land development INTERVIEW
Patience Pays Off Written by Janis Arnold Jake Wagner is Co-President of the Dallas-based Republic Property Group, a master-planned development companywhich was founded by Rick Strauss in 1967. Wagner has been with the company approximately 8 years and oversees 3 long-term projects that have been in production since the late 1990s. Wagner feels very fortunate that, going into the late 2008, 2009 years, his company was in a great position with the projects that they had underway or on the drawing board. This certainly made recovery from the downturn an easier proposition. His group is also fortunate in that they have excellent business partners. Wagner sees this as crucial to the company’s long-term success as the CRE market tends to cycle approximately every 7 years or so. Essentially all master-planned community development occurs within time frames that are measured in a minimum of 10-14 year periods. Republic Property Group’s relationships with other professionals in the industry is essential to the company’s ongoing vitality and continued growth. Lantana Project, which started in 1999, delivered its first phase of lots in mid 2001, right before September 11. The company successfully weathered the aftermath of that event, with the result being that today, Lantana (1,700 acres) is three quarters built out, and has weathered the 2008-09 recessionary period. Wagner notes that his master-planned development company wouldn’t have been able to make it through these business and economic cycles without very patient strong partners, including equally committed equity partners and lenders. Two projects that came after Lantana were Light Farms (900 acres) and Phillips Creek Ranch (950 acres). Wagner says, “Since we were in such a strong position with regard to Lantana during the downturns, we have been able to capitalize on distress opportunities rather than spend our time working through current problems, as unfortunately many others had to do. We purchased Light Farms real estate in early 2007, and then we purchased Phillips Creek in 2008. Last year we were able to begin development on both of those projects. During that same time period we evolved into a company developing one project, Lantana, into one of the largest residential developers operating in today’s business community.” Wagner believes that master-planned communities provide enhanced value in the form of high quality amenities and the strict architectural and community guidelines that are in place in regard to the houses built within these communities. He sees this as significantly contrasting to houses that are built by one or more groups of builders working within subdivisions. Although many of the subdivisions built today have many nice amenities, the controls in masterplanned communities are not in place regarding the types of homes that can be built within the development. This fact becomes even more significant during a financial downturn. At that point, a buyer looking toward a new home purchase is more likely to be impressed by the value control built into today’s master-planned communities.
24 redNEWS.com
Architecture and design are constantly evolving and changing. As a general rule, homes built today are significantly more energy efficient that homes built even five or ten years ago. While today’s buyers love the idea of energy efficiency, given the choice, home buyers are going to pick the granite countertops over the tankless water heater nine times out of ten. Of course builders are much better at explaining the long-term value in the form of home operating costs that come with the ‘green’ extras. And, actually, many of the features that ten years ago were considered ‘extras’, are standard for the builders’ homes in Republic Property Group’s planned communities. In terms of capital available for development today, there is more equity at the present time and lenders are once again interested in getting involved with residential developments. In Wagner’s company’s case, Republic Property Group has never been a group that shops different lenders and compares rates and tries to leverage something up as much as possible. They have a history of being much more conservative, primarily because of the long-term nature of their projects. Wagner notes, “We’ve got really great equity partners and some really strong loyal lenders that we work with on an ongoing basis. During the downturn, our lenders worked through issues with us.” Although Wagner is very happy with the three large projects his company is involved in, he is interested in ‘growing the company’, and so is always looking for opportunities and new potential projects. This means that they are looking for very large pieces of land based upon where the land is located and when they find a tract, they analyze the site’s readiness for development. In today’s market, builders are buying land to develop, and with more companies wanting to get into the business, this increase in competition is driving land prices up. Recently, several large tracts sold for significantly higher prices, causing regional large tract landowners to increase their asking prices to equally high top dollars. Some tracts can support the higher land prices, but others likely cannot, so feasibility has to be evaluated very carefully. All developers are aware of the fact that interest rates are going to increase at some point in the near future. When that happens, the ability of buyers to qualify for loans is going to be impacted. Wagner sees the increased competition and the interest rate fluctuations as already impacting the land market. Some of the frenzy to sell land at ever increasing price points is beginning to diminish in some areas.
In today’s market, builders are out there buying up land to develop, and there are more companies wanting to get into the business, and this increase in competition is driving land prices up.