Local builder tries new twist with home rentals
BY TONY ILLIA AND ARNOLD M. KNIGHTLY
BUSINESS PRESS
Friday, February 10, 2006
Signature Homes, in a unique twist, is developing a new residential subdivision for rent near downtown, marking a major departure from the long-established industry practice of building to sell.
Homebuilders typically want to sell units as soon as possible in order to recoup expenses and realize profits, but Signature Homes is building the 92-unit Aldea Norte subdivision at Shadow Lane and Alta Drive as an experiment in rental housing. The units will be three-story single-family detached residences ranging in size from 1,295 to 1,698 square feet.
"Maybe we are cutting some new ground though that hadn't been my intent," Signature Homes President Richard Plaster said. "I like doing things a little bit different than everybody else." This strategy could payoff big, say industry observers, while breaking new ground for future valley developments. Signature Homes, most likely, will rent residences (rents have not been determined) for a few years before selling them. This tactic will enable the builder to receive a 20 percent tax cut until the sale as well as writing off depreciation, avoiding capital gains and receiving a steady monthly income.
CONSTRUCTION-DEFECT LIABILITY
Renting also reduces construction-defect liability. And with rising land values, the subdivision will appreciate over time while filling a market niche for affordable housing. Signature Homes purchased the 8.14-acre subdivision site for $1.329 million, or$163,267.81 per acre, from Dermody Properties in February 2004. It was originally zoned C-1 commercial before being rezoned for high-density residential with 11 units per acre.
Land values, meanwhile, rose 99 percent during the past 12 months, reaching $708,000 per acre in the third quarter, reported Applied Analysis, a Las Vegas-based economic research firm. Signature Homes' Aldea Norte property, as a result, is now worth 77 percent more than it was a year ago.
New valley home prices reached $345,130 in December, an 18.9 percent year-to-year increase, an all-time high, reported Home Builders Research Inc., a local residential research firm. Existing home prices, however, averaged $285,000 in December, or 17.4 percent less than new homes.
"More private builders should try to diversify into other building types," said Dennis Smith, president of Home Builders Research Inc. "They are competing against public builders that are more aggressive in buying land." The valley's housing market is currently dominated by publicly traded national production builders such as KB Home, D.R. Horton, Richmond American and Del Webb. It has left less room for longtime local builders like Signature Homes and others that are competing for market share against well-financed, corporate giants.
SOME FLAK FROM HOMEOWNERS
"I look at these assets as being flexible," said Plaster. "We want to be in a position where we can change at any one time. I would love to hang onto property that has income attached to it."
But not everyone is crazy about the idea of a new rental subdivision. Neighbors in the adjacent Rancho Manor subdivision are upset with Signature Homes' decision to rent instead of sell. The development, when it went for city approval, was going to be a single-family detached-home subdivision for sale.
"We worked on that project before it was developed," said Las Vegas City Councilman Lawrence Weekly, who represents Ward 5. "For the developer to come in and lower the boom on us like that -- it just really, really disappointed me."
Signature Homes' management arm, however, will oversee the rental development to ensure a well-maintained neighborhood. It will likely enforce strict CC&Rs (Covenants, Conditions & Restrictions) since it eventually plans to sell off the residences, turning the renters into buyers. Signature Homes, meanwhile, is developing the adjacent Village Paseo as a 10-acre residence subdivision offering two-story single-family homes priced for sale from the high $200s to the low $300s.
"If the builder is going to try and resell in a couple of years, he is not going to build a slum," said Smith. "Ten years ago, affordable housing accounted for 80 percent of the market; today, it's only 5 percent. We need affordable housing. And this is going to be a way to get people into housing affordably."
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