Shifting sands: a Florida builder watches the direction of the wind as a golf-course community wavers between empty-nesters and family buyers.
The development was exactly what its joint venture partner, which considered Madison Green "the perfect land situation to do a lifestyle-oriented project," would have expected.
But when Shelby opened its community in 2001, it found itself in a slightly different place than it had anticipated. Empty-nesters were interested in Madison Green, but so were lots of families, drawn to the large, moderately priced homes offered by fellow builder Minto Homes in the development. The family traffic could have been an unexpected boon for the builder--but Shelby had little to offer them. "It was a classic case where the market research missed a trend developing in the market," says Tom Bruin, president of California real estate investment firm Hearthstone, which financed the $50 million project.
Shelby's sales challenges at Madison Green didn't reveal themselves right away. While sales at the development were slower than planned, given the strong demand for housing in Palm Beach County, there was a logical reason: For the first six months, the builder was selling the community off site, without the benefit of the model homes expected by Palm Beach buyers.
But the pace stayed sluggish even after the models opened, raising concerns. Shelby, which projects 300 closings and $120 million in revenue this year, knows Florida, having constructed everything from $100,000 townhouses to $3 million custom homes. But something was off at Madison Green.
"The market went through a metamorphosis," says Robert Shelley, Shelby Homes' president. "We were doing well with the empty-nesters, but we just weren't capturing enough of that (family) market." And that family market represented 75 percent of traffic to the development. Attracted by Minto's family-oriented product, these potential customers visited Minto first and then stopped by Shelby's sales office to see what else was available. But stop by was all they did.
Telephone storeys with those who visited and didn't buy revealed the problem: too little space and excessively formal merchandising that didn't appeal to family buyers looking for more casual living. "They didn't feel it was a home they could raise children in. It was too stiff," Shelley says. "The model design was beautiful, but they were intimidated by it."
Armed with new information about its buyers, Shelby Homes took a new approach. At a cost of $75,000, it redecorated its two, two-story models, adding family-friendly features such as kid-themed rooms. But the effort didn't create the sales momentum the builder had hoped for among these customers, who were looking for bigger homes at lower cost-per-square-foot prices. Who was buying? The long-awaited empty-nesters, who turned out to be a minority of the traffic but a majority of the buyers.
CLARIFYING THE VISION
As disappointing as the slow family sales were, they ended up clarifying the vision for the community. "We had thought we'd do a little of each," says Shelley, referring to both the empty-nester and family segments. "But you cannot be all things to all people."
So, in its newest model complex (which opened in early 2003), the builder renewed its focus on the group it had targeted in the first place: the mature buyers, with adult children who had left the home. It built four new models, three one-stories and one two-story with a first-floor master bedroom. Shelby also upgraded the homes' features, adding dens, larger family rooms, more spacious kitchens with islands, bigger pantries, and more counter space. It added a walk-through shower and floating tub to the master bathroom.
The shift in buyer attitudes among mature customers toward the builder's product occurred almost immediately. "People started to feel like they could live in the house, that they were coming home. They had the feeling that they could just put their clothes in the closet," Shelley says.
Sales have picked up along with the energy. After languishing at three or fewer sales per month, that figure has hit half a dozen sales each month. Prices have increased, too, with homes now selling in the mid-$300s. (Opening prices were in the mid-$200s.) Given the current velocity, Shelley says the community will be completed within three to four years--a process that would have taken considerably longer if Shelby Homes hadn't been paying attention to the subtle, yet significant, changes in its market.
"The most important thing that every builder has to do is respond to market conditions and not let your ego get in the way," Shelley says. "You have to react immediately. If we didn't match [the market shift], this could have turned into a six- to seven-year project."
Re-engineer a sluggish subdivision
* Evaluate your buyer traffic. Are you seeing enough potential buyers to achieve the absorptions yon want? Does their income qualify them to buy your homes?
* Consider your conversions. If you're seeing the traffic and demographics you Expected but not the sales, then price is your problem, says Tom Bruin, Hearthstone's president. Reconsider what's in the home and what you're charging.
* Talk to those who didn't buy. Find out what potential buyers liked and didn't like about your offerings through exit at telephone surveys. Use those results to formulate a new sales plan.
* Do what's necessary to energize sales. Don't cheap out when implementing your revised plan, whether it involves building new models, redecorating old ones, or creating new marketing materials. "You've got to spend what it lakes," Bruin says. "By setting a ceiling, you're limiting yourself. If you'd spent another $50,000, maybe you would have gotten it right."
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|Title Annotation:||Market Matters|
|Date:||Oct 1, 2003|
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