Carolina Land Rush

Carolina Land Rush

HOME BUILDING by Jean Gruss | Editor/Lee-Collier

Like many Southwest Florida residents, Bill Ennen was looking for a quaint little mountain retreat in North Carolina where he and his family could cool off in the summer.

But what started as a search for a secluded two-acre lot 18 months ago turned into two planned developments totaling more than 500 acres near Asheville, N.C.

Say this for Ennen: his timing was perfect. Southwest Florida residential sales have slowed significantly and developers are now rushing up to the mountains of North Carolina, Tennessee and Georgia in search of cheap land and eager buyers.

It's not surprising Florida developers such as Ennen, Naples-based Stock Development and Bonita Springs-based Bonita Bay Group have been flocking to the Smokies. Truth is, North Carolina is a hot market because land is relatively cheap and South Florida residents are flocking to the cool mountains during the summer. For example, North Carolina existing-home sales are up 12% in the first four months of 2006 compared to the same period in 2005. That's in contrast to a 24% decline in existing home sales in Florida during the same time.

What's more, North Carolina provides builders geographic diversification as new-home sales slow in Southwest Florida. The selling seasons complement each other well; sales pick up in the summer in North Carolina while they slow in the winter. The reverse is true in Southwest Florida.

Ennen, though, says he's no market-timing genius. "I don't think any of us anticipated it," he says.

But Ennen is good at spotting opportunities. The youngest of nine children, he moved from Minnesota to Florida with a half-empty U-Haul truck in the early 1980s and started working as a laborer for $8 an hour. He rose through the ranks of various homebuilding companies and eventually, in 1993, started his own firm, Florida Lifestyle Homes of Fort Myers. Today, Ennen builds luxury custom homes that range in price from $500,000 to $4.5 million. Last year, he built about 25 homes in Southwest Florida and he plans to double that this year with his recent inclusion as a builder at Verandah, a Bonita Bay Group luxury residential development in Fort Myers.

Stumbling onto opportunity

Ennen jokes that he and his two investment partners - Fort Myers friends Frederick Schaerf and Mike Fink - stumbled into a great deal. They didn't have grand plans to expand in North Carolina and didn't foresee the Southwest Florida real estate downturn.

Ennen visited the Tarheel state over a year ago at Schaerf's urging. Schaerf had purchased a lot near the small town of Micaville, N.C., about a half hour from Asheville and suggested to Ennen they should be neighbors.

Ennen, who had built Schaerf's house in Fort Myers, was immediately struck by the beauty of the surroundings. He paid $2 million for the 65 surrounding lots.

His rationale: How hard could it be to find 10 Fort Myers buddies who would buy three lots each to get away from Southwest Florida's oppressive summer heat? Thus, the Celo Mountain development was born. It will be divided into 32 single-family lots costing $350,000 to $450,000. Sales will begin in September.

Meanwhile, just down the road from Celo Mountain in Burnsville, Ennen and his partners stumbled into another opportunity. This one was much bigger, with several tracts totaling 450 acres. Ennen visited with local bankers for financing and the trio ended up owning half a mountain for about $8 million. "We paid cash for a good portion of it," Ennen says. He estimates it will cost $20 million to $30 million to develop the property and he's working on the plans now for 200 to 300 homes there. The community will be called Mountain Heritage and sales will start in late 2007, with lots costing $300,000 to $1 million.

Looking back, Ennen realizes his good fortune as other developers suddenly swarm the state. "We got in under the radar," he says.

While residential land in Southwest Florida costs $100,000 or more per acre, the most Ennen paid in North Carolina was $30,000 an acre. Generally, raw land in North Carolina costs about $10,000 an acre.

"Burnsville reminds me of Fort Myers 10 years ago," Ennen says. Back then, many large tracts of land were still relatively inexpensive and people were starting to move there in large numbers.

Ennen says he already has 20 prospective buyers from Fort Myers interested in the Celo Mountain development. In addition to Southwest Florida customers, buyers are converging on North Carolina from the East Coast, the Midwest and the Atlanta region. Some have sold their waterfront homes at the peak of the market and want to pay cash for a home in the Carolinas, Ennen says.

Learning curve

Once a month, Ennen and his two partners fly in a private plane from Fort Myers to Asheville, rent a car and drive to Burnsville. Each time they visit, they learn something new.

First lesson: walk the property. Sometimes surveys don't do a good job of identifying lots because of the mountainous terrain. Ennen says he found eight lots in one day walking the Celo Mountain property that did not show up on the survey.

Second lesson: you can't build on a slope that's steeper than 40 degrees, a tough concept for a Florida developer who is used to building on flat land. "The learning curve is pretty intense," Ennen says.

Third lesson: Building costs aren't cheaper in North Carolina.. Trucks can't drive up mountains fully loaded and roads can be impassable in foul weather. Homes can cost as much as $250 to $350 per square foot to build, comparable to prices in Southwest Florida.

While learning to build on slopes and high elevation has been challenging, the permitting process is a breeze compared to Florida's tortuous system. When Ennen visited Yancey County building officials for permits for Celo Mountain, he asked for directions to the zoning department. Ennen recalls one puzzled official saying: "Zoning department? We don't have one." All they wanted was proper documentation relating to electrical and septic systems.

Although he acquired the North Carolina land using limited-liability companies, Ennen concedes that he'll probably start a new company called North Carolina Lifestyle Homes to handle the additional workload. "One of my superintendents can't stand the heat," Ennen says. "He's just biting at the bit to move there permanently."

Still, Ennen doesn't want to rush the projects. "We want to do it slow and do it right," Ennen says. "There's a lot to be learned."

In the footsteps of The Lutgert Cos.

Southwest Florida developers are bumping into each other - in North Carolina.

A group of executives from Naples-based Stock Development was visiting North Carolina recently when they discovered that a crew from Bonita Springs-based Bonita Bay Group had been scouting sites in the same area just the week before.

Stock Development recently bought 560 acres near Murphy, N.C., where it plans to build 400 homes. The Bonita Bay Group is looking for 500 acres or more in North Carolina and is determined to find a site within the next two years. Meanwhile, Orlando-based Ginn Co., is developing a master-planned community in Boone, N.C., called Laurelmor.

Naples-based luxury developer Lutgert Cos. was the first to cater to Southwest Florida customers who wanted to escape to cooler mountain climes in the summer. In the early 1980s, it started developing Linville Ridge near Boone.

Linville Ridge totals about 1,800 acres over an entire mountain. It boasts the highest golf course east of the Rockies; the fourth hole is perched at nearly 5,000 feet. Home sites cost from $135,000 to $1.75 million. About 70% of the 300 residents are from South Florida.

"It's a Floridian country club," says Gary Johnston, Linville Ridge's director of operations.

Johnston, who used to live in Naples, says many of the residents are second-home buyers. He's also seen an increase in purchases using so-called "1031 exchanges," which let property owners defer capital gains taxes when they sell.

In the last five years, Johnston says he's seen an increase in the number of developers and builders scouting sites near Linville Ridge. Some even disguise themselves as potential buyers to pump information from the Lutgert sales staff. "There's not a lot of big tracts left," he says.

The slowing real estate market in Southwest Florida has added new urgency to finding new hot markets. For example, companies such as Stock Development are picking North Carolina to diversify geographically. "It's beautiful, relaxing and very affordable," says Brian Stock, chief executive officer.

Brian Lucas, regional vice president of new market areas with Bonita Bay Group, says he receives calls weekly from existing customers asking about the company's future plans. "Southwest Florida is a destination for people with second or third homes," Lucas says. "They go somewhere else for the off season." That "somewhere else," it often turns out, is in the mountains of North Carolina.

Lucas estimates that the company could fill 40% to 60% of a North Carolina master-planned community with Southwest Florida buyers. "They can't wait to have a Bonita Bay experience in North Carolina," Lucas says.

North Carolina is a second-home market. The winters can be brutal, punctuated by snowfall at higher elevations. Builders don't expect Florida residents to move there permanently, so most of them are targeting second-home buyers.

New residents from Florida even have a nickname: halfbacks. The term refers to northerners who retire in Florida but move halfway back to the Carolinas because they prefer the cooler mountain climate.

Developing land in mountainous North Carolina presents new challenges to Florida builders who are used to flat land. "I have a newfound respect for survey crews," Lucas says. "They put on 30- to 40-pound backpacks and hike up thousands of feet of elevation."

Stock says the key is to hire experts from the region to design the site plan. "The challenge is you're dealing with rock and mountain," he says. The hardest part is to map the streets to maximize the number and size of the lots, which is not an easy thing to do when you're dealing with steep slopes. In addition to the homes, Stock's project will include nature trails and a lodge with a giant stone fireplace and a panoramic view of the surrounding mountains.

Spreading operations beyond Florida's borders now requires travel back and forth. Stock has hired permanent staff in North Carolina to oversee the project, but the sales manager still travels to and from the state.