Few sectors of the housing market have suffered greater over the past five years than small and midsize homebuilders.
When the housing market began to deteriorate at the end of 2007, many builders found themselves with too many lots and homes they could not sell.
Their cash-flow problems coincided with a severe tightening of lending by banks. While the big national builders were thrown a lifeline by a change in the tax code that allowed them to recoup a huge chunk of previously paid taxes, the smaller operators found themselves at the mercy of their lenders.
Rich Van Tassel of Royal Oaks Building Group is one local builder who was somehow able to manage through the crisis and then take advantage of the opportunities left in its wake.
Today Royal Oaks is building homes in nine communities in Apex, Holly Springs, Fuquay-Varina, Knightdale and Fayetteville. Two of those communities, Holland Farm in Apex and Forest Springs in Holly Springs, are developments that Van Tassel bought out of bankruptcy.
Van Tassel, 43, launched Royal Oaks in 2002 after years running a company that built decks and framed houses. By late 2007, when the market began to deteriorate, Royal Oaks was building homes in eight communities, and its annual home sales were approaching 150.
Although Royal Oaks built houses priced between $150,000 and $600,000, the high end of the market represented a smaller percentage of the company's sales.
When the market began to turn, Van Tassel moved quickly to unload the pricier stuff.
"I didn't mess around," he said. "I started liquidating."
That meant slashing prices by up to $20,000 on some properties, a discount that has become commonplace now but which was not done by many builders early on. Royal Oaks also cut its staff from 24 to 14.
Van Tassel didn't know it at the time, but his increased focus on the lower end of the market put Royal Oaks in a position to benefit from the first-time homebuyer tax credit, which was first offered to buyers who bought homes after April 2008. That year, the company sold 140 homes, mostly to first-time buyers, and lost money on 19, Van Tassel said. "We made enough on the 121 to cover our losses and get in the black."
Just as important, those sales provided the company with enough cash flow to keep it in the good graces of its lenders. In recent years, Royal Oaks' sales have hovered around 150, and this year Van Tassel said the company has sold, or put under contract, 215 homes. The company's employee count is also back up to about where it was in 2007. While many smaller builders gripe about their inability to get financing, Royal Oaks works with a number of banks, including BB&T, RBC and First Federal. Van Tassel said those relationships look nothing like they did five years ago.
He submits a stack of documents to the lenders every quarter detailing the company's cash-flow situation, something that would have been unheard of five years ago.
Royal Oaks has also had to adjust to selling new homes in a market where many existing homes are being sold at severely discounted prices. And then there's the challenge of trying to restart communities that were frozen in time when the initial developers ran into trouble.
When Royal Oaks took over Holland Farm, only 18 of the community's 61 lots had homes on them. The grass was waist-high, and the homeowners association was in disarray.
The company has since sold or put under contract 29 homes. Most of the models being offered in the community include three-car garages, something that many families want but which are hard to find in older homes.
Van Tassel said the first dozen or so sales in a restarted neighborhood are always the toughest. Existing homeowners worry that the new builder will offer an inferior product, and prospective buyers are concerned about the community's prospects for completion.
But Van Tassel found that there's one thing above all else that seems to reassure all those involved.
"The biggest thing you can do to prove your financial viability is put the pool in," he said.
Holland Farm's pool and clubhouse are expected to be completed by May.
