has become more difficult, agrees Carl Van Horn, Charlotte market analyst with Market Opportunity Research Enterprise. “In speaking with our builder clients, they indicate that many developments are behind schedule in delivering lots. This is certainly anecdotal and hard to verify without surveying some builders or developers, but this is a story that we have heard before.”
Van Horn says the market peaked in 2016 and has been softening since that time. Single-family development growth from 2018 to 2019 is less than 1%.
Suncrest hopes to juice the market with more lots in its two developments in Gastonia and Lancaster County.
In Gastonia, Suncrest is breaking ground on Nolen Farm on 245 acres along Union New Hope Road. Suncrest has contracted with Meritage and DR Horton to build 700 single family homes there.
Suncrest’s second project is 500 single-family homes and 230 townhomes at Sugar Creek, a development on Harrisburg Road in Lancaster County, south of Pineville.
Cooney says demand for lots is strong, but developers have to be well-capitalized to spend the time and money necessary to extend water and sewer lines and work through complicated entitlement hurdles.
“The story in the American market is a shortage of approved land with water and sewer, and that’s where we decided to play. We look for that pre-development risk where we can find a technical solution that the builder may not want to tackle or a developer doesn’t have the size or scope to tackle,” Cooney says.
With so much effort needed on the front end of housing developments, Cooney says Suncrest is searching for potentially large tracts where it can justify spending time on rezoning and utility extensions and still be able to sell lots to builders at prices that work for the developer and builder. With rising costs and interest rates, affordability matters at all price ranges.
Suncrest can hold the land for the five-year development cycle because it brings all equity to the deals it pursues.
“There’s not a lot of competition in that space,” Cooney says.
Keeping projects affordable for builders is a key concern, Cooney says, and developing in Gaston County allows builders to build homes priced as low as $250,000.
“We love Gaston County,” Cooney says. “People are looking at Troutman and Locust and Rock Hill, but we’ll take Gaston County all day long.”
“Charlotte is expensive, but there are places that are more expensive, like Nashville,” adds Mike Koch, managing partner of Suncrest. “With things like the quality of life and the good economy, we’d put Charlotte in the same category as Seattle, Denver and Austin. There is competition, but we look for certain fundamentals those markets display.”