Real Deals

Real Deals: Wendell Falls sale the latest sign of housing market optimism

dbracken@newsobserver.comOctober 23, 2013 

With its purchase of the Wendell Falls residential project this week, Newland Communities has essentially doubled down on the Triangle housing market.

Newland, already a co-owner of the 900-acre Briar Chapel community in northeastern Chatham County, is behind two of the largest master-planned residential projects in the region.

In the case of Wendell Falls, Newland’s investment is the latest sign of residential developers’ long-term optimism about the Triangle. Covering 1,400 acres, the project has room for 4,000 homes and was ambitious even when proposed in the midst of a housing bubble.

Such a large-scale project has never been attempted in eastern Wake County, an area that has not experienced the intensity of development as other areas of the Triangle and has traditionally offered more affordably priced new homes.

“Obviously it is an unproven market for that type of volume,” said Bill Mumford, vice present of development for Newland. “In order for us to have a build-out of 10 to 12 years, we need to get to well above 200 annual lot sales.”

That Newland believes it can speaks to its expertise in doing large-scale, planned developments – the company’s master-planned communities in the U.S. range in size from 500 acres to as large as 20,000 acres. The deal also shows how a lack of available lots for homebuilders is leading to more new construction in places that five years ago seemed unmarketable to buyers.

The residential developments hardest hit by the housing crash were those on the edges of the Triangle and furthest from the region’s job centers. Many of those projects suffered a similar fate as Wendell Falls – they went bust, were taken back by the lender and eventually sold at a severe discount.

While new home construction has not returned to normal levels, homebuilders today have picked clean the desirable lots left over from the boom years. But the pipeline of new lots has been slow to refill, in large part because lending continues to be tight for land development.

Diminishing lots

The Triangle had just over 23,000 lots on the ground in the third quarter, the fewest number since the first quarter of 2007, according to Metrostudy, a research firm that tracks Triangle housing trends.

That translates to a 31-month supply of lots at the current pace of sales, which is down from a 50-month supply during the third quarter last year.

The lot shortage has become particularly acute in places such as North Raleigh and western Wake County, which were the first to bounce back after the crash. The Cary/Apex/Morrisville area, for example, had just a 12-month supply of lots in the third quarter, well below the 20-month supply that is considered normal for a market.

As lots become more scarce – and more expensive – in established areas, those further out become more attractive.

Newland began selling lots in its Brier Chapel community in Chatham County in the fall of 2008, just as new home construction was grinding to a halt.

“How many people several years ago wanted to move to northern Chatham County,” asked Mumford, noting that the development is about an hour commute to Raleigh. “Would they see that as too far out, too rural?”

Today Briar Chapel has more than a hundred residents and has become one of the top-selling new communities in the region. “Considering we opened up in absolutely the worst economic market, I’d say we’ve been extremely successful,” Mumford said.

Selling its vision

Wendell Falls, with its own interchange off U.S. 64/264, will offer prospective buyers an even shorter commute to the Triangle’s job centers. And in rebooting the project, Newland has the luxury of having paid just $34 million, a significant discount given what’s already been spent on the project’s infrastructure.

For an example of how such bets can pay off, look at the 12 Oaks community in Holly Springs.

Walton Street Capital, a Chicago private equity real estate firm, acquired about 600 acres in 12 Oaks for $29.3 million in May 2012 after the project had been taken over by a court-appointed receiver. The development, which has nearly 1,400 home sites, has a waiting list of builders eager to construct houses in the subdivision.

Still, Newland will have to sell buyers on its overall vision for the project, and convince them that it can turn Wendell Falls into a destination. The company plans to do market research in the coming months to determine what types of homes will be initially offered. No date has been set for when construction might begin, Mumford said.

Over the next decade, Newland is also likely to face competition from other master-planned communities in the works. Preston Development of Cary is planning Chatham Park, a 7,120-acre development in Pittsboro that would include up to 22,000 residential units. There’s also the Lookout Ventures project Veridia, a commercial and residential development in Apex that is expected to cover more than 1,000 acres and include 8,000 homes.

Mumford said that, while location is clearly critical to the success of any large-scale residential project, oftentimes it comes down to execution.

“I think a lot of that honestly boils down to how well the community is designed, planned, developed and executed,” he said.

Bracken: 919-829-4548 or dbracken@newsobserver.com; Twitter: @brackendavid

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