Blog : Construction

Construction Sadness

Construction Sadness

I’ve decided, in the wake of the Cubs miserable, awful, embarrassing performance this week, to make every post a sad one. Monday, Multiple Offer Sadness. Today, Construction Sadness. Friday, likely, NLCS Sweep Sadness.  For those not paying close attention, I have been building a small fishing cabin not too terribly far from Walworth County. It’s not super far, but it’s still far. It’s far enough that it breaks my own rule for vacation home proximity, which is similar to last week when I broke my own rule about not burning fires until such and such. The rain was a cold rain!  And in the case of this proximity breaker, the trout fishing was just not good enough closer to home.

My relationship with construction is complicated. Extremely complicated. On one hand, I crave it. I enjoy the creativity the process allows. I enjoy the implementation of a vision. Sometimes, it’s a vision that only I can see, and so I take great pride in delivering what no one else expected. Earlier in  my life, this took the form of remodeling projects. When visitors would stop during various stages of the disaster that is a gut remodel, they’d shake their heads. They’d tell me they don’t think it’s going to work. I paid too much. I improved too much. I was always disheartened by those words, but they fueled my desire to deliver a product that would defy their negativity. In the end, the projects all resulted in success.

The last few construction projects have been new builds, from the ground up. This process is different but still the same. It requires a vision, but mostly it requires dedication to the process. The last house I built is the house I live in now. I finished that home in 2013, and it’s been a dandy of a house for me and my family. The construction process at that house was unique, in that I built the home when the market was poor which meant plenty of tradespeople were willing to work for reasonable wages. Further, those who weren’t affordable were available, and the project started in September and finished the next May. The current project is a handful of highway hours away, in a county where no one knows me and I know no one, in a region where work is a nice suggestion but not really something toward which anyone feels a particular fondness.

Once the land was purchased (that took two full years of searching), the project began. It was a modest project. 1200 square feet, give or take. A rectangle of a house with a tall gable and some cedar shingles. Much to the horror of this Lake Geneva market, I stained the shingles black. Like the night (my wife did much of the staining).  The bathrooms were lined with marble, or are, at least in theory, in the process of being lined with marble. My tile guy hasn’t reported for duty for a few months, but I’m sure he has a terrific reason.

When ground was first torn up by the rusted dozer that cut a twisty path up the side of that hill, the goal was to have the house finished in four months.  Maybe four and a half. Maybe less.  The dozer cut that path 16 months ago. The house is not yet finished. In fact, the house is not even close to being finished. I tell my wife that it’s almost done, and then I look over the list of things remaining. Trim, paint, floors, tile, bathrooms, plumbing, kitchen cabinets, countertops, appliances. It’s really not much of a list, or so go the unconvincing lies I repeatedly tell myself. The project, once a chorus of so much enthusiasm and light, has turned into a dirge.

The process has, however, afforded me many lessons. I sympathize on a deeper level with my Illinois clients who have a hard time getting contractors to do work here. I understand customers who are embroiled in multi-month, multi-year construction projects. How can something take so long? It just can. And I understand that better now.  In spite of the deep construction based depression that has consumed me, this project has given me an opportunity to practice what I preach. Give the market what it doesn’t expect. If the market expects carpet give it hardwood. Make it wide plank. If the market expects vinyl, give it cedar. If ceramic bathrooms with one piece plastic showers are good, then line the bathroom in marble. If Home Depot light fixtures light the neighboring comps, send all of your money to Restoration Hardware and use their lights instead. Markets give clues as to what construction standard is acceptable. If the market is nuanced and there’s an opportunity to create value by creating a superior product, then create it.

Loramoor Sells

Loramoor Sells

It seems to me that what this lakefront market really wants is newer inventory in the $3-5MM range. There are buyers in that range seeking newer homes on reasonably nice lots, and this is what they haven’t been able to find. My sale on Lackey Lane  ($4.375MM) fit that mold. The sale last year on the hill in Fontana for $5.1MM, too. Those sorts of homes are what the market wishes for, and yet that sort of home is what we haven’t been able to offer. Inventory concerns are real, and on Geneva right now the ideal inventory is what I’m describing today.

The curious part of this hole in the inventory is that the inventory has existed, but it hasn’t been built. It’s raw land, or it’s a tear down, but it does exist and it has existed for much of the past two years. There were two sales on Sidney Smith, then a sale on Lackey (of a tear down). Then, the vacant lot in Loramoor that I sold less than two years ago came back to market earlier this year. The key to building a new house and being all-in for less than $4.5MM is in buying the dirt for around $2MM. If the dirt is more, your budget is blown before you put a shovel in the ground. If the dirt is considerably less, you don’t have the sort of property that can support that elevated target price, no matter how shiny your Wolf oven is.

This is why when a buyer asks for an entry level tear down, I question the math of it all. Yes, it’s true that you can buy an entry level tear down somewhere around $1.1MM right now. But what have you bought? Likely the answer is around 50′ of frontage. That’s nice frontage, and if you wanted to buy a tear down for $1.1MM and build a new house for $700k, that might be a good idea. But what if you’re looking to buy $1.1MM dirt and then build a $1.4MM new house (5000 square feet x $300ish/ft)? Then you’ll be $2.5MM into a 50′ lakefront lot and again, I’m not concerned about how terrific your kitchen island is because that price doesn’t make much sense. The investment was a bad idea before it started.

That’s why the market has a sweet spot, that of a $2MM type lakefront lot possessing around 100′ of frontage, and on top of that it’s reasonable to build a $2MM or so new home. The market, with the sale on Lackey and the sale on the cliff in Fontana, has proven it can absorb new construction of a higher level in the $4-5MM range. With this known, if you’re a buying in the $4 range why wouldn’t you just build a new house? The answer is confounding, usually related to a distaste for the building process, or perhaps a lack of patience to wait the 10-16 months to have a build completed.  The thing buyers forget is that the house they’ll end up with for $4something will be exactly and precisely the home they wanted all along. There’s a wait involved, sure, but the outcome is individualized perfection that the market also appreciates.

Last Friday I closed on the Loramoor lot that I brought to market earlier this year. The seller had great hopes for that property, but life changed and focus shifted. That shift allowed a new buyer, a young family with eyes set on the lakefront, to find their way to the parcel that will hopefully be their lake home for decades or generations to come.  They paid $2.075MM for 110′ of frontage and 1.43 acres, and that’s something that will always make sense on this lake. The trick now will be to keep the all-in budget in that $4MM range, and once that happens the buyer will end up in a home that the market simply couldn’t offer. Want to find that $4MM new construction on Geneva? Then it’s time to get a bit dirty and build it.