By Dennis Rodkin

Crain’s Chicago Business

May 09, 2017

2017.05.09 crains-pic 1

Photo by Dennis Rodkin Townhouses at Weekley’s Easton Station development in Buffalo Grove.

A couple of years after bringing its Texas-sized ambitions to Chicago’s lackluster suburban real estate market, a national homebuilding firm is scaling back its expectations here.

Since mid-2015, Houston-based David Weekley Homes has sold about 46 homes in Buffalo Grove, Naperville and other suburbs. That’s less than one-third the goal of 150 homes that a Weekley sales executive told Crain’s about in mid-2015.

“Chicago has been a hard-to-predict market,” said Rich Bridges, Chicago division sales manager for the publicly owned builder. “We’ve been disappointed.” At least 30 of the sales, or about three-quarters of them, came in late 2016 and early 2017, he said.

Bridges now says he hopes to sell 75 to 100 homes in the next 18 months.

The retrenchment will take another form too: Bridges said Weekley may try more townhouses, which have done well at its Easton Station project in Buffalo Grove but aren’t usually a big part of the builder’s offerings.

The challenges slowing Weekley down aren’t unique to this firm, they’re built into Chicago’s weak suburban homebuilding market, people outside the firm say.

“They came into this market banking on an upturn that never happened,” said Erik Doersching, executive vice president of Tracy Cross, a Schaumburg-based consultancy for the homebuilding industry. “They’re not the only ones who’ve been disappointed that this market didn’t pick up.” Earlier this month, Cross released a report on the first quarter of 2017 showing that even with several consecutive quarters of improvement, suburban new-home sales remained around one fourth the norm that prevailed between 1994 and 2007, when the housing market crashed.

New-home sales in the suburbs have lagged because of a litany of factors, including lopsided job growth that favors the city’s housing market, two years of population declines, and low prices on existing homes that reduce buyers’ demand for new construction.

Those factors “pose a challenge for everybody” in the industry, said Jerry James, president of Edward R. James, a privately owned builder based in Glenview. While declining to comment directly on Weekley’s situation, he said “it’s gotten tougher here” in the period since the Texas firm arrived in the Chicago suburbs. Along with the other factors, James cited the elephant in the room in any discussion of Chicago’s economy: uncertainty about the financial health of the region and state in the next several years.

Publicly traded national homebuilders generally shoot for about 2.5 sales a month in each of their developments, Doersching said. By his firm’s count, Weekley is getting an average of one to 1.5 sales a month in each of its four developments, in Naperville, Barrington, Glenview and Buffalo Grove. That’s about or slightly below the average for Chicago builders, Doersching said.

“If you’re from Chicago, you think we’re moving at a good pace,” said Bridges, who’s been in the homebuilding industry here since 1988. “But if you’re from Houston, you say, ‘my goodness, that is slower than it is down here in Texas.'”

Weekley has a double-barreled sales strategy in Chicago: it builds subdivisions in infill locations but also builds on single lots or small clusters of lots. It’s unclear how many of the latter Weekley has sold. Bridges suggested the total is between eight and a dozen, though he declined to give specifics, and Cross’ tally does not include small sites.

Chicago’s slow housing recovery may be affecting that side of Weekley, too. On Fort Sheridan Avenue in Highland Park, Weekley cut its asking price by about 23 percent, from almost $1.1 million to below $850,000, before a home went under contract in March, according to listings on Redfin. The sale hasn’t closed yet, and listing agent Jodi Taub of Coldwell Banker did not respond to a request for comment.

Buffalo Grove has been a particular bright spot for Weekley’s subdivision sales, Bridges said. At the firm’s Easton Station development of 15 townhomes that broke ground in April 2016, 12 are sold and the first three owners moved in recently, he said.

Easton Station, where townhomes are priced from $450,000 to $490,000, has done well, Bridges said, because of Buffalo Grove’s strong schools, easy access to a Metra station, expressways and a Mariano’s grocery store, and “a scarcity of new home development.” Also turning Buffalo Grove buyers’ attention to new homes: a lack of existing homes to buy. For about two years, Buffalo Grove has had an especially low inventory of existing homes for sale. For most of the past two years, Buffalo Grove has had enough homes for sale to feed about 2.5 months’ of sales, while a balanced market has four to six months.

Bridges said Easton would be a model for Weekley’s plans in the Chicago area. Townhouses, which Weekley builds mostly in subdivisions targeted to seniors, “is something we’ll do more of here” but in all-ages developments, he said.

Post comment