When the planning commission meets to grant final approval to New Daleville, Tom Comitta describes the new agreement and says that the developers have agreed to address Cassidy’s concerns in a handbook. Della Porta, who is representing the developers, stresses that the presence of LRK, a nationally recognized firm, will ensure high quality in the development. Cassidy again argues for an outside consultant to review the house designs on behalf of the township. He maintains that this does not have to be a lengthy procedure. “All you need to do is to specify a range of details,” he says. “After all, there aren’t going to be a hundred different houses to look at, only a few models.”
The other members of the planning commission have been silent up to now. One says that when he had some work done on his house, he found a carpenter whose work he liked, gave him a general idea of what he wanted, and then left him to it. Has the world become so vicious that we can’t trust anybody? A man at the end of the table adds that he has confidence in LRK’s ability to ensure that New Daleville will turn out well. The planning commission members don’t seem to share Cassidy’s skepticism. They’ve been listening to New Daleville presentations for more than two years, and if the developers are not exactly neighbors, neither are they complete strangers. They’ve played by the rules, and they deserve some consideration.
Della Porta, who senses that he has the support of most of the commissioners, now makes a suggestion. Arcadia will hire LRK to write the handbook, and what’s more, he’ll show the handbook to the supervisors before they meet to vote on final approval next month. Martha Detering, the new township supervisor, is in the audience and says that having the supervisors review the handbook is a good idea and should be written into the conditions. Arcadia will have to spend some money to hire LRK — Jason later estimates that it may cost as much as $20,000 — but in return the township will not interfere in the design of the houses. The motion is put, and the members raise their hands in favor. “You voting for this?” Richard Henryson, the chair, asks Cassidy. He nods in agreement.
The final step in the permitting process is for the supervisors to give their approval. It’s been seven months since they gave preliminary approval and a full two years since they passed the traditional neighborhood development ordinance, so this vote will be a milestone. I show up on time for the supervisors’ meeting, but no one from Arcadia is there. For a moment I think I’ve mixed up the date, but at the last minute, Christy Flynn arrives; it turns out that Jason and Della Porta are tied up with other projects. The meeting starts at seven-thirty, as usual, but it’s a long agenda, and New Daleville doesn’t come up until nine o’clock. LRK has delivered copies of the new handbook — which seems to me suspiciously similar to the document Jason prepared months ago — but the supervisors appear satisfied. Nevertheless, there is a forty-five-minute discussion of the approval conditions, one by one. The details are picayune: the township wants to be sure that the homeowner association will be responsible for maintaining and replacing street trees; one of the supervisors thinks that plastic play sets shouldn’t be permitted; how, exactly, will parking be regulated on the streets, asks another. Flynn handles the answers adroitly.
The unanimous vote of approval, when it comes, is an anticlimax. Just before the vote, Martha Detering makes the unexpected suggestion that the developers consider a different name. According to her, many local people don’t like the name New Daleville. It’s unclear exactly why. Couldn’t it be called simply Daleville, she asks. This is the exact opposite of what the township wanted a year ago. Flynn quickly answers that Arcadia has no objection to changing the name, as long as it is done before the marketing starts. As has happened so often during these public meetings, the issue is left unresolved. (In fact, the name will stay the same.) But it is a sign of the township’s growing identification with the project that the question of naming should even arise. That’s very different from hiding the development behind berms.
Part Three
New Daleville, June 2006
20
Trade-offs
How Wall Street causes national builders to pay more for building lots.
Joe Duckworth had described the development business as consisting of two distinct steps: spending money buying and subdividing land, and making money selling the lots. With the final plan approval in hand, he now has a “permitted” project, and it’s time to move to step two: auctioning the lots to builders. Dave Della Porta is in charge of the bidding process. “Several months ago we contacted about twenty builders we thought might be interested in New Daleville,” he says. “In addition to regional and national production builders, we included several local custom builders, to raise the quality of the project. Unfortunately, though we had seven or eight serious expressions of interest, they were only from the larger builders. There have been so few neotraditional developments in this area that the small builders are cautious and not willing to take the plunge.” After the builders’ workshop, the list is winnowed down to six — three regional builders and three nationals. They are invited to submit bids for the lots.
According to Della Porta’s latest calculations, site improvements, consultants’ fees, extra payments to the township, interest on the bank loan, as well as the price of the land, have pushed the cost up to $96,000 per lot. The bids of the three national builders exceed $110,000 per lot. This is considerably more than the bids of two of the regional builders. The third regional builder has bid slightly higher, but Della Porta is not convinced that he can deliver the quality required and eliminates him, too. Della Porta was hoping to have at least one regional builder for the sake of variety. “It’s disappointing,” he says. “The low bids reflect a lack of experience with the neotraditional concept, as well as concern with the location. New Daleville is at the edge of where development is currently taking place in southern Chester County. It’s not close to employment centers, and there’s still plenty of open land available in the area. All things considered, I would call it a C-plus or a B location.”
Della Porta gives the three nationals a deadline to submit their “best final offer.” The first reply comes from K. Hovnanian Homes. Hovnanian has built a neotraditional development in New Jersey but has not done any projects in Chester County and is keen to gain a foothold. The bid is $125,000 per lot. NV Homes and Ryan Homes are represented by their parent company, NVR, whom Della Porta informs of the new offer. “This is where the market is,” he tells NVR. Reluctantly, the company agrees to match Hovnanian’s price.
“NVR and Hovnanian have each offered to take all the lots, but we definitely want more than one builder on the project,” says Della Porta. “The developers of the successful TNDs we’ve visited have all stressed the importance of variety.” Della Porta, who’s a builder himself, is worried about the design of the Hovnanian houses that he’s seen, but the company has agreed to work closely with LRK. He divides the lots, forty-five to Hovnanian and forty each to NV and Ryan.
Della Porta explains why the nationals are able to pay more for the lots than the smaller, regional builders. “In a deal like this, a small production builder typically buys the lots all at once. This doesn’t appeal to national builders, since Wall Street doesn’t like them to carry unused land on their balance sheets. So we’ve offered them what is called a rolling option. They each make a half-million-dollar deposit, which is credited to lot sales on a pro rata basis. They are obligated to buy at least four lots per quarter, although there is an annual five percent escalation clause, which encourages them to take more. They have the option of pulling out of the project at any time. In return, they are able to pay a premium price.”
“I’ve updated the project pro forma based on the latest costs and the new lot sale price,” Della Porta e-mails Duckworth, “but I’m not going to show it to you because it looks too good.” New Daleville now has a very healthy rate of return of 25 percent. “The hundred and twenty-five-thousand-dollar price is an astonishing number,” says Jason, who is delighted with the outcome.
“We can’t really take credit for it. It’s not the quality of our project, it’s the layers of regulations that have shrunk supply and turned permitted land into a scarce commodity. But I tend to be the skeptic around here, so I won’t really believe this price until we have the contracts signed.” The bids are firm, but the contract will be signed only after a due diligence period, which gives the builders ninety days to verify the state of the various permits, study site issues such as grading, determine which of their models will fit on the specific lots they are buying, and have further discussions with LRK to pin down the exact cost of adhering to the design guidelines.
Everything is falling into place. The supervisors have voted to make the New Daleville guidelines part of the TND ordinance, and following several weeks of negotiation, the Department of Environmental Protection has given the nod to the sewage plan. There are only a couple of permits outstanding. “We thought we had an agreement with the township concerning off-site road improvements,” says Duckworth, “but the state Department of Transportation has been pressing them to ask us for more money.” Until the agreement with Londonderry is signed, the state will not issue the so-called highway occupancy permit, which is required whenever a new access road is connected to a highway (New Daleville has three such connections). The delay means that Arcadia will have to get a temporary permit in order to start construction. This sort of thing is done all the time, Duckworth assures me.
A more important issue concerns water supply. Because there is no municipal water system in Londonderry, residential subdivisions are supplied by individual wells. However, since a recent drought, when many local wells ran dry, residents have become resistant to anything that threatens to lower the water table. For this reason, the developer of Honeycroft Village, which will have four hundred houses, has proposed to bring piped water into the township. The new three-mile, ten-inch-diameter pipeline will be built by the Chester Water Authority, whose source of supply is the Susquehanna River. Since the pipeline passes in front of New Daleville, it can service that project, too. Duckworth knew about the possibility of municipal water from the beginning, and it figured strongly in his calculations. The pipeline will supply another subdivision in the area on the way to Honeycroft, so his share will be about a quarter of the $2.4 million construction cost.
Chester Water Authority is ready to start laying pipe, but a snag develops. To reach Londonderry, the pipeline must cross a township immediately to the south, and a newly elected supervisor there has objected to the construction, on the grounds that the availability of piped water will encourage local development. According to the lawyers for Chester Water and Honeycroft, as well as Arcadia’s lawyer, Marc Kaplin, the township can’t block construction of the pipeline. “The pipeline is actually on the Pennsylvania Department of Transportation right-of-way,” says Jason, “so we don’t think that they have any legal grounds for objecting. There won’t even be any outlets in the township. But Chester Water is getting spooked, and the project is being delayed.”
Such last-minute delays are not unusual, and this one would be of little account except that something else has come up. Arcadia’s option on the site expires in two months, and Dr. Wrigley’s attorney informs the company that his client won’t grant any more extensions. “He’s figured out that land values have gone up, and he could get a lot more for his property than our original offer,” says Duckworth. “In an ideal world we would ask for another extension, since we’re not quite ready to go ahead, but as it stands we’ll have to buy the land now.” Acquiring the land before all the permits are in sounds risky to me, but Duckworth is sanguine. “This project has cost me about eight or nine hundred thousand so far. We don’t quite have all the permits, but with the strong builders’ bids, and with my track record, our bank is willing to advance us one and a half million to buy the land. It’s a term loan for three years, with a one-year extension. If things go bad, we can still sell the land and pay back the bank. Not ideal, but not the end of the world.”
I talk to Duckworth again the day after the closing. According to him, a sale like this has two aspects. “The business transaction is pretty straightforward. The second part involves selling a family legacy, which is not necessarily rational and can be an emotional experience. We had some preclosing jitters yesterday.”
The agreement between Arcadia and the seller is now more than two and a half years old, and Duckworth estimates that in the interim the land has doubled in value. “Naturally, the landowner feels that he should get more, and naturally we feel that a deal is a deal. Usually we would prevail, except that there was a slipup. When our engineers laid out the project, they created a drainage easement that encroaches on Wrigley’s five acres. Normally they would never have done this, but they probably thought it was all part of the same project. We weren’t paying attention, and we didn’t catch it. Since the seller approved all the drawings, we feel we’re in a strong position, but technically it’s a violation. To avoid litigation and keep things moving, we’ve agreed to pay an extra hundred thousand dollars for the easement. I try to think of it as eight hundred dollars off the price of each lot.”
In January 2005 Arcadia organizes a day trip for the three builders to Florida, to visit Celebration. Disney’s planned community is probably the best executed of the neotraditional projects, and Jason wants the builders to understand that they should be aiming high. Since LRK is also providing the town architect for Celebration, Mike DiGeronimo will head the tour.
Celebration, begun ten years ago, has grown to more than ten thousand residents. Although it’s an overcast day, the place looks attractive. The recently completed portions have the slightly antiseptic appearance of all new master-planned communities, but the older neighborhoods have aged nicely, with mature trees and established landscaping. The landscape features are important, since Robert A. M. Stern and Jaquelin Robertson, the planners of Celebration, modeled the community on a classic garden suburb, with many small greens and parks.1 The houses are in a variety of styles. The Spanish Colonial villas look particularly at home, as do the Lowcountry bungalows, with their deep verandas. By contrast, the Georgian town houses, which would be suitable for a London square, look odd shrouded in palmettos.
The tour focuses on a neighborhood that is being developed by a large production builder. DiGeronimo points out the simplicity of the architecture. He talks about one-sided houses and how corner lots need to address both streets. What makes a strong impression on the visiting builders is that these rather simple-looking houses on small lots are selling briskly. The group tours a model home, a four-bedroom Craftsman-style bungalow with a tiny back porch, that goes for half a million dollars. The Orlando real estate market is booming, and house prices have doubled in the last five years.
After lunch at the Celebration clubhouse, the builders discuss how they will differentiate their products — to home builders, houses are always “products.” Ryan will sell the least expensive houses, NV the most expensive, and Hovnanian will be in between. They discuss logistics. Having three different contractors on the site at the same time will require close coordination of the various trades. The builders agree that it’s important to have their lots in separate areas, to minimize friction between the work crews. “It’s easy for us to agree around this table,” says Brad Haber of Hovnanian, “but our guys in the field are pretty rough, and these lots are small. There’s not much room for getting materials and equipment in and out.”
I talk to Haber on the plane. He’s been with Hovnanian for two years, in charge of land acquisition for the Delaware Valley division. I ask him about New Daleville. “It’s only forty-five houses, but it’s a chance for us to learn about neotraditional development,” he says. “And it’s such a small project that if it doesn’t succeed it won’t be a disaster.” He would have preferred to take all the lots, rather than having three builders on the site, since the price range will be small and the competition will be fierce. He’s also conscious of being squeezed between N
V and Ryan, who are basically part of the same company. Haber describes the different business strategies of NVR and Hovnanian. “NVR are the top performer of all the publicly held national builders, so they have to keep delivering steady growth. They tend to buy land anywhere and then figure out what to build on it. Our strategy is to produce a variety of products across the whole market. In metro Philadelphia, for example, we’ve got single-family homes ranging from the mid–two hundreds all the way up to the mid–seven hundreds. With such variety, we tend to be very analytical.”
A month later, I ask Jason about the final negotiations with the builders. He tells me that NV and Ryan have signed contracts and are working with DiGeronimo to finalize their house plans but that Haber has asked for an extension to the due diligence period. “I’m surprised, because K. Hov. came in with the strongest bid. I hope they’re just being careful,” he says. A week later Hovnanian pulls out of the project.
“The decision was not made lightly,” says Haber when I ask him about the change of heart. “We were comfortable with our original house price estimate of three hundred and twenty thousand dollars, but when we looked more closely at the project, we realized that it needed to be closer to three hundred and eighty thousand. In this area, that’s sixty thousand dollars above the market price for a similar house on a one-acre lot. Is this premium too big? We just don’t know. Hovnanian has done neotraditional communities in other parts of the country, but not in Chester County. So we’re not sure how strong the demand for this kind of house on a small lot will be.”
Last Harvest: From Cornfield to New Town Page 18
