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A tale of two subdivisions

Michael Schwartz February 22, 2011 6

Two sprawling subdivisions a few miles apart in Hanover County serve as perfect symbols of the home-building business before the recession and now.

Mount Hermon Farms
(pictured at right) is an immense, open field dotted with more vacant lots than actual houses and is now facing a slew of foreclosures in the wake of its ties to a convicted local Ponzi schemer.

Just up the road sits Hickory Hill, a 1,700-acre example of what deep-pocketed investors and a bit of confidence can do for developers.

“As much as the world is interested in foreclosures, I think they would like to hear about something good and growing,” said Mike Chenault, an investor in Hickory Hill and principal broker with Home Town Realty, which also marketed Mount Hermon Farms.

Mount Hermon Farms’ fate was entangled with that of Donald Lacey, a disgraced local businessman convicted last year of running a $10 million Ponzi scheme. The development was owned by Mount Hermon Farms II, LLC, an entity registered to Lacey that left Bank of America hanging on a $10.75 million tab.

Of the four dozen lots at Mount Hermon Farms, about a dozen have houses. The homes are colossal, $600,000 all-brick McMansions that were supposed to have many more neighbors. Now the remaining 30 lots are headed to a massive foreclosure auction today.

Mount Hermon is a quiet cleared field with not a bulldozer in sight. A few minutes away, construction equipment is clearing woodlands to bring Hickory Hill to life where its investors are confident in their plan and that the time is right.

“If our neighborhood were exactly like all other neighborhoods, we wouldn’t have put it on the ground,” Chenault said.

Some of the confidence comes from stable financial backers.

Hickory Hill’s investors include Gary Markel and Tony Markel, local attorney Bernie Meyer, Chenault and Todd Rogers, owner of RCI Builders.

The team of investors began buying the land five years ago. They closed on the deal two years later.

They all believe in the plan and the design.

“We’re offering a product that some other people aren’t,” said Chenault.

The houses at Mount Hermon Farms are all well over 3,000 square feet, and the lots themselves were all selling for more than $200,000.

But it’s not 2006 anymore.

“If we’d started in 2006, we’d have done the same thing,” Chenault said. “That’s kind of what the world was gobbling up in 2006. There are not enough buyers for that product right now.”

The 277 lots at Hickory Hill run between $100,000 and $160,000. The houses that will be built there by RCI Builders, Royal Dominion and Eagle Construction will start at $350,000.

“We’ve had to come back to reality on where the houses need to be,” said Todd Rogers.

A big part of the Hickory Hill investors’ confidence also comes from something less tangible.

“Our neighborhood doesn’t have the black eye of all the foreclosures,” Chenault said.

Rogers said the sight of a new development amidst the doom and gloom is a much needed change for the construction industry.

“The reason that we’re starting off so well — and I know this sounds totally funny — psychologically, I think people like to see new things happening,” Rogers said.

The developers said that’s part of the reason why four houses have sold at Hickory Hill in just a few weeks since the development launched. And three model homes will soon be on their way up as well.

“We have seven houses coming out of the ground at one time,” Rogers said. “You have to drive around Richmond a long time right now to find that.”

Hickory Hill is in its first phase, which includes 70 lots. Chenault said the entire development will take at least five years to be completed, with the hope being to build about 50 houses a year or about four per month.

They won’t start developing the next phase until the first 30 lots are sold.

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6 Comments »

  1. james February 22, 2011 at 8:41 am - Reply

    If anyone’s going to make a go of Mt. Hermon the county will have to let them re-divide it for smaller lots and homes. Hanover has shown recently that it’s willing to allow smaller homes and lots, but most counties are unwilling to allow redivisions for smaller lots. If they won’t allow it, no one’s going to buy the property. It’ll take 10 years to sell the remaining 30 lots for $600,000 homes.

  2. Joe February 22, 2011 at 11:42 am - Reply

    Anyone know what is going on with Woodside Estates? Another stalled Hanover subdivision that looked good on paper.

  3. Al Davis February 22, 2011 at 2:21 pm - Reply

    Builders are like any other worker. They need an income. If they don’t build, they can’t take draws to live on. If the banks want to put good money to bad, then keep puttin out those builder loans. I’m a realist and cannot see what will bring the real estate market around. I beleive it will take 2 or 3 years to get back to the way it was in 2004. Tell me what will turn it around sooner. The banks are affraid to lend money unless you have 20% down and a 750 credit score. You must also have your employer sign a paper stating that you will have a job at your current income for at least 30 years. As far as FHA: It probably won’t be alive to buy loans from the banks that do lend. Remember, Freddie and Fannie are on life support and the government is ready to pull the plug. The public is affraid. Do you blame them????

  4. james February 23, 2011 at 8:52 pm - Reply

    Al, while the problem is severe, you grossly overstate the problem. First, banks making you sign a note saying you’ll have a job for 30 years is ridiculous and doesn’t happen. Second, banks aren’t afraid to make loans. They’re being restricted by the US Treasury Department, which is reviewing every single business decision made by any bank that took TARP money, even if they paid it back with interest long ago. Third, you can get loans with 10% down and credit score of 700. But only 20% of Americans have a credit score at that level or higher. Fourth, FHA isn’t going anywhere. Only Fannie and Freddie are changing and that won’t happen for quite a while. Obama will be out of office long before any decisions are made. It will be extraordinarily difficult to shut them down.

    The public IS afraid. They see the government discouraging homeownership and ask themselves how they’re going to retire if they can’t buy a home and build equity in it for retirement. Social Security will be dead in 10 years and people wonder if they’re going to be working 40 hrs a week as a greeter at WalMart at age 80.

  5. Jackie February 24, 2011 at 6:45 pm - Reply

    A little fact checking is needed here.

    1) The wide open fields around Mt. Hermon were intended to remain open; some was leased to farmers, and the remainder was supposed to be the future soccer field and clubhouse. Most of the buildable lots are wooded.

    2) Current lot prices in Mt. Hermon are comparable to Hickory Hill: mid to low 100s. A comparison of Hickory Hill today to Mt. Hermon 2006 is not very meaningful. As for home size, the minimum in Mt. Hermon is 2800 s.f.

    3) No mention of Woodside Estates. Really??

    4) It’s a bit premature to declare Mt. Hermon a failure when it has 13 inhabited homes compared to zero in Hickory Hill. From what I gather in the article, HH is putting up 4 homes with guaranteed occupants. Sounds promising, but it’s too soon to declare one a clear success over the other.

    The one area where I agree 100% with this article is that the investors played a huge role in the differences presented in these two developments. Lacey was relentless in his quest to build for himself a luxury neighborhood filled with overpriced homes. His own million-dollar monstrosity sold for about half what it could have been worth in the end. Perhaps now that he is out of the picture, lots prices have corrected (now mid-100s), and other builders are allowed to enter the neighborhood Mt. Hermon might have a chance to survive on the backs of more reasonable investors.

  6. Kevin Anderson February 25, 2011 at 12:53 am - Reply

    James, there are much better ways for people to save for retirement other than home ownership. If you think of a home as something which helps you create a foundation in your community and a foundation to raise a family then owning a home is a good decision. Purchasing a home for investment purposes with the ultimate goal of retirement is ignorant to say the least. Real estate keeps up with inflation because it is closely tied to demographics; new household formation is the only impetus to increasing true demand. With that said, no individual with sound decision-making capabilities would take out a leveraged investment that matches (Fed mandated ~2%, realistically ~7%) inflation with a 4.5-5% mortgage, the math just doesn’t add up. Our rapidly changing economy will be dominated by original thinkers, and not those who stick to traditionally accepted ways of providing for the future. Buy a house because you want a home, not because you want to retire early.

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