Insightful Discussions
Oct 1, 2018

Land, Lots and Location: Our Region’s Homebuilding Industry

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The Cape Fear region has seen an explosion of growth in recent past, and it’s a vibrant community in which Scott Byers, President and CEO of Majestic Kitchen and Bath Creations, wants to be an integrative part.

For a quarter century, Majestic has offered a wide selection of products for homebuilders from counter tops, shower enclosures, shelving, door hardware and accessories for kitchens and bathrooms in North and South Carolina. Acquisitions just within the last year of many well-established companies – including Builders Glass & Hardware Inc. in Wilmington and similar businesses in Greensboro and Charlotte – allow Majestic to support builders across the Carolinas.

As a growing company in a burgeoning area, Majestic aims to be the most professional trade partner with those it serves. To that end, Byers recently sat down with six local builders to talk trends and challenges in the building industry. The following is an excerpt of their conversation.

For a full PDF version, click here.
 

What are some of the issues the building industry is currently facing or will face over the next few years?

CRAIG STEVENS: We’re all hearing talk about labor shortages, but I think available land and lots are going to the biggest challenges for us. We’re really seeing the lots evaporating. With labor, you can pay them more, right? But if there are no lots, there’s no building.

HEATH CLARK: We develop land and we build our houses, as well. And there’s no land. I’m looking. There’s nothing that somebody’s willing to sell to you for a reasonable price.
You have to be creative if you’re going to buy any land in Masonboro or Monkey Junction. There, it’s $65,000 an acre, $70,000 an acre. That’s what you’ve got.

DAVID SPETRINO: There is an obscene amount of land that hasn’t been developed yet. And they’ve got companies from the mid-Atlantic and northeast flying in to look at this land. Then, I’m watching guys go out to Bluffton [South Carolina] and pick up a parcel of land. So, there is land. I think it really may be about getting land at a certain price point for your particular demographic and buyer.


What are some of the current trends in our area?

MATT SCHARF: In terms of apartments, all the rents are high, and everybody is occupied. Maybe October will spell something different; that’s when things tend to slow down.

But it’s crazy. I’m friendly with the guys in the [county] planning department, and they can’t get my little 12-unit remodel passed because they’ve got nine other developments and communities.

I think it’s great; I can’t wait to go those restaurants in those mixed-use communities. Not everybody wants to live in a house, so they need apartments.

CHARLIE TIPTON: There are a lot of buyers who are moving closer to family – the kids or grandkids live in that location. Or they want to convince the kids or grandkids to move where they are. I think the overall master plan of RiverLights is going to benefit from that multi-generational aspect.

SPETRINO: I’m still not seeing the inflation I expected to see. I’m not seeing artificial inflation on pricing, nor am I seeing an unsophisticated buyer in the market.

Something we’re not really acknowledging is the Apiture/Live Oak canopy. I have an unbelievable number of people that I’m running into that are tied to Live Oak on the periphery.
And these aren’t service jobs; these are people who are selling a house for seven figures in Jersey, Connecticut or Massachusetts and they’re buying with a lot of cash.

So, I don’t know when the apartment thing comes to roost. I don’t know when all the growth and all those projects that are teed up get saturated. We all know a lot of those projects that are sitting right now may not get billed.

CLARK: You start to see compression by price range. Our buyers are getting compressed. They’re getting squeezed with interest rates.


How do you attract and retain reliable labor?

MARK JOHNSON: One of the things we try to do is increase pace. I think that’s number one – keep them busy. We don’t keep them that busy; we only do a few homes a year. But we absolutely pay them faster than we typically would.

Not cherry-picking labor from house to house and adding some sort of expectation level – so they know what we want, and we know what they want – and staying ahead of them through project managing software really helps us.

SPETRINO: One of the things that is hard to do but is imperative in our industry is starting more at the source. The Home Builders Association has been extremely active this year in trying to find a path to attract people to our industry. The stigma still exists that working with your hands is not something you should end up doing. It’s something the guy who drops out of high school should do.

We went to middle and high schools in Columbus, Pender and Bladen counties and started reaching kids at seventh and eighth grade. And, with SEA-Tech here in New Hanover County, too. These kids come to RiverLights and we take them through three homes – one is foundation framing, one is in sheet rock and one is finished. Or, we do it in reverse and they see this finished property that a model home now. Then, we show them the sheet rock and we show them the foundation.

Half these kids want to be architects or engineers. But all the sudden, one of those may say, “Hey, I want to do what you do. Where do I start?” I don’t need 100 of these kids. I just need one.

That’s the long-term fix. The short-term fix is we are finally paying people enough for them to want to work. But that only works when your consumer is willing to pay that increased price.


How do you minimize risk in the building industry?

STEVENS: I completely redid my whole business model because of land here. Instead of going for 300 or 400 a year, I decided that I can do 150 in this area and ramp up in a great year when land is available to maybe 200, but I can scale back to 100.

So, instead of trying to ramp up to 300 or 400 to take advantage of the good years, we decided to play it safer, sleep at night, pull back to 150 and, with the overhead, toggle up to 200 or down to 100.

On top of that, we’ve got a business plan now to do even flow construction and we start no less than three homes and no more than four every week. By always starting at least three every single week and never starting over four, our efficiencies have skyrocketed.

And we can work better with the subcontractors and vendors because they know what they’re getting every week. So, they can put crews together to handle my workflow and by doing that and guaranteeing that to the subcontractors we were able to get a lot better deals. The end result is you’re doing better by doing less.

TIPTON: I have 182 employees in my division and I feel a personal responsibility for each one of them. Going through the last downturn and having to make some really tough decisions wasn’t an easy task.

So, I think about that every day when we’re buying land – Is this the right decision? Are we going to be able to make our margins? Will we be able to continue to grow and make sure we’re providing opportunities for each of those employees?


What do you look for in a trade partner?

SPETRINO: Let’s bring it right down to what really is going on in the homebuilding industry. It really is the least efficient business, and custom homes is the worst.

So, the trade partners that are making our lives easier – notifying us when something’s going wrong and being proactive – those guys not only get the most work, those are also the guys we start to rely on for each project.

Price gets you in the door every time. And what keeps you there is service. But for me, it’s the trade partners who come up with solutions that are better than what we’ve come up with. If you can make me look like a rock star in front of my clients, you have made a friend for life.

CLARK: I just get as many people as I possibly can and use them as much as I can. But I can’t find them right now. And the reason I can’t build more houses is because I don’t have enough people.

Price is important and, of course, how well the job is done. But if something goes wrong, you’d better be there for the customer. I have always been about fixing anything that is wrong, even in homes built and sold all the way back to 10 years ago.

STEVENS: You have a budget and you’ve got to find that price point, but then you’ve also got to have that professional that shows up when he says he’s going to. So, scheduling is huge.

SCHARF: We renovate maybe 60 apartments a year. Our biggest challenge is getting the great trade to come over to work with us. You know, we’ve got 20 units we’re doing, not 150 houses.

So, our biggest challenge is having these trades come out and give us good, fast and cheap service.

JOHNSON: Often, I am getting exposed to some higher price-point stuff, so I know I’m going to pay for more than the mom-and-pops that could probably pull it together. But with us submitting things to architects and having to make sure their insurance is right – all the stuff that surrounds these projects – money isn’t the deciding factor.

I think you should have a higher price-point framework and a lower price-point framework and group your subcontractors along those lines.


How is technology changing both the homebuilding and the homebuying process?

STEVENS: We utilize it extensively in our scheduling, estimating and purchasing and all that.

We get a lot of referrals – about 20 percent of our sales come from referrals – and the website is huge. The website is moving to the point that it’s getting out there like a realtor used to be. And people are coming to us through Google, apps and social media.

TIPTON: Technology is what drives our business today, especially as we bring more new people into the industry to work for us. They’re tech savvy, so that’s what they want to work with.

I think the downfall to that is we have lost some of the getting out in the field and building a relationship with the trades.

But we couldn’t survive without it from a scheduling aspect and trying to keep everything under control. When you’re dealing with weather delays, for example, it’s so much more efficient.

Buyers are shopping online, and I think what that’s done to us is make us spend more time on our digital front porch. The website has to be top-notch and we have to stay focused on the reviews we’re getting because so many buyers are making their decisions online.

SPETRINO: I’ll say one thing about technology on the consumer side – our clients are coming in already knowing everything about us from our website. So, what’s interesting is that, in some cases, they’ve already made the purchase decision and they’re trying to verify we aren’t just all smoke and mirrors.

Before, I needed that two- to three-hour [in-person meeting] to build rapport, explain what we’re doing, communicate to them that we’re a good fit for their project or sort of interview them as they’re interviewing me. Now, they already have a lot of information and it’s more about sort of seeing, feeling and touching and having their opinion validated for them. If somebody sees our stuff and it resonates with them, they are very quick to contact us.

JOHNSON: The buyers have it a lot easier now in terms of finding a good builder. I think they have it so easy, in fact, that they’re going to make a decision through online research, or at least rule out half the people they thought they may have talked with. I think a lot of buyers go by referrals.


Who are your potential buyers, and where are they located?

CLARK: I’d say 80 percent is North Carolina and 20 percent is outside.

TIPTON: Ours are predominantly from out of town. There is a good mix, but with the 55-plus [demographic], we are pulling a lot of people out of the northeast – the feeder states across the mid-Atlantic, New Jersey. To our surprise, we’ve actually had more locals in RiverLights than we anticipated, so there’s going to be a good local presence, as well. We’re probably closer to 50-50 right now. We have quite a few buyers for whom this is their second or third Del Webb home, and a lot of them are moving back to Florida to be closer to family, so Wilmington is a nice meet-in-the-middle sort of place.

We are fortunate the brand has the recognition that it does, but I think the overall trend of being close to family is going to be good for RiverLights. There are a lot of buyers who are moving closer to family – the kids or grandkids live in that location. Or they want to convince the kids or grandkids to move where they are. I think the overall master plan of RiverLights is going to benefit from that.

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