CONSTRUCTIVE CHANGE
To get by, builders in the area have turned to house calls,' subsidized projects, smaller developments.
June 15-1991

By Joe Catalano. Joe Catalano is a free-lance writer.

FIVE YEARS AGO, Michael Dubb and Leslie Lerner were building $500,000-and-up condos and single-family homes in Nassau County. Today, their Williston Park firm, the Beechwood Organization, is constructing affordable two-family houses in Brooklyn that are partially subsidized by the state and New York City. Jack Conner's Patchogue firm used to build several office buildings and warehouses simultaneously. When the commercial real estate market turned sluggish, he decided to diversify into residential buildings in an effort to keep his staff working; he had noticed there was still a demand for lower-priced units. Jack Conner Inc.'s first residential project, Seacrest Village in Patchogue, opened a sales office three weeks ago with 30 condominiums priced from $99,000. If that project succeeds, he may do more, Conner said. Many builders on Long Island and in New York City have found that cutting costs and profit margins wasn't enough to survive the lean years that began in the late 1980s. They also had to shift the focus of their business. Some, such as Beechwood, have turned to building subsidized housing. Some are building smaller projects, or targeting different or narrower market segments. And one Long Island builder is making "house calls" - if you don't want to buy a home at its development, the company will build the same home on your plot, or find a plot for you. "The smart builder realizes that he has to adjust to today's market," said Arthur Kunz, director of the Suffolk County Planning Department. "If he doesn't, he won't be around for tomorrow's market." As developer Charles Mancini, vice president of the Park Ridge Organization, put it: "You adjust or die. It's the same as in any business."

One builder that won't have to worry about the future for a while is the Beechwood Organization. The decision by Dubb and Lerner to switch from luxury homes in Nassau to subsized housing in Brooklyn has produced work for the firm until 1993. The company already has built 325 houses in Bushwick and Williamsburg. The partners looked into diversifying in 1986 when things were still booming. "We knew the hot market couldn't last," Dubb said. They managed to sell all their luxury housing before the market turned, and had their first subsidized project in Bushwick approved and ready to break ground by 1987.
The recession has made subsidized housing more attractive to a number of builders who previously had shunned it, said Kathryn Wylde, senior vice president of housing for The New York City Partnership, a private, Manhattan-based organization that matches lenders and developers, such as Beechwood, with subsidized city housing programs. Five years ago, when a new subsidized project was announced by the partnership, "it felt like we were giving a party where nobody wanted to come," Wylde said. She had to go to builders and beg to get just one firm to bid. In contrast, when invitations to participate in 25 projects went out last November, 70 qualified builders responded, Wylde said. More than half had never been involved in a subsidized program. Three weeks ago, 22 firms were awarded projects.

Many builders once avoided subsidized housing because they didn't want to get involved with all the government paperwork - something Dubb said has been streamlined over the years. Also, when the market was hot, builders could make a larger profit on other projects. Profits in a subsidized development are limited. In the partnership's program, the cap is 10 percent of the builder's costs. Wylde hopes that builders who began doing subsidized housing because they were desperate for work will continue to seek such jobs when the market rebounds. Beechwood, for one, says it will. Dubb said his firm likes working with the partnership because of the personal rewards he and his partner have received. "When we built a $700,000 home and there'd be a loose tile, the buyer would threaten to sue us," Dubb said. "When you build a subsidized home, you deliver it and the new owners say, `Thank you.' " He said the company's projects have helped to rebuild Brooklyn neighborhoods. Long Island also may benefit from this switch in builders' strategies. Beechwood is talking with the Long Island Housing Partnership about building affordable housing in Nassau, and Park Ridge will soon begin building 72 homes in Manorville in conjunction with the Long Island group. In another strategy for coping with tougher times, the Strathmore Organization in Coram is offering to build a home at either its place or yours. Strathmore's Achievable Custom Built Homes program allows a buyer to purchase one of nine model homes - the same models offered at the company's Strathmore on the Green development in Middle Island - and have it built on the buyer's land, or on one of 200 individual lots Strathmore owns on Long Island. Strathmore also will work with real estate brokers to locate ready-to-develop land in the community the buyer wants to live in, said Neil Eisner, vice president of real estate operations.

The nine models, all on display at Strathmore on the Green, are priced from $63,990 to $107,990. Prices for plots in Strathmore's inventory are $25,000 to $60,000, with most between $35,000 and $45,000, Eisner said. A land-and-home package can be purchased for as little as $88,990, he said. Financing is available.
The program provides an option for buyers who like Strathmore's homes but want to live in areas where the company doesn't have a development, Eisner said. By building on individual plots, Strathmore reduces its costs by avoiding amenities usually required in large developments, such as roads and sewage treatment plants, Eisner said. Achievable Custom Built Homes has produced 21 sales in two months, Eisner said. That's one more sale than the company's two active developments - Strathmore on the Green and Windemere, a townhouse project in Bay Shore - produced in the same period. Eisner said he expects continued strong sales for the custom home program. A new strategy at the Ronkonkoma-based Park Ridge Organization is to focus on narrower segments of the market in each of its developments. This method may have helped Park Ridge achieve success in a market area that has been especially weak in recent years: trade-up homes selling for $350,000 or more. Four weeks ago, Park Ridge opened Vanderbilt Manor, a single-family house development in Dix Hills on land the company has owned since 1987. The houses are comparable to other new dwellings in the area. However, Mancini said that by watching costs and keeping down profit margins, the company was able to price the houses as low as $599,999, compared to the $650,000-to-$700,000 range offered by competing projects. Seven of the nine houses have been sold, Mancini said.

Many firms are starting to build smaller developments because they take less time to sell out and are easier to finance at a time when lenders are feeling the heat from bank regulators. In the mid-1980s, Klein & Eversoll concentrated on developments of 50 or more homes, said Peter Klein, executive vice president of the Commack-based builder. Now the firm is putting together projects with half as many units. Land just purchased by the company in Hauppauge is for a 20-home development, he said. A larger project has to draw buyers from a bigger area to succeed, Klein said. Now the firm is looking at Long Island as a number of smaller markets, and is targeting people who live near a project with direct mail and advertising in weekly newspapers. Klein concedes that a smaller project "gives you a little less room to spread your [land improvement] costs," but he added that lower land prices have helped to offset those costs. Kunz said the average number of units in subdivision plans reviewed by the Suffolk County Planning Department is about 12, compared to 20 or 30 a few years ago when the market was hot. He said one reason for the downsizing, besides easier financing, is that there is likely to be less community opposition to a small project.
Developers also are becoming more savvy with land purchases, said Mancini, former president of the New York State Builders Association. In the mid-1980s, many builders were buying land and placing it in inventory for future development. It seemed like a wise strategy at the time, Mancini said, because land prices were rising 15 to 20 percent a year, while financing charges and taxes produced annual carrying costs of 12 percent. But today, many developers won't buy land until they're ready to build - and they prefer land for which government construction approvals have already been obtained by the previous owner. Another tactic employed by some developers is to buy land on a per-lot basis as units are sold, rather than buying all the land for a project at once. This strategy reduces carrying costs, which helps the developer build homes less expensively, Mancini said. Developers can find owners willing to sell land piecemeal because the owners are often eager to get rid of it - especially if it was purchased at the height of the market. In fact, some owners, like the Holiday Organization of Westbury, have even let parcels revert back to the previous owner if development wasn't feasible.

Some developers now prefer to build one development at a time, selling all units before starting another project. That's the new goal of the Kaiser Organization of Forest Hills, Queens, although it didn't quite work out that way at The Terraces, the company's new, 27-townhouse development in Port Jefferson. President Robert Kaiser said slow sales at Equestrian Estates, a Hauppauge development of 19 single-family homes, has given the firm a temporary two-project overlap. "We'll worry about future projects later," he said.
The Terraces has undergone a number of changes to make it more salable since the land was purchased 18 months ago, Kaiser said. It was originally targeted at empty nesters - buyers who need less space because their children have left home. But after a few months, Kaiser concluded that he was limiting his market. He also encountered resistance to the planned $400,000-and-up asking prices. Three new models were designed and prices were reduced - the range now is $329,000 to $399,000. The townhouses are being aimed not only at empty nesters, but younger married couples and families who want maintenance-free living, Kaiser said.
**
Paper Loss
The number of residential building permits on Long Island in 1991 is
expected to be only a third as high as the yearly average for 1985-1989.

1985-1989
(annual average) 9,293

1990 5,024

1991
(projected) 3,300

SOURCE: Lomas Mortgage USA

Copyright 1991, Newsday Inc.
Joe Catalano, CONSTRUCTIVE CHANGE To get by, builders in the area have turned to `house calls,' subsidized projects, smaller developments.., 06-15-1991, pp 36.

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