Through the first half of calendar 2007, builder revenues are down, home deliveries are off and pretax profits are well below year earlier levels. According to Fitch's new forecast for the balance of 2007, it appears likely that builders' financial pressures will continue unabated with full year revenues dropping 30 to 35 percent, on average, while pretax profits, before real estate charges, could plummet 75 to 80 percent. Yet, not unlike life, there are positive opportunities in the negative if we are looking and keeping our eyes opened for them.
"Although real estate continues to struggle, developers, civil engineers and architects can remain healthy by working creatively to stay on top of new market drivers," said Keith Mayer, president and CEO, Giffels-Webster Engineers, a civil engineering firm with a 50-year industry reputation for its vision for today's market and beyond. "Our team at Giffels-Webster has identified the trends that prove opportunities thrive beyond single-family homes in the suburbs."
According to Mayer, the top five hottest market growth areas are:
- Green building and design
- Assisted living centers
- Hospital expansions, education campus additions
- Mixed-use developments
- Urban revitalization.
With increased pressure on communities and businesses to promote environmentally sound designs, developers increasingly are incorporating green elements into their projects. A plan to develop a parcel of land for retail, Mayer says, might include green roofs, rain gardens, or gutter water retention and irrigation systems. "LEED-certified environmental experts soon will become 'must-have' team members as demand for energy efficient, healthy spaces grow stronger."
Assisted living developments are on the rise due to higher life expectancies and the influx of aging baby boomers. By helping seniors lead independent lives in non-institutionalized environments, these projects are designed to incorporate nature trails, community dining, exercise facilities, music rooms, libraries, salons, and game rooms. Opportunities exist to work with both private developers and public government-funded projects.
"While residential is at a peak right now many investors in the Valley are realizing significant cash flow by either directly investing in assisted living facilities or converting existing homes into these potential cash cows," added J. Dan Essa, agent with Team Vision in Scottsdale. "It's a matter of spotting trends and finding opportunities that pencil out for investors and these property types are on fire right now."
Fueled by institutional projects being funded privately though corporate gifts and individual endowments, the third growth market identified by Giffels-Webster Engineers are Hospital Expansions and Education Campus additions. "These 'recession- proof' resources mean even during economic downturns, the market segment moves forward with plentiful building and capital improvement projects," explains Mayer.
With the subprime fiasco still fresh in the minds of the lending community, securing financing for projects can be more difficult. Mayer suggests that builders consider mixed-use developments because they reduce risk. "With this approach, the developer's investment is spread across the spectrum so it remains viable even if one segment does not perform as expected."
"Mixed use is a combination retail and residential with large, national retailers combined with smaller, boutique-type stores, as well as housing varying by size, budget and amenities," added Essa. "There is a project in Gilbert right now dubbed 'the heartbeat," that the entire community is excited about. In fact, this project will provide density as developers will be allowed to go six stories high."
Lastly, municipalities, who are proactively transforming their space to appeal to potential and current residents, will need developer support to make it happen. Municipalities and townships in their efforts to make downtowns, retail hubs and central business districts more inviting and accessible are considering projects such as streetscape improvements, including attractive landscaping, decorative streetlights, brick sidewalk pavers, and strategically planned parking areas, all ways o help improve a bottom line.
While the news today focuses on the negative, there are always two sides to a market. Opportunities, or new market divers, exist if builders keep an eye on what prospective clients -- and possible new ones -- are in need of.
