Patient Money

Patient Money

REAL ESTATE by Jean Gruss | Editor/Lee-Collier

In this real estate downturn, developers need two things: patience and money. The Kuttemperoor family

has both and they're out to prove it with engineered precision.

The Kuttemperoor family appears to have done everything right. Now, if only the economy would cooperate.

The family owned company, V.K. Development Corp., is developing Treviso Bay, a 1,050-acre luxury residential community on the outskirts of Naples heading east to the Everglades on U.S. 41. The Kuttemperoors already have invested $200 million into the development that features the only golf course in the region with the Tournament Players Club imprimatur, an arm of the PGA of America.

Unlike so many northern predecessors, V.K. Development is anxious to show that it's not another Midwest developer caught up in the manic swings of Florida real estate. If they time the market right, their development could lead the way out of the slump.

Vincent Kuttemperoor, the Indian-born patriarch of the family, has been in the home-construction and development business for nearly four decades in Wisconsin. His two sons, Ajay and Sanjay, work with him in the business. "One thing we learned is that in real estate you need a lot of patience," he says. The elder developer has been through this before. "I have seen the Jimmy Carter presidency and I know 21% on prime."

Already, another V.K. project in Lee County has been shelved after the real estate market there slowed dramatically. V.K. planned to develop a project called Cape Vincent, which consisted of two residential towers with shops on 12 acres in downtown Cape Coral. Now, it will sit on the land and wait for the market to turn, though in Cape Coral that could take another two years.

By contrast, Vincent Kuttemperoor says Collier County is in a better position to weather the storm because it attracts wealthier entrepreneurial people who are not as affected by the swings in the economy. He laments the fact that some observers lump all the good and bad real estate markets in Southwest Florida together. "In this market, everyone is using the same broad stroke," he complains.

Although Vincent Kuttemperoor says he didn't anticipate the sharp real estate decline, he says he has seen signs of a market recovery in the form of higher traffic and sales. "We're just coming on line at the tail end of the cycle," he says.

This isn't just Kuttemperoor wishing it were so. Other builders and developers have been saying the same thing lately, including longtime Florida builder Arthur Rutenberg and luxury homebuilder Robert Toll. Rutenberg suggested the new-home market has hit close to bottom (read the interview in the April 4 issue of the Review). And Toll, the chief executive officer of Toll Brothers, one of the country's largest luxury home building companies, gave Naples an "A" grade recently. He noted that other areas of Florida were still stuck in "F soup."

From hotel to land

The Kuttemperoors almost didn't develop Treviso Bay.

They visited Florida in 2002 to buy a hotel in Bonita Springs in south Lee County. While they were checking out the rooms, a broker showed them a 1,050 parcel near Lely Resort, a sprawling residential community southeast of Naples. "We're from Wisconsin," Vincent Kuttemperoor remembers thinking. "We shouldn't be developing 1,000 acres in Naples."

But Vincent's son, Sanjay, had joined the company in 1995 and he had successfully spearheaded a 438-acre mixed-use development in an area between Chicago and Milwaukee. Treviso Bay was a new opportunity for him to grow the business.

With Sanjay available to oversee a new project in Naples, the Kuttemperoors acquired the land for Treviso Bay and started development. "We have spent over $200 million on what you see out there today," Sanjay Kuttemperoor says. The project is financed by the Kuttemperoors themselves and with bank financing from Wachovia and M&I Bank. They also sold $65 million of community development district bonds in May 2006, before the credit crunch made such deals nearly impossible.

At the heart of the development is the agreement they made with the Professional Golfers' Association of America, better known as the PGA. It is building the only golf course with the Tournament Players Club (TPC) stamp, an exclusive branding that brings with it the PGA's seal.

Under the deal with PGA, V.K. hired the nonprofit pro golf group to manage the construction and operation of the course and club and pays it royalty fees with each lot sold. The PGA brand is expected to bring speedier sales.

The TPC cachet is sure to help sell homes at Treviso Bay. The first PGA tournament will likely be in 2011, says Bill Delayo, the course's general manager and director of golf.

"For some, it's a case of bragging rights even if they don't golf," says Anthony Wilson, who is in charge of community sales for homebuilder Taylor Morrison at Treviso Bay. The builder has recorded 15 sales and hopes to sell another 25 by the end of the year.

So far, V.K. has sold $36 million worth of lots to builders, including Taylor Morrison. In Treviso Bay's first selling season this year, builders have built 50 homes valued at $70 million and sold about half of them. At build-out, Sanjay Kuttemperoor estimates the value of the community at $2.5 billion.

"If we can create something unique, we have a greater chance to make it successful," says Vincent Kuttemperoor.

Patience is key

Like the stock market, it's hard to say when the rebound in residential real estate will firmly take hold. But if Kuttemperoor is known for one thing, it's his patience. The Kuttemperoors estimate it will take about eight years to sell the 1,200-home community.

Unlike some competing developers, V.K. has not lowered lot prices, nor does the family intend to. Builder Taylor Morrison won't budge on the base price of its homes and it guarantees new homeowners it won't lower them later. It delayed the construction of the community's 58,000-square-foot clubhouse for a year, but it saved 25% by asking for new bids.

Patience is an essential ingredient to success in real estate, says Vincent Kuttemperoor. For example, his family purchased 300 acres on Lake Michigan in 1986. But the timing for development wasn't right at the time. So the family sat on the land and got an opportunity to buy another 600 acres adjacent to the property a few years later. They're only now beginning to plan for a new community there, more than 20 years after the original purchase.

"Growth has to do with vision and execution," Vincent Kuttemperoor says. "Money is not always the answer." The company is privately held and the Kuttemperoors decline to cite revenues or other financial data.

"We did not plan for this slowdown but we can survive," Vincent Kuttemperoor says. "In 35 years, we have never walked away from our commitments."

Engineered to build

Vincent Kuttemperoor arrived in the U.S. from India in 1962 at age 22 on a scholarship to study at the University of Detroit and his biggest ambition in life was to become a university professor.

Kuttemperoor got a masters degree in physics with a specialty in nuclear engineering and began teaching in Milwaukee. But when he and family looked for a house in the 1970s, they found they couldn't afford a well built home on a professor's salary.

So the Kuttemperoors built their own house in 1976. It went so well that they sold that one for a profit and built a second one. "That's when we started in home construction," he recalls.

In 1978, Kuttemperoor quit teaching and bought 100 acres in 1979 in a suburb of Milwaukee. It was the area's first residential community that had amenities such as a clubhouse and playground. "That was a hit at the time," he says.

Kuttemperoor got started by borrowing money from his brother, who was a cardiologist. His initial homebuilding success and the unique residential development he was planning at the time made it relatively easy to obtain bank financing, he says.

Although he started in academe, Kuttemperoor says he got his entrepreneurial education when he was a child. He learned from his father who was a real estate developer and politician in the Indian state of Kerala, at the southwest tip of the country.

Looking back, Kuttemperoor says he knew the risks of striking out on his own. "There is no reward without pain," he says, adding, "I knew that I could make it work."

Spoken like a true engineer.

REVIEW SUMMARY

Company. V.K. Development

Industry. Land development

Key. Patience and money are two ingredients developers need to last through the real estate slump.