By Chris H. Sieroty
Trumark Cos. has established a new company called Trumark Homes to take advantage of the downturn in the real estate market by acquiring infill properties in distressed communities statewide, according to a company executive.
Michael Maples, principal at Trumark Homes and co-founder of its parent company Trumark Cos., said current economic conditions have created an opportunity for his company to acquire distressed properties because they are “unencumbered by the financial challenges faced by existing builders.”
The privately held firm’s first acquisition was 4.38 acres of land at 15th Street and Benson Avenue in Upland, where it will develop a project of 39 courtyard-style homes called Wyeth Cove. Maples declined to release the purchase price or seller but said the property was “a short sell with Comerica Bank.”
Since Trumark Homes is able to build on land that was purchased on good terms — often at below replacement cost — it can afford to sell homes at prices as much as 50 percent below what the market would have priced them at in 2005, the company said in a statement.
The single-family homes will range in size from 1,717 square feet to 2,401 square feet, with construction scheduled to begin in August. Maples said the homes, which will be priced between mid-$300,000 and low $400,000, were expected to open early next year.
“In this case we bought finish lots that already had been permitted by the city,” he said. “At the top of the market, these homes would have been priced in the mid-$600,000. It’s also a price point that will allow buyers to meet federal loan limits at least for 2010, which are about $425,000 in Upland.”
Maples described Trumark as a builder that was initially targeting distressed markets. Its projects will include town homes and small-lot detached and traditional single-family housing.
“We are looking to build in constrained markets that are close to job centers and have an older housing stock,” he said. “In Upland, about 90 percent of the homes were built before 1989. There is demand for new home projects.”
In April, the median home price in Upland was $379,000, down 15.8 percent from $450,000 from the same month a year ago, the California Association of Realtors reported. As of mid-June there were 838 properties in various stages of foreclosure — defaults, auction, bank-owned and houses for sale — in Upland, according to figures compiled by RealtyTrac Inc.
The single-family homes in Upland will range in size from 1,717 square feet to 2,401 square feet, with construction scheduled to begin in August.
Maples said the reduction in home prices, distressed property assets and the credit crisis have created opportunities in the land market, which provided Irvine-based Trumark with the ability to acquire lots at a cost that could lead to a profitable return when sold. Besides the firm’s Upland property, Maples told The Business Press the company has bought or contracted to purchase 200 properties in California over the past 90 days.
He said the company looks for properties in older communities where re-sales are more of an issue than foreclosures.
Since Trumark Homes is able to build on land that was purchased on good terms — often at below replacement cost — it can afford to sell homes at prices as much as 50 percent below what the market would have priced them at in 2005 before the real estate market crashed, the company said in a statement.
“A down real estate market is the perfect time to launch a homebuilding company since relationships have changed from old builders to new builders,” said Gregg Nelson, a principal with Trumark Homes. “We are at a competitive advantage, where investors are seeking to work with us.”
Currently, Trumark Homes is underwriting its deals using private equity and does not expect to acquire debt until next year. Maples said once banks become more confident and start lending again, the company will seek low-leverage construction loans for current and future projects.
“We believe that banks will be interested in lending to us because our devalued assets will offer significant loan security and upside potential. In addition, most of our projects will be located in niche markets where there is no competition,” Maples said.