Once our map recorded, the call started rolling
in, and I'll tell you why. Yeah, that becomes
public record and then people say, okay, let's
go for that. Ever wonder what really happens
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today, this topic came up with us in real time.
Actually, it's a situation that we were just
recently faced with and thought it would be an
interesting topic to share with you. And that
would be tonnage builders and how they acquire
land or how they find out where land is available.
As a small builder, obviously we have to do a
lot of due diligence to find these things and
there are some short cuts that other builders
are doing and so interesting that we've been
approached. And so wanted to share that with
you guys, thought it would be interesting. So
Michael, I'm gonna let you take it away from
here and kind of give us the backstory and a
little bit of information on what you've experienced
and what we've seen and kind of how they do it.
Yeah, I mean, like you said, it happened in real
time. And I want to clarify, when we say tonnage
builders, we just mean a publicly traded builder
that you've probably seen signs for in your town.
builders are all over the country or at least
build in half the states, right? And they're
backed by Wall Street and bond money. And I mean,
they have a lot of capital behind them and they
live quarter to quarter. So they're not so concerned
about. always how much they're going to make
on each house. Many times they're concerned about
how many rooftops they're going to add and how
many homes are going to close out for the year
because those are all things that drive their
share price. So they live for their share price
and we live more for our overall vision and of
course we look at very carefully the margins
on each individual house. Those are all very
important when you're running a small home building
firm. We don't have bond money. We have a limited
amount of capital. that we have to be careful
with, right? And we have to put our efforts into
things that are going to be very lucrative for
the company and satisfy our overall vision and
are going to excite us and get us out of bed
in the morning. So that being said, they don't
have the same standards when it comes to profitability,
when it comes to the desirability of the parcels.
What they're looking for a lot of times is turnaround
time, quantities, and basically footprint. We
had a subdivision a year ago, the serene project
that was approved a year ago, and since then
we've been approached three different times by
large tonnage builders or publicly traded builders.
The last one, which was because we were the farthest
along, we had all our utility laterals in and
we looked ready to go. All the grading was done.
Mind you, this is only six lots, but we had done
a lot of work. To pull back the curtain, it was
about a $700 ,000 worth of work. All the utility
laterals, all the grading, everything. We had
to demo a house that was there and remove the
foundation. We had to abandon septic tanks because
we densified this area. So we had done all that
legwork. We had already had the map recorded
once our map recorded and I'll touch on this
later Once our map recorded the call started
rolling in and I'll tell you why So that yeah
that becomes public record and then people say
okay, let's let's go for that So what brought
this to my attention and brought it up in conversation
with you was that our last offer was As much
margin what we would have made on selling the
six lots to this other builder is only about
20 % short of what we plan on making for the
entire project. So land plus improvements sold
to this ex -builder would have been almost as
profitable as land plus improvements plus the
houses plus selling the houses plus the margin
on the houses. Now, could I be underestimating
what we'll make on the entire project if we build
it out? possibly. I tend to go more conservative.
I adjust for a 10 % market correction. I adjust
for 10 % increase in cost of construction. So
there's kind of about a 20 % delta. So that could
explain some of it. But there's a good chance
that cost of construction ends up 5 % higher.
Market comes down 5%. So it's probably not going
to go from 20 % fluff to zero, it's probably
going to go from 20 % fluff to like 10, 12 %
fluff. So there's always going to be something
that was off, some sort of surprise and contingency
in there. So that being said, we have a lot of,
a lot of fluff built in, but when you're seeing
another builder coming in and saying, wow, how
are they going to make any money doing this,
giving us this kind of margin on these lots,
almost they were offering us, uh, yeah, almost
a half a million dollars per lot with, uh, well
for them. How is that a thing that fits? A couple
of things. I racked my brain on this. I could
build a hundred houses a year if I could spend
that kind of money on lots. But I think what
it is is that they do a lot of their repeating
plans. They get a lot of volume discounts. They
know exactly what those plans are going to cost.
I've essentially removed all the unknowns for
them because I've done all the laterals. I've
done all the approvals. I've done city council.
I've done everything. And I think that's what
it is, is that I've removed so many unknowns.
The vertical cost of construction for them is
basically, you know, there's no unknowns in that
as well because they built this, they're going
to build two models and they built each of those
models 500 times over the last five years. So
I think that that's a big part of it. And then
I think that comes back to just really their
footprint and their numbers. Let's say they already
have that serene for instance, is a low density,
low slung product. This particular builder has
a lot of that exposure or has a lot of that in
their repertoire. And that's kind of one of their
big product offerings. So if they could have
an existing model three miles away and say, oh,
by the way, we're not going to model over there,
but you can use this model and we're going to
take, you know, this is going to be part of it.
We're going to annex it to this other. subdivision
from a marketing standpoint, not from a legal
standpoint, but we're going to market against
this. It has no HOA and yeah, we can pay almost
a half a million dollars because we're building
at $80 a square foot and we can sell them for
$400 a square foot, let's pretend. So they can
basically give me that margin because they wanted
the land. Now I didn't accept that offer for
many reasons. Number one, we were way too invested
in this project. Number two, I'm not in the business
of land improvement. I'm in the business of building
houses and I just couldn't, it didn't feel right.
I want to see it. through. And we already had
the homes designed. We've already got the marketing
collateral. There was no way in hell I was going
to let the almighty dollar win out all that work.
And I just I'm far too passionate about this
business to take an offer like that that would
have been financially very lucrative and would
have been a lot less stress because we would
have been out of this project six weeks ago.
It would have been done. We would have had our
money. And that would have been it. I would have
had to watch. It is easy to imagine. how some
builders could get caught up in that and, you
know, kind of get gobbled up by the big guys
because there could be a business model in that
if you weren't passionate or if you weren't committed
to seeing it through. And some people don't even
know what they would put there anyway. All they
are looking at it as maybe they're passionate
about taking gross land and making it look buildable.
That mean people, you know, if that were your
passion, you could have a full business in that,
assuming you have the capital to do it because
there's a lot of demand there. In fact, a good
friend of mine, who we bought one of our other
subdivisions, he doesn't normally get them as
far as we got serene, but he had one teed up
with a notice of final action from city council.
Shopped it to me and we took it and that is our
Westridge product. Um, I had to do everything
else. We still have to get the utility plan,
the civil improvement plans before they'll record
that map. So that notice of final action expires
in 2027 and I bought that Westridge product in
May of this year. So he had about two years left.
He was kind of saying, I either need to record
the map or sell it to a developer who has enough
time to record that map because city council
actions are going to expire in two years. So
we couldn't just sit on that. We got to at least
get the map recorded, which we're doing. We'll
probably have that map recorded in three months.
cell. And we've been roached. We've been approached
by one of those big builders, again, even on
that parcel. Right, and it's nothing I'm interested
in moving. I'm far too passionate about that
one, especially. And then our Argos project that
we took out of the City Master Plan, and we took
out of public zoning and into... We haven't mentioned
that one here yet, so that one will be new for
our audience. Maybe launching fall 26, sales
in 27. That project, as soon as the city council
did their notice of final action, that is public
record. And there are builders and land brokers
who just troll the notice of final actions on
the monthly city council meetings and say, oh,
this parcel got approved, this parcel got approved,
this parcel. Okay, I'm going to go approach these
guys. And I've gotten called, one guy called
me. I'm not kidding. Would say probably 11 times
just checking in on you. Do you still want to
develop it? And by the way, I mean, it's gonna
be hard for you to develop that I've never heard
of your company, you know, okay, that's my I
mean a lot of people haven't heard of my company,
but I have But and I'm developing it. I know
what I'm capable of. I'm not afraid of it So
I think that they use a lot of that they think
oh, maybe this is just a landowner. I used you
know, what anecdote with you yesterday is that
They're looking for land that has a pulse to
it because there's a lot of blank land out here,
but they're looking for land that... Oh, something's
stirring over there. They've got a plat map in
mind. They've got something designed. They're
doing something. Let's figure out what this is.
And if you're a land broker, for instance, you
don't really care what it is because you probably
have a repertoire of buyers that you might call
terribles and say, oh, it was rezoned for commercial
or C2 activity, outdoor activity, things like
that. And I can shop this to drive -through pads
and gas station pads and things like that. It's
a big parcel, maybe I can shop it to a big anchor
tenant and do the accessory structure. So there's
a lot of that. It doesn't always represent demand
because some of the calls were brokers that were
looking to bring me and an end user together,
even on the residential. Now on the residential,
they're shopping against big builders or some
other local builder like myself who builds luxury
homes and just says, you know what, find me parcels
that are ready because I'm ready to go now. But
I found it interesting and it's... It's been
eye -opening because if I ever did get burned
out from developing and I wanted something that
had basically zero liability, there's no recourse.
I mean, you bought the land, here's the map,
that's on you. I don't care about if your refrigerator
dies in a year or you've got a leak in your bathtub.
The things that we have to deal with and from
a warranty standpoint, there's no warranties
and it is lucrative. I mean, I don't think every
deal would be a serene home run, but... I mean,
it's a lot. It's a big business, and there's
a lot of margin there. Like I mentioned, my friend
Mark, who just trolls landowners. He's at step
one, where he's just hunting out landowners,
and he's been in this town for 30 years, so he
knows a lot of landowners. And they're ready
to go. Our Westridge project was that way. They
call them, I have two acres. I want to get rid
of it. He said, wait before we sell it, let's
get a map drawn. Let's get notice of final action.
uh the six month period that we went through
on Argos let's do that six month period and probably
double your land value because I wouldn't have
paid what I paid for that land if I didn't have
a notice of final action because I would have
never believed that they would have let they
would let us do what we're doing now Um, and
it's something crazy, but it's a small enclave.
It's 6 ,000 square foot lots. They usually like
to see larger half acre lots. It wasn't, uh,
it wasn't a no brainer for the city to approve
that. So the fact that he approved it and not
only saved me six months, but it saved me a hell
of a lot of unknowns. And then they did another
little thing, which was give me five months to
basically have it under contract and work on
the utility plan, the grading plan. basically
all of the civil improvements that I didn't own
the land yet. All I had was a non -refundable
deposit out. It was as good as mine, but I didn't
have to spend $600 ,000 on the land yet. And
I didn't have to do that until May. So I worked
on it for five months until then and closed in
May. And then now we're in October. We still
don't have a final map recorded. And they did
a lot of legwork for me. So it really shows you
the downstream, the upstream way that looks like
to develop. to go. They worked on it for six
months. I took the baton in January. It's now
October and we're not even going to have a final
map recorded maybe till January or February,
could potentially be later. So it really is astounding
when to think it is about an 18 month process
to get this going. So that being said, you can
see why the farther down the road you are, the
more valuable your parcel is. Mm hmm. More valuable
it is. And the the more opportunities to bail
on it. Right. So it's kind of a catch because
you got more invested. Now you have a love for
it. You're more in it, but the opportunities
are greater. So exactly. Right. Right. And it's
really comforting in a way, as long as that demand,
backstop demand stays there that up until the
11th hour, you can probably bail on it and make
money. So it is, you know, it is encouraging
and it is kind of a, um, It's a good and a bad
thing because it's double -edged sword because
it encourages you to take on more development
projects. You're saying, oh, worst -case scenario,
I can sell it once the note of final action is
approved. I can sell it once my utility plan
is approved. I can sell it once my parcel map
is recorded. I have all these off -ramps that
I can get rid of it if I decide not to see the
whole project or if something changes. When I
get over my skis somewhere else, I could kind
of bail on a project. Just proves that each one
is really a labor of love. And some of the times
you get and buy it and you're ready there, you
know, people don't always know how much emotion
has gone into that or how, you know, how much
you have learned to love that project because
you could have bailed on it and you didn't. Yeah,
exactly. By the time you're going vertical, you've
passed on several off -ramps. No, I don't want
to do that. I don't want to do that one. I don't
want that one. I want to see it through. It was
good. Yeah, and it interesting to get something
that somebody might not wouldn't typically know
about it It's certainly something that five years
ago. I didn't even know I didn't realize that
there was that much demand at every single stage
I figured that it was either raw land or completely
done already and that was the only place where
there was demand But I didn't realize all along
that stream. There's a lot of demand Interesting.
Yeah. Well now, you know now you guys know so
thanks for joining us for another episode and
we will see you next time thanks bye bye thanks
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