June 1, 2010

The new Hamptons land grab

Spec building back, with new homes cheaper than resales

By CAREN CHESLER

Broker Chris Burnside's land at 109 Lopers Path in Water Mill tells the story of Hamptons spec building in recent years. Burnside bought the parcel for $1.65 million in March 2007, and planned to build a house there within months. Then the market turned south, and he tried to sell, but the best offer he got was $1.3 million.

He decided to wait.

"Now the market has come back, and I've been offered $1.7 million for it," said Burnside, a broker with Brown Harris Stevens in Bridgehampton.

But instead he wants to keep his parcel and build a house on it -- a 6,300-square-foot modern farmhouse with a wall of glass windows overlooking nearby polo fields. He plans to sell that for $5 million.

"My feeling is, the market is not back to what it was, but it's come back enough to warrant completing the project," Burnside said.

He's not the only one who thinks that. Developers are not only building on land they got stuck with during the downturn, but many have been snapping up lots over the last year at discounts of as much as 25 percent and then putting up spec houses. "I'm starting to see developers buying up land again," said Mala Sander, a broker at the Corcoran Group's Sag Harbor office. "For a while there, there was not a lot of land or tear-down sales happening. Now, we're seeing a lot of activity."

Homebuyers have been the beneficiaries of the surge in the speculative building market. With land selling at a discount, and building costs down by about 10 percent, spec builders can offer new, state-of-the-art homes for less than comparable older houses.

Builder Michael Davis said he usually builds about five to six houses a year. This year, he's begun construction on five, and it's only May.

"Normally, I would get that number spread over a year," said Davis, whose company is called Michael Davis Design and Construction and is based in Sagaponack. "I haven't experienced such a surge in our business as we have this spring."

And he's already received offers for his most expensive property, an ensemble at 232 Parsonage Lane in Sagaponack asking $26 million. The property is four buildings on 7.5 acres, including a 9,300-square-foot main house, a four-room carriage house, a three-room pool house, a 250-year-old restored antique barn, a tennis court, 60-foot pool, spa, movie room and wine cellar.

"It's been on the market for a month, and I've already had an offer with a '2' in front of it," Davis said, adding that he turned it down.

"It's worth more than that," he said adamantly.

High-end Hamptons builder Joe Farrell is working on 12 houses right now. Construction on two of them, one on Rosehill Road and one on Flying Point Road in Water Mill, began in March -- and they're already sold.

Farrell said land was priced at such a bargain that he could afford to only buy in "A" neighborhoods. During the height of the market, property "south of the highway," or closer to the ocean, was selling at about $3.1 million an acre. Those lots briefly dipped to $2 million to $2.4 million, which was when Farrell bought five lots. He said the market has since firmed up, and those same lots are now selling for about $2.5 million to $2.8 million, but there's little inventory.

The result is that Farrell is offering houses south of the highway for $5 million to $7 million -- he's sold five of them in that price range in the last six months. A comparable house in that location would have been $8 million in 2007, he said.

Farrell also just started construction on a six-bedroom house on Pierson Court in Water Mill, priced at $6.495 million.

"The house is listed below any of the resales in the area," said Burnside, who is marketing it.

Burnside added: "I've sold the last three houses he's building before they were even finished. If that's not a sure sign that the building market has gotten better, I don't know what is."

Farrell's most expensive house on the market right now is a 31,000-square-foot Bridgehampton estate known as Sandcastle priced at $49.5 million, which set a record by renting for $500,000 for the first two weeks of July.

Farrell said the trick to development going forward is being choosy: only buying land that's a real bargain, and making sure it's in a prime neighborhood.

"In the old days, you could build in any neighborhood and sell. Now, you have to be in the right location and be at the right price."

 

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