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REVIEW SUMMARY
Company. The Ronto Group
Industry. Residential real estate development
Key. Patience is required for successful development.
Anthony Solomon remembers the day he knew the Naples real estate market was headed for a fall: Jan. 3, 2006.
On that day, the local newspaper's top headline declared the number of existing-home listings had tripled. “Everybody's rushing for the exits,” Solomon remembers thinking. “That struck us right in the face.”
Anthony Solomon, 36, and his father, Jack Solomon, 63, had just closed on a 500-acre parcel in Bonita Springs that their Naples-based company, The Ronto Group, was about to develop into a 1,200-home community in partnership with Rockpoint Group, a private equity investment firm. After that headline in 2006, they halted the project.
Clearly, good timing played a role in Ronto's survival, one of the few development firms on the Gulf Coast that avoided disaster. “We were fortunate to some degree that we had no big projects underway,” says Anthony Solomon.
Of course, Ronto wasn't unscathed by the real estate collapse on the Gulf Coast. The golf club in a community it had just finished building out, Palmira Golf & Country Club, was sold to members after a rancorous dispute that generated unflattering headlines in the local press.
But Ronto largely avoided the fate of its competitors, which struggled with much mightier problems. Now, the company is scouting for discounted land to take advantage of the economic recovery.
Backed by Angelo, Gordon & Co., a $21-billion New York real estate investment firm, Ronto recently acquired TwinEagles from Bonita Bay Group for $11 million. TwinEagles is a 1,115-acre gated community in North Naples with two golf courses. The team also acquired 56 lots at Grey Oaks, the upscale, gated community in Naples, buying the note on the land at a discount.
Ronto is looking to acquire more existing residential developments with equity from Angelo, Gordon. The Solomons say the spread has narrowed between what buyers are willing to pay and sellers are agreeing to get. That's because lenders are more motivated to write off losses on their books because they have stronger balance sheets today and are more eager to redeploy capital for performing loans.
Meanwhile, the Solomons say Collier County's and South Lee County's residential real estate markets have stabilized and supply is starting to dwindle in well-located residential communities. “The market's improved in terms of pricing,” says Anthony Solomon.
But the Solomons are cautious about how quickly projects will sell out. “This is not an in-and-out in two years. It's five to 10 years,” Anthony Solomon says of TwinEagles. “We're not flippers.”
Toronto to Marco
Jack Solomon was a Canadian homebuilder who followed clients from Toronto to Florida's east coast in 1978.
A decade later, the Solomons acquired Hideaway Beach, a failed development with more than two miles of beach frontage on Marco Island. They acquired the property in bankruptcy and turned it around successfully, selling 400 condos there.
Over the years, Ronto has completed 10,000 condos and 2,000 single-family homes, including Palmira in Bonita Springs and Forest Glen in Naples. It has bought and sold land to builders, including Tuscany Reserve to WCI Communities and Saturnia Lakes to GL Homes, both in Naples.
In the early days, the Solomons financed their projects using a combination of their own cash, equity from private partners and traditional bank financing.
In the 1990s, as the firm's reputation grew, institutional investors including Rockpoint, Westbrook Partners and Prudential became partners in many deals. These real-estate funds proliferated in the 1990s as investors sought outsized returns.
Market timing
Until it acquired TwinEagles from Bonita Bay Group, Ronto hadn't made a major deal since 2005. “It was longer than we had hoped or thought,” concedes Anthony Solomon.
Investors were anticipating a flood of distressed properties in 2008 as the financial crisis reached panic stage, but that never happened. “Everybody had been expecting the government to force more sales,” says Anthony Solomon.
Indeed, some funds bought land for too much money in 2008 only to face two more years of market downturn. “There were properties we came close to buying, but we got outbid,” Solomon says.
That's a testament to the Solomons' patience. “We're very disciplined about buying land,” the younger Solomon says. The key to success in this business, Solomon says, is “hanging around the hoop and being tenacious.”
To some degree, that discipline is dictated by the lack of debt financing. In the past, investors boosted returns by leveraging their acquisitions but now they have to make projects work mostly with equity. “That's what drives prices,” Solomon says. “We underwrite everything very conservatively.”
Indeed, the Solomons have a reputation as tough negotiators. For example, it took over a year to negotiate the acquisition of TwinEagles. “They got a great deal and we got what we needed,” says David Lucas, chairman of the Bonita Bay Group.
The Solomons say they only pick existing top locations and don't try to forecast the fortunes of future sites. “Locations are there,” says Anthony Solomon. “They're not created.”
And the Solomons won't buy land that's not entitled for homes because of the uncertainty over environmental and permitting regulations. “I would not buy unapproved land,” says Jack Solomon.
Collier home prices stabilizing
The Solomons say inventory of new homes has dropped significantly in gated communities in Collier County and homes that cost under $1 million are reaching equilibrium between supply and demand. “There's demand and far less competition,” says Jack Solomon.
Demand has grown because buyers aren't seeing prices decline further and the stock market has rebounded. “The stock market is paramount to these people,” Solomon says. “We're now in the confidence game.”
The Solomons don't necessarily agree that Americans' spending habits have changed drastically because of the recession. “Memories are short,” Jack Solomon says. “Americans like to spend.”
Meanwhile, most of the foreclosures are occurring outside gated communities. “The inventory in gated communities has dropped,” Solomon says.
The opportunities for builders are with wealthier move-up buyers, pre-retirees and retirees who have cash. “They have more money than time,” Solomon says.
Many more than in the past now come from the Northeast. “Now, Naples has the social infrastructure,” Jack Solomon says, pointing to facilities such as the Naples Philharmonic Center for the Arts. “The airport and the university are huge,” he adds.
By contrast, those who need substantial financing to buy homes are still challenged. “Low rates to most people are an illusion,” Solomon says.
National builders who have access to public markets now dominate the Collier market. Many small, local builders have either gone out of business or don't have access to the financing needed to build homes.
The Solomons plan to start a program to help these local builders finance the purchase of lots and build homes. “The system is broken,” Jack Solomon says, noting that a return to more normal conditions won't really occur until 2012. “It's all about the banks lending in a normal way,” he says. “It has to get fixed.”
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