A Developer of Master-Planned-Communities Shares Know-How

Real Estate Development

Houston is leading the recovery, and master planned communities are a big reason why. Johnson Development president Larry D. Johnson and W. Douglas Goff, chief operating officer, share their thinking behind scoping out the market, creating places that attract interest, and building homes that reel in buyers.

Houston topped the U.S. charts in job growth, household formation, and population last year. It also—no surprise—logged the most housing starts with more than 28,000 homes, one-third of which were in master planned communities (MPCs). In an increasingly urban-centric world, the development patterns these communities offer have become a hot commodity. Average pricing among the top 20 MPCs rose a combined 16 percent over the past year and increased more than 24 percent compared to two years ago, according to Metrostudy, Hanley Wood’s research arm.

MPCs also protect values during market downturns. “Historically, we’ve found that during a recession, home values in master planned communities have held up better because of thoughtful planning that includes mixed-use development with jobs, retail, and professional services,” notes David Jarvis, Metrostudy’s regional director in the Houston market.

“They create some certainty for buyers, compared to subdivisions where there are no constraints on land use patterns,” agrees Laura Cole, vice president of marketing at Corbelis’ Willowsford MPC in Ashford, Va. “People are looking for a different suburban experience through town centers, a mix of uses, or thematically, such as a farm.”

Johnson Development’s communities nabbed four spots on the John Burns Real Estate Consulting list of the nation’s top 20 best-sellers for 2013. How did it accomplish this? “There is no secret formula,” says company COO Douglas Goff. “It all boils down to such critical elements as a developer’s track record, a project’s location, the local economy’s vibrancy, job growth, and having solid private and public home builder commitments.”

The MPCs it is opening today, however, are different from those scoped out 20 years ago. Walkability and mixed use are becoming more important as lifestyle amenities, Goff says. The mixed-use component is developed as soon as it can be supported by the residential population or the larger area. Proximity to employment opportunities is a selling point, too.

“If we’re in a location that can support employment and generate jobs, that’s best of all,” Goff says. “Mostly our communities are near major arterial roadways and within a 30-minute drive of business centers around Houston.”

Here, we outline the partners’ take on how to create master planned communities that have the best chance of a successful run, and offer a peek at three of Johnson Development’s best-selling communities.

CAST A WIDE NET

MPCs used to be primarily family-oriented, but now they have to offer homes and amenities that attract the fullest spectrum of potential buyers. “Family units are changing, so you want a broad array of housing types and price points in one community,” Goff says. “We call this vertical integration, with family housing on various lot sizes to town homes and zero-lot-line patio homes that young professionals, single parents, and move-down empty-nesters are interested in because they’re low maintenance.” While the pro formas don’t usually pencil out for first-time buyers, Johnson Development offers upscale rental housing to meet the large market of folks who don’t want to make a home commitment.

MINE THE DATA

Johnson Development uses sophisticated marketing and analytics tools to reach the right people in their consideration set. Data collected from website traffic and on-site visits tell the company where people live and work, what electronic devices they’re using, and their gender, age, ethnicity, number and age of children, and number of elderly in the household. Keyword searches are monitored to understand lifestyle preferences. The company targets email to prospect lists and direct mail to ZIP codes that are proven traffic drivers.

This information is proactively shared with builder partners to design and pace the different neighborhood segments and anticipate market shifts. “Our builders have designed new product lines that speak to the needs of various ethnic groups—sometimes a majority,” Goff says. “Many builders are very sophisticated and doing the same things we are.”

Johnson Development also is testing the use of virtual information centers to help sell its vision. Visitors are directed to specific locations within each community that have QR codes they can use to get maps, background information, and inventory sheets—eliminating the need for a fully staffed welcome center.

FAST-TRACK THE AMENITIES

Focus on creating a sense of place by investing more upfront in community anchors and enhanced natural features. While Johnson Development used to phase in some of the improvements, in today’s ultra-competitive market it’s important to have something physical to show right away. “You need to make a major statement with an amenity package on the ground,” Goff explains. “When we open up, our buyers want to know we have plans in place and are moving forward with construction.”

But even that is not enough. Every Johnson Development MPC has a full-time “director of recreation and fun” who is responsible for programming that appeals to every demographic in the community. “We see our role as shepherds, tending to every detail and creating a place our residents are proud to call home,” Goff says.

PLAN FOR DOWN CYCLES

Company founder Larry Johnson follows a few simple principles to weather the cycles that all large-scale communities experience. These include never falling in love with the land; negotiating the best price and terms possible and being prepared to walk away if they don’t meet your requirements; and acquiring land with equity, using debt only as working capital going forward.

“We finance our infrastructure with bank debt, but as soon as it’s completed we have builders taking those lots, so things turn over,” Johnson says. “And we monitor building inventory closely to make sure we don’t have too many ready-to-go lots on the ground at one time.”

Cultural and economic shifts are always on Johnson Development’s radar. “Really know your market via continuous research and attention to shifting consumer preferences,” Goff adds. “Keep tabs on locational characteristics such as future mobility plans, the quality of school districts, the entitlement environment, affordability, and growth projections.”

See their projects here.