Hillwood Communities and the Art and Science of Placemaking

Podcast
If you have anything to do with the housing market in Texas, you have heard of Hillwood Communities. If you are from elsewhere in the country and have not heard of Hillwood, here’s your chance. All across the great state of Texas, Hillwood is building some of the best-designed and most successful master-planned communities in the US. They have achieved this with expert placemaking, which Hillwood defines this way: “We create places where relationships with neighbors evolve into friendships and those friendships begin to feel like family.”  

Featured guest

Fred Balda, President, Hillwood Communities

President of Hillwood Communities since 1992, Fred Balda provides strategic leadership and oversight of operations and performance, including acquisitions, design and development. Fred has played an active role in the development of more than 100 single-family master-planned communities across 13 states and two countries.

Continually responding to everchanging homebuyer demands and market opportunities, Fred is focused on creating vibrant, innovative communities. His philosophy is simple: “Do right by the people and the planet. The rest will take care of itself.” And the result is consistent: placemaking that inspires a sense of belonging and creates enduring value for homeowners and other stakeholders.

Transcript

Dean Wehrli:

Hello everyone and welcome to the New Home Insights podcast. I’m your host, Dean Wehrli. Today we have as our extremely esteemed guest, Fred Balda, he’s the President of Hillwood Communities. Hillwood Communities is one of the biggest and best land developers in the country, of course, but they are also in turn part of a much larger company run by Ross Perot Jr. who I’m sure most of our listeners are familiar with. And they have interests in things like airports and hotels and other commercial sectors as well as oil and gas. We’re going to talk today about the communities that they build, these great master plans that Hillwood builds all over Texas, the big picture of what they do, some of those great master plans we’ll dive into a little bit, some of the lessons learned from those experiences, the Hillwood philosophy about community building and place-making, maybe a little bit of demographics, and even a little bit of tech if time permits. We’ll see. And then we’ll end up with a quick look at what’s next. Fred, how are you this morning?

Fred Balda:

Thank you for having me. I’m doing great. It’s great to be in this business and yes, we have our challenges, but very exciting times for all of us, so thanks for having me. I love your podcast.

Dean Wehrli:

I appreciate that. Thank you, and thanks for coming on. Let’s start with just a little bit, give us a little bit of background on you, Fred Balda, and then maybe a little bit on Hillwood before we get into the meat of the master plans.

Fred Balda:

You bet. So Fred Balda, grew up mostly in Dallas, Texas. Graduated from high school in Dallas first and then I went to college. I went to the great Texas A&M University, got my civil engineering degree. First job out of college was back in Dallas at DFW Airport working for a heavy highway contractor. My second job is where I learned what I do today, which was with Trammell Crow, and they did master plan community development in North Texas, and that’s where I learned what I do today.

I started with Hillwood in 1992, so I’m going on my 32nd year of being at Hillwood, and it’s been an amazing run. We’ve been through a few downturns a bit. I would tell you the last, oh geez, 13, 14 years has been mostly an upside cycle for our business right now, but tremendous great run. It’s been fun to watch this company grow. Hillwood Communities is a part of Hillwood. Hillwood the broader umbrella is owned by Ross Perot. Jr. as you mentioned earlier, privately held by Ross Perot Jr. It’s one of the larger privately held development firms in the country.

Our probably four main competencies would be industrial and logistics. That platform has grown immensely across the globe. They have either acquired or developed 270 million square feet of industrial space. Then we have our commercial mixed use group, very active group. They have developed maybe three and a half million square feet. Currently, they’re building the new Goldman Sachs building here that is being built at Victory, and when it’s complete, it will house about 5,000 employees, so very active group there. We’re really proud of what they’re doing with some significant projects. We have a multifamily group that has built just under 4,000 units. Generally what we build, we keep, own, and manage. Every now and then we’ll sell a project out to the market.

And then lastly, the focus is what I do, which is the master plan community business. We’ve been at it 36 years as well. We have either acquired or invested in or developed on our own account 93 or so communities, which results in selling about 50,000 lots over this period of time, this 36 year period of time. Interestingly, all of our focuses started out of Alliance. Alliance was, again, started 36 years ago as a result for needing the world’s first industrial airport, and so when we started our company Hillwood back then, that was the reason for starting it, and out of that came all these different businesses now.

So we’ve grown immensely over this period of time. We’ve been in 10 countries, 32 states, over 70 markets, so the footprint really has grown fairly large over probably over the last couple decades really to see that immense growth that’s happened in our company. So very active across the globe, very exciting times for us.

Dean Wehrli:

So we’ll get into all your development and master plans in just a second, but first I didn’t realize this, but you guys also act as some joint ventures and as a capital partner on deals that you’re not developing yourself, right?

Fred Balda:

Yes. Yeah. We love what we do and most of what we do on our own is in the great state of Texas, but we love other markets. So we are involved or have been involved in probably the top 15 markets over time, and so it’s important for us to find the right type of developer that we can connect with thoughtfully that has our same sort of approach on doing business, but there’s plenty of great developers out there that we’ve met over time through our network that just need capital. So we provide capital to these local developers. Generally, we’re anywhere from 70 to 90% of the capital.

And currently we are in the northeast states, North Carolina, South Carolina, we’re in the DC area and we also are in Florida. We also have partners in Texas, so we don’t mind having a partner in the state of Texas. We just can’t do it all, so we find a great way to leverage our capital and quite frankly, our knowledge with other great developers. So it’s a really wonderful relationship. It’s not just a capital relationship. So we learn a lot from them and I hope they learn a little bit from us, so it’s a great long-term relationship.

Dean Wehrli:

I’m going to ask you a quick question on multifamily because I want to do a full podcast on this soon, but it’s been of interest to me, are you doing multifamily capital outlays as well as for sale?

Fred Balda:

I would say some, not as much as in the for sale business.

Dean Wehrli:

Yeah. My question is when do you see that … And then we’ll move on, I promise, this is just something that I was thinking about very recently. When do you see that multifamily capital, the ice start to thaw a little bit? Do you have any timeline on that?

Fred Balda:

Yeah, we’re starting to see it thaw a little bit now. It certainly has been a little bit frozen this past year or so without a doubt. We develop our multifamily in A markets and their class A projects, so I think that’s been helpful. We certainly are challenged like the rest of the world with our leases and our lease rates, but slowly we’re building up back that occupancy rate and I would say if you want my crystal ball-

Dean Wehrli:

Yeah, I do.

Fred Balda:

-Probably another year before it really starts to thaw out for capital to be attracted again to the multifamily side. We’re seeing parts of our company that capital is now starting to chase it again, but overall industry, I’d say a good another year.

Dean Wehrli:

Okay, okay. Let’s get back to master plans. Let’s start with master plans. So first let’s just start with sort of describe what is the typical Hillwood developed master plan, size, scope, orientation?

Fred Balda:

Sure. Scale does matter. Probably our sweet spot is 1,000 to 2,000 acres in Texas, and what that means is anywhere from 3,000 to 6,000 homes make that work really well for us. That allows us the opportunity to create diversity of product, diversity of amenities, create these wonderful lifestyle programs. So that’s probably our sweet spot. And also not just single family, but mostly single family is what we develop, but it’s also nice for us to also have dedicated probably 30 to 50 acres of mixed use, which will be developed towards the very end of these projects with either a grocer-anchored retail center, some multifamily as well, but you’ll have the entire footprint of those kinds of uses that we like to have in our master plan. That would be the typical, we’ll go a little bit smaller in cases. It’s been very hard lately to compete with the smaller tracts of land, which the builders are really taking advantage of right now.

And we’ll go bigger than that. I mentioned Alliance earlier. Alliance is a huge master plan mixed use project, which includes some of our master plan communities, but that’s 27,000 acres, which is relative to The Woodlands size in Houston. So we’ll go big, but I will tell you our sweet spot is probably 1,000 to 2,000 acres. We’re working on a 3,000-acre property today as we speak, so it’s all about absorption and where the sub-market is and what’s going on with that particular market. But incredible demand as you know right now in our industry, very under-supplied in new housing and existing housing, so that’s really driving a lot of our demand and need and supply for what we do every day.

I also am finding that the master plan does well in good times and in bad, but in particular more challenging times like now with high interest rates and high prices, we’re getting a larger share of buyers in our master plan. So our market share seems to grow in the more challenging time, which tells you people are really interested in spending their money wisely, and I do believe that. And so there is this flight to quality, if you will, and also spending their money wisely so that they will in turn protect their equity. So there is value to the master plan without a doubt.

Dean Wehrli:

And you’re seeing value … Essentially they’re making that decision, aren’t they? They’re going, “The buyers are seeing value in a master plan versus the exact same product in a standalone neighborhood.”

Fred Balda:

They’re going to pay up, but I think they view it as a little bit of an insurance policy, so there’s success-

Dean Wehrli:

So it’s safer.

Fred Balda:

There’s historical success in the master plan so they feel more confident. You could talk to any one of our buyers or realtors. We, on a realtor side, probably 80% of our business is realtor-driven, so still a very significant share.

Dean Wehrli:

Now you’re in Texas, so I’m going to guess that entitlements aren’t the single greatest hurdle when you’re developing a master plan like they are here in California where I am. What is the biggest hurdle in purely getting that master plan to the goal line?

Fred Balda:

Yeah, so some of the challenges we’re dealing with today to get these master plans over the goal line really relate to pricing. Land prices have not come down because the market has been so active, everybody’s chasing some of the very best deals possible. We fall into that same category, so it’s very competitive right now to find the right property.

Then the zoning, even though we’re in the great state of Texas and in north Texas, zoning really is still a bit of an issue that we need to maneuver through and negotiate and get the right kind of zoning. These master plans, as you know, need a variety of product. They need some scale, they need variety, they need different types of product, they need the opportunities to develop these great amenities. And so it’s a combination of land price, zoning, and then the creation of these public finance districts. You may have heard about those in Texas, they’re called mud districts or freshwater supply districts or PIDs. For what we do, it’s very necessary that we have the city or the jurisdiction consent to allow us to create those types of districts to be able to do this thoughtfully, to do a quality community that is semi-affordable.

So our challenge is getting all that done and having the land seller give us enough time to accomplish all of that. That timeframe generally takes us as much as a year, would not be an unusual timeframe to accomplish all these different items that are necessary. Let me just give you a point of comparison for affordability. Affordability is a big challenge as you know for our industry across the entire country. So pre-COVID in our portfolio of master plan communities, which we sell anywhere from 2,000 to 3,000 homes any given year, so we got a pretty good feel for what’s happening in all these different markets that we’re in.

So back in 2019, our average priced home was $350,000 in these master plan communities on average. At the time the mortgage rate was 4%. At the time the PITI was about $2,200, $2,300 a month, principal interest, taxes, and insurance. And then the household income necessary for that was $92,000 in 2019. The median household income for Dallas-Fort Worth at the time would’ve been in the mid-$70,000 median household income, so not terrible disparity there. Today, our average price home is close to $600,000 across our portfolio. You know the mortgage rate today is about 7%, that mortgage payment, house payment now is just under $5,000 a month, and therefore it requires $190,000 household income. Not sustainable, really expensive to own homes today. So I am shocked at the amount of business that we still are having even with these high prices and these high interest rates.

So I’m kind of getting away from your earlier question was what our challenges are, and so you better buy the land right, you better have absorption right, you better have the right product, right, and how do you address some type of affordability? We were benchmarking a week or two ago and looking for a smaller footprint, which is a smaller lot and a smaller home. So we’re flying around the country to find that right product so that we can deliver that product here in Texas that is semi-affordable now without sacrificing the quality of these master plan communities. So it’s a fluid exercise, it’s a good exercise. Hopefully we’ll get back to some sense of normalcy, but I’ll tell you right now, everything’s just a bit too expensive.

Dean Wehrli:

Density is one of the most obvious ways to solve or at least alleviate that affordability issue. Have you seen jurisdictions trying to force you to be even denser than you want to go? I’ve seen that in quite a few cases. Are you experiencing that?

Fred Balda:

Rarely. Rarely. We do deal with a few forward-thinking communities that do want that and do need that and do appreciate that. The City of Denton as an example is one that really is into that, so we appreciate that attitude. And so it’ll take us taking some of this product, showing it off, developing it, and then showing other cities around the area what we can do.

The other segment that I think is also helpful in times like this is the build for rent. I truly believe the build for rent product is one that will be needed for a long time in the master plan, and you can do it thoughtfully. We have one build for rent joint venture in one of our communities called Harvest with a group called BB Living out of Phoenix, and it’s a beautiful home. It’s three and four bedrooms. It fits in nicely and it’s a great way for somebody to test drive a master plan community without buying there yet and really engage with all the amenities and engage with the wonderful school system. So it’s a bit of an incubator for future buyers in our community. So I do believe in the thesis and I do think that is a segment that will stay.

Dean Wehrli:

I fully agree with you. I feel like especially if you want to get through more disposition of more lots on an annual basis, when you have say, oh, we can get six or seven or whatever it is, product types, well-segmented, add another neighborhood of BTR, completely different user profile, and it does work through a lot more of your volume if that’s what you’re looking for.

Let’s talk about some specific master plans. Okay, this is like asking what’s your favorite child, but I’m going to ask you because I know they’re all your children, all 93 of them or so, what is your favorite master plan that you have developed?

Fred Balda:

I get that question asked a lot and it is like your children. I got three boys, they’re all my favorites. Now, some days one is more my favorite than the others. So in your podcast, I’m just going to make my stamp pad answer is the next deal on the boards is my favorite because it forces us to think differently and build on all the successes of all these other great master plans that we’ve done. That’s in our DNA and will continue to be in our DNA, so I’m always excited about the next new deal because it needs to be a little bit different. It needs to be a little bit better. So we put that pressure on ourselves and I think our brand really is one that people want to see that. So hopefully our brand resonates with new ideas.

But I do want to make a quick comparison. I’m going to take two projects, and I’ll be brief, that are wonderful projects that are active today. Today we have 12 active projects, and two of these would be the ones I’m going to talk about. So Harvest in Northlake & Argyle is a wonderful project that just celebrated its 10th year anniversary, and Pecan Square, which is probably five years its junior, is also doing quite well. And they’re in the exact same market. Harvest will be about 4,200 homes and Pecan Square will be about 3,000 homes when it builds out. And so today they both sell about 400 to 500 homes a year. In fact, these two along with two others here in north Texas were listed on the top 50 selling communities this past year in the nation. So we’re really proud of that, proud of our master plans, and a lot of it is this market is just really, really, really hot.

So Harvest, what made it special at the time was Harvest was one of the first agri-hoods that came into north Texas. So we preserved this little farm area. We took the old farmhouse, which was built in 1870, and we made that kind of the centerpiece of the community. And so that along with five greenhouses and 150 raised planters for the community to learn from was its uniqueness and difference maker. But even with that unique farm style housing and component, we did some of the same things we do just in a different style. We still do great parks, we still do great playgrounds, we still do great amenities, we still do great pools. All that still exists in this great project called Harvest. And importantly, it has two wonderful on-site elementary schools. So it is just everything is working quite well in Harvest.

So five years ago, Pecan Square comes out of the ground, so Pecan Square as the name may indicate, it’s all about the square, so it’s a little bit more of a town square type of design. So when you drive into … I’ll make a quick comparison here. When you drive into Harvest, you’ve got this beautiful sense of arrival and you’ve got this beautiful 15 acre lake on the left side as you drive in and then you see the beautiful farmhouse and you see the beautiful amenities. That’s your experience as you drive into Harvest, very nice.

When you drive into Pecan Square, also very nice sense of arrival. You’ve got these beautiful bigger home front porch style homes that front on this wonderful thoroughfare green belt as you come in and then you enter into the square at the very end, and then the square is where everything is happening. You got the greeting house that has your co-working space. You got an Amazon locker experience where if you wanted to send your Amazon delivery instead of going from your home, it goes to the center there by the amenity center, you can do that. It’s got this wonderful covered arena that we preserved. It used to be a horse stable area with training, and so we kept that 20,000 square foot arena. And in that arena today you got a lifestyle experiences there with entertainment. And then the other half is all about ball courts and pickleball courts and basketball courts. It is very active community, both in their own rights, but both are very different.

The architecture’s a little bit different, so we’ll tweak where we can to make enough differences in the same sub-market. So when you asked me earlier, how big might you go? We might go 4,000 acres, but if it’s in the same market, if that market is robust enough, we’ll probably take that 4,000 acres and create two master plans and let them compete in a good way and still appeal to that market would be a way to do it.

Dean Wehrli:

Let me ask you, first of all, by the way, I’m glad you pronounce Pecan Square because I don’t know if you remember, but I saw you on a panel with my friend and your friend Ken Perlman, and he said pecan and you started chuckling, and I think he started crying a little bit. I don’t remember exactly, but it was brutal and it is pecan. I grew up pronouncing it pecan, so I’m not sure.

Anyway, let me expand on that a minute. What if you have a master plan, you just have one master plan, and again, you’re trying to go for the greatest disposition of lots as you possibly can on an annual basis, sales, how do you differentiate and try to draw as many buyer streams as possible? I mean the obvious way you can go is say conventional and age-qualified, but within conventional, how do you do say two or three conventional – that is not restricted – villagers or whatever you want to call them within the same master plan and how can you differentiate them to bring in new buyer streams? You teased it a little bit with how Pecan Square has this town home and maybe this town square idea and maybe it’s a little denser. What are some ways to differentiate within the same master plan? Does that make sense at all?

Fred Balda:

Completely. So let me give you a little bit about the demographic of our buyers. Right now, most of our buyers are still family-oriented or have family, so 65% of our buyers are families. Quite frankly, that’s probably a little bit down from historic trends. We would’ve been closer to 70 to 80% families 10 years ago. Below the 65%, we would have young professionals, 15% is young professionals, 65% is families, and the balance of I think if my Aggie math is right, we got 20% left is empty nesters and retirees, which is a growing piece of the pie if you will. And not all of our communities is it age restricted, it would be age-targeted.

So to answer your question on how do you start to create these different buyer pools, if you will, that are attracted to your community, it’s important on us and most developers to create all these different product lines. So the town home you mentioned in Pecan Square is a wonderful looking product, probably appeals more to the lock and leave type of buyer. That might be the young professional and it might be the empty nester, so that kind of fits a dual purpose there. But I would say really product differentiation drives a lot of our different types of buyers and so we’ll go from like I just mentioned, the first time home buyer, which is a misused name, the first time home buyer we very rarely were attracting say 10 years ago because they couldn’t afford to buy into the master plan. We are seeing a lot more first time home buyers, but it’s not because the price point is there. These millennials that have waited a longer period of time seem to have more equity that they’ve built up and they are buying more home than we have seen in the past. So they technically are a first time home buyer, they just have more money with them to really afford that first home in a master plan community.

I talked a little bit about build for rent would be another way to really segment and plow through the land a little bit. Each segment, just kind of a rough number, Dean, if you’re doing it right, you better be doing 80 units per year per segment. So to do 500 units in this market, that’s a lot of homes. Clearly there are folks that do more than that, but it takes a lot more segments and it takes a bigger, more robust type of sub-market. But that’s kind of a rule of thumb. So if you can have six or so segments, if you’re on your game, you ought to be getting 400 to 500 homes coming out in a year, which is what Pecan and Harvest are doing right now.

Dean Wehrli:

Okay. And within a segment, will you have multiple neighborhoods within a segment that is very similar lot types, for instance?

Fred Balda:

Yeah, what we’ll do within a segment is we generally have two to three builders in that segment. So you’ll get a variety of builders and a variety of architecture and we’re really disciplined about the guidelines we give that builder as to what they must build so that you’re not tripping over each other. We also have square footage bans, that’s not unusual, so you kind of stay in your lanes. And probably 50% of our builders are public builders in the master plan and 50% of the local private builders in the master plan. We like that mix quite frankly, and it works quite well for us. That’s good.

Dean Wehrli:

Let’s continue on that sort of your master plan philosophy. What is Lifestyle by Hillwood?

Fred Balda:

Yeah, Lifestyle by Hillwood, really it’s a wholistic approach on how people live from the start of a development to the end of a development. So I will break it down into three segments the way I think about it, and I will start with the last segment first, I’m going to go backwards on you. If we do everything right, you end up with a very vibrant, connected, neighborly, active community, and when you do that, you got friendlier people, happier people, healthier people, and a safer community, I truly believe that, because everybody knows each other generally and everybody looks out for each other. So that’s the end result of Lifestyle by Hillwood, so when we’re gone, that community is rocking and rolling and living happily thereafter like a good neighbor. You like that?

Dean Wehrli:

Yeah. You can’t use that slogan though.

Fred Balda:

The piece before that, and I would call it the glue that really takes what we do on the front end, which I’ll talk about in just a minute, and energizes this community, is the lifestyle programming that we have in our communities with these wonderful lifestyle managers. Their role in life for this community, their very special role, is to activate with a variety of programming, a variety of clubs, really listening to that community as to what they want to do. We got veterans clubs, we got teen clubs, we got wine clubs, we got sports clubs, we got you name it clubs, and it is something for if you want to be active, you got an opportunity to be active.

And so that’s what this group does every single day. They may have 300 programs a year any given time. So it is special, it’s real. I want to say in several of our communities, especially during COVID and coming right out of COVID, we have sold several homes just because the social media is so active with these programs. We have sold several homes site unseen out of just the social media, so they’re powerful. It does sell homes, but we do think it’s the right thing to do and it is paying dividends.

Dean Wehrli:

Are you pushing the programming, controlling the programming? Is it more sort of organically formed by your residents?

Fred Balda:

It is very much organic. Certainly at the front end, the lifestyle managers might try an event or two to kind of see where the neighborhood’s going to end up. But now they’re pretty much rolling. There’s even a grievance type of program. There’s a lot of hardships that happen every now and then in life, and there’s a group specific for those hardships. So it’s really pretty special. It gives you a lot of faith and confidence in this world that we live in because all you hear is about the bad news. There’s a lot of good news that we’re seeing firsthand. So that’s the glue, a very important part is the glue, and then the starting point is really what we do on the front end, and so what kind of amenities do we bring in? What kind of products do we bring in, what builders do we bring in, what do people want?

So I think we’re a little bit unique in that we try to have a good pulse on the market and so we benchmark a lot Dean across the country, even in our own state. There’s wonderful communities, there’s wonderful products there, there’s trends just to be aware of whether it’s amenities, whether it’s product, whether it’s lifestyle, doesn’t matter. We’re trying to just understand it as best as we possibly can so our next deal we can do better at. And when we do that, we start any new project, that new big project that we start with, it starts with what we call an innovation workshop. It’s like a charrette. It’s a three-day focus, and we pull in people from across the country that might specialize in a variety of different disciplines. It could be the architect, the landscape architect, a land planner. It could be a historian, it could be an arts person, it could be a trail builder.

We went to of all places Arkansas, and we were interested in all these neat trails that have been built throughout Bentonville, Arkansas, and so we figured out who designed all these trails because we want to do the same thing in our next community called Landmark here. So my point is we benchmark, we figure out who’s the best at what, we bring them in for this big workshop, and then we pull in our local stakeholders. It might be city officials, school officials, realtors, of course our builders, our engineers, and so forth. And we’re in this room and no idea is a bad idea, and at the end of the day we end up with generally this concept that we’re going to try to deliver on. What’s great about that process is it brings a lot of buy-in with the team and it brings a lot of buy-in with our stakeholders. And if we’re in the middle of a zoning case with a city, they get to see it on the front end as to that’s what they’re talking about and maybe we should allow them to do a little bit more of this and give them a variance or two. So it’s a wonderful great process to get everybody’s ideas out on the table and then it’s on us to start executing.

That’s what we do on the front end, but importantly, we have our five guiding principles that help guide us through this process. It’s sense of community, it’s wellbeing, it’s enrichment, stewardship, and lastly, but not leastly, innovation. That’s kind of the special sauce that we kind of pull together that makes this program a little bit different. So that maybe gives you an idea of what we do and how we do it.

Dean Wehrli:

Yeah, it does. We hear the word place-making a lot, and sometimes it seems like what folks are describing when they think of that is mixed-use or places and reasons for your residents to interact. How do you define place-making and execute place-making at a master plan?

Fred Balda:

Yes, I’m going to give you a deep answer. So I really think it starts with this physical place that maybe attracts you to it first, and then once you get there you find that you really enjoyed it and you want to return. That to me is a sign of good place-making. I’ll come back to the master plan in just a minute, but I think of Central Park in New York City, I think you’re attracted to it, you want to experience it, and then you want to create a memory and you want to come back. I love Central Park. I think that’s wonderful place-making. I think the Vatican is another example of great place-making for the same reasons.

I’m an Aggie, as I mentioned earlier, and I go to a lot of football games down there at A&M, and I’m excited about the new season by the way, but they just recently rebuilt this tailgate area called Aggie Park right next to this wonderful stadium and it is magnificent. It is wonderful. They’ve done a great job with their landscaping, they’ve done a great job with gathering places, and people get there and they thrive and it’s a great event and you got this backdrop of this beautiful stadium. So that’s great place-making and great memories that will be had.

So for the developer, the master plan community developer, it’s on us to create this wonderful sense of arrival because assume you only got them for one chance, so you got a wonderful sense of arrival and you better take them somewhere or special that is memorable. It’s not just a model home park that we for sure will do a great job on, but it might be the amenity, it might be a park, it might be something that we preserve. It might be that farmhouse like at Harvest, something memorable that says, “You know what? I think I might like this place and I might want to come back and I might want to live here.” Because once you decide to buy, then that place-making continues just to thrive because of all these different activities and neighbors become friends, and friends become family. It’s just a wonderful organic approach. But that to me is place-making and it takes time and thoughtful time to do it right.

Dean Wehrli:

Yeah, I was going to say it’s sort of you provide the spark and the place for the place-making, but at that point, as with your programming, it’s kind of up to the residents to make it real.

Fred Balda:

Yeah, I can lead the horse to water and I hope they drink it.

Dean Wehrli:

I think they usually do. We talked earlier about scale of your master plans and you talked about 1,000 to 3,000 acres and several thousand homes, is there a big where you wouldn’t go that far in a single master plan and reverse? Is there too small that you sort of wouldn’t bother with?

Fred Balda:

Yeah, we’ve gone as small as 17, 18 lots here in Dallas. We’ve gone as small as … Well, this one’s different. That one in Dallas might’ve been 20 acres, and we did a project in Jackson Hole, Wyoming, which was maybe 20-some odd lots, but those were 35 acre lots. That was a big tract of land, that might’ve been 1500 acres after it was all said and done. But it’s hard for us to compete on the smaller deals, we’ll do a smaller deal and how small will we do? Probably 600 units, a couple phases where we can kind of do something generally pretty nice. But to do the true master plan, we need scale, and I mentioned our kind of sweet spot. If it’s too big, unless you structure it properly, Dean, it may not make sense. But if the owner of the land will allow us to either buy it in tranches or even let them participate in the upside, oftentimes we can structure a deal that’s attractive to that land owner.

And especially around here in Texas, a lot of folks know our brand and know who we are and know about Ross, Perot, Jr. and what that means. They trust us and therefore we have several partnerships with the landowner that have been really relevant and really have helped us grow our business in a really meaningful way. But if it’s too big and they require it to be purchased upfront, it’s hard to do that and make sense for the seller to do that as well. So 4,000 acres or so might be the tipping point I would think.

Dean Wehrli:

Okay. So even in Texas though, are you finding those really big pieces a little harder to find as the years go on and just the state becomes and everywhere in the country becomes more mature and more built out?

Fred Balda:

Well, no, they’re out there. They are definitely out there. Every market we’re in right now, Austin, Houston, we want to get back into San Antonio, and Dallas, you find these 1,000, 2,000, 3,000 acre parcels. Not everybody can make sense of it, and that’s really where I think we have our benefit to do well there.

Dean Wehrli:

How about other principles that go into your development like sustainability? Is that something that you are thinking about and promoting when you’re developing a master plan?

Fred Balda:

I would say yes to an extent. One of our principles is stewardship, and so stewardship means a lot of things, but with respect to sustainability, it means how do you take care of the land on the front end? So here in north Texas, we go through major droughts or flooding or ice storms or even blackouts. So there’s a variety of weather patterns that affect us humans, and so how do you develop appropriately to make sure that you can mitigate some of those items that also affect sustainability?

So a few examples on sustainability that we have that we use in our projects are all of our landscaping is drought tolerant. All the water we use to irrigate those landscaping is well water, it’s coming out of the ground. We create an irrigation pond, so we’re not using valuable potable water to irrigate these areas. Our builders, we give them a guideline that they must meet a minimum test for an energy standard, and so that’s been good for all of us. Even the homeowner can only put in so many different types of landscaping in their front yard, so we require that they have to have an approval for that. That speaks to sustainability.

I’m telling you, the government allows and mandates that we allow solar panels on homes, and I think that’s a good thing. I wish we could control it a little bit better. I’m not quite sold yet entirely on how that looks in the neighborhood. And we’re investigating it somewhat, I wish we could then take control of this and make a village of our program 100% solar panels. If you can do it thoughtfully and maybe not necessarily rely on the federal rebate, then I think it makes sense. It’s got to try to stand on its own, and that’s kind of where we are with evaluating all these different ideas.

There’s a lot of good ideas out there and we’re trying to understand that a little bit better. We’re investigating geothermal right now to see if it makes sense to do it. How can you do it thoughtfully? There’s groups in Austin right now that are doing it, so we’re trying to understand how they may do it. Everybody in our business is pretty open with these ideas. We’re very open. If anybody comes visit us in our projects, “Here’s how we do it.” So we think we just keep lifting the bar that way.

Dean Wehrli:

Yeah, it is. There’s always transitions to these kinds of alternatives and that’s the tough part until they become mainstream. Let’s switch over to builders. You have, like you said, just a wide array of builders that you’re working with both public and private. How do you choose your builders? What are the keys that a builder has to have for you to work with them and want to be part of your team?

Fred Balda:

Yeah. So historically we’ve done business with over 50 builders. We probably have … Currently we are doing business with 16 builders, and coincidentally half are publics and half are privates. And all those builders can do different types of product types or segments that we’re interested in into the master plan. So we know which product we’re bringing on in the master plan, we know which builders are really good at that. We try to limit each builder because we have so much demand for these master plans, we try to limit each builder to one product line so that we can really bring in more builders to the program and really get I think the best out of each builder.

So what’s hard sometimes are new builders coming into the market that want to be a part of our master plan, unless they can bring in something a little bit different, it’s hard to really bump an existing builder that we’ve already done business with. All of our builders are stable, they’ve been in business a long time, they have good customer reports, they know how to build, they pay attention to details. So those are all important factors in choosing a builder. So I wish we had more projects for more builders, quite frankly.

Dean Wehrli:

Are all your builders so far stick-built? Have you had any 3D printing or offsite?

Fred Balda:

No, good question. Most all of them are stick-built. Some have their own operations outside where they might bring the trusses in from a factory or the windows in from a factory, but generally it still takes that on the ground stick build crew to put it all together. So generally, yes, it’s mostly stick build.

In Austin, Lennar did a program with 3D printed homes with a group called ICON, and so those homes aren’t quite complete yet, and so it was a great test case and I think they turned out wonderful and beautiful. I don’t know that those homes really are priced any less than the stick built home. I think in time you got to have scale to really produce what it’s intending to produce. Back in the COVID days, it was hard to get anybody to show up. It was hard to get the supply chain under route. So the thesis for the 3D printed home made a lot of sense, but I think it’s going to take a couple more generations of this to really become a big part. Because we could use the help. There’s not enough labor in our industry right now, and I know there’s plenty of attention in this area. At some point, someone will figure it out and we’ll be better for it. So I do appreciate groups like ICON and Lennar that give it a try and give it a test. It takes courage to do that.

Dean Wehrli:

It’s another one of those transition things, isn’t it? Once it’s mainstream, it’ll take over in all likelihood, some form of that will, but until then it’s really hard to get it to that point. How much input do you have when you are doing things like, like you said, home sizes and product segmentation? Is it pretty top-down with your builders? Do you also have a little bit of a partnership with your builders and some give and take in terms of what the ultimate product looks like?

Fred Balda:

Very much a partnership. We’re not builders. We know kind of what we want and what we envision. They are the builders and ultimately they will build the home and sell the home. I would think in California, clearly it’s a different type of program where the developer is kind of designing the product. We really haven’t done that here in Texas. We still very much rely on the builder. They’ll take our guidelines and ideas and work with us to really accomplish that, but it’s definitely a partnership on how we end up.

As an example, we’re very interested in bringing in the smaller product, the smaller footprint, so we’ve hired architects to help us envision that and work with our builders to do that, and they’re all on the same page. Every builder that you know is working towards a product that is a smaller footprint that still looks good and still appeals to that buyer. But definitely it’s not top down mandate, we work closely with them.

Dean Wehrli:

Let’s do a quick hit on demographics and then a quick hit on technology. First, demographics, you’ve talked a lot about the buyer segments and buyer profiles and how you’re going after a lot of those segments to really fill up a master plan. Is there any sort of untapped buyer segment right now in your mind that you think is going to have some more activity here in the near future?

Fred Balda:

We’re playing around with the build-for-rent, so we’re starting to see that buyer segment come out of the rental home into the community, so that’s an interesting one. The work from home, I didn’t mention this in my demographic, but we are seeing a larger group of folks that work from home but not necessarily work in our market. So that’s been a nice surprise of buyers for us that we didn’t count on. Generally, it used to be for every … We’ve got a huge amount of employees coming into this marketplace. There’s a lot of job creation, so generally speaking, we’re averaging 100,000 new jobs a year here, and the rule of thumb was for every two new jobs, you got a new home sale. So you’d have 50,000 home cells in theory. Actually, I guess that is obviously fueling our business. The work from home is a group that we’d never counted on that is fueling our business.

And then I would say too, what we’re noticing here in North Texas at least, is we have a cultural buyer, specifically the Indian American buyer that has showed up in waves in this marketplace. Probably five years ago as best we could track or able to track, that group of buyers was 5% of our new home business, today it’s nearing 50% of our new home business. And what we find is that that culture is also interested in moving from other parts of the country, they also could be that work from home force that wants to be in this community that they respond to. And so that’s a neat demographic that you say, “Have we tapped?” It’s showing without us trying to tap it anymore.

But the active adult is certainly a growing piece of the business. We have Del Webb in one of our communities in Union Park. We have plenty of active adults without trying in Harvest. So that information is allowing us to now maybe our next community, we do active adult on our own instead of necessarily a Dell Webb program. We love Dell Webb, but I’m saying we could also probably do it ourselves. So plenty of great opportunities that we can take advantage of.

Dean Wehrli:

How about tech? You guys are pretty cutting edge. I mean Ross Perot Sr., of course, founded EDS and it was from the tech sector, and you guys are still involved in technology at the parent company as well. Are you doing more like tech solutions in your master plans and trying those out and seeing how those go over?

Fred Balda:

Yeah, I always say tech is big just in running a business. So today we’re upgrading a lot of our technology in our own operation, so it’s important to constantly stay on top of that so we can become more efficient. That’s what that is all about. From the operation of the master plan, we test out new things all the time that don’t seem new anymore, but everybody expects high speed, reliable internet. Everybody expects that today, whether you’re a resident of ours or whether you’re a future retailer that buys in our mixed use, they all demand it, and we’re able to provide that.

But some unique things that maybe we have done, I’ll pick on a few in Pecan Square. With the work from home environment that we were starting to see, especially during COVID, because we surveyed our residents at Harvest, so what learned from Harvest allowed us to design Pecan a little bit differently from a technology point of view. And so early on as we were marketing the community, we used all these virtual technology to show the public that this community was going to have all these types of housing and here’s what it’s going to look like and you can walk through the home. Early on that wasn’t popular, and now it’s very popular. But we tried that in Pecan and it really served us quite well.

The other thing we did in Pecan Square is we delivered a complete Wi-Fi home that was ready when the homeowner moved in. So what does that mean? Sometimes there’s dead spots on a particular floor plan. So we took every floor plan from the builder and we worked with our technology partners and we wanted to make sure that they had plenty of hot spots throughout the home. That was important so when you bought into Pecan Square, you weren’t going to have any dead spots, number one. And number two, you weren’t going to have to wait for that service group to show up two or three weeks later. You had internet service because it’s so important day one when you moved in. So that was a different type of approach that we had in that particular program.

The other unique program that we did was that Amazon Echo system. Everybody that moved in to Pecan got that Echo system and it had these … I forget the term. They had this Alexa skill associated with it that we designed so you could say, “Hey Alexa, what’s going on at the community center today? Give me a calendar of events,” and it would tell you that. So that was kind of neat at the time, it’s kind of old now. And then we also introduced this Amazon Hub at the community center where you would have a choice if you traveled a lot or you weren’t home, because at a time you might remember whenever you ordered your Amazon delivery, sometimes it might walk away from your front porch, unfortunately it might get stolen. So we said, “All right, well let’s go ahead and create another opportunity for that homeowner.” So instead of it dropping off at your front porch, you could drop it off in a locker and come get it whenever you’re ready.

The other thing we implemented with respect to technology is now across the board, every home has a Ring doorbell or the equivalent of that. So that’s kind of neat and different. We’re working with deliveries, autonomous delivery from the ground level. In Harvest, we’ve got a group called Clavon that delivers, and it’s in a pilot program right now, that’ll deliver goods to a homeowner. So you might say, “I want this, that, or the other from this neighbor retailer,” and it will drop off in this automated little vehicle, and it’ll go to your front curb and you’ll come out and you’ll punch a code and it opens up the locker and you’ll grab your goods from it, and then this vehicle keeps moving on to the next stop. So that’s a neat idea. We’ll see how it takes up. It’s so far well received.

Dean Wehrli:

Have you done drones?

Fred Balda:

And then in Pecan, we’re doing drone deliveries. That’s not a new thing, but we have an alliance with a group. It’s a group called Manna, and they’re out of Ireland, and they’ve done a lot of this in Ireland for many years. So we thought we’d utilize them here in Pecan and now they’re doing deliveries. They’ve probably been doing deliveries here for six to eight weeks. And it’s the coolest thing, and it’s quieter than you think, and it’s just convenience and it’s neat. And so far this community is like, “Dang, I like it.” So we’re still in the pilot program literally.

And so technology is always going to be around, what’s that next idea? We got another group we’re dealing with that we’re using in one of our new projects and it’s called Scrap it. And what they do is the trash pickup for the builders. As you know, some of these home building sites can be a war zone. And so how can we control trash better? So this is a technology-based company that picks up trash. They’re like the uber of the trash pickup. You got your little app if you’re a home builder and you say, “I want this picked up at address whatever,” and they’ll get that picked up through the app. So that’s another group. Anyway, we’re testing out a bunch of different programs.

Dean Wehrli:

Have you ever tested something out that turned out to be just a bomb, just a tech failure? Not Google Glass level tech failure, but something just turned out to just fizzle.

Fred Balda:

I don’t know that we had a choice in picking it up, but sometimes these internet providers just can’t get it right. They don’t service it well. We don’t have control of that necessarily, so I don’t know if it’s anything that we had control over. I can’t think of one. I’m sure there is one that just failed miserably and that’s okay. It’s interesting, our leader, Ross Perot, Jr. says, “You know what? Try anything out. Let’s bet the cow not the farm.” So we’ll bet the little cow, but not the farm. So hopefully we’ll create bigger farms.

Dean Wehrli:

That makes tons of sense. Do these pilot programs, or in the case of drones, these non-pilot programs, see if they work, if they don’t, move on. Let’s end up with a couple of future looking questions. Let’s start though with some perspective, just these last few years have been some crazy times. What has just the biggest challenge right now in the recent past that sort of keeps you up at night?

Fred Balda:

Yeah, I guess the thing probably that it’s what you can’t control keeps you up at night. A jurisdiction changing the zoning for you. Zoning is really critically important. All these geopolitical issues and wars that are out there are really troubling on all of us, and it’s hard to sometimes focus and I think affects the psyche of us and our buyers. The capital markets have been challenging right now. We’re fortunate to have a lot of capital in the enterprise, but even so, we do rely on the outside capital. And I think that will come back in time, but we hope there’s not more troubled waters for the capital markets, but there could be, especially in the commercial world. So I can’t control that.

Where I get really, really comfortable, Dean, is just the tailwinds of our industry, of our market, of our buyers. There’s just so much demand and how can we meet it? It’s on us and we’re challenged to do it properly to create the right widget that now appeals to this new buyer. Because I do think we’re going to have these higher rates for longer. You’ve heard that, and I also do believe it. And so this next year or two, count on a high-priced market. And so how do you continue to do good business in a high-priced market? I hope we can gain business in this high-priced market, so sometimes we’ll take these challenges and try to better ourselves for it. We will have better technology. We’ll have an understanding better of who’s buying in our programs. We’ll have a better chance of maybe buying more land because not everybody else can buy it.

We’ve all lived through various cycles in these last 36 years, and so how do you survive through any downturn? I think we’re a very cautious company. We try to predict what’s next, and so you don’t just hope and pray. That obviously is not the answer.

Dean Wehrli:

So is affordability and price kind of your biggest concern going forward here in the near future?

Fred Balda:

It really is. It’s just not sustainable at all. But what helps us deal with that, again, as I mentioned earlier, is the proper zoning and the proper financial districts that are necessary in creating these big master plans. So that is a way to help us with some affordability, but you got to create new products that appeal to that marketplace. And we talked about them, the smaller homes, the build-for-rents, those are appealing right now.

Dean Wehrli:

Speaking of new, let’s end with this question. Let’s go real forward-looking. What is your next master plan coming up on the drawing boards right now that’s not open yet that you’re excited about?

Fred Balda:

Yeah, so I’ve got four. We’ve got 12 deals that I think I mentioned that we have currently, and four of those, which is a third, are underway as we speak. So we got one in Houston in League City specifically called Legacy that just broke ground, so maybe we’ll have lots end of the year or first of the year of next. We have three deals here in North Texas. Tree Line in Justin is well underway, we should deliver our lots at the end of this year, so we’re excited about that. Our builders are lined up and builders are lined up in Legacy. Before we start any deal, the builders are lined up. We have a new deal in Denton I mentioned earlier called Landmark. It’s 3,000-acre project. It’ll have 6,500 homes. We hope to break ground later this year. We’re finalizing our last entitlements with the city right now, but we’re really excited about that project. It’s in the Alliance Corridor.

And then our brand new one that we just bought in January, which we’re really pumped up about, is in Salina and it’s called Ramble. It’s a great name, Ramble. And so we hope to break ground on Ramble probably third, fourth quarter of this year as well. So four big master plans that either have broken ground or will break ground this year, which is pretty exciting for us. I don’t think we’ve ever had that many at one time, or at least that size at one time. So exciting times for us, and at the same time we are searching and looking for that next pipeline. That also keeps me up at night is finding the next deal in this market.

Dean Wehrli:

And that next one will be your new favorite.

Fred Balda:

That’ll be my new favorite, yes sir.

Dean Wehrli:

Awesome. And we look forward to some new ones on the top 50 master plan list that we do every year.

Fred Balda:

Hope to be there.

Dean Wehrli:

We’ll keep track of those names. Ramble, I love that name. Fred, thank you so much for coming on. This has been huge insightful. You’re very giving of your time too.

Fred Balda:

My pleasure, thanks for having me and have a great day and great rest of the week and gig them.

Dean Wehrli:

Right on. This has been the New Home Insights podcast with me, Dean Wehrli. Thanks for joining us here for this one, and we look forward to you joining us again for the next one.

 

Want to Subscribe to the New Home Insights Podcast?

The New Home Insights Podcast is available on all major podcast platforms. Click any of the platforms below to subscribe.

Contact us to maximize your opportunities in the housing market.

If you have any questions about our services or would like to speak to one of our experts about how we can help your business, please contact Client Relations at clientservices@jbrec.com.