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Homebuilders Rising

Barclays Capital recently predicted that the housing recovery was on its way and walked the talk by upgrading several big builders, citing as catalysts improving jobs numbers and price stabilization that has not been predicated by government homebuyer incentives.  Even more recent news shows that the market was listening as all are enjoying increased stock values spurred by the latest pending home sales report that  exceeded economists' estimates.  Click here for "The Street's" take on the current conditions.

Inside This Edition - Dec '11/Jan '12

Bowden’s MARKET BAROMETER / Vol. XX / #5 – December ‘11/January ‘12

Inside this edition . . .

 “A Rising Tide Floats All Boats.”  So believes marketing and public relations expert David Pearson in this feature article in which he interviews resort development real estate professionals in a variety of disciplines located around the country who have been experiencing the turning tide. The industry intelligence in this issue supports their ways of thinking.

Trends In . . . Development – According to Kelsey and Norden – The dynamic duo of Christopher Kelsey and David Norden have once again compiled some fascinating data in their Fall 2011 Resort Real Estate Professionals Survey.  Happily, the findings follow suit with BMB’s and David Pearson’s perceptions that things are looking up.  The introduction to the report reads, “Phone calls to our peers are now slow to be returned, with apologies; agendas for ULI Recreational Development Council meetings are now easily filled with compelling ideas and stories to tell of current efforts; (and) our phones ring with more inquiries and updates on projects in the pipeline.”  Get this issue for a synopsis of their very interesting, and helpful findings.

Current Climate/Housing Highlights – Real time indicators and year-over-year trends for the economy and housing: “The economy grew 1.8% in Q311 -- while slightly less than projected it marks the 9^th consecutive quarter of expansion. The labor market is looking better and steady job growth for 14 consecutive months has resulted in the unemployment rate falling to its lowest level since March 2009. Thanks to the Fed’s keeping its “hands-off” pledge, fixed rate mortgages remain at historical lows, and according to The Conference Board’s latest index, consumer confidence snapped back aggressively in November, increasing to 56 from a revised reading of 40 in October, the biggest monthly gain since April 2003 -- not surprising as the Dow has hovered between 11,000 and 12,000 for more than a year now.” This column provides industry-specific data and year-over-year comparisons for 2012 planning.

Golf Gallery – The golf business in real time: Industry conditions, trends and networking opportunities. Architectural, acquisition and management activity is on the upswing, and the list of architects of the golf course that will host the return of golf to the Olympics in 2016 has been distilled to just eight exceptional designers.  Read all about it in this issue.

The Bulletin Board - A mélange of current industry announcements, new developments and housing products, business trends and strategies, builder happenings, sales activity and achievements, acquisitions and property prospects, and hospitality industry highlights.

Regional Trends – A Potpourri – It’s that time of year when pundits publish their “lists” -- the best of this, the worst of that – and then pull out their crystal balls to prognosticate on what it all means. We would be derelict in our duty as “messenger” if we ignored them, as they are intriguing in their parallels  -- and their conflicts.

International Intel – Fractional Ownership Development South of the Border - From January to August 2010, 7.1 million international travelers visited Mexico, reflecting a 19% increase over the same period in 2009, due in part to increases in new direct flights from several North American travel hubs.  Increased traffic translates to increased interest in resort properties.  The Market Barometer explored the Mexican fractional ownership industry in late 2011 and found that while global economic conditions had taken their toll, a number of projects continue to be viable. Their characteristics are presented in this in-depth article.  

Go to: http://www.bowdensmarketbarometer.com and click on “Current Climate” for up-to-date data on the economy and the housing industry.  If you’d like to join your colleagues in receiving “All the trends that fit to follow . . . click on “Subscribe” for an annual subscription or “Buy Now” to purchase this single issue.  < >

Marketing in Tough Times

In the 1989 economic downturn, McDonald’s decreased marketing expenses and saw a 28% decline in sales. Pizza Hut and Taco Bell increased advertising expenditures and saw sales increases of 61% and 40%, respectively. Our interview this issue is with David Pearson, president of David Pearson Associates, a Coral Gables, FL-based public relations firm specializing in resort and upscale residential development, and a proponent of increased marketing efforts in down cycles. Pearson has been putting resort communities on the map since Laurance Rockefeller hired him after his success at Sea Pines Plantation. Pearson’s clients have ranged geographically from Hawaii to Barbados.  The firm’s current activities focus on Florida and the Caribbean.

 BMB: David, how is the development world treating you?

 Pearson:  Well, you’ve called me the day after the DOW dropped nearly 400 points, so I’m not a happy camper. This political and economic “unrest” is definitely not good for business.

 BMB: We understand and feel your pain.  Nevertheless, your reputation as a “guru” in the public relations business is well known.  Surely you’ve been able to convince your clients to keep their focus and stay the course.

 Pearson:  It’s been a challenge.  We are virtually at the nadir of all economics, and developers are having a hard time seeing the proverbial light at the end of the tunnel.

 BMB:  Your focus has always been on the vacation home, resort and club business. From your perspective, what are the most significant changes in the sector?

 Pearson: That upper-upper market segment – those 4^th and 5^th homebuyers, is virtually gone – they’re even selling their Gulfstreams. Stock market volatility will do it every time. The next level down, buyers of their first vacation or transitional (gateway/retirement) home are not looking for mansions with expansive land that requires constant maintenance. They want a lock and leave product; a managed product.  Something they don’t have to worry about when they’re not there.  They also don’t want to suffer the process of building a custom home.  This is particularly true in the Caribbean and Central America.  Gringos do not want want to supervise an offshore construction process.  They simply want to pick a plan, buy it and use it – as quickly and as effortlessly as possible.  The days of expensive custom home lot sales are over.

 BMB: We see that here in the states as well.  But what about investors?  Aren’t they looking for lots to hold for future return on investment?

 Pearson: There’s too much distressed vertical inventory out there for that.  Investors are focusing on existing products that represent below market pricing and cash flow in the form of immediately rentable products in a resort environment. The lot sale launch is history, along with many of the marketing companies that focused on this strategy.

 BMB: Sounds dire, but I know you have an answer.  What is it?

 Pearson: The guy with developable property must be flexible, and prepared to change his development strategy. Fractional (ownership) products can fill the demand that is coming from the second tier group – the mass affluent group.  Fractionals and Private Residence Clubs are largely affordable to that segment, address the management issue, and provide the services that the market requires. But most developers are resisting and have not come to terms with the new reality.  One unit per acre is not a saleable commodity right now. Densities of eight to ten units per acre are more in line with what is not only popular, but cost-efficient to build and to sell. Clustering the products provides a “village” mood and has less impact on the surrounding land, a benefit the Boomer understands.

 BMB:  How do you sell today’s resort real estate?

 Pearson:  Going vertical, even on a limited basis – a handful of units at a time -- provides a reason to visit the development. Visitor traffic translates to potential buyers – if the experience is good.  If amenities are in place, there’s no reason not to provide accommodations that prospects can “test drive” while enjoying the recreational and cultural experience.  It’s all about the experience now.  The boxes can be smaller, less expensive, and less luxurious, but the experience has to be top notch.  Of course you can’t have the experience when there’s no place to stay.  You can’t pitch a tent on a one-acre lot.  Hotels are good starting places, especially if they have an interpretive sales center.  They can provide tours, receptions and in-room television presentations.  But the hotel room doesn’t give the prospect a chance to envision what his “home” will be like.  

 BMB:  We interviewed Dick Ragatz in our last issue and while he remains optimistic for the fractional ownership industry over the mid-term, he admits it does not appear to be in any hurry to lead the recovery.  What do you attribute the lag to?

 Pearson:  I recently attended the International Fractional Conference in Miami.  The biggest problem the industry has to overcome is the idea that Private Residence Clubs are just bigger, more expensive timeshares with longer periods of usage. The absence of effective public relations and appropriate marketing is the biggest obstacle to the product’s growth.  Of course, the drop in sales is also attributable to the currently frozen lending environment, but there are plenty of cash buyers out there and they will invest in a product that makes sense for them.   

 BMB:  So what is the message to developers?

 Pearson: “If you build it they will come” is an illusion. Developers need to spend money now to attract attention or when the turnaround begins they will be spinning their wheels for two to three years.  In my career, I’ve seen four periods of malaise that have been the result of overbuilding, and the resulting recession.  Those that have come back strongly are those that have continued a robust marketing program in spite of conditions.  The typical marketing budget is in the 4% to 6% range; it’s now in the 2% to zero range – the opposite of what it should be.

 BMB: So how can Mr. Developer maintain a market presence on a limited budget?

 Pearson: First of all, the budget shouldn’t be reduced, but increased in times of stagnant sales.  If that’s not feasible, there are cost-efficient ways to maintain market presence including strong public relations efforts with resulting publicity, wooing local brokers, etc.  The Internet is the 300 pound gorilla in the room and professional website development and SEO optimization is critical. But this can get expensive and does not always reach the desired group. Social marketing has become an important, cost-efficient tool, but it too needs to be targeted, consistent, and professionally implemented.

 But perhaps the most cost-efficient strategy is intercept marketing, which is an excellent way to expand an affinity database program. For example, the Tucán Country Club & Resort is located on the other side of the Panama Canal from the main metropolis of Panama City, virtually surrounded by a wildlife preserve.  It was a challenge to get  U. S. and Canadian visitors directly to the project, so we intercepted them while they were in Panama City.  More than 50 percent of the buyers did not come from our affinity database, but from local intercept efforts. 

 Under any circumstances however, by far the most cost-effective way to sell in resort and club communities is via property owner referrals.

 BMB:  David, you are well known for your celebrity affiliations and efforts in achieving celebrity testimonials for your clients.  Does that strategy work in the current sales environment?

 Pearson:  It can, but not by paying the celebrity.  Buyers are too savvy to be fooled by paid testimonials.  The celeb must have some sort of affiliation with the property – be an investor owner or member of the club. The trick here is to identify the cheerleaders and get them on-board.  Authenticity is a most important component in today’s marketing strategy.   

 BMB: David, thank you for sharing your time and your insights. Keep us posted on any new trends in the marketing and sales universe that may serve to speed up this decidedly stubborn recovery. 

 Editor’s Note: David Pearson is an internationally recognized leader in the development and implementation of successful public relations and marketing programs for luxury oceanfront, marina and golf resort communities. For more than 40 years, the Coral Gables-based David Pearson Associates team has been typically involved in the early planning stages of new resort communities, helping to forge the projects’ identities, define the appropriate market segments, and set realistic sales and marketing goals. David can be reached at david@davidpearsonassociates.com or 305-798-8446.  To visit David’s website and see his full roster of successful clients go to: http://www.davidpearsonassociates.com 

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