A Tale of Three Developments: Recent years have been a nightmare for big-dream developers. Three promised powerhouses that took the hit share the secrets to their survival and a few hints about wh
REGION – Over the past two years, three of the region's mid- to high-end residential projects have withstood every insult that the worst economy in decades could throw at them.
The onslaught had many components: rising unemployment, a credit meltdown, and a general downward spiral in the real estate and stock markets. And for a time, auto retirees – one of the most important consumer categories for the region – faced the potential collapse of their pension funds.
It would be hard to imagine a more toxic situation for a real estate market that depends to some extent on a steady flow of retirees from downstate and elsewhere. Fortunately, at least some of those dangers are now past.
Nonetheless, real estate developers still had to draw on reserves of stamina to make it through the hard times. We check in with three promising developments that started at the worst possible time in recent history to learn how they lived to tell the tale.
Developing new sources of income
Right from the outset, the investors who began developing Douglas Valley near Manistee in 2007 felt they had a winning approach: they would create a residential community on an historic farm and vineyard that offered panoramic views of Lake Michigan.
The property, farmed organically since 1990, already had apple and cherry orchards, and Douglas Valley's backers began cultivating 13 acres of vineyards to give it even more cachet.
Douglas Valley sold its first estate parcel just as the crisis hit in late 2008. Steve Loomis, a Manistee broker and co-owner, says the investors hoped to sell 18 estate parcels, covering 2 to 6 acres each, in the first three-year phase.
The sales were supposed to be the first step in a longer-term plan to sell parcels for as many as 200 homes of varying sizes in a planned community.
Then the economy intervened, and a long dry spell ensued. Today, Douglas Valley is still looking for its second sale.
"We have had a lot of interested parties who would have loved to take that step, but they might have just lost $100,000 in equity on a home in southeast Michigan," he says.
Fortunately, the developers were able to exploit the value of the property and build its appeal as an agro-tourism attraction.
Douglas Farms, long a revenue producer, started selling hard cider and cherry wine at a tasting room and began distributing its products statewide. The investors now expect Douglas Valley's grape wines to be an added attraction – both for agro-tourists and for home buyers. Loomis and his partners also turned to organic vegetable gardening as a source of income.
"We hoped that we could get some operating income to carry the project through the downturn, and so far we have been able to do that, and have actually built a reputation for our products," Loomis says.
To offset the soft demand for parcels, Douglas Valley has had to cut prices 35 to 40 percent, to as low as $59,000 for a four-acre parcel, and $139,000 for its most desirable 6-acre site.
Its backers have had to battle cut-rate prices on a foreclosed project, Portage Ridge, just a few miles away.
"There are a lot of discounted properties on the market," Loomis says. "That inventory has started to move, and prices will start to stabilize, if they haven't already."
Loomis says the buyers' mood also appears to be improving, too. "Lately, their attitude is that the economy is not continuing to fall and that they are willing to make a move." And if they do, they can at least expect to eat heartily in their new organic community.
The value of the right location
Long-time brokers Bob Brick and Ted Lockwood can testify to a simple fact about real estate development: Your very first decisions – what kind of development to build, and where to build it – may turn out to be the ones that determine the future of your project.
Thanks to its location and scenic beauty, Incochee Woods near Slabtown in west Traverse City has been coping successfully with the real estate downturn.
But that doesn't prevent the pair from wishing that sales were better. "I light candles every day," Lockwood says with a laugh.
Since its first sale six years ago, the 50-acre project has sold more than half of its 72 parcels. Currently, a total of 11 families are living there, and five more homes are under construction.
In a real estate market clogged with a two- to three-year backlog of unsold existing homes, Brick and Lockwood consider that performance to be respectable.
And while some projects have had to slash prices, Incochee Woods hasn't followed suit. List prices for lots generally run from about $65,000 to $130,000, and the parcels are mostly one-third to one-half acre.
Brick and Lockwood credit the fact that the site is close to downtown and Munson Medical Center. "In our industry, the pressure has been great to have projects closer to town," Lockwood says. It hasn't hurt that the property is in a natural, wooded setting and has views of West Bay.
The development attracts both retirees and local families. The homes being built there are mostly in the $350,000 to $450,000 range, although one valued at $800,000 to $900,000 was erected recently.
Buyers are shopping more carefully than ever, the partners say. "The buyer in general has huge amounts of information, and with the shortage of people in the market, they can be selective," Lockwood says.
"We had one couple who researched the top 10 places to retire in the country, and they selected Traverse City, and then they selected Incochee," Lockwood says.
But even gradual success hasn't come been easy in a tough financial environment. "Most banks are not interested in development anymore, especially in Michigan," Brick says.
The financing drought has forced Incochee developers and builders to be creative too.
For example, some builders who have built new spec homes at Incochee Woods have moved into them if they do not sell fairly quickly. They are confident that the houses can be sold when the market picks up again, the developers say.
In some cases, Brick and Lockwood have been willing to take a promissory note for half the value of the property, and then collect on it when a home is sold – one more sign perhaps that people aren't giving up on the local real estate market just yet.
Committed to the vision
When Grand Rapids-based Gary Vandenberg began planning Sapphire Shore in 2006, he started out with an unshakeable confidence in the Traverse City real estate market.
Today, his confidence remains undiminished, even if it has been sorely tested over the last four years. "I know the market will come back," he says. "It is just a matter of how soon and how strong."
His original idea was simple: Take a solid property, put up high-quality condos, and then sell them for a more than fair price. He believes the approach is still valid
The site for Sapphire Shore has the right natural attributes: It consists of 13 acres with 340 feet of West Bay frontage, at Crane Hill Road and M-22 in Elmwood Township. "We feel this is a premier site, and everybody has a nice view of the bay from the project. There are not many projects that can say that."
Vandenberg settled on a high $300,000 to low $400,000 price range and tried to pack as many amenities into the duplex-style condos that he could — everything from vaulted ceilings in the units to seasonal dockage off the shore.
Sapphire Shore's customers have been able to dodge financing problems so far, Vandenberg says. "It hasn't been a problem for us because people have paid cash or the financing has been already arranged," he says.
That may have to do with the customers that the project attracts. In many cases, they are at or near retirement age and have planned well for their futures. "They have the assets to do what they want to do," Vandenberg says.
Still, he contends, there haven't quite been enough of them. Five units are occupied so far. "It hasn't gone anywhere nearly the way I thought it would, but we have been through nearly the worst market since early 1980s," he says.
To bolster the project's financial position, Vandenberg sold four lots along Crane Hill Road that "weren't really suitable for condos." And like many developers today, he also has had to subsidize it. "That's not a problem," he says, since he sees good long-term prospects for the Traverse City market. "My investment is safe."
Vandenberg, of course, can dispense with the counter-measures if the economy improves. "We have seen some increased activity. We are quite optimistic that things are going to go well this year."
For Vandenberg or any other developer, that would be a fitting reward for putting up with the past two or three years. BN