Builders downscale development

State trends toward much smaller projects closer to city cores

A new house being constructed by Jacobs and Newell Co. takes shape Thursday at 529 S. Block Ave. in Fayetteville.
A new house being constructed by Jacobs and Newell Co. takes shape Thursday at 529 S. Block Ave. in Fayetteville.

— Northwest Arkansas builders, planners and lenders say the days of new subdivisions with hundreds of lots are long past.

Today, it’s all about building on existing lots and in moderation, putting up one or two houses as opposed to 30.

photo

NWA Media

Mauricio Silva, a painter with TruColors Painting in Rogers, caulks along a baseboard Thursday in a condominium at Sycamore Rowhomes, a development being constructed by Jacobs and Newell Co. on West Fifth Street in Fayetteville.

Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said that many of the subdivisions added during the boom times of the mid-2000s were too far from city centers even then and are sitting idle. She said real estate value is still judged by the famous maxim: “Location, location, location.”

“They’re long commutes and they’re farther from city services and utilities,” she explained.

Central Arkansas is seeing similar trends, said Jonathan Lupton, research planner for Metroplan, the long-range transportation planning agency for the region. He said suburban building in most of the municipalities is slow. There is some smaller-scale residential building closer to city centers.

He indicated The Village at Hendrix in Conway, with its mix of cottages, townhouses, apartments and retail as a good example of ongoing projects closer to a city’s center.

Tony Bozynski, planning director for the city of Little Rock, said the city had 395 residential building permits in2012 compared to 708 before the real estate downturn of 2008 - well below the peak 967 in 2005.

He said residential development is centered primarily in west Little Rock in the Chenal Valley area. Even so, he said the city has seen some new subdivisions but they’re much smaller than those of the boom days and often have smaller lots.

“Builders are going to the existing lots,” Bozynski said.

According to preliminary residential building permit data gathered by Metroplan, cities in the Little Rock, North Little Rock and Conway Metropolitan Statistical Area issued 436 residential building permits through the third quarter of 2012. That number is higher than the 374 permits issued by the third quarter of 2010, the peak for third-quarter totals since the housing downturn in 2008.

The demographic outlook for 2012 in the June edition of the agency’s Metro trends publication noted, “Regional development is occurring at higher densities than in the past. Development involves a careful calculation involving the proximity of transportation infrastructure, retail and entertainment amenities.”

According to The Skyline Report including the residential real estate market in Benton and Washington counties for the first half of 2012, there were 28,219 lots available in393 active subdivisions. Active subdivisions are classified as those that have had at least one house built on the property.

No new construction has occurred in 145 of the “active” subdivisions, or 37 percent, between June 2011 and June 2012.

There are an additional 3,139 residential lots with at least preliminary approval that were not part of an active subdivision as of June 2012. Including those lots, the two counties have 15 years of lot inventory.

The report, sponsored by Arvest Bank, has the most recent comprehensive regional data on lot inventory.

Deck said infill projects - building new houses in previously developed areas - can capitalize on the appeal of established neighborhoods and seem to be good strategic moves for builders in today’s market.

She said some builders’ infill projects aim at the housing needs of the region’s younger demographic who tend to be part of the knowledge-based economy. This consumer base tends to favor modern houses close to city centers where they can walk or bike, which is spurring downtown construction.

CLOSER TO CITIES

Todd Jacobs is a partner in Jacobs and Newell Co., an operation specializing in infill projects in downtown Fayetteville and Bentonville.

Jacobs said his company aims for small-scale projects featuring high quality houses located within walking distance of schools, farmers markets, restaurants and parks. The company plans to build 20 to 25 houses between the two cities in 2013.

When a large piece of property can be obtained, the order of business is to build a few houses at a time, slowly working down a street, he said. Other projects include single lots where an existing house will be demolished and if possible, the builders will seek to divide the lot so they can put up two houses.

“Finding enough property is a challenge downtown,” Jacobs said.

According to the real estate tracking firm Mount Data’s most recent report for Northwest Arkansas, residential inventory as of November for the two-county area was 3,456 houses. The number is about half of the 2007 high and down 10 percent from the same month last year.

The median price for house sales was $141,000 in November, with an $80 average per square foot.

Jeremy Pate, development services director for the city of Fayetteville, said he has seen more and more infill projects during the last four years.

He said the days when a developer would establish a large subdivision and then sell all the lots to a single builder are long gone.

SMALLER PROJECTS

Pate said the trend now is smaller-scale projects in which builders buy one or two lots in an existing subdivision, construct houses, and sell them before repeating the process.

One of the reasons, Pate said, is banks are much less open to lending large amounts of money for bigger residential building projects. The slower release of money means fewer and smaller undertakings.

Eddie Lee, an executive vice president with Arvest Bank responsible for loans to builders, said speculative building is on the rise but nothing like the white-hot pace of 2004 and 2005. He said that’s a good thing for the market.

Lee said house sales are looking brighter but builders are staying closer to city cores.

“Builders aren’t interested in blazing new trails and lenders don’t want them to go there,” he said.

Troy Galloway, community development director for the city of Bentonville, agreed. He said most of the city’s building permits issued in 2012 were for infill, primarily in the city’s southwest section and downtown.

He noted the city hasn’t platted a large subdivision in the last three to four years. The few new subdivisions are small, with no more than 30 lots, and located extremely close to existing infrastructure.

Galloway predicted the trend of building fewer houses on existing lots in the region will continue for at least two or three years.

“It’s much more stable and predictable. It’s much more in tune with what the local market will bear,” he said.

Business, Pages 63 on 01/13/2013

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