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Subdivision developers face lending hurdles

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Tom Barr and Brian Willaby are developing the 155-lot Pearson Park subdivision, where they expect build-out to occur much slower than Barr’s previous projects. Infrastructure is in place and home construction should start this month.

Tom Barr is no stranger to developing homes in northeast Springfield.

Barr developed the 100-lot Pearson Meadows subdivision in 2004, where all lots were sold in about 18 months.

The success of that development led Barr to spearhead a second subdivision in the same area – the 155-lot Pearson Park.

Barr’s latest project, however, is not moving as smoothly as his previous efforts.

Construction begins on four speculative homes – those without buyers in place – at the site next month.

But the lackluster economy and banks’ reluctance to make loans – especially for spec building – mean Barr is expecting a much slower build-out in Pearson Park, where lots start at $39,000.

“Where we were able to sell 100 lots in a year and a half before, the number of lots sold per year now will be a lot less – we’ll be lucky to build and sell 20 houses a year,” said Barr, who is developing Pearson Park with Brian Willaby of Richland Homes.

“The challenge is that the banks aren’t making construction loans to a lot of the people they dealt with in the past, and the demand is down for new construction and developed lots,” Barr added.

Barr is not alone. Several developers have started new subdivisions in southwest Missouri in the last year, and nearly all say they face the same issues: slow demand for new homes, lack of lender support and market uncertainty.

“I don’t think we’ll see building where it was a few years ago,” said Branson Realtor Gary Coder with Gary Coder Properties.

Coder is the listing agent for Jay Sneed’s 101-lot Pinnacle Shores subdivision near Kimberling City.

There are 92 lots ranging from $45,000 to $250,000 still available in the Pinnacle Shores development.

Waiting on banks

While buyer uncertainty still plagues the market – interest in the development is “hit and miss” from day to day – tighter lending makes the situation more precarious, Coder said.

“Our banks down here won’t loan anything for spec homes,” he said. “If it’s a custom construction loan, that’s one thing, but with spec homes, I don’t know if there’s a banker down here that will even talk about it.”

Bankers view custom homes more favorably because they are built to the specifications of an identified buyer.

Bob Hammerschmidt, Springfield region president for Commerce Bank, agreed that banks have tightened lending practices, especially on speculative projects. He said the change is due to a combination of lack of available liquidity – most banks have loan-to-deposit ratios of more than 100 percent, meaning money is scarce – and lender concerns about market stability.

“On a lot of speculative building loans, there hasn’t been enough equity, and that’s getting more scrutiny now,” Hammerschmidt said. “I think lenders are considering not only probable scenarios but the worst case, and they’re worrying about the builders’ staying power to weather what will probably be two more years of economic downturn.”

Fast change needed

Developer Jack Stinson hopes that, regardless of whether it comes from banks or from increased customer demand, the market turns soon. Stinson is in the early stages of developing Kelby Creek in Nixa. No lots have been sold in the 109-lot development, where lot prices range from $39,900 to $69,900, because the developer is awaiting approval of the final plat.

Stinson said in addition to banks loosening their hold on their money, the market needs to finish cleaning out its existing inventory.

“We have a lot of inventory sitting around that banks have taken back, that builders are getting rid of at a discount, and (new homes) can’t compete with that,” Stinson said. “But once that inventory gets eaten up, it creates a chain reaction. The people in those $150,000 homes will move up and buy something a little nicer. But you have to get rid of the excess inventory first.”

But once existing inventory is culled, Coder is concerned that restrictive lending practices will hamper builders’ efforts to meet market needs when the economy improves.

“The second this thing does turn – and I see it rounding the bend right now, because there’s more confidence (among) buyers than there was in January – we’re going to have a shortage because there’s been no spec homes put on the books in six to eight months,” he said.

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