At age 27, and just five years out of the University of Iowa, commercial broker Nathan Drew figures he has received a graduate degree in the Greater Des Moines real estate market just by working through the recession and the problems that lingered.
Drew started out building houses in small communities after graduation, then joined Iowa Commercial Realty. About the time he graduated in 2008, the multiheaded Regency development companies, at the time the state's largest home builder, were closing their doors. In the process, Regency walked away from the Michael's Landing mixed-use development in West Des Moines.
Four banks foreclosed on loans securing the residential side of the development. Eventually, Oppidan Investment Co. of Minnesota worked out a deal to buy more than 130 lots. It also agreed to finish paving 88th Street, and it sold land in the development to the Waukee Community School District for construction of an elementary school.
Drew was the agent who sold off all of the lots in what is now called Woodland Hills. He talks about some of the keys to bringing new life to the development and other lessons learned about the real estate market in this Q & A with the Business Record.
What was the key to selling out all of the lots at Woodland Hills?
There were a lot of factors that contributed to selling out Woodland Hills. Woodland Hills was essentially the poster child for the housing crash in Central Iowa, the perfect storm: Iowa's largest builder, four banks involved, big project in a prime location, down economy, and a large road that needed to be constructed. Oppidan really stepped up and handled a situation that no one locally wanted to touch. The real estate development business is a "show me" business, meaning that consumers are often hesitant to buy before promised features have been implemented. In Woodland Hills, Oppidan offered to actually build a large road, 88th Street, and bring in an elementary school. In fact, they did just that, which sparked the project. Further, Oppidan's timing on the project was impeccable because there was pent-up demand for single-family lots in West Des Moines. Finally, it is obvious that Iowa Realty played a key role in selling out the lots in Woodland Hills. As a result of Iowa Realty's close relationships with the top builders in Central Iowa, it made selling lots move quickly. Internally, we started a strategic plan for the development about a month before we actually got the project listed. The first day that we had the project listed, we had signed contracts for approximately 40 lots. We initially projected that this would be a four- to five-year project, but we were able to secure signed contracts on all available lots in just over one year.
What is the key dynamic spurring sales in Greater Des Moines?
Most people in the industry would say that the increased sales are the sole result of record low interest rates. However, there are other factors involved. Generally, bank-owned projects have been absorbed by the market, and with the lack of bank-owned lots remaining on the market, it has added to increased confidence of lenders, developers, builders and consumers in the market.
The flip side of that is, what are the limiting factors for sales?
Without question, lack of inventory. My ear literally hurts from talking on the phone putting deals together. This is great for now, but my concern is lack of inventory for the upcoming years. I don't think anyone would disagree that there is a lack of lots available, along with a shortage of land available that is ready to be developed in prime, marketable areas. With the lack of lots and developable ground available, it is driving the price of lots up to a price point that may be higher than the Des Moines metropolitan market can sustain. At the end of the day, a two-by-four basically costs the same wherever you are; the fluctuating factor is the price of the ground. If we had more ground ready to be developed, especially out west, I think building and development would continue to prosper.
We keep reading about shadow inventory. Is that an issue in this market?
I can only speak in reference to lots and development ground. Yes, shadow inventory is present in this market; however, I would not go so far to say that it is a problem. There are still a few bank-owned single-family subdivisions that aren't currently being marketed, but most of the lots and land in shadow inventory are multifamily or commercial projects. In my opinion, this isn't necessarily a bad thing. With banks owning multifamily ground, it could actually help spark the townhome market, because banks can offer more than simple price reductions by offering additional things such as financing incentives.
What are cities doing right/what are they doing wrong so far as platting more lots?
From a developer standpoint, infrastructure matter. Communities need to be forward thinking and aggressive in building infrastructure, which makes an area more appealing to developers. Also, without question, any incentives offered to developers can make or break a project in a community.