Better to be early than late.
Mark Wilson may have been early when he acquired the remaining home sites at two signature luxury communities in 2009 and 2010: Mediterra in Naples and The Founders Club in Sarasota.
But Wilson raised cash in 2008 by selling 20% of his company, London Bay Homes, for $17.5 million to an undisclosed private investor. That cash came in handy when opportunities arose to buy premium lots at steep discounts during the downturn. “The good news is we bought at the end of 2009,” says Wilson, president of London Bay.
While the residential real estate recovery didn't get under way in earnest until 2011, it's now in full bloom in luxury markets such as Naples and Sarasota. “Both markets are good,” says Wilson, whose homes start at $600,000.
Meanwhile, rival homebuilders who waited are now scrambling to find lots in prime locations that have spiked in value. “The private-equity guys didn't start until 2010,” Wilson says.
Wilson declines to share his own firm's revenues, but he says London Bay sales rose 60% from 2011 to 2012 and may rise another 50% this year. At Mediterra, for example, builders wrote $50 million in contracts in the first quarter, already half of the $100 million they sold in all of 2012.
Most of Wilson's buyers pay cash for luxury homes. Many of them are entrepreneurs who are looking for a second home on the Gulf Coast. “The wealthy guy still in business is finding it's a good time to buy,” he says, noting that 20% of buyers are Canadian.
Because of strong demand and declining inventories, Wilson says he's been able to raise home prices 10% this year. But some of that has been offset by inflation in labor and materials. For example, drywall prices spiked 30% in January, he says. “Our trade partners are reaching capacity,” Wilson says. “Having a good estimating department is critical right now.”
Wilson raises cash from private investors such as wealthy individuals or family investment offices to build speculative luxury homes, generating returns in the high teens to 20% range. Wilson's Mediterra and Founders Club acquisitions were his first forays into larger-scale development, and the company still has more than 100 lots on which to build. “We've got excellent land positions,” he says.
Now, Wilson is scouting future opportunities for Naples-based London Bay, which has operated for 22 years. “We're definitely looking at what we'll do five years from now,” he says. “The bargains are gone.”
While Wilson has only acquired developed lots in the past, he's now considering buying raw land, particularly in tight markets such as Naples and Sarasota. “I don't think there's an alternative,” he says.
The lack of large tracts of developed land could steer Wilson to building condominiums or townhomes, too. “It's definitely in the mix as a consequence of us running out of land,” he says.
Wilson is also investigating other areas of the state. He says he's intrigued by areas of the Florida Panhandle near the new airport in Panama City. Orlando is also appealing.
Still, while Wilson says the outlook for housing is promising through 2015, he's cautious about the likely prospects of another real estate downturn. He speculates another downturn within the next four to seven years is likely because of economic cycles, though it probably will not be as severe as the most recent one. “Can you manage through another down cycle?” he asks himself.