Builder- March 2009 - (Page 28) INSIDE STORY And that strategy is working: LGI received, on average, 95 prospect calls per week in 2008. Unlike other builders, which have reduced their sales staffs and office hours, LGI has five to seven sales reps per subdivision. Each of the sales offices is open from 8:30 a.m. to 8 p.m., seven days a week. Every salesperson goes through 30 days of corporate-culture indoctrination and 90 days of sales training before he or she speaks to a customer. Through its affi liation with Interlinc Mortgage, LGI can place a loan officer at each subdivision to guide renters through the ownership process. LGI pre-qualifies all prospects before they ever see a house, and most customers buy with either an FHA or USDA rural development loan. Snider says LGI is closing its customers within 30 days of their purchase. LGI Homes purposely bought enough land in its three subdivisions to build between 700 and 900 units in each, which means it has enough land to meet its construction and sales goals for the next two years. “We believe we have a story to sell, a story that needs to be told, and a story that will allow us to grow,” says Lipar. By raising $10 million from private equity sources, Lipar says his company is gearing up for what he anticipates will be “lots of opportunities” to pick up distressed property taken over by banks “for 20, 30, 50 cents on the dollar.” The builder will open two new communities this year, and neither Lipar nor Snider seems worried that the housing recession could linger for a couple more years. “Apartment rent and occupancy [rates] are on the rise,” says Snider. “So we believe the downturn is positive for our business.”—J.C. ALTERNATE INCOME Outside the Box Light-commercial work is providing new revenue streams during the downturn. s housing demand remains slack, builders are searching for alternate revenue sources until market conditions improve. A growing number of builders seem to be moving toward light commercial, as evidenced by the doubling of the membership in the NAHB’s Commercial Council last year. Three builders whose companies generate income from commercial and rental properties they’ve developed told a large and attentive audience at the International Builders’ Show in January that this sector can be profitable and could be ripe for upgrading or transforming aging or closed retail centers. The panelists—John Piazza, who owns the custom builder Piazza Construction in Mount Vernon, Wash., which has done commercial work for decades; Dick Rokes, a former Seattle-area condo builder whose portfolio now includes 14 mini-storage facilities, two retail strip centers, and a car wash; and Elton Parsons, a Kansas-based developer and consultant—shared timely advice on how builders might get started in commercial construction, finance those projects, market their services, and choose investment partners. Builders should start small, advised A the panelists. Piazza said he began by building a duplex a year, which evolved into building fourplexes and, more recently, a 200-unit office complex. He and Rokes recommend that builders retain ownership of some of their projects for rental income. Parsons cited opportunities that include constructing medical complexes for cashflush doctors, and schools for expanding smaller communities that the builder might lease back to the school district. Recently, he’s been fi xing up and leasing back convenience stores, from which his projected payback is 36 months on the rehabs and 12 years on the purchases. Financing is any commercial builder’s greatest challenge. Rokes, who started his own community bank, said builders must present banks with a compelling loan package steeped in details about the scope of the project and its anticipated return on investment. The panelists also seem to favor joint ventures. “People with land and money are rarely builders, and they are looking for your expertise to get their projects off the ground,” said Parsons. “I’m a big fan of OPM,” said Piazza, as in Other People’s Money. Whenever his company gets involved with other partners, he asks for the creation of a limited liability company in which Piazza Construction owns 55 percent. This way, his construction company can manage the project and divert its liabilities to the LLC. A builder in the audience asked Rokes, who has had success building and refurbishing strip malls, about getting into that sector when thousands of retail outlets are closing. Bloomberg.com recently quoted the retail consultant Davidowitz & Associates, which expects another 12,000 retail stores will shut down in 2009. Rokes sees an opportunity for turning lemons into lemonade. “There’s going to be a lot of retail that goes out of business and will need to be turned back into a vanilla shell” in order to be re-leased. Rokes and Piazza also like the ministorage business for alternate income. “Every builder here can build a mini-storage facility,” said Rokes, for which financing is “relatively easy” to obtain. Piazza said several of his tenants are running their businesses out of units in his mini-storage facility, with each paying $300 in monthly rent, excluding power. Mini storage isn’t recession proof, conceded Rokes, “but you can do fairly well in a recession with them.”—J.C. GOT AN INSIDE STORY? E-MAIL JOHN CAULFIELD AT: jcaulfi eld@hanleywood.com 28 ■ B U I LD E R m a rc h 2 0 0 9 W W W.BUILDERONLINE.COM http://www.Bloomberg.com http://WWW.BUILDERONLINE.COM
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.