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Business Observer Friday, Aug. 13, 2004 17 years ago

Finding Green in Green

WCI Communities Inc., Florida's largest master-planned community developer, plans a major expansion in the Sarasota-Manatee market.

Finding Green in Green

WCI Communities Inc., Florida's largest master-planned community developer, plans a major expansion in the Sarasota-Manatee market.

By Sean Roth

Real Estate Editor

WCI Communities has a hit on its hands. The Bonita Springs-based $1.4 billion residential developer has a sleeper project that is leading its more than 30 residential communities in sales, and it's right in the company's backyard.

The community, the Venetian Golf & River Club in Venice, and its unexpectedly high level of success is helping to fuel a new wave of interest in the West Central market - Perdido to Sarasota County - from the largest master-planned community developer in the state.

Overall, WCI has made a name for itself developing single and multifamily homes primarily in Florida. The publicly held company operates as a turnkey developer, acquiring property, securing regulatory approval, designing, building and then selling each residential community. WCI also operates several other sides businesses including Prudential Florida WCI Realty, the WCI Design Studio, a retail division, and divisions that provide mortgage, title and property-management services.

Earlier this year, the National Association of Home Builders and Builder Magazine recognized WCI as America's Best Builder for homes that cost more than $500,001, based on WCI's financial performance, marketing, product design, customer service, quality and community involvement. The company is best known for building master-planned golf-course communities.

"This (West Central) division is on pace to be the fastest growing division in the company," says David Fry, senior vice president and general manager of WCI's Amenities Division and Prudential Florida WCI Realty and division president of West Central region homebuilding. The West Central division is expected to sell 675 homes this year for a sales volume of $210 million, a 20% increase over 2003.

In addition, while the numbers are preliminary, the company projects that with the addition of three new communities to its current inventory, the division will double closings and dollar volume in the next three years.

And the developer plans even more growth.

WCI is looking at 18 possible land acquisitions in the region, of which six are in the hundreds of millions of dollars range. Not that WCI will purchase all 18 sites.

WCI has more than 50 years experience building in Florida, but its time in the Sarasota-Manatee counties market has been relatively short - only five years.

"Sarasota and Manatee were evaluated as having tremendous opportunities," says Rob King, vice president and senior project manager. "There wasn't a lot of sophistication in the major (master-planned community) players here. I worked for the largest base builder/developer for a while, Bruce Williams (Homes), prior to joining WCI. Really if you look other than Lakewood Ranch, there was no real sophistication level or quality of products being offered. Sarasota has been anti-development for years ... and Manatee was a laid-back agricultural-based county that was really turning to housing and services. So clearly we had to be in that marketplace."

WCI founder and CEO, Al Hoffman Jr., looked at Manatee County in the mid to late-'80s and decided it'd be better to buy and build in the area after more growth had occurred, King says.

In 1999, WCI started Waterlefe Golf & River Club, a 634-home golf-course community on 622 acres on State Road 64 east of Interstate 75 in Manatee County. That development is set for full sell-out early next year. In 2001, through a relationship with the Ritz-Carlton's management company, WCI built the 80-unit condominium Tower Residences at the Ritz-Carlton, Sarasota. That development is sold out.

Two years ago, planning work started on the 1,360-home Venetian golf-course community.

Green and profitable

As for what made the Venetian so popular, most of the credit is being given to the unusual level of Green Building that WCI is putting into both the development's design and home construction. Green building is a type of construction that uses environmentally friendly and sustainable products, and it also improves indoor air-quality, energy usage and promotes use of more healthy products.

The Venetian is the fourth community in Florida to be green-certified by the Florida Green Building Coalition Inc. (FGBC), and it's the first in the state to commit to having all of the community's homes individually certified.

At the same time, WCI had its Chip Powell-designed 18-hole golf course certified with the Audubon International Gold Signature, which means it met stringent environmental development requirements. Plus, the new community has been designed so it doesn't negatively affect a 70-acre preserve adjacent to the Myakka River.

In addition, WCI built a Venetian model home that is now the record holder in Florida for environmental construction based on the FGBC scale. The Casa Verde model home received 325 points out of a possible 400, beating out the previous record holder, WCI's Generation Green model in the Evergrene community in Palm Beach Gardens. Besides attracting attention from homebuyers, the new model has also received national media attention from CNBC's financial-news show "Bullseye" and BusinessWeek.

So what does all this health and environmental awareness mean for buyers?

"We are approximately 25% sold out in two years," says W. Stephen Walker, vice president and senior project manager for WCI. "We had planned this as a 10-year project. Right now, we are planning to be done in 2007. That would put us in five years ahead of schedule."

Green construction does add to the costs of building a home community. On a per house basis that additional cost at the Venetian amounts to roughly $5 to $10 extra per square foot. For a 2,000-square-foot home, that's as much as another $20,000.

"Community wide the commitment and the cost for the developer is fairly significant," Fry says. "To get in the ground with the Audubon standard, we are not talking $100,000, we are talking millions of dollars. Just the sheer nature of the design of the golf course, the Audubon standards, require you to leave littoral shelves for filtration of water in the lakes. That fill could have been excavated out of the lake ... We could have saved money on fill. Now, we have to buy it. That can cost millions of dollars. There is a financial commitment to a company for doing this."

Including additional land and homebuilding costs, green building has probably added about $20 million to the Venetian's overall cost, he says. And those costs are passed on to the homebuyers.

"There is no question that what we spend on a project helps us determine what we are going to charge for it," Frye says. "This is a perfect example of how you can take a commitment and turn it into an amenity. This preserve (at the Venetian) is going to have a boardwalk running through it out to the river. This is going to be a really neat amenity for the residents. But the commitment to keep that area wetlands obviously came as an expense."

WCI's typical niche residential project is targeted at affluent buyers. According to The Construction Guide, WCI's average permit value per residence last year was $258,444 - considerably higher than most of the areas other top homebuilders. As a comparison during the same period, Lennar Homes Inc.'s average value was $123,506, and Lee Wetherington Homes Inc.'s was $171,125. Company wide, WCI's average sale price in 2003 was $375,000.

"There is no question, as a company, we position ourselves in every community to be the price leader and the market leader." Fry says. "There is a premium that comes with this level of amenities."

Future Positioning

Moving forward, WCI has several projects in the works for its next wave of development, most of which will integrate some or all of the green building techniques used in the Venetian.

Next in its development schedule, WCI has purchased 68 acres of a former Westinghouse factory in South Tampa at the corner of South Westshore Boulevard and Tyson Avenue on the bay. Dubbed Westshore Yacht Club, WCI officials have already started demolishing the existing buildings and plan to begin construction of 507 residential units in a mixture of single-family homes, townhomes, estate homes and two luxury towers. Sales are expected to start later this year. The community is priced from about $300,000 to more than $3 million.

"What we are doing there is really tied into our plans for the Venice airport site," Walker says. "Except for the $3 million tower product. Infill sites like these are available in just about every city."

Late last year, the Venice City Council issued a Request for Proposal to develop 125 acres of public land bordering the Venice Municipal Airport and the Intracoastal Waterway. WCI's proposal is currently being considered along with proposals from the Venice-based Waterford Cos. and Sarasota's The Folsom Group.

WCI has proposed 300 to 600 multi-family residential units on the Venice site that will include mixed-use, mid-rise condominiums, three- and four-plexes, townhomes and single-family homes along with a 99-slip marina.

In Bradenton, WCI also has contracts in place to develop on the 374-acre former McClure property, just south of Manatee River along 48th Street Court East. A unique aspect of the site is that 30 acres is bisected by Interstate 75. Fry says the company has experience buffering busy roads, such as I-75, and is working on creative methods using walls, water and foliage to reduce the sound and visual impact of the interstate.

WCI has not yet closed on the McClure site and is still finalizing the layout of the development. In general terms, however, the developer proposes 1,134 homes (estate, two-story quad-plex condominium units, mid-rise and tower) along with a 17,000-square-foot, two-story $5 million River Club. WCI plans to start construction in early 2006.

At the same time, WCI's name has been mentioned repeatedly in connection with the residential components of Patrick Kelly's Sarasota Harbourplace project, which is now the Sarasota Quay site. However, WCI officials declined to comment publicly on the association.

As for the more traditional golf-course communities and the luxury towers, Fry says none are planned for the Sarasota or Manatee counties - at least none that he can talk about at the moment. He attributed this to the area's more unique homebuying market.

"This is a bit of a different buyer for WCI up in this market," Fry says. "Obviously most of our product is down in Naples, and we have a lot of product in the Palm Beach market. Both of those markets are primarily second-home markets. When you start getting up into this market and the Tampa market you get more of the primary buyer."

That allows the developer/builder also to diversify the product line.

"One of the reasons why we are focusing so much energy on waterfront and unique infill opportunities is that in other parts of the company we have a significant inventory of master-planned golf communities in the high-end price point," Fry says. "There is a focus to shift some of our future business into some of these other product types and other price points so the company overall can stay diversified. But you will see that as a company we are always going to be near or on the water. If not we will have a significant golf component."

As for WCI's Prudential franchise, Fry says he's looking at several areas in the Sarasota-Manatee county market, but growth is restricted by the existing Prudential franchisees in the market. Even so, Fry hopes to have a realty operation in the area within the next year or two.

Because of WCI's relationship with Host Marriott, Ritz-Carlton, Hyatt Corp. and the Starwood Hotels & Resorts Worldwide, the company is starting to branch into more hotel properties similar to what it did in Sarasota with the Tower Residences.

"We think there is a very interesting synergy between what we do both from a community development and a high-rise development standpoint and what they do," Fry says. "And yes, we will be looking to do more of that. In fact many of the projects we are looking to do in this region could have a hotel component."

WCI also plans projects south of Venice in Sarasota County, in Palmetto, in Tarpon Springs and around the Tampa Bay area.

The Financials

(Dollars in millions)200120022003

Total revenue$1,097.4$1,211.8$1,452.2

Net income$102.2$104.8$105.6

Revenues from Homebuilding$492.6$461.3$624.2

Home units closed1,7321,4131,666

Gross marginN/A33.4%28.9%

Equity membership and marina slip revenues$33.6$30.9$20.8

Membership dues and amenity service revenues$41.8$40.2$35.6

Total amenity gross margin$24.8$15.3$7

Amenity gross margin percentage32.9%21.6%12.5%

Real estate services revenues$68.1$90.2$113.9

Real estate services gross margin$7.7$12.2$18.6

Gross margin percentage11.3%13.6%16.3%

Land sales revenue$30.5$36.2$38.2

Land sales gross margin$8$20.9$9.8

Land sales gross margin percentage26.4%57.7%25.8%

Source: SEC filings

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