Real estate development predictions for 2023

by Timothy Inklebarger

Featuring the perspectives of:

Dave Barnhart, Division President – Homebuilding Division, First America Homes
Brad Chelton, President – Texas, Brookfield Residential
Jeff Dewese and Mike Miller, Senior Vice Presidents – Land Division, Signorelli Company
Tim Drone, President, J. Patrick Homes
Tim Johnson, Director of Sales and Marketing, Land Tejas

How is the shift in the economy affecting your community plans?

Dave Barnhart, First America Homes: First America Homes is cautiously moving forward with new lot acquisitions. We maintained a very disciplined approach to land and lot buying even through the surge in demand over the past couple of years, so we did not get out over our skis and overbuy. This approach will allow our company to continue growing through any potential down cycle.

Brad Chelton, Brookfield Residential: We aren’t changing the way we develop our communities — or the level of amenities we’re providing our residents. But we’re mindful of capital outlay and are paying close attention to the timing of our spend.

Jeff Dewese, The Signorelli Company: People are still moving to Texas and Houston and will continue to do so, driving steady demand.

New homes sales have slowed down to 2018/19 levels (which were great years) and interest rates are back to historic long-term averages … there is tight supply on lots, so we will stay on offense, simply solving for a more normalized market versus the uber hot market we had these last several years.

We are not slowing down in our launch of new master-planned communities. We are strategically finding ways to work with our builder partners in working toward developments breaking ground and developing lots. In 18–24 months from now, we see light at the end of the tunnel and want to be in a prime position to deliver lots. Lot supply is still very low for Houston and there is a lot of demand on the sidelines.

Tim Johnson, Land Tejas: According to the Texas Workforce Commission, Texas added 40,000 total non-agricultural jobs over the month. For the eleventh consecutive month, Texas reached another record employment level with non-farm jobs reaching 13,571,800. Since September 2021, Texas has added a total of 721,800 positions.

Also, per the Greater Houston Partnership, Houston should end 2022 with a net gain of 130,000+ jobs.

Land Tejas is optimistic about the outlook for the Houston economy as we head towards the end of the year and looking forward to future years.

Tim Drone, J. Patrick Homes : As a builder, we are always looking for lot positions in the best located master-planned communities in the Houston area. At this time, we are looking at several different opportunities to grow our community count.

What are the hottest areas in Houston for future master-planned communities?

Dewese: The Signorelli Company sees Montgomery County and Fort Bend County as two of the hottest submarkets in Greater Houston.

• Fort Bend County is not only one of the fastest-growing counties in Texas — it is also one of the fastest growing counties in the United States. As the most diverse county in the state of Texas, Fort Bend County is perfect for the multiple types of homes that can be found in a large scale, master-planned communities (MPCs).
• Also, one of the fastest-growing counties in Texas and the US, Montgomery County has low a crime rate, great schools and a small-town feel making it a great place to live and raise a family — all attributes necessary for a successful MPC.

Both of these areas benefit from convenient proximity to key transit corridors — and future expansions, including the Fort Bend Tollway and Grand Parkway expansion of Segments B and C in Fort Bend County — providing even more convenient access across Greater Houston.
These counties also continue to see increased demand in new home starts and master-planned communities can help meet this demand, while also offering enhanced residential experiences through commercial amenities like retail, office and healthcare spaces.

Chelton: Historically, the west and north areas of Houston have seen the most growth — and that hasn’t changed. Builders and developers have moved further west and north, as well as northwest and southwest. Buyer demand and affordability have pushed development out further in these directions.

Johnson: Land Tejas has communities located all over the Greater Houston area from North, South, East and West. All of these areas are growing fast, especially the west and northwest parts of town.

Drone: Montgomery County, Fort Bend County, Waller County.

How are you increasing your appeal to buyers and agents?

Drone:We are always trying to improve our plan offerings, our standard features and our processes to deliver a high-quality product. Additionally, we are always positioning ourselves in the most desirable master-planned communities in the Houston area.

Barnhart: We value our Realtor partners and work hard to ensure personal relationships with those quality agents who take great care of their customers. Now, more than the last couple of years, customers need help in navigating the challenges present in the market.

Chelton: In Houston, MPCs are well known and even sought after, particularly by relocation buyers. In a city without zoning, purchasing in an MPC allows the buyer to be a bit more certain of what will be built around them over time. And historically, when the market contracts, master-planned communities gain market share. I don’t know that we’re doing anything to increase our appeal to consumers and Realtors — we’re just staying the course with how we develop and market our communities — and working hard to deliver a quality product that will stand the test of time.

Dewese: We are currently increasing our appeal to buyers and Realtors for Austin Point and our new 3,000-acre community in Splendora by providing a unique lifestyle program for residents, encouraging them to get outside with nature.

Additionally, we are confident the MPC amenities, interspersed within a mix of housing products, will attract a variety of homebuyers and Realtors, and working out programs to continue to incentivize Realtors, much like the builder community has.

Johnson: In order to compete in a highly competitive market for MPC development, like the Greater Houston area, Land Tejas strives to deliver first-class amenity packages, conveniently located developments, highly acclaimed schools and partnerships with the top homebuilders to sell and build the homes in the development.

What hurdles are the most difficult to overcome in getting a new community developed, and how do you overcome those?

Miller: Whenever the Signorelli Company undertakes a new development, we are committed to community input. Our priority for any MPC is providing the right solutions for what the area residents want and need, as well as maximizing connectivity.

With Houston’s rapid growth, we also focus on how to manage school district capacity and, if we can, add to that with new schools within these MPCs. For example, our newest Conroe-area MPC will include an elementary school zoned to Conroe ISD to provide more opportunity for families to have their children attend this highly desirable school district. Currently, Conroe ISD rates 2nd in Texas for academic and financial performance, so we are excited to bring another school to this highly performing district.

Land pricing is also historically high so finding new opportunities for MPCs is challenging with today’s land pricing.

Barnhart: Solving for affordability continues to be one of the biggest challenges. At the end of the day, incomes in our market have not risen at the level to match our cost increases in land and development over the past couple of years, and so we need to get creative in order to solve for affordability.

Drone: From a builder’s perspective, the most difficult hurdle we are facing for future lot sections in existing communities is power.

Johnson: Some of the major challenges in bringing an MPC online include finding well located land close to major thoroughfares, creating infrastructure and proper utilities to service the homes within the development and delivering lots to home builders in a timely manner. All of these challenges can be overcome with proper planning and working with strategic partners that have the expertise and experience to help plan ahead.

What are developers looking for when developing a master-planned community?

Chelton: The old adage of location, location, location just doesn’t change — in good markets or bad. Location is always at the top of the list —whether it’s a location close to employment, freeway systems, good schools, retail and other shopping, etc. A good location is something that is paramount when bringing a new master-planned community to market.

Miller: MPC developers are focused on creating a ‘sense of place,’ blending live, work and play in a sustainable environment.

For starters, you need great real estate, mobility, quality location, good drainage and natural beauty. You also need great schools, quality medical, and quality of life conveniences that are a part of a family’s daily life.

We have seen how the expansion of key transit corridors like the Grand Parkway accelerate community growth, making it more possible to solve for the pillars of a live-work-play community.

Historically, the greatest MPCs had very few of the boxes checked [so] the developer had to create the solutions. TSC pursues land where we have a high degree of confidence that the growth in the region is eminent and mobility is on our side, along with great schools. With the balance of the equation, we can build and attract to our communities over time.

Johnson: There are several very important items that Land Tejas studies when considering a piece of land for development. The location of the piece of land in relation to major thoroughfares, how the school district services the development, access to utilities to service the development and its proximity to major areas of employment are all carefully considered before the land is purchased or developed.

How are rising interest rates impacting the development of new master-planned communities? What impact is it having on the kinds of houses and communities you’re developing?

Johnson: Higher interest rates for home mortgages tend to lengthen the buyer’s shopping cycle, as home shoppers take a more considerate approach to ensure they find the best home at the best price. That’s why Land Tejas partners with the very best home builders. The innovative home designs and the energy efficient features offered by these builders paired with world class amenities in a Land Tejas community help today’s home shoppers find a home and community that fits their family’s needs and budget.

Barnhart: In terms of the homes, the volatile mortgage market has forced us, as builders, to step in to assist our customers on the finance side. This means assisting in paying closings costs and in contributing to buy their rate down. Additionally, we are offering a free re-fi of the home for up to three years after closing through our lending partner Stone Meadow Mortgage. (They must have used Stone Meadow on the initial closing to take advantage.) This allows our customers to get a great deal on a beautiful First America Home today, knowing that if rates do drop then they will be in the perfect position to take advantage of that drop and lower their monthly payment with no money out of pocket.

Chelton: Larger scale MPCs typically aren’t significantly impacted by shorter term market interruptions, other than perhaps weathering a slower home sales pace. It’s hard to say what interest rates are going to do in the long run, but in the short term, they have certainly slowed down home sales. But because it takes 18 to 24 months to develop and deliver lots in this market, MPCs need to stick to a longer-term vision of delivering lots and providing housing options for consumers. For now, housing is where we’re seeing more of an impact in our MPCs. Builders (and developers) are having to mitigate affordability issues by looking at ways to provide smaller lot product; more density, if you will. Typically, you’d find more dense product types closer to the city center, but because we’ve seen such high-cost increases and historic appreciation in the last 18 to 24 months — along with higher interest rates — we are looking more seriously at bringing more dense product types to suburban MPC locations.

Dewese: Our focus is putting quality product on the ground that serves the needs of our customers. Yes, high interest rates are making it more challenging for our buyers, in fact they have lost over $100,000 in purchasing power in the last four months. A $400,000 buyer today can only qualify for $300,000 home.

What is important is that new home costs have come down, so we work with our families to help them find the right home at a great price, and we go the extra mile, offering financing solutions where they can make a better deal today price-wise, and can refinance out of today’s higher rates a few years down the road as we expect these rates to come down on the backside of the inflation issue.

What are some of your environmental initiatives for your communities?

Miller: We have always entered into developing new communities with [the goal of] being good stewards of the land. For us, mother nature made the land beautiful, we just have to respect it and honor it … we do so by protecting trees and the natural environment within our amenities as well as reforestation

We aim to make the land our brand — by being good stewards of the natural resources we are given and of the history of the land. For example, we will have existing irrigation canals converted to a canal trail system and natural pine trees framing our entryway in Splendora. Our amenities are focused on getting people outdoors — in healthy ways for our residents and guests to feel holistically well.

We turn constraints into aesthetic opportunities that become wildlife habitats for the surrounding animal neighbors for our MPCs to become a Certified Wildlife Habitat
We use alternative water sources for irrigating greenspaces and common areas.
By capturing stormwater runoff, we can then use the water for irrigation of appropriate landscape areas.

Wastewater reuse is a great way to irrigate common areas. This is water that is treated and safe and suitable for irrigation. We will use surface water when available to lessen the demand on ground water aquifers.

Drone: All of our homes are built to the Environments for Living Standards. In one of our communities, ARTAVIA, we install rain barrels.

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