A version of this article, written by Jon Bell, appeared in the July edition of the Home Builder News.
Jim Chapman sounds happy again.
The president and general manager of Legend Homes had for the past few years seemed a bit pessimistic about the homebuilding market, as most builders had. But this year, the tide has begun to turn and Legend has been building steadily in its Tigard development Walnut Creek and in Wilsonville at Villebois.
“We’ve got five starts a month in there for the year so far,” Chapman said. “A year ago, it was two a month. The year before that, we were just hoping to have a month with a start, so it’s nice to see us building at our production rate again, nice and steady.”
All around the metro region, builders have begun to see a thaw in the market as inventory has all but dried up. Some have also refined their approaches — targeting in-fill lots, for example — or added new offerings, such as multi-family buildings, to their building repertoire, as a way to thrive in the new world of homebuilding.
“I think the inventory pretty much got absorbed and the distressed stuff went away,” Chapman said. “That’s created a little urgency in a market that was ready to be done with all that stuff anyway.”
And it’s not just some of the local builders who have begun to see things pick up again. According to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, nationwide housing starts rose almost 7 percent in May to a seasonally adjusted rate of 914,000 units. Much of that increase came in part due to a steep rise in multifamily production, which was up 22 percent in May, but single-family starts also stayed firm at almost 600,000 units. Combined starts rose 6 percent in the West, while the Northeast and Midwest saw declines of 9 percent and 14 percent, respectively.
“The outlook for housing continues to brighten as builders respond to increased demand for new homes and rental apartments,” said Rick Judson, chair of the National Association of Home Builders in a release issued in mid June. “While challenges . . . are still keeping the pace of improvement in check, both builders and consumers are more confident about their prospects in the current marketplace.”
Multi-family heats up
For Arbor Custom Homes, the renewed confidence has come in the form of several multi-family apartment projects on the west side of the metro region.
“It’s not so much a move away from anything,” said Brad Hosmar, chief operations officer for Arbor. “It’s just that we’re adding multifamily to our quiver of building activities.”
The company, which also includes a development arm called West Hills Development and a building wing known as RES Construction, first got into the apartment market a couple years ago after building some apartments at Orenco Station in Hillsboro. When it proved too challenging, due to the recession, to later make a go of a separate condominium project, Arbor instead decided to consider another apartment project.
Today, Arbor has several apartments either under way or in the works. A 193-unit apartment project is just finishing up in Hillsboro, and construction recently began on The 206, an apartment building at NW Cornell Road and NW 206th Ave. that will include a total of 203 units. That one will be complete in 2014. In addition, Arbor has 112 condominiums under construction and has two other sites that could accommodate buildings of several hundred more apartment units themselves.
Multi-family has also been big for other builders, such as Polygon Homes and Holland Partners, the latter of which broke ground in 2011 on a large complex in Wilsonville called Brenchley Estates and a 190-unit complex at Orenco Station. The Wilsonville project includes 359 apartment units, 39 single-family homes, a community center, swimming pool and park. A second part of the project, called Joy Trail at the Grove, features 363 residential units in 15 different apartment buildings.
“We are pretty bullish on the market,” Hosmar said. “The apartment market has been so underserved over the past few years, so we see a real opportunity.”
Like other sectors of the homebuilding market, multi-family essentially dried up when the economy bottomed out a few years ago. Even prior to that, apartments had been slower going compared to single-family homes.
“When the economy tanked, everyone retracted a bit and no one was really sure what the market was going to do,” Hosmar said. “And prior to that, the market was so hot for single-family homes that it just didn’t make sense to build apartments.”
After that drought, however, Hosmar said Arbor began to notice that institutional buyers from outside the region were coming into the marketplace and buying and remodeling apartment buildings. That suggested that a rebound was imminent.
On top of that, the jobs picture in Washington County and on the west side of Portland has been relatively strong as well. Nike is in an expansion mode and already employs more than 8,000 people at its headquarters in Beaverton. Intel, too, has been busy building a $3 billion fab in Hillsboro that has created thousands of construction jobs in the area and will eventually lead to more than 1,000 new full-time jobs. The company also routinely brings in employees from around the world for training stints that can last from six months to a year.
Bringing even more new jobs to the area is the opening of Kaiser Permanente’s new Westside Medical Center in Hillsboro’s Tanasbourne area, which is scheduled to open in August. Construction alone has created more than 2,000 jobs since work began in 2009, and when the hospital opens later this year, 800 permanent jobs are expected to be created.
“There is certainly going to be demand for a variety of housing,” said Hosmar, adding that Arbor is also working on some single-family homes and other for-sale projects. The company has also been securing between 10 and 15 leases per week on its apartment units. “We’re charging as hard as we can on this before the next turn, because I’m sure at some point it will change. But we want to be prepared.”
Closer in, some builders have found a niche in the in-fill market. Bridgetown Equity Construction builds energy efficient homes that fit in with the traditional craftsman and bungalow homes of Portland’s characteristic neighborhoods. With its Vintage Collection of classic-looking new single-family homes, Renaissance Homes has itself generated a thriving new line of business.
“With our Vintage homes, we really try to blend into the existing neighborhoods,” said Randy Sebastian, president of Renaissance Homes.
Another builder focusing on Portland’s inner neighborhoods — except, of course, for its home in the 2013 NW Natural Street of Dreams out in West Linn — is TTM Development Company. Owner Tucker Merrihew said the company, which he essentially spun out of his mortgage company back in 2008, has built a robust direct marketing and online advertising campaign that courts prospective home sellers in Portland. TTM buys homes directly from owners for cash, as-is, and either remodels them or tears them down to rebuild new.
“It took some time to refine what we do and how to get it to work best,” he said, “but we’ve got a good model in place now.”
Lots down, prices up
Tom Liesy, president of TA Liesy Homes Northwest, himself has a homebuilding model that has served him well over the past couple years, in the good times and bad. He builds largely in Happy Valley and for the past six years or so has built nothing but presold homes. The approach may result in slightly lower margins, but Liesy said there’s also less risk for him. Last year, Liesy built and sold about 75 homes and he’s on track to do the same this year in two smaller subdivisions and one larger one. And the homes he’s building this year are in a higher price range, with none of them under $300,000.
“We definitely are seeing an increase in more expensive homes,” Liesy said. “That’s about buyer confidence. I think people are just more confident in the market.”
Because the market for single-family homes above $300,000 is so strong, Liesy said he’s also adding a multi-family row house project to his mix.
“That’s been a change for me, because two years ago, my marketing said ‘Why buy a row house when you can buy a new single-family house?’” he said. “There’s been a shift in the market, and for people looking for something for under $300,000 — that’s why we are doing the row houses. I see multi-family coming back just because of house prices.”
One challenge for Liesy and other builders right now is the amount of available lots. Last year at this time, Liesy had 100 finished lots on hand; now he’s down to 40. He also has 75 that he’s in the process of developing, but other than that the pickings have gotten fairly slim.
“Lots are getting really scarce,” he said. “I’m even getting calls from other builders, daily, to see if I’m selling any of my lots. I’m not.”
Legend Homes currently has a decent supply of lots, including another 100 in Wilsonville, but Chapman said he has seen the supply tighten as well, particularly as some of the larger national builders have scooped up any lots available. Eventually, the shortage of available lots will likely trigger more people to sell their land, but until then it will continue to provide some constraints on new building.
Financing continues to be challenging for some builders, as well, according to Chapman. He said lenders aren’t making very many loans for acquisition and are being rather picky about who they lend to.
Even so, Chapman is liking Legend’s return to increased productivity. Just five years ago, Legend’s parent company, Matrix Development Corp., had filed for bankruptcy. However, in mid June, Legend’s Walnut Creek development was down to just one or two remaining lots after starting the year with 26, and Villebois was going strong. Legend also has a few lots available in its Tyron Highlands community of southwest Portland. Homes there range from $589,000 to $599,000.
In addition to the increased demand and decreased inventory, Chapman said redesigned product, particularly in Villebois, has also helped fuel the pickup for Legend. The new homes range in price from around $315,000 to $387,000 and multiple profiles are available. Some have master bedrooms on the main floor for empty nesters.
“There are a lot of relocations and a lot of empty nesters who are moving down here because they want less square footage but still want some of the goodies like granite countertops,” Chapman said.
Others plans are geared toward couples with no children and still others feature double master options. Chapman said those plans are designed for households who may have college graduates who’ve moved back home after a fruitless job hunt. And there are also plans for families with school-age children, a popular option for many new families who have came to the area after a new school opened its doors.
A few years ago, Legend launched its line of EarthSmart solar homes as a way to carve out a sustainability niche in the homebuilding market. Chapman said interest in the homes never really surged, plus getting tax credits became more challenging than expected, so they scaled back the effort. Even so, the new Legend homes come with the company’s energy bill guarantee, which ensures average monthly energy bills of $99 thanks to Legend’s energy efficient building practices.
Already at 92 starts for the year — up from 64 last year — Chapman said Legend is building lots of presold homes now, though there’s a mix, and all seem to be selling well.
“For every five we do, three will be spec,” he said. “But on a lot of those, we’ll have them sold by the time the drywall’s going in.”