Q: A lot of homebuilders are no longer in business. What was the secret to survival during the last few years?
A: We were uncomfortable with the market’s position in 2007 so we began to scale back our operations and staffing early on. We ran a very lean operation until 2010, when we acquired Mediterra’s remaining home sites at the market’s trough. Timing is everything, there’s a lot to be said for experience.
Q: What kind of grade would you give the luxury housing market right now?
A: It depends. If you’re a buyer, it’s an "A" because pricing is way down from its historic peak, and prices are now starting to appreciate, even if it is at a modest rate. No one will ever find better pricing. From a builders perspective it’s a "C-" `because even though sales are improving, margins are way down and we’re starting to see some indications for material and labor increases.
Q: What does it take to move a home buyer off the fence and into a contract today?
A: Getting your pricing right. Buyers are very astute to the conditions in the market and they are looking for a great deal. We adjusted our pricing some time ago so we show them they kind of value they are getting with a London Bay home. We also try to educate them about what’s happening in the market right now. Knowledge goes a long way when it comes to making a decision.
Q: What was it about Mediterra that prompted you to buy the last residential home sites?
A: Mediterra has always been one of Naples’ most premier luxury communities. The amenities are unequaled, they are all in place, and there is a diminishing opportunity to buy into the community. It gives London Bay a very strong position in the high-end market and we can also price our home sites very competitively.
Q: What was it about the Sarasota market that convinced you to invest more capital there?
A: Our experience in The Lake Club at Lakewood Ranch showed us that Sarasota is one of those markets with high appeal and limited opportunity, especially in the upper end of the
market. We completed a thorough market analysis with RCLCO before we moved on the deal at The Founders Club. We realized that it represented a unique and timely opportunity to expand our business in a market that’s poised for growth.
Q: You say that there are limited opportunities in luxury master planned communities. Yet, there seems to be a lot of inventory when you really look at the market. Why do you say it’s limited?
A: First, there are no new communities in the pipeline. That limits supply. Second, a large part of the existing inventory is in communities that are still building their amenities or have other challenges. When you look at the inventory in established, stable, communities such as Mediterra, the opportunities are much more limited. People see it as a safe place to buy.
Q: What’s your take on home prices in Naples? What’s the trend line showing?
A: There is no doubt that the market has already hit its bottom. In fact, that occurred in 2009. Since then, prices have stabilized and in some locations, they are actually starting to rise. I don’t expect that we’ll see double digit appreciation for a while, but it will happen again. When the economy recovers, we’re going to find that inventory has been depleted against a backdrop of pent-up demand. I can’t say when, but it will happen.
Q: How has this homebuilding recession changed London Bay Homes?
A: I’ve seen my share of housing and economic recessions and I hope that I come out of them a little smarter every time. This recession was a lot different and much more extended, especially in the home building sector. What’s changed the most at London Bay is that we’ve moved with the market to design some smaller luxury homes that deliver a lot of value for the dollar spent. That’s what buyers are looking for today.
Q: Will we ever see real estate boom like it did in 2005-2006?
A: I hope not. The market in 2005 and 2006 was significantly overheated and that’s not a good thing. I think we have all learned some valuable lesson about real estate investing and that in itself will help us avoid the mistakes of the past. Our region hit 35,000 housing starts in 2005 when the 30-year average was less than 10,000. I’d be happy there with 5% annual housing appreciation.
Q: What’s the most important lesson you learned in the last five years?
A: To succeed in the good times and survive in the bad times you have to be a student of the market. If you make your decisions based upon empirical data, with a modicum of experience tossed in, you’ll do OK. Never get caught up in the euphoria of the moment or base you decisions on instinct. There’s too much at stake.
