Monday, December 30, 2013

Stacking the Deck


Stacking the Deck

Let’s assume you need to make some form of community modification requiring approval by the local municipality.  You work with your consultants to prepare the modification.  You work to gain support of the community leaders.  You review with and finalize terms of the modification with the city planning staff, gaining a positive recommendation for presentation to the city council.  Finally, you reach out to the individual council members to bring them up to speed on the rationale behind the amendment.  It seems you have covered all your bases.  Approval should be a rubber stamp.  What can go wrong?

The wild card here is the city council hearing itself.  You should always assume that someone or some group will come to speak out against the proposal.  As council members are publicly elected, they have a duty and responsibility to pay attention to their constituents.  Let’s do the math for a minute.  Assume four people come to speak out against your proposal and two speak in favor.  Regardless of everything you may have done right leading up to the hearing, you may find yourself with a problem.  There is truth to the statement that the squeaky wheel gets the grease.  With more physical evidence against approval staring the commission in the face, they will be hard pressed to disregard the naysayers and give the logical approval.  Call it unfair, call it injustice, call it aggravation.  I call it democracy.

The good news is that this problem is easily solved with proper up front planning.  Make sure that you have sufficient numbers of supporters present at the hearing to speak in favor of your proposal.  Feed them, bus them, throw them a party.  Whatever it takes.  Just make sure that they show up to let the council know that the correct decision is also the one that is most wildly supported.

Unfortunately, life is not always fair.  However, there are many times that life can be better controlled by stacking the deck in your favor.  Knowing that the best laid plans are usually the best plans, make sure that when your proposal comes up for a vote that you have plenty of people there to speak out on your behalf.  Nothing pleases a council more than to know they are enforcing the will of the people.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Friday, December 20, 2013

I Did Not See That Coming


I Did Not See That Coming

A large part of the new home buying experience is not just the relationship established between the sales associate and the home buyer, but also the relationship between that same buyer and the whole home building organization.  Nowhere is this more prevalent than in highly amenitized lifestyle communities, where the home owner may actually perceive the builder to be a larger part of their daily routine than the builder realizes.

In these lifestyle communities, the first job of the sales team is to help the buyer fall in love with the community, and, after that, to help those buyers find an appropriate home to meet their needs.  Since so much time is spent extolling the virtues of all the community provided conveniences, the buyer feels that they are truly purchasing more than just a home.  That allows the builder to gain an edge over less amenitized traditional subdivisions.  However, this double-edged sword does have the ability to swing dangerously backwards.  It is the savvy builder that strives hard to make sure that the sword does not cause a decapitation.

Even with a builder’s promotion of lifestyle elements, their main job is to still sell homes.  They are not necessarily geared towards providing all the non-sales oriented community services that the homeowner often feels they are entitled to receive in these communities.  I will give a true example.  During the summer of 2004, several hurricanes rolled back to back to back through the state of Florida.  During this stressful time, a number of well-meaning residents came to the builder’s main office and asked what steps were being taken to secure the life-safety conditions for the residents.  I am not talking about securing construction job sites and implementation of community storm water pollution protection plans (SWPPP).  They wanted to know how the club would be staged as a shelter and how the builder would provide evacuation services for residents.  On one hand, it was heartwarming to see that the community perceived the developer as more than just a homebuilder.  On the other hand, it was concerning that the community perceived the developer to be more than just a homebuilder.  Fortunately, a middle ground was struck to help establish neighborhood patrols that would interface with the appropriately trained and staffed emergency response municipal organizations.

There is a saying that if you are going to run with the bulls, that you will sometimes get the horn.  I think that there is another way to look at this analogy.  If you are going to run with the bulls, then make sure you are adequately prepared to avoid the horn.  I believe that the thrill of the experience will not suffer by taking steps to minimize and downgrade potentially dangerous and uncomfortable situations.

I hope you all have a wonderful holiday season.  This is a busy time for homebuilders as they work hard to reach year-end targets for home sales and closings.  More importantly, though, it is a time of year when homebuilders help families to celebrate and create holiday memories with their loved ones by giving them the gift of new home ownership.  It truly is a special industry.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, December 16, 2013

Guns vs. Butter


Guns vs. Butter

In my college macroeconomics class, we studied the relationship of guns vs. butter.  Basically, you can invest in defense or civilian goods, but cannot maximize your investment in both.  You need to decide how to strike the appropriate balance between the two needs. 
In real estate, I find there is a similar corollary between home design and pricing.  It is impossible to get everything you want when contemplating new product design if you also want to make sure you hit a certain price point.  I refer to this as the battle of the sales team vs. the bean counters.  I know it does not sound as glamorous as guns and butter, but follow along with me for a moment. 

On one hand, the sales team will want good architectural design with strong home elevations on the front and rear.  Heaven forbid you have any secondary bedrooms less than 12’ x 12’, the furniture just won’t fit.  You have to have granite countertops as a standard, as well as a preponderance of different size windows to make sure all the rooms are cheery and bright.  Also, make sure that the garage is at least 20’ x 20’ or the cars will bang doors against each other.  Finally, the outdoor covered lanai must have a textured finish to the deck, since no one really wants broom finish concrete.  With all these items in place, the sales team will then tell you they will be able to hit your monthly sales targets.  All will be well in the world and bonuses will be plentiful. 
The financial team will then throw cold water on that parade and tell you that you can’t afford that level of detail and finish and also expect to make any profit at market price points.  End of story.

The struggle is how to resolve the dilemma without throwing everyone into the MMA octagon to see who is the last man standing.  (My money is on the sales team, but that is a story for a different day).
As with the guns and butter dilemma, the key is compromise.  I find it best to identify market price points first.  After all, a family only has so much money to spend for their home.  With that in mind, you can then prioritize the home features to strike the best balance between cost and price.  At the end of the day, the market will tell you what features are necessary at each price point, so long as you are providing the right mix of benefit and value. 

Unfortunately, I can’t tell you how many times I have seen product and feature design serve as a justification for higher than market price points due to the level of detail and finish being provided in the homes.  In these cases, the teams eventually learn the hard lesson that you can have guns or butter, but you can never have the same amount of both.
Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, December 9, 2013

The Root of the Problem


The Root of the Problem

I was at a public hearing the other night when the issue of damage from street trees was addressed by the City Council.  There was a brief discussion on the value of these street trees since, in a mature condition, their roots were beginning to damage sidewalks and sprinkler systems.  I became saddened as I listened.  In my opinion, the whole premise of the discussion was wrong.

This issue should not be whether or not the trees are worth the damage that they cause.  The issue should be whether we as a society are doing enough to make sure our communities are as aesthetically pleasing as possible.  Area repairs due to the maturation of a neighborhood are small prices to pay to make a community desirable.  In my opinion, you can never have too much community detail.  Let me put it in perspective.  If you are going out for a fancy night on the town, you want to make sure you look your best, right?  You want to celebrate and you want everyone who sees you to know that you look incredible.  You may need to spend extra money on your appearance and clothing, but isn’t it worth it?  Don’t you feel better about yourself?  Your community is no different.  Don’t you want it to look its best when you come home and your friends come to visit?  If you need to spend a little bit extra to make sure it is always looking just right, isn’t it worth it?

I know not everyone can afford home and community repairs.  However, isn’t the better question not if, but how can you not afford to spend the money?  Attractive communities tend to have greater community spirit.  Greater community spirit tends to lead to an enhanced lifestyle, where people care more about their community and take initiatives to meet and involve neighbors.   In general, it makes the area a better, safer place to live.  These areas also tend to have higher property values.  You may be spending more than you would like on maintenance, but your increased home value will more than offset that added expense.

So, the next time you see a sidewalk in need of repair due to the maturation of street trees, take a look around.  Don’t ask if the trees were worth it.  Ask yourself what your community would look like without them.

Until next time…

 
Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

 

 

 

 

 

Monday, December 2, 2013

I can't believe my builder won't...


I can’t believe my builder won’t …

 
As we enter the season of love, understanding and goodwill towards man, I offer up a slightly different take on my normal blog, something I like to call: “I can’t believe my builder won’t…”

I can’t believe my builder won’t…  Offer pocket doors.  The value of pocket doors is that they take up no room space.  In tightly configured areas, I have often heard a request for them so as to do away with the swing area of a conventional door.  While some production builders may offer pocket doors, many more try desperately to stay away from them.  In simple terms, they are a warranty nightmare.  No matter how many times you explain to a home buyer to not hang anything on a wall with a pocket door, they will invariably forget or disregard the advice and hang away with picture hooks and other such items through the wall.  The problem is that this area behind the wall is where the door slides away from the opening – hence the term “pocket door”.  This leads to frustrated owners who don’t understand why their doors are becoming scratched up and no longer open properly.  Oh well…

I can’t believe my builder won’t…  Remove some windows to accomodate more wall space for furniture.  Home buyers will often fall in love with a particular model, but will ask for some window modifications to fit their furniture.  What they fail to realize is that the lighting for a home can completely change whenever some windows are removed.  That light airy feeling that attracted them to the home in the first place may seem dark and much less inviting with a window modification, all for the sake of fitting in a piece of furniture that would have been better left at the old house.  Oh well…

I can’t believe my builder won’t … Allow me to add landscaping to the side of my home.  Oftentimes, homes are located ten feet apart.  In addition to fire separation issues, this space is used for drainage swales between the homes.  Adding landscaping in these areas will very likely impact the normal drainage flow, causing water to back up in both your and your neighbor’s yard.  Oh well…

I can’t believe my builder won’t…  Add drop down stairs to access the attic space in my garage.  Please understand, trusses are designed and installed to support the roof, not to serve as a storage area for every unwanted item that you may have collected over the past 20 years.  It is not the builder’s responsibility to make sure that the truss system has been designed as a storage attic.  That is why it is not called a storage attic.  Oh well…

So, instead of saying “I can’t believe my builder won’t…” the next time he politely denies a construction request, try instead to ask yourself the question “Why would my builder ever…”.

Until next time…


Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, November 25, 2013

My office my home


My office my home


I recently read that One World Trade Center in New York will be the tallest building in the western hemisphere and the third tallest building in the world.  The 9/11 symbolism and pride that it will bring to the Manhattan skyline is self -explanatory.  I just wonder whether such extravagant structures are really necessary or will they soon become reminders of what the world was like before the technological revolution. 

Consider the following.  Conventional metropolitan office space has historically been about convenience.  There is the convenience of large population centers and ease of access to service professionals.  There is proximity to clients as well as major sources of transportation, whether those be road, rail or air.  You would also be close to food, entertainment and lodging alternatives.

Now, consider the changes being wrought by the technological age.  Hard document deliveries and signatures have been replaced by electronic files with electronic signatures.  Smart phones and more compact server opportunities have reduced umbilical cord ties to close by data centers.  Video conferencing capabilities have taken the place of the need for face to face meetings.  You are now to the point where an individual with a home office and a wireless connection can be just as productive and interactive as a co-worker located in an adjacent office space.  This is not to say that face to face human interaction has no value.  However, at what price?  Is it worth the stress and time spent commuting to an office location?  Is it worth the rental cost of the office space?  Does it add true value to your client communication?  Or, could you be just as effective and efficient in a smaller, more flexible office environment with more employees working off-site?

Remember, the large scale office building is a phenomenon of the 20th century.  Why can’t the work environment continue to evolve and improve?  The mass affordability of the car is what led to the suburbanization of America.  It also led to its current traffic congestion.  Who is to say that the power of technology won’t create a new wave of living that will change the way housing and office spaces work together?   It is very possible that the future of Wall Street and Main Street could merge into a cyber-community form of working and living whose future is closer than we may think.  Just don’t tell that to the large institutions that have billions of dollars tied up in downtown office buildings.  After all, we still leave our horses tied to hitching posts when we arrive at the office, right?    

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, November 18, 2013

Attitude may only be skin deep


Attitude may only be skin deep

It is funny how we tend to remember the bad more than the good.  I can’t tell you how many times I have heard salespeople tell me how they were disgusted by the negative attitude of their customer.

However, what the sales staff tends to forget is the amount of thought and effort made by that customer to just walk through the door.  Understanding that effort is, unfortunately, what often gets lost in the sales process.  It is critical for the sales team to remember it is not how you are treated by the customer, but how the customer is treated by you.

There are times when the customer may appear not to care and, in fact, it may seem that they want to be anywhere other than visiting the sales office and models.  However, let’s recognize the effort made by the customer to come visit you.  They needed to do some research on you as a builder and community.  They needed to plan a visit.  That alone takes time.  Then, by making the actual visit, you have become a major part of their day.  Just as you will remember their poor attitude and perceived indifference, they will remember how you treated them and responded to them long after they leave.

This leads to long term impact.  They may not have lived up to your expectations of etiquette, but what impression did you make on them.  Did they find you professional, knowledgeable and caring?   It is critical to remember that the best customers are referral customers.  Will they recommend you to others?  More often than not, their visit was more meaningful than they will want you to believe.  They may even still buy a home from you.  The impression that you make on them will have ramifications for future opportunities. 

Remember the saying not to judge a book by its cover.  No matter how tattered and worn that cover may be, you may be surprised to find a compelling story underneath.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

 

Monday, November 11, 2013

It's not easy being green


It’s not easy being green

Green is a beautiful thing.  It is the color of grass, the color of money and the somewhat universal name given to something that is good for the environment.  I am not trying to go all Kermit the Frog on you, but I do want to talk about the green basis that seems to be used for energy efficiency ratings on new homes, the HERS index. 
HERS stands for Home Energy Rating System and has become the standard to define the energy efficiency rating of a home.  I think this is a great idea.  However, I do believe that the information is somewhat misleading.  The rating claims that a Standard New Home has a basis of 100.  Therefore, any home that has a HERS rating lower than 100 is more energy efficient than a Standard New Home.  Once again, this sounds great.  In fact, homebuilders are continually touting how their homes have HERS ratings well below the Standard New Home benchmark.  This is where the problem comes into play.  I am not aware of any new home builders that build standard homes to a HERS rating of 100.  Whether it be due to in-house construction improvements or changes to local building codes, every new home builder that I am aware of builds all their homes to a HERS rating less than 100.  This allows all builders to promote how green their construction practices are.

This is great for the builders and they should all be applauded for building better and more efficient homes.  However, wouldn’t it be more appropriate for the HERS standard to be adjusted on a yearly basis?  In reality, if construction practices and building codes are improving every year, shouldn’t the standard rating bar be moved every year as well?
I agree that a home that is more efficient that the Standard New Home is a very energy efficient home.  Just show me where they are building new homes to a 100 HERS rating for comparison.  Otherwise, change the bar on a regular basis so that we can get a better idea as to which new home builders are being truly innovative in their green building construction practices.

Our old pal Kermit once sang “It’s not easy being green!”  Let’s raise the bar and keep it that way.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

 

Wednesday, November 6, 2013

Twas the month before year end


Twas the month before year end
 
The holidays are near
Oh yes, what a sight
We want to be happy
But the numbers are light
We had set up our budgets
With high hopes and good cheer
Though now do we panic
As the year end looms near
To turn the corner we planned
New sales they would soar
The recession behind us
Of that we were sure
Not just a few were expected
But a ton of new sales
We felt strong about the market
We would emblazon new trails
Large acreage had been purchased
New lots now secured
We were set for the budget year
Of that we were assured
New sales they would come
We knew that this year would be great
We staffed up for the increase
Sure to have a full plate
But our eyes were too big
A large jump was the lure
In both contracts and closings
Our thoughts they were pure
And now we find ourselves short
Not by a lot, but enough
Our bonuses will suffer
It may get bumpy, a little bit rough
We must move out the inventory
Great year end prices to sell
So at the end of December
We will have a good story to tell
Such is the tale of the builder
To do the best is their plight
While making guesses for the future
And hoping the year end is bright!

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

 

 

Friday, November 1, 2013

The Past Becomes Present


The Past Becomes Present

It has been said that if you live long enough, you will see just about everything.  With the advent of the internet and Youtube, I don’t think you have to be around that long anymore.  However, I do believe that the longer you are around, the wiser you will become through experience.

When I first entered real estate in the 1980s, times were booming.  In fact, I am told that more commercial real estate was constructed during the decade of the 1980s than had previously been built during the whole prior history of mankind.  That is a lot of square footage.  The upside was limitless.  That was a heady time as I was learning the ins and outs of commercial real estate development.  However, like with Icarus, the wings reached too close to the sun and the commercial markets came crashing down in the early nineties, bringing the rest of the real estate world with it.

Real estate, though, is a resilient industry.  After all, everyone needs a place to work and a place to live.  Like the mythical phoenix, real estate rose from the ashes with securitized financing and with opportunity funds swooping in to take advantage of distressed assets.  During this time, I cut my teeth on transactional activities, consummating over $500MM worth of real estate transactions.

As real estate, led by the residential markets, began a resurgence in the mid 1990s, I jumped on board for that ride as well.  I planned, developed and built some highly amenitized residential and active adult communities.  What started off as a stream soon became a torrent as the residential markets took off to valuations previously unheard of in prior real estate booms.  However, when you hear that waiters are flipping multiple condo contracts for a profit before the units deliver, you know the apocalypse is near.  This time, the residential markets led the downturn.  100%+ financing with no income verification loans is not a very smart way to conduct homebuyer lending practices.  Everyone learned that real estate is a true investment.  As with any investment, sometimes it goes up and sometimes it goes down.  It was a tough lesson for many people.

We now find ourselves in a tenuous real estate recovery.  Most people feel that the worst is behind us.  However, one eye remains firmly focused on the economy to see if it will continue to lead us to renewed prosperity or back into a new recession.  Either way, the real estate industry will present astute investors and developers with new opportunities in one form or another.  It always does.

So, why the history lesson?  One answer is that those who disregard the lessons of the past are doomed to repeat them.  Unfortunately, it seems that real estate mistakes appear to repeat themselves every twenty years or so regardless of the lessons learned.  The second reason for the review is a gratuitous plug for myself.  While my journey to date has been enjoyable, I am looking for my next opportunity to continue the ride.  For those of you who enjoy my blog and feel my skills and knowledge (and hopefully humor) may be of benefit to your organization, or to other opportunities you may be aware of, I encourage you to message me as to how I may be able to enhance your operations.  For everyone else, I remain humbled by your readership and I look forward to continuing to supply enlightening and witty insights into the real estate industry on a fairly regular basis.

Until next time…

 
Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

Monday, October 28, 2013

C'mon Lucky Sevens!


C’mon Lucky Sevens!

 I am typically not one given over to speculation and hyperbole.  I do not play the odds and I am no good at the casinos.  However, let me be among the first people to point to the coming downturn in investment grade commercial and apartment properties.  This has nothing to do with overbuilding as was the case in the 1980s or the drunken lending practices of the 2000s.  This is purely related to today’s low interest rate environment.

Consider the bond market for ease of comparison.  If you invest long term in low interest rate bonds, and then rates start to increase, the value of your bonds will decrease.  The same principal holds true for real estate capitalization rates and commercial properties. 

Let’s look at investment grade apartment complexes and office buildings as examples.  For Class A properties, you have average cap rates between 4.5% - 7.5%, give or take.  You also have had relatively little new construction over the past 5 years.  Now that the future is looking somewhat brighter, coupled with stagnant supply and low rates, you have a high demand and low cap rate environment for these properties.  As these properties are purchased, they are also typically financed to some degree with low interest rate debt that will have up to 10 year balloon payoff horizons.

Let’s now fast forward to the balloon payoff maturity dates.  In 10 years, I think it is reasonable to assume that interest rates may rise from 4.5% to 6%.  That is still a low rate.  However it is a 33% increase.  If cap rates increase by 33% as well, this will have a huge negative impact on property values.  In order to keep pace, net rents and income would need to increase by 33% in order to just maintain net property values.  That is not going to happen without some serious inflation.  So, when the mortgage note balloons, cap rates will be higher, property values will be lower, and the cost of replacement capital will be more expensive with less replacement debt available due to the lower property values.  Viola!  Another real estate downturn for opportunity funds to swoop in to purchase properties that may have trouble recapitalizing their debt. 

The term buy low and sell high never loses its meaning.  In today’s low interest and cap rate environment, I am concerned that too much institutional money is buying real estate too high for their own long term good.  But, then again, maybe I am wrong.  After all, some people never stop rolling sevens, right?

Until next time…
 

Keep kicking the dirt!

Thursday, October 24, 2013

The Convenient Amnesia Rule


The Convenient Amnesia Rule

 When constructing an amenity for active adult communities, the rule of thumb is 15 – 20 sf of space per home.  Learn this rule and commit it to memory.  You will be quizzed on it later. 

When buying a home, amenity collateral is typically crystal clear on the amenities that are to be included in the community.  There are colored renderings of elevations and floor plans as well as a list of club services.  Remember, this amenity is usually planned on the rule of 15 – 20 sf of space per home (a reminder before the quiz). 

This rule is meant to provide an appropriate level of activities at a development expense that will allow for competitively priced homes.  Remember this.  More cost equals more expensive homes.

I bring your attention to these items to deal with what I call the Convenient Amnesia Rule due to Density.  This rule states that homebuyers forget what they bought as the community begins to grow.  As the community grows, so too does activity at the club.  This often causes residents to say the club is too small and needs to be expanded.  The growth of the community has caused them to forget that they received exactly what they were promised.  However, crowded clubs are not bad things.  Would you rather have a club that is quiet and empty?  Hopefully, the club execution and management will be done so well that there is energy and excitement throughout the club all day long.  What those people who complain about the crowds often forget is that if the club was larger, it would have cost more money to build and this additional cost would have needed to be passed along into the price of their home, possibly making their home too expensive for them to afford.  Also, a larger club would have a larger operating budget, possibly increasing HOA fees to a level that buyers cannot afford. 

Ok.  Quiz time! 

Question 1:  An appropriately sized club will help allow homes to be sold at a reasonable price if the club size is : A) 10 sf per home B) 15 – 20 sf home, or C) why are you asking, I don’t know what sf is anyway.

Question 2:  If the club is oversized, your annual HOA fees may:  A) be paid by the builder, B) be too high for you to afford, or C) I don’t care since I will never live in an active adult community regardless of how nice it is.

I hope you did not need to look at the paper next to you.  If you answered anything other than B to both questions, we need to talk.

Until next time…

 
Keep kicking the dirt!

 

 

Monday, October 21, 2013

When is a production builder not a production builder? Never!


When is a production builder not a production builder?  Never!

I wish I was an expert in human nature.  I wish I knew how to read people, understand what makes them tick and what makes them think that a production builder can and should act like a custom builder.  People will sign a contract for a production home and then, all of a sudden, feel that the floor plan and options offered are nothing more than a starting point for whatever changes they feel should be made to the home.  Oh, these poor misguided individuals.  I wish I understood them better.

They see the word production builder, they hear the word production builder, but they do not understand the word production builder.  Yes, you have guessed it.  I am going to explain the word production in the definition of production builder.

For a production builder (PB for short) to obtain the best pricing from their subcontractors, they have to make it as simple for their trades as possible.  That means that the subs need to know in advance what plans they are building, what options are being offered,  approximately how many homes per year the builder plans to build and what is the approximate construction cycle time.  This way, they know how to properly price their work, they know what to look for on selection sheets and they can appropriately staff their job sites. 

PBs also strive to make the job site as manageable as possible for their field managers.  When managing between 15 and 20 homes at a time, the field managers want to know that they are working off of standard plans and option sheets so that they can direct their subcontractors appropriately to make sure that what has been bought is what is being built.

PBs further work to make sure that their Design and Purchasing Departments can be effective by controlling the structural and design options offered.  This allows Purchasing to appropriately price out options up front so that the Designers can effectively work with customers during their design selection meetings.

Let’s now evaluate what happens to this well-oiled machine when a customer requests special items and forgets that they are dealing with a Production versus a Custom Builder.  Purchasing will not have priced their requested custom options up front so that Design has no idea what these items will cost or whether or not they are even feasible from a construction standpoint.  Construction may not end up with the correct plans to work from, increasing the risk of field mistakes being made by the subcontractors and causing delays and errors in the delivery of the home to the customer.  And the fuming customer will not understand how the builder could have made such a mistake with their custom changes.  It is true.  No good deed goes unpunished.

So, the next time you don’t understand why your PB can’t move a window two feet, or change the shower head from one wall to the other, take a minute to reflect on the unseen machinations that make up the construction process.  The more pebbles you throw into the machinery, the greater the risk of that machinery grinding to a very messy and painful halt.  I won’t even begin to explain in this blog what this can do to the warranty process.

Until next time…


Keep kicking the dirt!

 

Wednesday, October 16, 2013

Carve up the turkey, not the turkey farmer


Carve up the turkey, not the turkey farmer
How often have you driven through a development and thought about the things you would have done differently.  Or wondered what a developer was thinking.  Well, let me speak for the voiceless, those developers that do not have the benefit of sitting with you while you drive through their community.  Let me be their champion!

Let’s pretend together for a moment.  Assume that your unknown eccentric uncle just left you 500 prime residential acres and tens of millions of dollars to develop it.  You jump for joy and can’t imagine your good fortune.  Now what?  There are some barren acres, some wooded acres, some lakes and some wildlife.  You have a blank canvass.  Are you going to paint a masterpiece or are you going to finger paint?

It is a very complicated and involved process to develop land.  You want the development to be aesthetically pleasing and blend into the larger town and community.  You want tree lined streets, lakes, parks, good architecture, strong signage and landscaping.  You also want to make sure that the local government is on board with your vision and will approve your plans.  You need builders that will buy into your architectural guidelines and want to build in your community.  And, most of all, you actually want to make a profit doing it and not squander away all of your dearly departed uncle’s money.

Consider it like going to the grocery store to plan a large dinner with no idea how many people are coming or what they are willing to eat.  You also don’t know if you have enough money to buy all the food, you are not yet sure if you have enough kitchen space to prepare the meal and you wonder if your dining room will have enough seats for all of your guests.  Then, by the time the big evening comes, you have ended up making a fantastic meal with superb appetizers, main course and dessert.  You have also decorated your house to fit the theme of the dinner and paid particular attention to where everyone sits to maximize conversation.  Then, as you are basking in the glory of your accomplishment, you overhear conversation from some of your guests as to how they would have done things differently.

Before you run back to the kitchen for the butcher’s knife to feed those guests their own fingers, think back to the efforts of the developer that built the fabulous community where your home is located.  You now have some common stories to share with each other.  And, please, put the knives back in the drawer.

Until next time…

 
Keep kicking the dirt!

Saturday, October 12, 2013

All that Glitters is not Gold, but it still Glitters for Me


All that Glitters is not Gold, but it still Glitters for Me

I often hear people wonder that if they perform renovations on their house if they will be able to recoup their investment.  While well meaning, this is not the right question to ask.  Think about this for a minute.  Are you more concerned with pleasing others or pleasing yourself?  While I commend anyone who puts the needs of others in front of themselves, I typically do not favor this conduct when determining the functionality and livability of your own home.

What would your home look like if all your energies were focused on having the greatest appeal to the general population.  After all, if you want to maximize value for the money you put into your home, wouldn’t you want to undertake projects that would appeal to the greatest universe of homebuyers.  In that case, you would most likely have beige walls, slightly darker large tile, maybe generic granite countertops and simple maple cabinets.  Awesome.  Your home is now the most boring house on the street!

I am not saying you should totally disregard value creation.  In other words, don’t undertake head scratching renovations that leave you thinking “I did what?” after the work is complete.  As I have mentioned in previous blogs, the best renovations are the ones that look like they have always been there.  However, you should focus the bulk of your efforts on making sure that your renovation expresses your own wants and desires.  Remember, it is your home, not some else’s home (at least not yet).  Undertake work that will make you happy, that will create a sense of peace for you.  Let’s be honest.  If you are in love with the result, how do you put a price on your own satisfaction?  So what if a future buyer does not share your taste.  It is your taste and it works for the way you live.  Let the others find that mind numbing combination of beige colors in someone else’s home.

Until next time…


Keep kicking the dirt!

Thursday, September 26, 2013

To spend or nor to spend, that is the question


To spend or not to spend, that is the question

You have found a home plan that you love.  You have found a homesite that you cherish even more.  Now, to close the circle on your dream home, you need to select options.  However, you chose a home that was a bit larger than you had planned for and the lot premium with the killer view was also a bit over the top.  So, with more flies than cash swimming around in your wallet, you walk into the design center convinced that you can put off many of your design selections and just add them to the house later. 

STOP RIGHT THERE.  Think about this for a minute.  It is kind of like buying the Mercedes, but seeing if you can get cloth instead of leather with no sunroof or navigation.  You may have fallen in love with the floor plan and backyard view, but the reality is that you live inside of your home.  The bulk of your time will not be spend staring out the windows, but most likely sitting in your family room or kitchen.  Make sure the areas where you spend the bulk of your time live up to your quality and finish expectations.

I know what you are thinking.  I can either do some of the upgrade work myself or just contract with someone else to do it cheaper later.  This typically sounds good, but, in reality, is usually a bad idea.  First, let’s review the types of things you would normally consider putting off.  Crown moulding, interior paint, backsplash tile, laundry room cabinetry, exterior landscaping, a pool.  You get the idea.  It can be a long list.  I also understand that maximizing your design selections with the builder can really stretch your budget.  However, putting it off is many times an example of truly being pennywise and pound foolish.  First, working through the builder allows you to roll these options into your mortgage.  Spreading the cost of these options over thirty years at 4.5% is really an inexpensive way to pay for these items versus paying in full or putting the expense on your credit card.  Second, having the work done by the builder maintains all your home warranties.  If someone else comes in to do work after the fact and damages something in your home, the repair will not be the responsibility of the builder.  Also, if the work is not done right, getting the contractor back to complete repairs may be more difficult than working through the builder on a home warranty item.  Finally, when selecting finishes during the design process, you typically have a trained designer working with you – for free. 

I know that a home purchase can oftentimes prove to be a more expensive decision than you had originally planned.  However, once you make the decision to get what you want, don’t be afraid to truly go all in up front.  In the end, what you think may be a more expensive decision may instead truly be the move that saves you the most money while also providing the greatest long term satisfaction.

Until next time…

Keep kicking the dirt!

Sunday, September 22, 2013

The Sky is not Falling


The Sky is not Falling

 Grab your favorite adult beverage, get comfortable and kick back.  This may take a while.  It appears that misinformation is being spread far and wide.  There is discussion that rising interest rates will be something akin to the great apocalypse and that the window of real estate recovery will slam shut, never to open again.

Fear not.  I am here to tell you that the sky will not fall, volcanos will not erupt and large winged creatures will not swoop down from the heavens to steal your children.  In fact, a rise in interest rates will be a result of positive economic change, not a reason for economic panic. 

 First, let’s understand the dynamics that keep interest rates low.  Low interest rates are typically associated with a struggling economy.  Low interest rates help to spur investment by keeping the cost of capital low, thereby increasing the opportunity for corporate borrowing and creating an environment for future industrial and economic growth.  This growth, in turn, results in increased hiring, lower unemployment and higher wages.  This is called a blueprint for prosperity. 

 As the economy improves, the demand for investment capital will increase, driving up the cost of borrowing, resulting in higher interest rates.  The key is to strike a balance where interest rates rise at a reasonable rate in response to economic demand.  If they rise too quickly, borrowing and capital investment will slow down and you run the risk of recession.  If they rise too fast, you have the flip side risk of inflation.  I am going to go out on a limb and assume that the governors of the Federal Reserve are smart enough to appropriately manage this process.

 In an improving economic environment, both home prices and interest rates will increase.   However, remember the phrase “A rising tide lifts all boats”.  An improving economy will also result in more jobs and higher wages, increasing your ability to pay more for a home.  Furthermore, if you will be selling a home, you will benefit by selling your home at a higher price as well.  In this environment, an increase in housing values does not mean that a real estate bubble has returned.  It means that economic strength has emerged and should be a reason for rejoicing.  The skies will be sunny, the birds will sing and your 401Ks should be well funded.

 So, next time you hear that interest rate increases will serve as a new death knell for housing, try not to get caught up in the hype.  Remember that housing prices currently remain relatively low.  Both home prices and the cost of borrowing can only go up at this point.  It is a sign of recovery.  Also, if you are buying a home as a long term investment and find that interest rates are rising above 5% or so, take a step back and look at the historic nature of interest rates.  A spike from today’s rates would still result in exceptionally low historic rates. 

It is now time for another adult beverage.  Pour a full glass and raise it in toast to the expectation of an economic recovery.

Until next time…


Keep kicking the dirt!

 

 

Sunday, September 15, 2013

Walk the Walk


Walk the Walk
I have been questioned by numerous people as to why this blog is called The Dusty Shoe.  The explanation is quite simple.  It derives from a marketing tool called a dusty shoe or dusty boot tour.  That is when tours are given of a site that is still under construction, causing you to quite probably get your shoes a bit dirty.  It also provides an opportunity for a developer to give select sneak peek visits to  highly qualified buyers before the home is generally open to the public.

Now, not every dusty shoe tour is the same.  Think about it for a moment. Wouldn’t it make sense for large estate home tours to be different than lower priced production home tours?  With that in mind, I offer up various branded real estate showcase shoe tours:

The Jimmy Choo Shoe Tour.   A tour of a home in a very flashy area where homes are typically overpriced.   The home will have a lot of bling and be very uncomfortable to live in.

The Wolverine Work Boot Tour.  This is a man cave oriented home tour.  You would expect to see flat screens in every room of the house, including a steam proof television in the shower so as not to miss a sporting event after working all day on the Harley in the Gladiator finished garage work area.

The Tom’s Shoe Tour.  A green oriented home tour focused on minimizing your carbon footprint and giving back to the community.

The Croc’s Shoe Tour.  A tour of a slightly out of fashion, but still very comfortable home. 

The Ked’s Shoe Tour.  A tour of a simple, non-descript home.  Nothing really special about it, but everyone always seems to want one of these.

The Rocky Boots Shoe Tour.  A home tour for the outdoorsman.  You will usually find lots of wood, dark leather and possibly a number of stuffed animal heads in the smoking room, next to the gun rack.

The LL Bean Shoe Tour.  A tour of a wannabe outdoorsman home for the ivy educated yuppie.  What they would envision a hunter’s home to be if they were not concerned with getting the Land Rover dirty.

The Penny Loafer Shoe Tour.  A traditional all-American home tour.  Classical and functional, but not showy or innovative.

The Reef Shoe Tour.  A beach house tour.  Lots of water views.  You can expect to see a number of surfboards in the garage with the kitchen refrigerator full of Coronas.

Well, there you have it.  There is no one shoe that fits every home, or every home tour.  That is the beauty of real estate.  Each home ultimately becomes an extension of its individual owner.  You know the expression.  One man’s trash is another man’s treasure.  You should always be able to find that one home that always matches how you walk, or, more to the point, how you live.

Until next time…


Keep kicking the dirt!

Tuesday, September 10, 2013

Oh, Give Me A Home...


Oh, Give Me A Home…

Time for a pop quiz! 

Question:  When selling your home, when is your home no longer your home?

A:  When the Buyer’s deposit becomes non-refundable.

B:  When all documents are executed and funds transfer.

C:  When they pry your cold, dead fingers off the front door knob.

D:  None of the above.

 
If you answered A or B, you would be considered reasonable.  If you answered C, you should seek immediate psychiatric help.  If you answered D, you would be correct.

You see, you should really consider your home as no longer yours once you decide to put it on the market.  At that time, you need to stop thinking of it as your own possession and start looking at it through the eyes of a buyer.  Let me put it in perspective.  When you sell your car, you wash it, take care of minor dings, maybe have the oil changed and definitely clean off the rust stains on the back seat where your college student put the keg.  The point is, you do what is necessary to make the car, or, in this case your home, attractive to buyers.  In that sense, you need to stop thinking of it as your own.  What you consider as comfortable , others may consider to be junk.  What you consider as memorable, others may consider to be dated.  That cute pink bedroom that you painted when your daughter was four?  You may want to consider repainting it to a more neutral beige to broaden the appeal.  And, please, take down the kid’s drawings on the refrigerator.  Let’s be honest, people looking at your home are not as impressed by your children’s stick figure drawings as you are. 

It is all about how you pay particular attention to the staging of your home.  Instead of showcasing those items that reflect who you are, you may want to consider minor changes (paint is a great equalizer) to give your home the greatest appeal to the broadest base possible.  Also, don’t limit your efforts to the interior.  Remember, your yard and entrance are the first impression a buyer will have of your home.  Spruce up the landscaping, pull the weeds, pressure wash the walkway and make sure the exterior paint is sharp and clean.

Remember, it does not matter if your home looks good to you.  You have to think how good it looks to others.  At this point, it is no longer your home, even if your cold dead fingers are still wrapped around the doorknob.

Until next time…


Keep kicking the dirt!

Wednesday, September 4, 2013

The Ballad of the Developer


The Ballad of the Developer
 
I am driving along and what do I see
A for sales sign, 1,000 acres more or less, stuck on a tree
What good fortune I think, the location is great
A community to build, I now just can’t wait
New homes, parks and schools, all sorts of new places
How great for the town, I envision smiling faces
I engage engineers, planners, consultants galore
This place will be great, my spirits do soar
I meet with the city, to build a special place do I strive
But here come the locals, with fire in their eyes
Your development is not wanted
We don’t want you here
I try to show drawings, but am met with more jeers
I eventually settle, less homes and more trees
I want to work with the neighbors, a vision to please
It soon comes to pass, that all is approved
I have taken my lumps and my bruises, but now dirt will be moved
And the community does grow
It becomes part of the city
The townsfolk now love me, even think I am witty
Then along comes another, to add more of their own
Causing the new homeowners to now let out a groan
How dare you come here, we are fine as we are
To add to the city will just cause a scar
And I grin to myself as the circle is complete
At these new council hearings where I now have a seat
The past becomes present
We all deal with the sentiment
Everyone seems to forget, you can’t thrive without development

Until next time…

Keep kicking the dirt!