Developers' new plan: Rental homes
| Wednesday, Jun 16 2010 05:43 PM
Last Updated Wednesday, Jun 16 2010 05:43 PM
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Silverado Ranch is an entire subdivision that is 100 percent rental properties.
From left, Brian Alexander, Justin Eccleston, and Steve Lantz are all involved in Silverado Ranch that is an entire subdivision that is 100 percent rental properties. Eccleston is the on site manager and Alexander and Lantz are partners in the project.
Some land speculators who got stuck with a bunch of property after the real estate market crash have come up with a creative solution to the soft market for new homes.
An entire community of brand new rental homes. That's the latest project by Bakersfield-based 6152 Partners, a group of five investors who bought land in the southwest five years ago only to watch developers and other potential buyers scatter.
Silverado Ranch, just north of Taft Highway off Wible Road, is a subdivision of new single-family homes. At build out, there will be 53 total, including one occupied by an on-site property manager.
Half of the homes are complete and occupied by renters. The rest should be done by the end of September, and eager families are lining up to move in.
"We've got people who've submitted applications for houses that aren't even finished yet," said property manager Justin Eccleston of Professional Realty Management.
Many of the renters are former homeowners who have lost their homes, he said. That's not surprising considering that about half of Bakersfield-area mortgage borrowers owe more than their homes are worth. Last month alone, there were 660 foreclosures in Kern County.
Those people need a place to live, and because their credit histories are marred, they can't get a loan to purchase again.
Eccleston said Silverado Ranch overlooks foreclosure as long as a prospective renter's credit is otherwise in good shape, and they can afford the rent.
Granite countertops
That enabled Cynthia Martinez and her family to move into a four-bedroom home there in March. They had fallen victim to an alleged loan modification scam, which culminated in foreclosure.
"Our old house was right down the street, so we knew the neighborhood," Martinez said. "It's actually pretty good. It's quiet, and the houses are really, really nice. We have granite countertops and landscaping and good blinds, not the cheap ones you usually see in rentals."
Best of all, she added, she and her husband now pay $1,200 a month less for housing than they did before.
"We're saving a ton of money," Martinez said. "We're going to stay here a few years until we can build our credit back up, and then go at it again."
Tennile Moxley, 32, moved to the community in April from another rented home. She says tenants are screened well.
"You don't see drug dealing thugs or three and four families piled up in the same house with six cars in the driveway, which was a big problem where we were before," Moxley said. "I love it here. I get a brand new house, but I don't have to come up with $15,000 down."
Two exits
The developers aren't sure what their long-term plan is.
"There are two exit strategies," said partner Steve Lantz. "We could sell the houses after the housing market comes back, but we've been so satisfied with the way it's turned out and the quality of the renters, we may just keep it the way it is."
Another partner, Brian Alexander, said he expects it will be a while before new home purchases really pick up steam again, anyway.
"I think we've seen some signs of life, but with the expiration of the federal tax credit, I don't know," he said. "There are just so many tentative maps out there. There are still quite a few large, semi-developed pieces."
6152 Partners bought the land five years ago and was in escrow with a builder at one point, but the builder walked away when the market tanked.
The land was grandfathered in under the city's old traffic impact development fee, which roughly doubled last year.
That was just a temporary reprieve, however. If the developers had waited too long to build, they'd have been subject to the new fee.
Rather than risk that, the partners began new home construction on the land in August, and the first tenants moved in in January.
The homes are 1,200- to 1,600-square-feet and each has a two-car attached garage and either three or four bedrooms. Rent is $1,195 to $1,349 depending on the number of bedrooms and the floor plan.
An uncommon arrangement
City Councilman Zack Scrivner, whose seventh ward includes the project, said he knows of neighborhoods with high numbers of rentals, but this is the first development he's heard of that consists exclusively of rental homes.
There's no way for the city to regulate or even track such developments, he said. When someone pulls a building permit, they don't have to specify whether they're going to sell the house or rent it.
Scrivner said he isn't wild about the idea of such a dense concentration of rentals, but, "If they've got an on-site property manager, then I guess there's a better chance they'll be maintained.
"I'd also be worried about a lot of homes sitting vacant, but it sounds like they're filling them pretty fast."
Still, Scrivner said he'd keep an eye on the project to watch for public nuisances.
There aren't likely to be many more like it, said Paul Habibi, professor of real estate at UCLA. In a normal market, the economics of building for rent don't work nearly as well as building for sale.
But this isn't a normal market.
"What you've got is a perfect storm," he said.
An extraordinary number of families have been forced out of their homes but can't buy another one either because they have bad credit, or because banks won't lend even to buyers with good credit.
Habibi predicted that most home developers with inventory they can't move will clear out tenants and sell as soon as the market comes back.
Until then, he said he didn't think the rentals would hurt the home values of surrounding homeowners.
"As long as it's not affordable housing, and they're renting at market rate, new houses can only help the area," he said.
