Attention builders – head for mid country!

This has been discussed before but I just went to do a very preliminary search for a client looking in about the $3-$4 range, with a preference for “newer” construction, more than an acre and in the North Street-to Round Hill – to Merritt Parkway zone. There.Is. Nothing.

Really – three houses built 2001 or later, none of which I’m wild about, and all away from the so-called golden triangle area.  And that’s it – even eliminating the built-by parameter there isn’t much but everything built in the past ten years has sold and, presumably because the crash cut off their credit, little has been built.

Builders have been rushing into Riverside to build $3.4 million homes but I’ve said before and I’ll say it again now, you guys are chasing yesterday’s news. You want to get ahead of the curve go buy some one and two acre lots and start building  $3.5 homes in the mid-country. Your competitors in Riverside will be sitting on unsold inventory while you’re signing contracts with buyers.

Which is bound to be an improvement over 2010.

68 Comments

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68 responses to “Attention builders – head for mid country!

  1. anonymous

    How does that work exactly? 2 mil for a lot, 1.5 for a new house.. where’s the profit for a builder?

    • Well if a builder can pay $1.4 for a .3 acre lot on Hearthstone in Riverside and sell a house for a profit at $3.4, I’d think he could do the same thing in mid-country – a building lot’s a building lot and a 2-acre lot in the 2-acre zone isn’t really worth any more than that Riverside third-of-an-acre (shocking to mid-country owners, but there it is). I think Cos Cobber’s nailed it: builders build 9,000 sq. ft. of bad taste and hope to sell it for $1,000 a foot. That’s not the market.

      • anonymous

        OK, so you’re saying 1.4 for the land, not 2, and 1.5 for the build? Works financially, but where are you going to find a good building lot in mid county for 1.4? I think that’s why it’s not being done. A good lot is 2 mil and then the numbers don’t work.

      • The New Normal

        completely disagree – a 2 acre lot in the RA-2 between North St/Round Hill/Merritt is not going to sell anywhere near $1.4mm unless there are SERIOUS flaws on the property (wetlands, rocks, steep hills, next to graveyard/Merritt); plus the existing house would need to be a completely worthless teardown

        anonymous is right – there is hardly any profit for the builder, even at the top of the 3-4mm range; your buyer needs to increase her range or keep looking in Riverside

      • Anonymous

        well, i am talking about it’s ok to build 3-4 k sqft in a 0.3 acre, it looks fine. if you build a 3-4k sqft in a 2 acre zone, it looks odd. plus, 2 acre land is not just 1.4 million in mid-country….. plus cost $ 300 per sqft building a 4k sqft is already 1.2million. where is the profit? plus. riverside people target school district. mid-country people not

      • Big lots need more money in the ground

        Don’t forget to add septic, well, longer driveway and parking areas. Every time you do earthwork you pay heavy money

  2. Cos Cobber

    Thats because every builder erects a wetdream of castle priced at $9MM.

    They build for 2005 or foreign oligarch $$.

  3. Anonymous

    i think your client asked too much for that price range. 1 acre + in the golden triangle will be either in RA-1 or 2. builders would love to build as much as they can. for RA-1, 1 acre will allow 5500 above ground floor area, with basement, it will be ~7000 sqft. and they also want newly constructed…. that won’t be existed….builders won’t build a 3~4k sqft new houses in mid-country. again, it’s not riverside with 0.3 acre land

  4. InfoDiva

    Anon 5:22, that’s exactly our host’s point. Builders overbuild in mid-country and re not delivering what the market wants right now. What’s the point building a huge place for a larger, but only theoretical profit?

    • Anonymous

      well, if you are a owner of a piece of land, will u do? u definitely try to maximize its use for future returns as least, i am a owner and that’s what i did.

  5. Anonymous

    1.4mm for 2 acres in midcountry would get you swamp on a cliff.

  6. Accolay

    3K might look a bit weird on 2 acres, but I don’t think 4K with quality landscaping would. A well-constructed, new 5.5K house on 2 quality, pastoral acres in the golden triangle is my dream, but sadly doesn’t exist.

  7. Anonymous

    I agree with part of this analysis. Why are builders building such humongous places? They are generally too big for their lots in the one acre zone.

    I priced out a prefab house of up to 4500 square feet on my one plus acre lot off of North Street and could build for maybe $700,000 using good but not superexpensive materials. I would worry about the stove and the fridge not being higah end though in this environment. My lot would be $1.75, but it is not the perfect lot. On the other hand it is on a quiet street in a quiet location in the right are. Yes. some of the land is wet, but in midcountry Greenwich most of the homes are less than perfect, at least at this price range. Not sure what the price would be for such a house, but maybe $3.5. If the builder builds a modest size and uses nice but not superexpensive materials, there is probably a profit. Anyway, I am not building. Love my 1950s house.

    • Accolay

      I couldn’t imagine a new house in mid-country without at least a Viking range/Sub Zero fridge or the equivalent, and certainly not at 3.5!

      • Not only is sub-zero a lousy refrigerator but if you really want one you can spend $15,000 new, $2,500 one-year-old, and have your mid-country home exactly as you imagine it, all for less than $3.5 million.
        (Same goes for Viking stoves)

        • Anonymous

          Heavens. I just couldn’t imagine a new house in mid-country without at least a commercial grade Viking range/Sub Zero fridge……

          What would the neighbors think?

          I ordered mine from the factory in brushed 24k gold with platinum Gucci labels. It’s a shame we never use them as my fillipino nanny-cook-housekeeper-gardener- and concubine for my Brunswick boys, micros everything. I must say though, I did try to fry an egg once, but the pan melted. Oh well. At least the neighbors go ga ga over them. Thats the point, right?

          /

        • Anonymous

          I’ve heard that said about about sub-zero (lousy), but I’ve had mine for 30 yrs and service issues have been rare (knock on wood!).

  8. anonymous

    Lismore Lane was 2 acres of pretty nice land that just sold for 2.3MM. 2.2 acres just sold on Winding lane for 1.8. You can get 4.5 acres for 1.5MM on Cherry Valley (I’d rather hear the Merritt than 95 or the train.) I agree there is a huge market for a 5000-6000 sq. foot home in mid country. No one wants those huge monstrosities with marble floors, etc. That new home on Winthrop is beautiful and tasteful. Builder paid $1.25MM for the land and is trying to sell for $4+MM. If that home was on an acre of land, it would go in a heartbeat! I wonder what it will sell for in Riverside, being the most expensive spec house on the street? I also have clients in the 3-4MM range looking for a tasteful, not overly large new home in mid country. There is just nothing to show them.

    • Yeah, I agree – $2 million for really good land, maybe even $2.5. But there is some acceptable stuff out there priced at $2.5 that ought to be a million less and, in my opinion, won’t sell until it is. In the meantime, we’re all waiting, tuck.

    • Anonymous

      And the land on winding was about as challenging as it gets. Still went for 1.8. 1.5 is just not realistic unless you are talking something very close to the Merritt. The reason the acceptable stuff you see is priced at 2.5 is because if it were priced at 1.5 it would be long gone…and promptly relisted for 2.

  9. Bobby

    the market will eventually dictate the terms (no HUD getting in the way in these zip codes)….but a couple of comments
    1) points well made re size from plenty above but GENERALLY bigger lot will end up having a larger house (doesn’t have to be a McMansion) – so, for the builder …more $$$
    2) a GOOD mid country address with 2 acres less than 2 million is very very unlikely. Anyone that wants to offer me one can contact me via Chris – and Ill pay the freight…..likewise and acre in Riverside or OG for 1 acre…..please ….call me…
    3) A high end spec house is more expensive to build than these comments suggest…..discussion would take all night – but it’s true – you think cat5 wiring, generators and foam insulation grow on trees?
    4) None of the above comments have taken in to account transaction expenses – realtors drive jags for a reason (sorry Gideon!)…..also significant costs to town / state.
    I do think theres a “catch up” for new inventory of decent houses in mid country – I just don’t think what people REALLY want can be achieved in the 3.5mm range.

  10. North St Owner

    If I remember correctly, CF, you recently bought your client a 0.7ac tear down in that triangle (brother Gideon seller) for $2.1MM. A great deal according to you. What makes you think a bigger lot should be worth 33% less now?

    • It’s not the size of the lot, it’s the location – .7 of an acre on Martin Dale is worth just as much, if not more, than two acres farther out, and much more than .7 of an acre on a street where the highest sale is, say, 1/2 that of Martin Dale. There’s plenty of land for sale priced at $2 – $2.5 million that isn’t selling, even with two acres, because it’s worth about $1.5. Location of the land and quality of the site control – size really doesn’t matter, no matter what Cosmo says.

      • North St Owner

        I don’t disagree. The question is how farther out we’re talking about. My guess is that a quality lot that size will be close by to N.Parkway… Definitely not the golden triangle.

        It was a great run for the past 3+ years as buyer’s agent, CF. Isn’t it time you turn into a listing agent in Greenwich? Life will be easier, it seems…

        • I’ve listed, and sold, lots of properties since getting into this business. I’m still open to accepting listings but I haven’t found any since the crash whose owners and I could agree on price, and I’d rather keep a relationship and save my time than disappoint someone while accomplishing nothing.
          As for buyers, there are still plenty of homes out there waiting to be plucked, but they need another $1 or two shaved off their price before they fall. When they do, there will be an interesting squeeze play between land value, which is rising as scarcity does, and house value, which is falling as the home ages. And when what was once, say, a $4.5 house sells for its land value of $2.5, other older homes in its original price range will fllow suit.
          Intereting to speculate what that will do to $1.5 houses.

  11. ShedLessToolMan

    I think it may just be a particular buyer that is possibly clouding CF’s judgement with this blog entry.. This is not happening.. a decent 2 acres in mid country is more than $2 million unless it has issues with exposures, water, location, rocks, etc.. moreover, construction of any quality will be at least $350 sq foot to the end user if not more.. so, that puts you above the $3.5 mm mark and that is without transaction costs.. moreover, the FAR will allow a larger house so, spec builders want to maximize their return on investment, land is a fixed cost and the square footage construction is a variable cost. The builder maximizes profit by building a larger house on the lot because price to build a 5000 or a 7500 sq. foot house might not be so different because after windows kitchen and bathrooms, other rooms are not that expensive.. moreover, you can spread that fixed land cost across a larger home cost… not sure if that makes sense how I worded it..

    anyway, the numbers do not add up for you for what you are proposing.. again, your buyer’s bias is getting to you.. if somebody built what you are asking in mid country for at the price you are talking about they would not be in business very long..

    -ShedLess

  12. Anonymous

    Chris, how does it feel to be wrong?

  13. Anonymous

    My neighbor built a 4500 square foot prefab off of North Street on an acre. A big chunk of the lot is wetlands. He spent $750,000 for the house several years ago and is still living in it. I think the price of the house is not much more today because the builders need the business right now. The lots on one acre on my street can be had for $1.75 or $1.8. So much for the Golden Triangle. Your 4500 square foot prefab can be had for $2.5.

    in the two acre zone, would be more.

    But we have town water, sewers for some houses and natural gas for all. No oil heat (you never run out of heat on our street) and the water is clean and potable. Not sure you can say that for the two acre zone. Much prettier on two acres, but I prefer not drinking well water or worrying that the house will run out of oil.

  14. KMA

    Your client will never buy a 2 acre property in mid country for $3-4 million unless it’s perhaps on the western side of Greenwich near Armonk. Move to Westport and you’ll find what you need. Best high school in CT, great beaches, great down town and better restaurants than Greenwich. All this for 15 extra minutes on the train..not a bad trade off.

    • North St Owner

      As I said in the previous post: Fear is a much stronger motivator than greed. Fear is pure survival instinct.

      Interest rates have just crossed the 2% mark on the UST-10yr. This Spring is the last call to lock and load on your super-low mortgage rates. if you’re sitting on the sidelines and wasting money on high rentals (cash was free until now), you’d better hurry — if it’s not already too late.

      Decent and fresh properties will be bid, stale and $9M+ properties will remain a drag.

      CF, can you spell b-i-d-d-i-n-g-w-a-r?

      • Anonymous

        The Fed cannot allow the 10 year to go anywhere in the forseeable future…all you guys dreaming about normal economy and normal rates are going to get a shock (yet again)! At best, this is a muddle through, and any one of the number of shocks and rates will head lower not higher! I heard the same story for 3 years, 10 year is going to rise because the economy is improving….BS! That said, home prices probably stable at 2003 levels, going nowhere up in a hurry and not crashing either (Riverside and OG remain an exception, not sure why, but it is what it is).

  15. Westchesterer

    Fundamentals are split on the housing market. On one hand you have a inefficient economy, aging workforce, low household creation, and idiotic planning and zoning boards. These factors are all fundamentals that support a decrease in housing prices. On the other hand you have years of lack of new housing creation(blame the p&z thugs), rising interest rates(scare people into buying), and population growth(need more huses), and constant money printing(inflation). These fundamentals support an increase in housing prices.

    The bottom line is that the most likely outcome is your greenwich taxes are going up, thugs run the local villages, and the federal govt is inept in understanding the econony. Your only hope for bidding wars is fed created inflation. Then you’ll see a 10,000% return in terms of dollars and a 0% return in terms of gold. Still better than cash.

  16. Reader

    As you point out in the prior post, there are 58 houses for sale in town between $3-4M. If there is nothing in the Golden Triangle, where are they? Are they all spec houses north of the Merritt?

  17. Anonymous

    You need to change the title to:

    “Attention builders – head for mid country! And lose money!”

  18. Anonymous

    I suspect if a builder could produce a new 5,500 to 6,500 sq ft house in Golden Triangle for $4.5MM it would sell very quickly. New stuff in good locations has sold for up to $6MM in the near town mid country.

  19. T-bone

    While most of the dissenters to this post are correct in their math, I think Chris is on to something in terms of the flawed housing market in Central Greenwich. Anybody buying a property in the two acre zone would feel like a sucker putting up or renovating anything less than 5,500 square feet, given that the FAR allows for 8-9k+. That means a structure that costs $1.7-$2.0MM, roughly (or more). At the assumed land values discussed above ($2MM for decent land), that puts a “normal” midcountry house in the $4-5MM range, assuming investor return. So the question becomes…given all the changes in the financial industry recently, both in terms of compensation and mortgage lending standards, are there enough families still around that can clear all the inventory in Midcountry at those prices, especially when the surrounding Fairfield County towns offer such steep discounts to Greenwich prices? If the demand just isn’t there, perhaps the land values need to come down.

    • I’m working with a number of young families in the $3-$5 million range and without exception they have no interest in homes larger than 7,500 sq. ft. and even that seems too large to many of them. The market has changed – not that my anecdotal evidence is proof positive of that but those same people tell me that their friends are looking for the same thing. Couple that with the number of huge homes now languishing on the market and, if I were a builder, I’d be looking to downsize my creations.

      • Anonymous

        no, national survey shows people build larger houses ever than before now.
        well, if you can afford, why not. since the young families can’t anyway, 3-4000 sqft is livable..comparing to the tiny apt in the city. young families have to balance all before they accumulate their wealth. i bet after five years, the same family will ask for 7500 sqft after hedge fund husbands gain quickly and it’s the time to change life style and show off!!!

      • Anonymous

        I think an interesting project would be to get a good undersized (cheaper) lot in mid country and build a killer 4, 500 sq ft house. Make all the bedrooms cozy and small, but still high end, dispense with a separate formal dining room and living room (that hardly anybody uses) and have the downstairs be open plan with sliding doors to afford some privacy when needed and maybe one closed off library/study. I think this is kind of what Chris alludes to already here, I am sure there would be a market for it.

    • Anonymous

      The answer is YES, there are plenty of wealthy families sitting on the sidelines and renting as we speak. Hedge fund mogul Bridgewater Associates based in Westport is moving soon to Stamford their entire 1,000 strong staff, including 200 very well paid traders. These guys are in the process of selling Westport and buying in the Darien-Greenwich range. Can you imagine the impact that will have in our tiny market?

  20. GreenITCH

    CF and none of these families have any interest in havin g u purchase a plot or tear down and working with their own builders ? I mean why not save the 50% markup and build exactly what u want

  21. Jeremy Jones

    To add my two cents here, you all seem to be missing a lot of costs in construction . . . Even if land costs just $2mm for 2 acres (which I agree with everyone is very unlikely in mid-country, more like $2.3-$2.6mm), then you have to pay $350/ft minimum for the new or “newish” construction CF’s client’s want which will equal $1.5mm for even a 4k house (and $350/ft is too low when most of the house is kitchens/bathrooms, rather than the big open rooms of a 9k house). Then add architects fees, city building permits, teardown fees, landscaping, etc. etc. etc. and your pre-financing costs of this house are $4.5-5mm. You have to sell these houses for $6mm+ to make money. This is why they don’t exist. Spec Builders are smart. They’d build these all day long if they could. You just can’t. Thus, the only $4-5mm houses in mid-country are older houses where the land is worth $2.3-$2.6mm and the depreciated 7k house is worth $1.5-2.5mm for both the house and the landscaping/pool/etc. (meaning maybe $150-200/ft for the house and the rest for the landscaping etc.)

    • T-bone

      Again, all correct math-wise, but I think that means the land value is too high to be sustainable. The number of super-successful hedgies and private equity and investment banking types is going down, not up, and that is likely a structural change (although I could of course be wrong about this). Perhaps the real issue holding the market back is the unwillingness of sellers in Midcountry to capitulate and sell. I don’t know the months-of-inventory stat for Midcountry (CF please help), but from what I’ve seen it must be pretty high, as all these folks with older homes refuse to sell at prices that would clear the market. My sense of the market is that land values need to gap down for inventory to clear. In an efficient market builders would be snapping up all the teardown 60s colonials currently festering unsold on the market. The fact that builders can’t make deals in Midcountry work is testament to the fact that land value in the eyes of the sellers is too high.

      • I’d say you’ve nailed it, T-Bone.

        • Anonymous

          No it is not the land value that is the issue, people will pay $2.3 MM for good mid country land, what needs to depreciate is the dwelling value of a 1960s to 1980s home that half the buyers would rather tear down in the first place.

        • With rare exceptions, 1960s to 1980s houses have zero value, even if they can still be lived in. Their price, therefore, should be the value of the land they sit on, period.

        • T-bone

          Anonymous 9:10: just because a couple of people here and there will pay $2.3MM doesn’t make that the market-clearing price. The amount of inventory to sales in Midcountry (and the shadow inventory of unlisted houses where the owners know they have no hope) is much higher than what would prevail in a normally-functioning market. Even in Greenwich there aren’t enough buyers in the $4-5MM range to clear the market. So when the homes in that range come down into the threes to clear, the houses in the threes will come down to the twos and so on. The reason Riverside is popular these days I think is that the kind of family who would once plump down $3-4MM has for a number of reasons has seen their price range drop to $2-3MM. Riverside, with its smaller lots and regular-sized houses, has the inventory that the market can bear. Demand rapidly scales down when you get above $3.5MM, and that won’t change unless the financial industry comes roaring back and lending standards go back to those of the mid 2000s. This has vast implications up and down the chain of midcountry real estate.

  22. The New Normal

    maybe the PRIME mid-country area isn’t supposed to attract people looking for $3-4mm homes

    • That would be fine, except that the market for $5 million + homes is very, very thin. Which is also fine, by me, but will prove a disappointment to mid-country owners hoping to sell out and retire to Florida.

      • The New Normal

        in prime real areas of every community, demand will always be greater than supply, and prices will always seem “too high”

        whether it’s the golden triangle, 5th to Park in Manhattan, central/west end in London it’s all the same – people always hope and wait for prices in those desirable areas to correct, but they almost never do – unless the market crashes (like it just did)

        people “hoping” for prices for the most desirable areas of Greenwich to come to their level would be better off buying in Riverside (or Darien, for that matter)

  23. The New Normal

    for every buyer there is a seller

    ignoring the actual mix of homes (demographic trends from big to small with respect to homes and yards, proximity to town vs back country, etc), unless marginal supply (new homes minus obsolescence) far outpaces incremental demand (new homebuyers minus net emigration out of Greenwich), the market is relatively balanced

    the number of transactions doesn’t tell you anything about whether supply is greater than demand or vice versa – the price level does

    • North St Owner

      Top 10 reasons why central Greenwich is poised to rally:

      1. Financials market rebounding
      2. UST10yr reaching 2.25% by spring
      3. Rental prices soaring
      4. Tax moving from NY to CT
      5. Banks have already shed bad loans and foreclosure portfolio
      6. Bridgewater rellocating to Stamford with 1,000 strong and 200 well paid traders
      7. Scarcity of land
      8. Scarcity of decent newer homes
      9. Private equity and investors pouring on real estate market (Manhattan close to historical highs)
      10. Buying season around the corner and fear of missing out on low mortgage rates

  24. The New Normal

    #11 – consensus skepticism by the masses (i.e. this blog)

    contrarian investing provides superior returns in the medium to long term

  25. Anonymous

    @ T-bone: There is a shortage of supply of new homes in the $5MM range in prime mid-country. Show me a flat 2 acre lot in Golden Triangle mid country with no massive flaws and my bid starts at $2MM. People want new houses and builders want good land. The problem is the good land asking $3MM because it has a 750K house attached to it that neither the builder or the new home buyer wants.

    • Anonymous

      I think that is right, but you just described the ideal lot. Not all lots are so blessed. TraderVic below has a good idea to get around the max FAR conundrum.

  26. TraderVic

    I like the idea of a smaller (4500 sq ft or so) and handsome home in mid country. The balance of the FAR could be set aside for use in creating a separate cottage for the kids or elderly grandparents. This cottage could be built as and when needed. There would be huge demand for this I believe.

    • The New Normal

      it would seem like building a separate cottage would be hugely cost ineffective, as you would have massive outlay for separate foundation, wiring, plumbing, etc

  27. TraderVic

    That is true New Normal, it’s just that it would be a way to justify the high cost of the land. You could amortize the investment over two families. We have done this and we (and our extended family) are more than pleased with the results!