Cover Story

By Pete Gleszer

Ghosts of the ESho – unfinished developments

By Pete Gleszer

Lagniappe staff

Scattered around the Eastern Shore are dozens of failed subdivisions. They are mere shadows of what had been planned – ghosts of what might have been.

The dreams their developers once had are reflected in their names: Fairhope Falls, French Settlement, Old Battles Village. But now they are just hundreds of acres of weed-covered wasteland. Some are in foreclosure. The only activity for others is having been sold for the third or fourth time. And in a few cases, the lack of life is a result of the original developer prudently conserving resources while waiting out the downturn.

Pete Ferrari, Lagniappe photographer Dan Anderson and I were recently standing in front of one of these Eastern Shore ghosts: Old Battles Village. While Dan set up his camera for the cover shot, Pete stood looking over the desolate tract.

From the entrance the grid of streets was visible, an occasional green-and-white street sign marking an intersection, the sidewalks hidden by weeds and the lots gradually returning to their natural state.

On the way to the site from his Fairhope office, Ferrari had explained that three years ago he came to the Eastern Shore to serve as Chief Operating Officer and construction manager for a partnership that bought the land we were standing on for development as Old Battles Village. The project started fine – land was cleared and the roads and utilities installed, but work ground to a halt as money got tight. Eventually the property went into foreclosure and remains in that status today – just another of the “ghost” subdivisions of the Eastern Shore, sitting silently in the summer sun.

Pete interrupted our reverie. “It’s a great location and I’m working to get it back from the bank. I’m going to make it into the beautiful neighborhood that was originally intended. That’s my commitment.”

Ferrari Capital Partners (Pete Ferrari, Managing Partner) is pulling investors together to bring Old Battles Village back from the dead. This ghost subdivision is on its way to recovery, but few others are. The former Fairhope Falls, adjacent to the Fish River, is another subdivision being brought back. Local real estate powerhouse, Rance Reehl, is in the process of getting it reconfigured, rebranded and remarketed.

But these are exceptions; there are dozens of dead or dormant subdivisions where nothing seems to be happening. These indicators of more prosperous times are scattered around the county with most of the true ghosts – projects that never got any further than what we saw at Old Battles Village – clustered along CR 13 and SR 181, in the planning jurisdictions of Fairhope and Daphne. They contain literally thousands of approved lots, awaiting houses.

Because I am a relative newcomer to the area, I turned to Randy Niemeyer to help me understand the dynamics of Eastern Shore development. He’s a life-long resident of the Eastern Shore, a Realtor and custom home builder. As he explained things, it’s pretty simple.

“There’s lots of land out there. In good times anybody with a soybean field can do a development. And then when things get tough they try to sell the whole thing or off-load their investment costs on the builders,” he said. He added that sometimes this doesn’t work – witness all those failed subdivisions.

Niemeyer continued, “My dad (Carlton Niemeyer) developed two of the really fine subdivisions in Montrose: Montrose Village down on the bay and Montrose Woods next to Rock Creek.” He paused in thought, then went on, “Over time they turned out very well, but I remember Montrose Woods had a real slow start.”

He added that his father had a lot of experience in the business and was both well-known and highly regarded in the community, which helped him weather the tough times. But many imitators attracted by the boom didn’t have this experience or local reputation to fall back on.

“Once home sales slowed, builders stopped buying lots and cash flow just dried up for people with these new developments,” Niemeyer explained. “Then financing became harder – they couldn’t just roll loans over and ride out the hard times – often it ended with foreclosure.” He continued with some broader observations.

“You have to understand that this is just part of supply and demand – free market capitalism. Everybody thinks that there is room for one more subdivision and suddenly there’s excess capacity.”

He observed that these undeveloped developments are still assets, “They aren’t wasted money and effort – eventually they will sell,” adding – with a tone of certainty, “Demand will return.” And this got us to everybody’s number one real estate question: “When will this happen?”

Niemeyer’s answer: “Sometime in 2010 – we saw a small improvement in the spring of this year, but it didn’t last.” And his description of what will happen doesn’t depend on some big event – like a tanker contract. In his scenario the population will continue to grow throughout the metro area (but predominately on the Eastern Shore and in West Mobile), lower prices coupled with mortgage availability will stimulate home buying, which in turn will stimulate more building and a demand for more lots – bringing these ghost subdivisions back to the world of the living.

Niemeyer sees this boom and bust cycle as a natural, self-policing process. “It will fix itself, but will take time,” he asserts. “Right now the real estate market is flooded at a bad time economically.”

Later as I sat in Pete Ferrari’s office, waiting while he concluded a conference call with investors, I wondered if I would get a different answer from him to the “When?” question. And regardless of his answer, what would be his logic path?

His answer was very close to Niemeyer’s: “Some improvement by the spring of 2009 with big time improvement by the middle of the following year.” But the factors that he considered in his analysis were very different. Where Niemeyer primarily looked at local economic fundamentals, Ferrari’s view is based more on macro-economics, again from the local perspective. Here are some of the things that went into his prediction.

Our local real estate market is better off than those in locations we hear so much about, principally Florida and California.

“Real estate here was not as inflated, so we will get back faster,” he said.

Ferrari sees the selection of Mobile as Moody’s top economic growth city and its appearance on the National Geographic’s Top 50 “Next Great Cities” list as powerful influences in creating a robust and growing economy in the region. Most interesting in his planning factors is the value that he places on expansion of the Alabama Docks facility.

“The docks expansion is the most important driver of growth in the Mobile area,” he unequivocally stated.

“What about the aerial tanker?” I asked. “Everybody seems to be waiting for our tanker to come in.”

“Not the tanker. I’ve looked at both it and the steel plant and my analysis is that an increase in the port capacity by a factor of 10 will bring in more businesses and jobs than any other single thing.”

So we have confidence in a turn-around in our local real estate market based both on fundamentals and macro-analysis – and that we should look for this to be well underway before the end of 2010.

But in the interim, Eastern Shore residents will have to put up with these ghosts of dead dreams. Their presence is depressing, both economically and psychologically. However not every distressed subdivision is a true ghost. Some are like zombies – the “living dead.” Not truly dead, but still showing signs of animation.

An example of this condition is the up-scale Fairhope subdivision, Trentino. A resident (who did not OK being named here) drew my attention to this situation. Trentino started as a Dyas development. It was beautifully laid out with winding streets, cobblestones, statuary and fountains – clearly a major investment in creating a high-end community. The ownership has passed to others, but the commitment to maintaining this quality didn’t make the transition. The grounds are overgrown; everything looks shabby with not even basic landscape maintenance being performed. If it weren’t for the scattering of occupied homes, the place could pass for one of the ghosts.

As it was explained to me, the current owners didn’t get the projected cash flow through sales and could no longer make their payments to the homeowners’ association for maintenance. Given that they own most of the lots, this pushed the association into insolvency – effectively putting it out of business. Nothing is being done to keep up the extensive common areas. Residents are harmed both in the loss of value in their homes and in the loss of the amenities that they paid for when buying there. The developers are in a further weakened state because potential buyers will find the community unattractive and either look elsewhere or expect steep discounts on lot prices – a vicious cycle, which, if unchecked, could lead to failure.

This is an example of the sale of a subdivision by the original developer that turned out badly for almost everyone involved. Even where the sale results in a vital and thriving subdivision, there can be serious economic consequences. Richard Sorrell, a small independent builder of higher-end homes explained these risks.

When a developer with a lot of inventory decides to sell out and recover his investment, he often turns to high-volume builders, Sorrell said. He mentioned D.R. Horton specifically because of his current situation. Sorrell built two half-million dollar spec homes in a new subdivision; they were unsold at the time the developer sold out to D.R. Horton.

The high-volume builder put up a bunch of nice, but decidedly built-to-cost houses, adjacent to Sorrell’s homes and priced them about $100,000 less. Property values there, already battered by the general real estate downturn, have now taken a bigger hit as the nature and quality of the whole subdivision has been downgraded. Sorrell acknowledges that everything done was perfectly legitimately, but nonetheless is discouraged over the losses he fears he may take to make a sale. But this outcome might never occur if Pete Ferrari and Randy Niemeyer are right – assuming Sorrell can hold out for a bit longer.

Both of them feel confidence and optimism in the future of the Mobile area in general and in the real estate market on the Eastern Shore in particular. Niemeyer has observed the local scene for years. Early in his life, by following his dad, Carlton, around as he put together deals and did his part in developing the Eastern Shore communities that have come to characterize this area – and then later as an adult running his own businesses. He has seen the turbulence in the marketplace and watched boom and bust, but has learned that this is the nature of a competitive, free economic society. He is confident, virtually certain, that there will be a return to better times.

Ferrari describes his optimism as being rooted in the bad days of the dot.com collapse. “I was there, and got through it – this local real estate downturn is nothing like that disaster. We just need to wait it out and be ready when things start getting better.”

So that’s about it. All those spooky, empty Eastern Shore subdivisions will be with us for awhile – but if these assessments are proved correct, not for too much longer. The former ghosts will become the kind of neighborhoods we were used to seeing – with houses and manicured lawns replacing weed-covered lots – with families bicycling on streets that currently are only transited by an occasional possum or feral cat.

And in validation of this optimism, perhaps we will see Old Battles Village leading this renaissance.

Contact Pete Gleszer at jubilee@lagniappemobile.com.

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