"The construction side is almost risk-free, since building begins only after the house has been sold to a buyer. All the risk is in the development side, but so is all the money. A small home builder makes 5 to 7 percent profit, while a developer can make a lot more than that -- or he can go bankrupt."
Every spring I invite Joe Duckworth, a residential developer, to talk to my class, a mixture of architects, planners, and Wharton School MBAs. He generally begins by reminding the students that home building is an unusual business. "The customers are not only buying a product," he says. "They're looking for the right location for commuting to work, good schools, recreational amenities, and nice surroundings. They're shopping for a neighborhood."
He shows images of suburban communities, asking the students to describe what they see. "Lawns," they answer. "Colonial shutters." "Brick chimneys." Emboldened, someone in the back calls out, "Boring, cookie-cutter houses." "Interesting answer," says Duckworth. "You're right, the houses are similar. When people buy a house, they want to be able to sell it. Since they can't afford to lose money, they're highly risk-averse. They want what everyone else has."
Paul, an architecture student, raises his hand. "The houses that you're showing all look pretty traditional. What's the market for modern design?" Duckworth answers that in the seventies a home builder he worked for created a so-called California contemporary model, with clerestories, cedar siding, high spaces, and an open plan. "It wasn't great architecture, but it was different. Today, those houses are selling at a ten to twenty percent discount compared to other nineteen-seventies-era houses. People just don't like them, and no Philadelphia builder has tried it since."
Duckworth talks about his business. "In the past, residential development was straightforward," he says. "You had an engineer prepare a subdivision plan, you got it approved, and built the houses. Development and building were done by the same company. In the last five years, thirty-eight states have enacted some kind of land development regulations. Today, especially in an anti-growth area such as Pennsylvania, getting land permitted is an art that requires a different skill set than building houses, so land development and house building are increasingly done by different people. Development involves acquiring land, getting permits, and putting in roads and infrastructure; house building is mainly about construction. The construction side is almost risk-free, since building begins only after the house has been sold to a buyer. All the risk is in the development side, but so is all the money. A small home builder makes five to seven percent profit, while a developer can make a lot more than that -- or he can go bankrupt."
Kelly, one of the Wharton students, asks how developers weather economic downturns. "It's mostly a question of resources," Duckworth says. "In a downturn, about a quarter of developers go bankrupt. They've bought land which they can't sell. So the rest of us have the opportunity to buy this land at a low price. When the economy turns up, we have permitted land ready to go, while other developers are just starting the long permitting process."
Duckworth discusses the role of regulation in development.
"You have to understand that the way that our suburbs are planned is not because of developers, it's mainly because of zoning," he tells the class. "Who do you think controls zoning?" he asks. "Zoning boards," calls out a smart aleck. "Yes, but zoning boards are run by who? The local residents. What these people want is to maintain, or even increase, property values. At the same time, they want -- and their neighbors want -- to limit development as much as possible. In Chester County, where I live, the size of an average lot increased from half an acre in the sixties to one acre in the eighties, and by the end of the nineties it was an acre and a half. The bias of local zoning is always towards bigger lots." Duckworth ends by talking about his own projects. "I'm working on village-type developments with smaller lots and more open space. It's taking a long time to get approvals, though, because we're swimming against the current."
Duckworth and I have been friends for more than a decade, and we usually have lunch after the class. He's in his early fifties, with longish hair and a beard that he's recently been growing and shaving off with disconcerting regularity. Today he's bearded. I tell him that I'm sure the students appreciated his comments since many of them want to be real estate developers. I ask him what attracted him to the field. "I studied mechanical engineering at Carnegie Mellon in Pittsburgh," he says, "and after graduating I got a job with Sun Oil in Philadelphia. After a few months I realized that my future was not in engineering, and I decided to get an MBA and go into business. Like most of my Wharton classmates, I wanted to be an entrepreneur and run my own company. In most fields, that meant spending years working your way up the corporate ladder and then, if you were lucky, having one shot at being CEO. I didn't want that. I was already married with kids, and I was in a hurry. I looked around at business sectors where someone like me, with a college education and an MBA, had an advantage. I came across commercial home building, which I didn't know anything about. It was a field that seemed to have many family-run businesses. I thought that I could bring modern business practices to bear and make my way."
Eventually, he landed a job with Toll Brothers, the largest home builder in the Philadelphia area. His responsibility as assistant to the president was finding and buying land and getting approvals. He learned the business but after nine years left the company. "I realized that I was never going to be a brother," he jokes. He moved to Realen Homes, one of Toll Brothers' smaller competitors. "Realen was a reputable company that owned apartment buildings that generated good cash flow, but the home-building side of the business was not doing well. It had lost money on a deal that went sour, the employees were demoralized, and there were no projects in the pipeline." Duckworth was brought in as president and CEO to revive the operation. Using his Toll contacts, and Realen's credibility as a company, he immediately optioned more than three thousand lots. "Over the next decade I built up company sales from twenty million dollars a year to a hundred million, making Realen the second-largest home builder in the Philadelphia area, after Toll," he tells me.
I know that Duckworth has recently left Realen to start his own real estate company, and I ask him about the projects he mentioned in class. "We're in the middle of trying to get several of these village-type developments off the ground, which requires townships to change their zoning to allow smaller lots. It's an uphill battle," he says. "There is one project that looks promising, though. It just came to me through another developer, Dick Dilsheimer. I've known Dick a long time. He and his brother are old-fashioned merchant builders, that is, they buy land, subdivide it, build reasonably priced houses, and market them to buyers. For the last year they've been trying to get permission to build a small subdivision in southern Chester County. It's nothing special: eighty-six houses on ninety acres of rural land. Dick's problem is that the township doesn't like his project. They keep telling him that they want something different, with smaller lots and more open space."
Duckworth calls Dilsheimer's proposed development "as of right," that is, it follows local zoning exactly and does not require a variance, or special approval. Nevertheless, the township is blocking him. "He could sue and probably win, but confrontation is not Dick's style. Instead, he's approached me to see if I would be willing to take the project off his hands. I'm interested, but it's still too early to know how serious the township really is."
I've heard architects and city planners argue for more density and open space, but here the demand is coming from the citizens themselves. I ask Duckworth if he knows what has pushed the township in this direction. "I'm not sure," he says. "It may have been their planning consultant, Tom Comitta."
I happen to know Tom. We share an interest in garden suburbs. He introduced me to Yorkship Village in Camden, New Jersey, which was built during World War I to house shipyard workers, and I repaid him by showing him Roanoke Court and some of the other residential groups in Chestnut Hill. If he's involved, that might explain a lot. I decide to pay him a visit and find out more about this unusual township.
Tom Comitta lives and works in the town of West Chester, the seat of Chester County. His office occupies half of a brick Victorian twin on Chestnut Street. The sign on the door says, THOMAS COMITTA ASSOCIATES, TOWN PLANNERS & LANDSCAPE ARCHITECTS. Though he is trained as a landscape architect, much of Comitta's business is advising small rural municipalities that need professional help with planning, zoning, transportation, and other development issues. One of his clients is Londonderry Township, the site of Dilsheimer's proposed subdivision, which Comitta calls the Wrigley tract. "Londonderry is a small rural township in southern Chester County, at the edge of the Brandywine Valley," he tells me. "They originally hired me to advise them on a large subdivision of three hundred town homes called Honeycroft Village. It's a nice name, but it was an unimaginative plan with identical houses in groups of threes and fours." The township supervisors were dissatisfied with the layout. "What else can we do?" they asked Comitta. He suggested a visit to a new planned community in another part of the county that would give them an idea of an alternative approach to residential planning.
Considering it was a Saturday morning, the turnout was surprisingly good, he told me. The group included the three township supervisors, the township engineer, members of the planning commission, and a representative of the developer. The new community consisted of large houses, two-car garages, front lawns, and attractive landscaping. But as the group walked around and Comitta pointed out various features, it became apparent that in many small ways this development was different. To begin with, there were sidewalks shaded by trees growing in planting strips. The lots were smaller, the buildings closer together -- and closer to the sidewalk. Cars were parked on the streets, but there weren't any driveways or garages -- these were in the back, accessed from rear lanes. Many of the houses had front porches and picket fences. These features gave the development a compact, village-like appearance.
They met a woman driving her car out of a lane. "She'd been living there about eighteen months, and she was rhapsodic," Comitta remembers. "She said that it reminded her of her mother's hometown." The township engineer expressed some skepticism about the narrowness of the streets, but Comitta saw that most of the group were favorably impressed. The visit lasted about two hours. Afterward, they stood around talking. The representative of the Honeycroft developer said he was concerned about the time it would take his client to redesign the plan and go through an entirely new approvals process. Then the chairman of the planning commission said, "We might not be able to do this in Honeycroft, but wouldn't this kind of thing be better for the Wrigley tract?"
"That's how it began," Comitta told me. "The township was unhappy with Dilsheimer's proposal, and the visit suggested an alternative at just the right time. The planning commission approved Honeycroft, but they want Dilsheimer to change his project. They've really given him a hard time, so I can understand why he wants to pull out. Now the township has asked me to work with Joe Duckworth on the Wrigley tract and see if we can get something that will be better than what we've done before."
Copyright © 2007 by Witold Rybczynski