A bet against the cycle

A bet against the cycle

HOMEBUILDING by Mark Gordon | Managing Editor

At least one development company sees the positive in Gulf Coast homebuilding. It's walking out that vision with a $50-million land buy.

When longtime Florida land developer Don Whyte was chatting up the thousands of acres inside FishHawk Ranch in southeastern Hillsborough County to potential partners, he thought he might be able to sell 250 lots a year, at most.

And for the Canadian-born, civil engineering-trained Whyte, even 250 lots a year was an optimistic bet.

That was in the early part of the decade, though, before the run-up in the Florida, and nationwide, residential housing division. Whyte, through Newland Communities, the San Diego-based real estate development firm for which he runs the company's southeast U.S. market, ended up selling 700-plus lots for two straight years, 2004 and 2005.

Things were so good, Whyte's biggest worry became making sure the company had enough lots to sell and could find enough qualified builders to build.

It was typical Florida boom fare: Overworked staff, constant contracts and, of course, a sizable revenue boost. What isn't typical, however, is Whyte's response to the current downturn - 2007 is primed to be the company's worst year, he says. Although the privately held company doesn't release revenue numbers, FishHawk might not even reach 150 in lot closings this year, well off its peak.

"The good news," says Whyte, "is that all this will come to an end sometime."

In the meantime while the real estate cycle spins downward, Newland isn't scaling back any of its developments or land purchases, as some others are doing that are short of necessary capital as a result of the downturn. Indeed, on May 25 privately held Newland closed on a $50 million dollar deal to buy 1,129 acres from Pulte Homes to expand its FishHawk Ranch, already one of the biggest, and fastest, selling communities in Greater Tampa.

The deal with Pulte, for property surrounding Lake Hutto, just west of FishHawk's 4,600 homes, also calls for Newland to pay for about $72 million in roads and a $3 million addition to a nearby high school. The developer will also provide 50 acres for schools and a park.

What's more, the company isn't laying off any of its 70 Gulf Coast-based employees. The company actually plans to hire several more employees for new projects in Tampa and a possible new one in the Orlando area.

"While our sales are down now," says Whyte, "our future sales won't be there unless we produce lots."

Long-term planning

Newland isn't the first, or the only, Gulf Coast developer or homebuilder to buy land for homebuilding during a downturn - count Pat Neal and Lee Wetherington in Manatee and Sarasota counties as examples of two builders who've done that often. But the large amount Newland paid for the land and the timing - some economists say there is still as much as 18 months left in the downturn - adds greater risk to the equation.

"We are being counter-cyclical," says Whyte, "and the lot development we are doing now is for one to three years away."

Bloomfield Hills, Mich.-based Pulte, one of the biggest homebuilders in the country, contacted Whyte and Newland a few months ago, looking to unload the property. The timing worked out for both companies - one is seeking to expand, the other is seeking to shrink.

Just like several other large homebuilders, publicly traded Pulte announced a corporatewide restructuring plan May 29 that it hopes will save it $200 million. It's cutting about 2,000 jobs, or 16% of its workforce. Some of the lost jobs will come from the Gulf Coast. Pulte is consolidating the Sarasota-Manatee office with its division office in Naples.

The former Pulte site was planned at about 3,200 homes and Whyte says Newland won't exceed that number. The company might look to add more lower-priced homes and there is space available for retail and office, too. Construction could begin by late next year.

Lots of capital

While FishHawk Ranch isn't Newland's biggest project in the southeast U.S. by sheer acres, it's the company's most well known in the Tampa area. It's built around the idea of providing residents places to eat, work, play and live, all within a few miles of each other - strategy also seen in Lakewood Ranch, a bigger master-planned community 40 miles to the south in eastern Manatee County.

Other Newland projects in the Gulf Coast include Bexley Ranch, its biggest community, in Pasco County and MiraBay, Covington Park and Waterset in Apollo Beach. Says Whyte: "We believe very strongly in the Florida and Georgia markets. All the fundamentals for people to move to Florida remain strong."

Nationwide, the company believes the housing market will rebound sharply in other areas, too, and it hasn't been shy about backing that up with large land purchases. It recently bought 2,700 acres in Arizona, outside Phoenix, for $62 million, for example.

Whyte, who has been working in Tampa development since the mid 1980s, says the parent company's willingness to spend is its biggest competitive advantage. "Our industry," says Whyte, "takes a tremendous amount of capital."

All together, Newland has nearly 40 communities in 14 states, making it one of the largest master-planned developers in the U.S. Going back to 1999, one of the company's biggest financial supporters has been the California Public Employees' Retirement System (CalPERS), the largest pension fund in the country.

Whyte recognizes there are several big-picture challenges that could thwart the company's optimistic future plans. Those include topics on the minds of many executives in many industries, such as property taxes, insurance and hurricanes.

And Whyte, who's served as the Builders Association of Greater Tampa's president and was the group's Builder of the Year in 2002, also says impact fees could have a negative impact on Newland, and the entire industry. "They are a concern," says Whyte, in that in many of the cases he has first hand experience with, "they are not justifiable."

The developer is active with the Urban Land Institute and recognizes infrastructure and roads are a pressing concern; he lists that challenge as his number one concern. But he says there should be a middle ground between what governments say they need and what builders and developers should pay.

"It should match up with what the impact is," says Whyte. "They are called impact fees for a reason."

REVIEW SUMMARY

Business: Newland Communities

Industry: Homebuilding

Key: Newland Communities is investing more than $50 million in land in the Tampa-area for future developments.

GOING WEST

Don Whyte is confident the Gulf Coast housing market will bounce back in a strong way. Only the head of the southeast U.S. market for San Diego-based Newland Communities won't be around to see it.

Whyte is leaving the Tampa-based Newland office at the end of June to move to Salt Lake City, where he will become president of Kennecott Land Co., a development firm building a massive master-planned community on 92,000 acres outside the city. Whyte says the project is in the second year of a 50-year plan. "It's a very attractive circumstance," says Whyte, and "a very exciting opportunity."

Newland's corporate office hasn't named a replacement yet for Whyte, but the executive says the company is in good shape, as each of its Tampa-area communities has a vice president in charge of daily operations.

- Mark Gordon