Is there ever such a thing as a “friendly foreclosure?”
That’s how developer Hal Perry describes the recent transaction in which Wells Fargo took back roughly 90 acres in the Granite Falls development in Rolesville.
Granite Falls is part of a cluster of communities that Perry began developing in the northern Wake County town in the early part of the last decade. While the communities, which also include Granite Ridge and Granite Crest, have different ownership groups Perry is the common denominator in all of them.
Perry calls Granite Falls a friendly foreclosure because he, his fellow investors and the bank all ultimately concluded that it was the best way out of a bad situation. There was also no deficiency on the loans, Perry said, meaning the nearly $5.5 million Wells Fargo bid to take back the properties covered the outstanding loan balance.
Of all the Granite communities proposed in Rolesville, Granite Falls was to be the priciest, with homes on its 170 lots expected to sell for anywhere from $375,000 to $450,000. Granite Crest, by comparison, was to offer homes priced between $225,000 and $270,000, and Granite Ridge townhomes beginning at $129,000.
In 2007, Perry’s group sold 20 lots in Granite Falls to builders for $73,000 each. Shortly thereafter the market went into freefall.
While all segments of the new-home market suffered initially, the upper end of the market has remained depressed the longest. That is particularly true in places like Rolesville, which saw a wave of new construction during the boom years but has not traditionally been known for its inventory of high-end homes.
Granite Falls’ problems were compounded by the fact that smaller, local builders were expected to take down many of the lots. Those builders have been crushed by the downturn, with many going out of business.
“Unfortunately, I think the days of the small builder who builds anywhere from four to 10 or 12 homes a year at most, they’re pretty much going to go by the wayside,” Perry said.
As sales dried up, Perry and his investors debated how best to move forward. The builders that had bought the initial 20 lots in Granite Falls were, not surprisingly, having more success building more affordable homes even though it ate into their profit margins.
Perry believed the ownership group also needed to adjust to the new market conditions and discount lot prices. To sell homes in the $300,000 to $325,000 price range builders need to realistically be paying $52,000 to $55,000 a lot.
“That’s when it gets hairy and it takes longer to pay out,” Perry said.
Further complicating matters was the fact that there were no parties interested in developing the commercial property in Granite Falls. Ultimately, the investment group wasn’t willing to reduce the lot prices and instead decided to work with the bank to find an exit.
Perry remains part of the ownership team in Granite Crest and Granite Ridge, where the drop-off in sales activity has not been as dramatic or as enduring.
“The momentum slowed greatly but it didn’t come to a screeching halt,” he said.
About 150 homes have been built on Granite Crest’s 202 lots. In Granite Ridge, about 65 townhomes have been built and the community has room for an additional 150.
The centerpiece of the Granite communities is the Granite Falls Swim and Athletic Club, which cost more than $12 million to build and opened not long before the market tanked. While Perry admits the timing of the investment rattled some nerves, including his, the facility has turned out to be a major selling point for the communities. Perry said the club now has more than 1,800 members.
As for Granite Falls, Perry is hopeful that a regional builder that has shown interest in the property will buy it from Wells Fargo.
“The way I look at it, life, particularly in the last few years, is all about give and take and tradeoffs,” Perry said. “You’ve got to decide what your resources will allow you to do.”