Elated by 1986, Developers See Hope for Repeat

Last year was a very good year for Southland home builders. Correction. It was a great year, the best ever for many.

Lewis Homes, Upland, had its best year ever, selling more than 2,500 houses and building more than 1,000 apartments, to rank fifth in the Times’ 16th annual Survey of Residential Building in Southern California.

Reining in his enthusiasm, Randall W. Lewis, the firm’s senior vice president and director of marketing and sales, indicated that he “will be surprised if the home sales pace continues at such a torrid rate for the rest of the year.”

Among the “black clouds” he sees on the building horizon are rapidly escalating home and land prices and labor and material costs.

Sees Price Increases

“There is such a frenzy to buy property right now, and there is so much work for good subcontractors that we project new-home prices going up at least 10% in the coming year, with some as much as 15% or more,” Lewis said.

Kaufman & Broad Home Corp., Los Angeles, seventh on the list of 164 builders, expects 1987 to be even better than 1986.

“If current order rates continue, we should be in a very good position to deliver more than 5,000 homes in 1987, compared with approximately 4,300 in 1986,” according to Bruce Karatz, president and chief executive officer of the Los Angeles-based firm. More than 1,700 of the single-family houses built last year were sold in the Southland, according to the firm’s survey questionnaire.

Cities Raising Fees

Karatz said that his New York Stock Exchange-listed firm is the largest builder of single-family homes in California and the third largest in France.

Donald H. Williams Jr. of Hill Williams Development Corp., Anaheim, ranking 68th, said that cities are enacting increasingly large building fees to control growth and to build schools, effectively “diluting” profits of builders despite the strong sales volume.

“In my opinion, the greatest inflationary factor of 1986 was the increase in development fees enacted by local and state governments,” Williams said, adding that building fees more than tripled in some cities.

“Land costs are escalating because of the limited parcels that cities will approve to be built,” he said. “Cities are effectively controlling growth through ‘inverse condemnation’ ” while city officials and their staffs have made the approval process for land development so time consuming and expensive that it is not economically feasible in many cases.

Despite all this pessimism, Williams feels that home building activity in the Southland will be better in 1987 than last year--”if interest rates continue to stay down. Inflation is the key indicator of future interest rates and it appears that 1987 will continue to have low inflation.”

Survival Techniques

Akins Development Co., Newport Beach, which tied for 45th, had a dollar volume of $25.8 million for five custom homes built last year, contrasted with “only” $24,277,420 for 135 tract houses in Woodbridge, Turtle Rock and Santa Margarita, according to Bruce K. Akins, principal. Less really is more in this builder’s case.

Diversification away from residential building is one course of action for survivors, according to Steve Boggs, vice president of J. H. Hedrick & Co., San Gabriel (108th on the list). Founded by John Hedrick in 1947, the company is one of only 17 builders nationwide that have survived since 1968, according to a survey of 474 builders by Professional Builder magazine.

Boggs attributes this staying power--the firm celebrates its 40th anniversary this year--to in-house architects, interior designers, marketing staff, contractors and site/office superintendents.

Hedrick built 118 apartment and condominium units last year. Non-residential construction accounts for an increasingly large percentage of the firm’s sales volume each year, Boggs said.

Alan N. Lowy of Lowy Development Corp., Los Angeles, asked to be dropped from the survey because he believes that it doesn’t present a true picture of apartment developers who build for their own account rather than build units to sell to investors. Lowy Development tied for 107th on the 14th annual survey that ran March 24, 1985, and did not participate in the 15th annual survey that ran March 16, 1986.

Other firms that specialize in apartment building and agree with Lowy’s view include IDM Corp., Long Beach, 44th; Lincoln Property Co./Fore Division, Westlake Village, 29th; Regis Homes Corp., Newport Beach, 20th, and Wurtzel & Fox Investment Co., Los Angeles, 39th.

Apartments represent 98.4% of IDM’s residential building activity, with condominiums accounting for the balance, according to Michael Choppin of IDM.

Richard Fore of Lincoln Property/Fore, Geoffrey L. Stack of Regis Homes and David L. Fox of Wurtzel & Fox all said that apartments account for 100% of their residential activity.