Downsizing Developers: 'Stayin' Alive'

Dave Alan Homes in Minneapolis'

Bryn Mawr Neighborhood

Feel the city breakin'
And ev'rybody shakin'
And we're stayin' alive, stayin' alive.
Ah, ha, ha, ha,
Stayin' alive.
Stayin' alive.
Ah, ha, ha, ha,
Stayin' alive.

--lyrics, "Staying Alive" (The Bee Gees)

How does a local home builder weather an epic downturn in new construction amid a glut of upper bracket homes?

By going down-market (relatively speaking, at least).

New Math

In this case, Dave Alan Homes appears to focusing more on mid-tier neighborhoods like Byrn Mawr in Minneapolis, rather than upper bracket spots closer to the lakes or in Edina.

So, instead of buying tear-down homes for $300k-$350k and putting up $1.2M new construction in their place, builders are plunking down $150k or so and building $500k-$600k homes.

In fact, $150k is exactly what the buyer paid for 4xx Thomas Ave. South in February (market time: 1 day).

Judging by the state of construction I saw when I drove by this morning, the home is still about 3 months away from completion (note: the home pictured above is another, similar-looking Dave Alan home, not the one on Thomas).

P.S.: Since it's not on MLS, it's possible that this home is being built for a client (rather than as a "spec home").

"Ummm . . . Nice Tree for Sale??"

I just came across this photo -- the lead photo -- on a current MLS listing (there are a maximum of 10 photos, but only one appears on the first page of the MLS listing).

And no, the home's not listed for less than $100k somewhere in the 'sticks; it's a Golden Valley home on the market for $450,000.

It turns out that what's for sale is actually a to-be-built "spec" home.

The usual convention in such cases is to show some sort of architectural rendering of the planned home, even if it's subject to change.

Housing Market "Beached Whales"

What's Wrong With This Picture?

You don't know who's swimming naked until the tide runs out.

--Warren Buffett

So, what's wrong with this Minnetonka home (pictured above)?

That is, besides that fact that the front (and most important) photo on MLS looks like the home is stuck in a winter time warp, and it's now almost May.

Actually, nothing.

I just showed the home, and it's very impressive.

Great floor plan; open, spacious Kitchen; great owner's suite (and three more bedrooms up).

So what is it, then?

The rest of the block.

Whereas this home, built in 2006, is selling for $649.9k, all the other homes on the block are easily 50 years older, less than half the size, and worth hundreds of thousands less.

As the locals say, "uff da!"

Housing Market Time Machine

What happened?

This home -- and hundreds of other homes like it in the Twin Cities -- was built in 2006 at the height of the market.

At the time, homes were appreciating 15% annually, and the sky was a(n almost) cloudless blue.

Developers were getting ever-more aggressive putting up "spec" homes, venturing from "sure bet" neighborhoods to ones (like this one) where prevailing home prices were dramatically lower and nothing had turned over yet.

Their thinking, no doubt, was that the whole block was a candidate for redevelopment, and that their smart, new home would soon be surrounded by other, similar homes.

But then all of a sudden . . . the tide went out.

For now, this is the only new home on the block.

From the street, it's hard to escape the image of a beached whale, now stranded a long way from the receding ocean.