By: Aaron Mendenhall and Dan Feig, Chapman Lindsey Commercial Real Estate Services

New home sales are up in 2016. Per SAHBA, monthly net sales from their 12 member builders so far in 2016 has each been higher than any month in 2015 with the exception of January’s 173 net sales which was only one sale less than March 2015 and 10 less than April. The 620 single family permits pulled in Q1 2016 was the 2nd highest in a quarter for the past three years. Q2 of 2015 was higher, but only by 2 permits. 2016 is off to a good start here in Tucson. Much of the success is due to a few strong communities, including DR Horton’s Saguaro Bloom, Pulte’s Sierra Morado and the newly opened Center Pointe Vistoso by Maracay. Each of these properties has introduced new lots this past year either as a new community or as a continuation of an existing community.

As has been mentioned in prior articles, existing and available finished lot inventory is extremely limited in Tucson and what remains has challenges relating to location, lot size or price. Builders have been forced to seek out platted or raw land properties to fill their pipelines, which they try to keep full up to at least two years out. When finished lots were more plentiful, a builder could identify, negotiate and purchase a property in 3 to 6 months and they could begin building homes immediately. With platted lots it can take 8 to 12 months after the lots are purchased to develop the lots and begin constructing homes. Most builders will not close prior to final plat, so any property that needs to be rezoned and entitled can add an additional 1 to 2 years onto the timetable.

As the market has continued to improve, certain communities have enjoyed stronger than anticipated sales and communities are building out faster than initially projected. While this is great news for builders, it also presents challenges as their pipelines need to be replenished sooner. Builders need to be constantly on the lookout for new opportunities and have the foresight to think longer term and take some risks based on future needs and inventories.

Meritage was the first and most active builder to take on platted lots since the downturn. They recognized the need of future lots and identified the Tangerine Corridor in the Northwest submarket as the place to invest in. In May 2012 Meritage purchased two platted lot communities in the Tangerine Corridor – Sky Ranch and Tangerine Crossing Phase 3. Later that year they closed Saguaro Forest in Dove Mountain with Silverbell Preserve and Rancho de Plata closing in 2013. Meritage skipped 2014 but purchased 3 platted lot properties in 2015 and one so far in 2016 for a total of 9 properties with 695 platted lots. The three platted lot communities purchased in 2012 are now each built out and the two purchased in 2013 are nearly built out with only 5 remaining lots between them. These initial trailblazing purchases have netted Meritage over 250 sales to date. Their early 2015 purchases will be opening in Q2 2016.

DR Horton, Richmond American and Pulte Homes were ranked #1, #2 and #3 respectively one year ago in the number of finished lots owned. In the past 12 months, DR Horton, Richmond American and Pulte Homes are ranked #1, #3 and #2 respectively in the number of homes sold (per SAHBA reports). This correlation extends to the other builders as well. Of the top six builders in lot holdings a year ago, each ranked the same in number of finished lots owned as the number of homes sold within the past 12 months, with the only exception of Pulte being # 2 in sales and #3 in finished lots, while Richmond American was #3 in sales and #2 in finished lots.

As of the end of Q1 2016, lot ownership rankings have experienced slight changes. DR Horton remains at #1 with 389 finished lots. Maracay jumped to #2 with 267 finished lots with the opening of its Center Pointe at Vistoso communities earlier this year. Richmond American fell to #3 with 264 finished lots and Meritage jumped up one to #4 with 239 lots. Pulte fell to #5 with 170 finished lots and Mattamy Homes entered Tucson opening its Dove Mountain community and is ranked #6 with 124 finished lots. When looking at sales numbers from just 2016, the top three remained the same, but Maracay jumped from #7 to #4, pushing Lennar to #5 in reported net sales.

When comparing current lot inventories to lots currently under construction, the finished lot ownership rankings will change even more by the end of 2016. Meritage will take over the #1 spot with over 650 finished lots as it opens . KB Home could jump to #2 as it completes the four new communities currently under construction. Richmond could fall to #6 and Pulte to #8 in finished lot ownership as each are selling well in their existing communities but only have a small number of lots currently under construction that could finish out this year.

Most builders currently have other properties in escrow that will add additional lots to their pipelines in the future, but it will take time to get them ready to build houses on. Any builder who waits too long to secure new inventory can easily find themselves with a lot shortage in 2017 and 2018 and sales will suffer as a result. If their pipelines become too depleted they may be forced into paying higher prices for the remaining existing traditional inventory or developing new product to fit the non-traditional finished lot inventory.

Future employment opportunities coming to Tucson will impact housing needs. Caterpillar recently selected Tucson for its regional headquarters and will bring 600 high paying jobs to the area over the next five years. The Rosemont Mine project is nearing its final rounds of government permitting, which if approved, could be another major source of employment for the area. The trickle down effect of these and other upcoming employment announcements will create even more demand for housing, which in turn will create additional demand for land and lots by homebuilders. Look for an active land market in upcoming years.

Please contact Chapman Lindsey or Aaron Mendenhall at 520-747-4000 x102 for additional information.

To see the full report click here: Chapman Lindsey Q1 report

SCOTTSDALE, AZ — Taylor Morrison Home Corporation (NYSE: TMHC) and Pulte Homes (NYSE: PHM) have announced a joint venture to acquire approximately 410 acres of land in North Phoenix from the Arizona State Land Department and develop it into a new master plan community. Development of the site is slated to begin in spring 2017 and will feature multiple product offerings from the Taylor Morrison and Pulte brands.

The Taylor Morrison / Pulte joint venture group was the successful bidder for the parcel at the State land auction on March 3 for approximately 1,200 lots on more than 400 acres of land, which sits adjacent to the existing Desert Ridge master plan community in the highly desirable North-Phoenix submarket. Teh property commanded a sale price of $100 million ($243,900 per acre).

“I am very pleased by the outcome of the State land auction,” said Brad Schoenberg, president of the Taylor Morrison Phoenix division. “We have had our eye on this property since 2013, when we first became an applicant for it with the State, and strongly believe – even three years later –  that it holds significant value and potential as part of Taylor Morrison’s portfolio. I look forward to beginning the development process and bringing the Phoenix homebuyer what they want in their most important investment.”

Pulte Arizona division president, Scott Wright, said the company looks forward to partnering with Taylor Morrison on building a quality new community in North Phoenix.

“This is a very sought-after location next to great retail, dining and with easy freeway access to all parts of the Valley,” Wright said. “This is an ideal community setting in a great location, and we are excited about the opportunity to collaborate with Taylor Morrison to develop a beautiful, well-planned new master plan in the Desert Ridge area.”

The collaboration brings together two highly experienced teams that are committed to building a quality master plan with world-class amenities, innovative home designs and vision for excellence.

“Our shared vision is to create a new master planned community that will be a point of pride for the Desert Ridge area, and the future residents who will call it home,” Schoenberg said.

The Mayor and Tucson City Council voted this week 6:1, with Councilman Steve Kozachik the sole dissenting vote, to approve an amendment to the Houghton East Neighborhood Plan that could allow for the development of a 124,000-square-foot Fry’s Marketplace at Houghton & 22nd on a 16-acre site at the northeast corner of South Houghton Road and East 22nd Street. The amendment allows for the building to be 26 feet tall, instead of the 20-feet limit stated in the original 1985 plan developed when the City annexed the area, a two-square mile area bounded by Speedway on the North, 22nd Street on the South, Houghton on the West and Tanque Verde / Melpomene Way on the East.

Concerns voiced by the neighbors seemed to have all been addressed:

• Elevation showing the six-foot increase would be minor change to any view obstruction,
• Using City’s own definition, roof height is determined from the flat of roof height, and not parapet height.
• The Fry’s store at 22^nd & Harrison that will be relocated will have a $3 million budget to repurpose as needed.
• The necessity for the additional 6 feet lies in the fact that Fry’s needs a mezzanine for offices. To minimize the height elevation, the developer is proposing a declining elevation from 26 feet to 22 feet in construction.
• The two grocery stores that were recently vacant have both been re-occupied; first, the Safeway at Broadway & Houghton was sold back to Safeway from Haggen and will be re-opened, and second, the former Basha’s at this same corner has been repurposed to an upscale movie theater concept with restaurant and bar included,  recently leased by Craig Finfrock of Commercial Retail Advisors.

Even with approval of the changes for the proposed site, Brentwood Development still needs to go through the rezoning process before it can build the shopping center, which also includes a gas station and two smaller retail buildings. It has already been eleven months since the public meetings started with the neighborhood and individual home owners; rezoning will be at least another 9-months and probably more before the rezoning is approved or possibly denied.

Everyone wants a Fry’s Marketplace nearby to shop, or one would think, as evidenced by more than 100 people attending the council meeting Tuesday night for this agenda item. Mayor Rothschild counted speaker cards as 38 speakers in favor, and 17 speakers opposing the amendment. Neighbors living within doors of each other met there, one in favor, one opposed, as they voiced opinions for 90 minutes.

At issue it became clear is amending a 30-year-old neighborhood plan document. The Eastside Neighborhood Plan states that it is appropriate for this corner to be used for commercial uses and allows C-1 zoning with a height restriction of 20 feet. There has already been precedence set that approved an increased building height of Walgreens at the northeast corner of Broadway and Houghton to 35 feet.

Comprehensive planning which dictates public policy in terms of transportation, utilities, land use, recreation and housing typically encompasses a large geographic area to cover a long-term time horizon. But no comprehensive plan should be intended for three decades without modifications.

Plan Tucson is updated every 10-years by Arizona Statute, to reflect changing priorities of the community as they evolve physically, economically and socially over a decade. But not neighborhood plans that apparently never have to be updated, only amended when progress runs into opposition.

When a conflict between the City Plan, approved by voters last in 2013, and a neighborhood plan arises, which has higher authority? You would think the obvious answer is the City Plan, however this wasn’t apparent at the meeting this week.

As Plan Tucson states: ‘City government plays an important role in determining the business climate. Economic Development Strategic Priorities, as adopted by the Mayor and Council in early 2013 include Business Recruitment, Retention and Expansion, as well as Investment in Key Commercial Areas’. It appears a new Fry’s store and retail center that brings 300 jobs, 175 new jobs, would meet such a stated economic goal for the City.

As pointed out by one passionate union member, ‘these are good union jobs being brought to the community, Fry’s is a good company to work for’.

As so often is the case at these public hearings, many speaking against the project were residents from outside the boundaries of the neighborhood. Councilwoman, Shirley Scott noted that some of the people opposing the project live inside the buffer zone for the Saguaro National Forest, the property being amended is well outside this one-mile buffer zone.

Linda Morales with The Planning Center, who represents the developer, had this to say the next day, “We are very excited and encouraged by the vote of the City Council for the neighborhood plan amendment. As evidenced in the public hearing, there are many people in the area who are excited about the project, which will serve nearby neighborhoods with shops, restaurants and a Fry’s Marketplace. This was just the first step in the public process.  The next step is to rezone the property, where we will be working with city staff, neighbors, Saguaro National Park representatives and other interested parties to craft a plan that our community can be proud of.  Our hope and expectation is that those who have concerns will be willing to have a productive conversation with the project team as we move forward.”

Finrock also had this to say, “We would also like to thank those of you who took the time to come and help support this project. We know how precious your time is and greatly appreciate your time and support. It is clear to us one very important reason we were successful at this plan amendment hearing is because so many supporters came to the hearing to speak in support of the project. We know this process is far from finished and hope that we can count on your continued support. It is important for people in business and our industry in particular, to support each other so that Tucson can grow, prosper, and overcome its negative image as a community that is unfriendly to businesses.”

Councilman Paul Cunningham, after noting his surprise with the large number of supporters at the meeting, motioned to approve the amendment but told the developers, “It’s far from a done deal.” This project is in Councilman Cunningham’s Ward 2.

We shall continue to follow the progress of this project for our readers and urge a quick resolution for the greater benefit of the neighbors in Houghton Eastside Neighborhood and Tucson at large, as well as the developer ready to invest $30 million into our community.

For plan amendment presentation by The Planning Center March 8, 2016 HENP amendment 3-8-2016

To view Houghton Eastside Neighborhood Plan, January 13, 2016, Pubic Hearing click here.