New John Laing Homes Division Melds Suburban Expertise With Urban Sensibility

John Laing Homes has historically been known for its traditional suburban detached housing. Describe its recent entry into urban infill and why L.A. was chosen as the base of its urban operations.

Several years ago John Laing Homes realized that there were a number of demographic shifts toward the desire for urban living. We find that as the cities continue to work on redevelopment of their center city and downtown areas, and to attract better quality retail, recreation, and entertainment venues, urban areas are becoming more desirable to a number of different demographics. The principle demographic for urban living, of course, is the young professional in the 20-40 year old age bracket. But we're also seeing increased demand from empty nesters. Everybody wants to avoid the commute, which is the number-one reason for seeking the urban lifestyle, although there are a lot of other issues; including proximity to services, recreation and entertainment, proximity to adult kids living in the city.

They're seeking voluntary simplicity in which they get rid of the maintenance demands of the single-family home and yard; we call it the "lock and leave" lifestyle. And we're even seeing an increase in demand from families. A lot of families have two incomes and long commutes to and from work. The kids never have any time with their parents. The parents are lucky if they see their kids at all in the morning, and often they're lucky to get home in time to kiss them goodnight. They're feeling that this is no way to have a family. To respond to the needs of working parents, the urban areas are becoming better adapted to families. They're becoming safer and cleaner, and they're offering a lot more opportunities for cultural exposure.

As for our focus on Los Angeles, John Laing Homes has divisions in Los Angeles, Orange County, San Diego, the Bay Area, Sacramento, California's Central Valley and Colorado; when we looked at the demographics shifts and the market demands within each of our markets, it was determined that the greater Los Angeles area was the strongest market as far as this transition from suburban to urban.

The economics of suburban development rely, in part, on economies of scale. What has to happen for individual projects to succeed when they are not part of a traditional tract? How does that compare to an infill development in which the project might be unique?

The answer reflects the reasons why a separate division was formed. A lot of suburban builders have attempted to get into the urban market utilizing the same staff as they're using for the suburban product. Laing realized that urban building is completely different –from land acquisition through entitlement, community outreach, marketing, and construction. In order to successfully execute the development of superior urban communities, it is necessary to have a team that focuses exclusively on urban communities and product.

One of the things John Laing identified is that two principle types of urban developments dominate the current market. One type of urban developer has been doing it for a long time and has a very formulaic approach to winning RFDs, maximizing site utilization, and executing a construction plan quickly and efficiently; but the character of their operations tends to be more institutional and commodity-driven. I sort of view it as a for-sale version of the urban apartments.

At the other end of the spectrum are all of the urban developers, or the historic urban developers, who really understand their homebuyers and do focus on providing a living experience that's superior for their homebuyers. What's missing is the urban expertise necessary to successfully bring an urban community development to completion. Shortcomings in these types of developments might include the space utilization in smaller units, the efficient orientation of the lifestyle of the homebuyers in an urban context, or the lack of understanding of how to effectively deal with the myriad challenges involved in urban construction and marketing. There are some suburban builders that seem to be treating urban development as simply a subdivision thrown in the dryer, kind of just shrunken and stuck together.

We felt that we already had a superior reputation as being the most homebuyer-friendly and homebuyer-oriented company in the universe of builders – we were Professional Builder's 2004 "Builder of the Year" and Eliant's "Builder of the Decade". Senior management said if we can take the Laing culture and assemble a team of urban specialists who can combine this expertise with the culture of John Laing, we can deliver the best of both worlds. Some developers do it better than others, but we felt we could do it a lot better than it was currently being done in the marketplace. So this melding of service with expertise into a new standard of excellence was our goal and our mission in forming Laing Urban.

From a financial standpoint, the biggest difference is that we're building a lot of homes all at once for a single delivery. For example, our Hollywood project includes 180 homes over about 14,000 square feet of retail. We don't have the luxury of building and releasing Phase I, and then walking through it – and maybe even waiting to have some homebuyers occupy the homes to give us feedback on what they'd like to see different or better. So we need to manage our consultants closely, and engage our prospective homebuyers early on during the design process. We call it "designing for the sale" rather than the all-too-common "selling the design." We reach out, engage our prospective buyers, and identify their needs and desires. We have detailed focus groups while we're in the early design stages, because we know that when we build these 180 homes to be delivered all at once we will get it right the first time. And there is an enormous capital commitment because, unlike with suburban development where you're going through phases and with every phase paying off part of the construction loan, then rolling into the next phase, you have the entire capital outlay for the development committed prior to the first closing.

Compare the process of identifying viable infill land with that of acquiring greenfield land on the urban fringe. What sort of urban parcels is Laing looking for?

We always start of course with location, location, location. We have to make sure that we're in an area that has the accessibility to the amenities and services that our buyers are going to want. It's always good to be as close as possible to transit alternatives to the car. We also have to have a certain economy of scale in terms of being able to create a new urban community that's large enough to be able to justify certain amenity level – pools, open space, common areas, etc. And we need to spread out fees such as architectural fees and design fees over a larger project so you can afford to put higher quality into each of the units. Also, it has to be big enough to create a real sense of place.

Needless to say, the zoning, or the potential for zoning, is critical. The land use adjacencies are critical. We wouldn't want to be in the middle of an industrial park, although the heart of an industrial area can actually be very good if it's a creative type of office park. We need to engage the neighbors early on to make sure that we understand whatever their objections are going to be and find out if we can adequately address them; and of course we have to get the council office and city staff on board with whatever the concept is. These all don't exist to the same extent in suburban areas, where you generally have zoned land that everybody kind of knows is going to become homes.

In terms of zoning laws and city planning department review, what regulations have helped and/or hindered your infill work?

Every project is different and unique, but generally speaking the onerous entitlement process – and it's not just Los Angeles; it's in most jurisdictions – creates a huge burden on the ability to create a top-quality, economically viable project. Generally the burdensome restrictions relate to density. And of course the time frame for getting through the process can be very costly as well.

Permit streamlining just to get through the entitlement process more quickly and efficiently and with more certainty would be a significant improvement. I know L.A. has adopted a number of ordinances that were intended to get developers better assurance of what they would end up with at the end of the entitlement process, but we really don't have that yet. The process still requires developers to put the entitlement burden onto the land-sellers, even though we'll assume the responsibility and cost of taking it through the entitlements.

Right now Laing is developing in Los Angeles. Are we going to see infill in Santa Ana and Fullerton and Riverside – places that right now are dominated by the traditional suburban model – or is infill limited to places that already have established urban life, such as Hollywood and downtown L.A.?

As a matter of fact, the Laing Urban organization wears two hats. In Los Angeles Laing Urban is a separate division that does the mid-high density development throughout Los Angeles County. But we're also responsible for putting together the structure of the John Laing Homes Urban branding that will be used by all of the John Laing Homes divisions as they move into more urban development. Our LA/Ventura division is already doing urban developments up in Ventura County, as well as lower density infill in Los Angeles County. Our South Coast division is already doing urban developments in Orange County. Our San Diego, San Francisco, Inland Empire and Colorado divisions are looking at urban opportunities, and ultimately we think this is the wave of the future for development in all of our regions. Ultimately urban development is going to be an important part of the business profile for all John Laing Homes divisions.

John Laing closed on more than 2,600 units last year nationwide. In the coming years, how many of housing units will be urban infill? And what have you learned to date that Laing will apply to it's next generation of urban developments?

One of the things that makes Laing urban so unique and special is that it's constantly evolving and responding to changes in the market, changing demographics, and changing locales. As far as the percentage of John Laing's business that's going to be urban rather than suburban, I don't know that answer. It's going to depend a lot on how the different divisions develop. Obviously 100 percent of Laing Urban's projects are infill, and we're planning on developing about 300-400 homes a year over the next few years. Our Orange County division will probably have about 20-30 percent of their business in urban over the next few years. And the other divisions will develop as opportunities present themselves.