On a quiet street in a Porters Neck subdivision, developer John Lancaster looks forlornly at two new houses that recently sprung up. The sign in front reads that they are being sold in the low $200,000 range.

Just up the short street in this neighborhood that used to be one of the hottest real estate development markets, Lancaster has been trying to build and sell homes in the mid-$300,000 range. But it’s an uphill battle now when the competition’s price point is much lower only two doors down from his property.

“I think they’ve devalued the property by $100,000,” he said about the developers who own eight lots in the back of the subdivision where they are building smaller homes priced in the low $200,000s.

Lancaster is one of a handful of developers who are getting undercut by neighboring developers while watching their property values drop.

“This is happening everywhere. The FDIC is totally ruining the value of real estate in this country, 100 percent. They are taking these banks over and dumping the real estate. It’s just a massive cycle. It’s not going to be any better for a while,” he said.

To Lancaster and other developers who invested in these lots when they were valued much higher, not lowering the price or the quality of the product is a matter of principle. “We’ve been developers for a long time. We don’t want to ruin our reputation,” he said.

He said he would not want his clients to whom he sold houses a few years ago to think he will turn around and build lower priced homes that could devalue their neighborhood.

Another time

In 2007, Lancaster bought about 25 lots in the Porters Crossing subdivision for about $105,000 each. He built three homes and sold them for about $350,000. The three bedroom, three bathroom homes were about 2,350 square feet with brick exterior.  Some had a bonus room on the second floor.

But, then the real estate bubble burst and banks began to foreclose on properties, which drove prices down.

“What’s happening when banks are foreclosing on unsold lots, some of the banks are selling them at 25 cents on the dollar,” said Mike Stonestreet, president of CAMS, the company that manages the Porters Crossing homeowners association.

“If a lot was $100,000, [a bank] will bulk sell them at $30,000 to $40,000 a lot. An investment developer will buy them and reduce the cost and size.”

That’s the move developer Adam Sosne made when a real estate agent brought the remaining eight lots in Porters Crossing to his attention.

At the end of the street, Sosne and his partner based in Greensboro, Joe McKinney, bought eight lots at about $30,000 each in cash a few months ago. So far they’ve built two of the eight homes and sold one, which was a pre-sale that went under contract earlier this month for $209,900.

After 18 months of not being able to build anything in Porters Crossing, Lancaster received financing from First Bank and has just begun to build a fourth home in the subdivision. But, he won’t budge on the price of his product.

“If we lower the price point, we won’t have enough money to pay off the bank for the lot. We’re in a Catch 22. Plus, it drives the prices down everywhere around us,” he said.

To build this latest home, he expects construction to take 90 days and to cost $250,000, excluding the price of the lot.
The situation

“The issue in New Hanover County as well as a lot of other places, the prices of land went up way too fast. The correction that is taking place now is a necessary correction to get to a sustainable place again,” Sosne said. “We would never spend $105,000 or $110,000 for lots in a subdivision.”

As with all of the single-family homes he has developed, he said he paid cash and therefore does not have to depend on bank financing.

Sosne has branded the three bedroom, three bathroom houses in his portion of the subdivision as The Villas at Porters Crossing. He has two floor plans: a 1,650-square foot house priced at $209,900 and a 1,950-square foot house with a bonus room priced at $227,500, said Keith Beatty, an agent with Intracoastal Realty, who is representing The Villas at Porters Crossing.

“With subdivisions that were put in the ground in the last four years, you’re going to see a re-branding and re-pricing of the neighborhood,” Beatty said.

Sosne said he met with the president of the Porters Crossing homeowners association, who was resistant to his plans initially. But Sosne explained: “We’re going to come in and build a quality product at the price that a homeowner can actually afford, so your neighborhood will be healthy and sustainable. And they can afford to pay their HOA dues.” The president of the neighborhood’s association eventually signed off on the plans.

About the new, lower cost homes down the block Stonestreet said, “It’s probably good on the association side because they’ll move inventory. But then there is the negative side to the individual property owners.”

The homes that were built earlier in Porters Crossing look more expensive upon closer inspection. Not only are they bigger, but they have details like painted shingles and brick veneer compared to vinyl siding and exposed concrete foundations.

“I wish they’d done a better job. If you’re going to cheapen a product, do it inside because that’s not seen from outside,” Lancaster said concerned with maintaining what he calls the street appeal.

“I’m sure it doesn’t make it any easier for a guy like Lancaster who has paid $105,000 or $110,000,” Sosne said.
“Wish it were different for them, but we build where the market is.”