THE GURUS : Consultants Play Major Role in Developers’ Decisions on Where, When, What to Build

When Signal Landmark got tentative approval to build homes on 1,700 acres in the Bolsa Chica area of Orange County, one of the first things company officials did was hire a consultant to tell them what type of homes to build on the coastal property.

The adviser they hired, Goodkin Real Estate Consulting Group of San Diego, supervised an in-depth survey of 100 upscale households.

Respondents were asked housing likes and dislikes, and to comment on 36 drawings of homes, walls, landscaping and other architectural and design features.

“Results from the study, (completed in December) show consumer tastes evolving toward the more traditional,” said Sanford R. Goodkin, head of the firm that bears his name and a real estate consultant with more than 30 years of experience. For example, respondents stated a preference for homes with raised molding detailing on the ceiling, and they voiced a strong desire for old-fashioned front porches.

“When television came into the home years ago, it made the front porch unnecessary in the minds of many builders,” Goodkin said. “Now, it might be time to bring it back.”

Consumer research, like that conducted for Signal Landmark, is just one type of service provided by the estimated 150 independent real estate consultants working in the Southland.

They offer help with a variety of architectural, design, pricing, zoning and marketing questions--although not necessarily all on a single project.

And, in the process, the consultants help determine what consumers will wind up with in a new home, and at what cost.

The real estate consulting business started in the middle to late 1950s, on the heels of the postwar housing boom. For the decade or so up to then, developers didn’t have to worry about market research--they were too busy satisfying pent-up demand for houses.

“But in the mid-’50s, builders faced their first period of oversaturation,” said Goodkin, who started in the field in 1956.

Consultants provide expert assistance for smaller clients who lack their own research staffs, and they render an independent second opinion to large companies.

“Sometimes, consultants confirm what you already know; at other times, they give you new insights,” said Stefan Markowitz, president of Barratt Irvine, a residential builder that regularly uses two outside consultants besides its own in-house analysts.

The advice isn’t cheap. A three- to 10-page report on a specific project question might run $3,000 or more, while a several-months study that includes consumer surveys could cost more than $100,000.

The larger, more established consulting firms routinely charge anywhere from $75 to $225 an hour and up, depending on the job and the expertise required. Alfred Gobar, a nationally known consultant based in Brea, said he sometimes charges as much as $500 an hour.

That might seem like exorbitant prices to pay for somebody’s opinion, but it’s relatively small potatoes compared to the many millions of dollars that residential builders routinely risk in a project.

“A developer might spend $750,000 on an architect, $50,000 to decorate the sales office and another $30,000 on sales brochures,” said Eric C. Brown, a vice president at the Meyers Group, a research and consulting firm based in Encino.

“By comparison, it doesn’t seem too much to spend $5,000 or $10,000 to see if the project will sell.”

Developers who don’t conduct the necessary market research could wind up building incorrectly priced homes with unpopular features in saturated areas.

Marta Borsanyi, partner in the Newport Beach office of consultants Robert Charles Lesser & Co., pointed to a Rancho Cucamonga development known as Marlborough Villas as an example.

The project proved popular with buyers when it debuted in the early- to mid-1980s. Rival companies hastened to duplicate the success of Marlborough Villas without first analyzing which factors buyers found most appealing

Sales lagged at some of these other developments, at least in part because the builders didn’t understand the public’s preferences, Borsanyi said.

In particular, some of the builders altered the Marlborough Villas floor plan, which had appealed to a broad range of buyers, while retaining such features as a semi-private courtyard between the common greenbelt and the actual living area.

“The front courtyard was a Marlborough Villas weakness, because people considered it unusable space,” Borsanyi recalled. “But it was copied anyway.”

As another example, Borsanyi cited the “conversation pit”--a sunken part of the living room in front of the fireplace that builders routinely incorporated into expensive houses during the 1970s.

“People didn’t want these rooms but they got them,” she said. “Builders copied one another without asking the buyers.”

Sometimes, builders devise expensive plans based on little more than rumors, tips and hunches. And sometimes, consultants must douse these dreams with a shower of cold, hard facts.

For example, consultants say some developers have heard of the disproportionately large amount of money on deposit in banks and savings and loans in Hemet, and they conclude that the Riverside County town must be ready for a lot of new, expensive homes.

But consultants point out that the money is on deposit--it’s not being spent. And they add that there’s no proof that the cash belongs to local folks who would desire larger homes in the area.

Builders generally don’t like to cancel plans for a project just because a consultant says it won’t fly. But most listen to the advice because they realize that land in Southern California is too expensive for them to hit and miss.

“There are no minor mistakes here,” Goodkin said.

Several years ago, Gobar persuaded a client not to build a seniors-only housing development in the Riverside County town of Perris because of low perceived demand.

“The client was angry, but he eventually agreed to sell the property and plans to somebody else,” Gobar said.

The project eventually was completed, and Gobar monitored it for a while thereafter: Units were being sold at a rate of 1.4 a week--a level that he and the original client considered insufficient.

In this case, Gobar had conducted a feasibility study, a common type of job in which consultants are asked to evaluate whether a proposed development makes financial sense.

Feasibility studies can easily become comprehensive and detail-oriented, but they all revolve around a central concern:

“A client will want to know if he can sell a certain number of units at the price he wants--we analyze that question,” said S. Kelly McDermott, formerly vice president at Market Profiles, a consulting and research firm based in Costa Mesa, and now head of her own consulting company, Common Ground.

A builder who wanted to buy a parcel of land and build homes in Victorville recently asked McDermott what she thought of the plan. She recommended against the transaction, based on the economics of the deal.

“The price for the land would require that he price the houses too high,” she explained. “He would be competing with (San Fernando) Valley prices.”

But even consultants who study the local real estate market for a living, admit they don’t always know what the future will bring on the crucial pricing question.

“I often recommend that a builder open a small phase first and see what happens,” McDermott said. “If they can’t sell two units a week, they had better not raise prices.”

Smaller builders often hire consultants to evaluate a proposed project to secure a building loan. Retailers will want to know where homes are selling, so they can plan new store outlets. And lenders will contact consultants for help in assessing population growth and economic strength in areas where they’re loaning money.

In troubled real estate markets, such as Phoenix, banks or savings and loans sometimes find themselves taking control of foreclosed homes.

“The lender will want to know how to dispose of the property,” Brown said. Enter a consultant, who will conduct a “highest and best use” study. This analysis helps the lender determine what to do with the property--sell it, redesign it, rezone it or take some other action.

Some researchers, including Market Profiles and the Meyers Group, do more than just evaluate specific projects. They also collect reams of data on new real estate developments and sell that information to builders, mortgage lenders, retailer--and other consultants.

They find the number of residential units going into a project, along with room configurations, square footage, prices and other data. They tap a variety of sources, including builders, brokers, leasing agents and local government planning departments.

Some researchers, such as Gobar, collect information from the federal government in the form of building permits, census reports and the like.

The Meyers Group publishes three types of real estate reports for subscribers and markets some of this information in the form of an on-line computer database.

The company also has a map division, which features custom-made aerial photos showing existing construction and upcoming development in an area. The 5-year-old company now has about 60 employees, including six who collect data full time.

The Goodkin Real Estate Consulting Group, numbers about 100 employees in the United States and also does work in Britain, Japan and other foreign countries.

In June, 1987, Goodkin linked up with accounting firm Peat Marwick Main & Co., in part to tap into the latter’s resources and client contacts. Most large accounting firms now have a real estate consulting division.

On the other end of the scale, some consultants run one- or two-person operations, perhaps enlisting the aid of a secretary or clerk. They can sometimes offer more personalized service at a lower cost than their larger competitors.

The Meyers Group estimated that there are as many as 150 real estate consultants, including accounting firms, working in Southern California.

There are no qualifying exams or required educational prerequisites to enter the consulting field, so people bring different types of backgrounds to the business. At Market Profiles, key employees have college degrees in subjects as diverse as art, psychology, finance, economics, philosophy, sociology and marketing.

Consultants must be able to piece together bits of information to spot trends in the big picture. “You need good pattern recognition,” McDermott said.

Consultants tend to find themselves in greater demand when the housing market softens. Residential sales have tapered off and prices aren’t rising at the torrid rate of 1988 and early ’89. Consultants foresee a busy period ahead.

“Over the last couple of years, when everything sold well, developers felt they haven’t needed us as much,” McDermott said. “Now that’s changing.”