Lotta Lots? Expensive Lots May Have Reached Saturation

Experts say there’s an oversupply of upscale residential lots in Northwest Arkansas. But some sellers of those lots disagree.

Tom Reed, the owner of Real Estate Market Data Inc. in Springdale, said Northwest Arkansas has enough upscale residential lots right now to last all the way to 2016.

Reed’s estimate is based on the current levels of lot delivery and absorption remaining about the same as they were in 2005.

Brandi Willis, director of research for REMDI, said there were about 1,000 lots priced at $70,000 and up in Benton and Washington counties as of Dec. 31. (Our experts used $70,000 as the defining point for an “upscale” lot.)

Of the 1,000 upscale lots, only about 100 sold during 2005, Willis said, or about 10 percent of the available market. She noted that the figure is a bit misleading because the market is constantly adding and selling lots, but that’s how the end of 2005 shook out.

By comparison, there were only 118 lots priced at $150,000 and up.

But it’s hard to call it an oversupply if there’s still demand in some of the area’s most expensive subdivisions.

Kathryn Scherer, a broker associate for Orion Real Estate Services of Fayetteville, said about 170 of the 250 lots at John Tyson’s Clear Creek subdivision in Johnson have sold, and prices now range from $90,000 to $500,000 per lot.

In February 2004, Orion told the Business Journal that lots in Clear Creek were selling for $75,000 to $400,000, not including the initiation fees for the Blessings golf course, which cost as much as $25,000.

Orion is the exclusive listing agent for the gated Clear Creek subdivision, which surrounds the Blessings golf course.

Sales at Clear Creek for 2005 averaged about two lots a month, Scherer said.

Down the road at The Peaks, an upscale subdivision in Rogers, the average lot price is $90,000 and finished homes cost from $375,000 to $485,000.

The Peaks was developed by partners Neil Johnson and John David Lindsey.

Lindsey said the development is focused on constructing and selling homes and not just lots, but that they have sold some empty lots.

The Peaks began selling in the spring of 2005, and so far the group has sold 49 of the 110 lots available, or a little more than one-third, Lindsey said.

“We feel like 2006 is going to be very successful,” he said about the pace of sales.

Lindsey doesn’t have his eyes set on developing another upscale subdivision at the moment, but he didn’t rule out the possibility.

Waterford Woes

A plastic bottle of Perrier jounced in a cup holder as developer Gary Combs steered his four-door Ford pickup toward the White River. A series of yellow sticky notes with phone numbers and reminders were plastered on the truck’s rearview mirror. Combs nonchalantly navigated a steep, sandy ramp and parked feet from the torrent swelling from a recent — yet rare — rain.

He was showing off Waterford Estates in Goshen, which will have covenants that include a 3,000-SF minimum and standard upscale requirements such as architectural shingles. Home prices will start in the $350,000 range.

The subdivision has been open for sales for about a year, and so far only about 12 of the available 200 lots have sold.

Combs and Gary Head, the trustee of the late Ronnie Hissom’s estate, recently dropped the price for some of the subdivision’s home lots by 20 percent in an effort to spur sales.

Three-quarter-acre lots at Waterford started in the $100,000 range when they went up for sale, but the minimum-size lots now start at $79,900.

Waterford was developed by Combs and Hissom. The pair invested about $15 million on the 400-acre subdivision with 200 planned residential lots and 200 acres of conservation area.

It’s a neighborhood like no other, Combs said.

The lack of sales to date aren’t a reflection of low demand for the subdivision’s lifestyle, Combs said. Instead, he cites problems with the listing agent, Hissom’s death and squabbles with the city of Fayetteville over sufficient water pressure as bumps in his roads.

But now that the $2 million centralized clubhouse is nearing completion and a few houses are rising out of the prairie, he thinks sales will follow suit.

Too, the partnership recently opened the subdivision to four other listing agents, bringing a total of five out the river bank.

As of mid-March, Virgil Knight Construction of Fayetteville was building 10 homes at Waterford.

Shannon White, executive vice president with Bank of the Ozarks, helped refinance the $15 million project from Chambers Bank of North Arkansas about six months ago.

White said the typical absorption rate on subdivisions is four to five years.

“It may take a while,” he said about Waterford’s lots, “but they’ll sell out.”

Lots of Lots

Philip Taldo, principal broker and co-owner of the Griffin Co. Realtors in Springdale, agreed that a $70,000 plus lot classifies as “upscale.”

Taldo’s company developed the Willow Bend and Enclave subdivisions in Springdale, both are considered slightly upscale. The Enclave had 66 lots in the $80,000s, and sales went about as expected, he said. Sales slowed during the last 10 percent or so, which is usually the case.

He said most builders figure that a lot needs to be about 20 percent of the value of the home being built on it. Too, an average build-out value on homes in the area is about $125 per SF right now.

With those numbers, he figures most lots in the $70,000 range will require a 2,800-SF home with an average retail price of about $350,000.

According to the Arkansas Realtors Association, the average 2005 cost of a home in Washington County was $187,035 (the state’s highest average), in Benton County it was $179,708 and the statewide average was $148,333.

Willis said there were 377 homes priced at $400,000 and above sold in the two-county area in 2005.

Taldo said there might not be a “glut” of upscale lots, as long as demand remains at its current level, but there seems to be a considerable number of lots for sale in the $60,000 to $70,000 range.

He guesses there are about 5,000 lots in Northwest Arkansas in that price range that are somewhere in the pipeline, putting houses that will eventually be built for those lots in the $300,000 to $350,000 range.

Reed and his staff agreed that there is an abundance of lots priced between $60,000 and $70,000. But Willis said there were 523 ready-to-sell lots in that range at the end of the year.

That’s 10 percent of Taldo’s pipeline estimate, but still a significantly large number for that range, she said.

Waterford Way

Standing on the back porch of Waterford Estate’s new “clubhouse,” Combs looked out over the undeveloped landscape.

The building — which isn’t really a clubhouse but is supposed to be a neighborhood hangout — contains a commercial kitchen, sitting rooms and will have flat screen TVs for game days and the morning news. A small swimming pool is in front of the building, waiting for summertime.

Combs said there’s a good market for what he’s offering at Waterford. The sales hook for the subdivision is in the undeveloped green space and the White River (opposed to a sculpted golf course and all its trappings).

He said dads can get home late and still take the kids down to the river to fish because it’s a short walk from just about anywhere in the subdivision.

Combs pointed out a hawk sitting in a tree waiting for a mouse.

“You don’t see that everywhere,” he said.

Pie in the Skyline

A great deal of residential data is available from the “Skyline Report,” a report on area real estate compiled by the Center for Business & Economic Research at the University of Arkansas’ Walton College of Business.

The report is sponsored by Bentonville-based Arvest Bank Group Inc., which paid CBER $147,431 to conduct the study from April 1, 2004, through May 31, 2005. The bank paid $252,895 for CBER to study the market from June 1, 2005 through May 31.

As a goodwill effort, and in the interest of the common goal of growing the economy in Northwest Arkansas, the bank makes some of the data available to the public.

According to the report’s fourth-quarter highlights, there were 16,765 lots in 239 subdivisions in Northwest Arkansas, with an additional 19,321 lots approved, yet not active.

Of the 16,765 lots in active subdivisions, there were 13,790 in seven towns in the two-county area (see chart). There are 17,176 lots approved, but not yet active in the seven towns.

The Skyline Report doesn’t have reliable information on the prices of lots available or sold in the market.

Kathy Deck, associate director for CBER, said that excluding pricing information, the absorption of developed lots is still strong and was slightly higher for the fourth quarter of 2005 than it was for the same quarter in 2004.

But she and several others interviewed said there are a potentially alarming number of developed residential lots on the market.

Deck said that construction growth at its current pace is “unsustainable.”

The Skyline Report showed the average price of houses sold in Benton County during the fourth quarter of 2005 was $238,710.

The average price for the same quarter in Washington County was $235,648.

Both are much higher figures than the year-long average from the Arkansas Realtors Association.

On average, Deck said, the more expensive a house, the longer it stays on the market in both Benton and Washington counties (see chart).