If you had told me in 2003 that today a developer would be offering four-bedroom, three-and-a-half bath oceanside homes in Corolla for $399,000, I would have chuckled.
If you had told me in January of this year a developer would be building 10 “spec” homes in Corolla with bank financing, I would have considered you to be delusional.
Welcome to Corolla Bay. In 2003, when Corolla Bay Group secured the land and a bank loan for a new Corolla mixed-use subdivision, the developers Raju Uppalapati and Eric Avery envisioned a project featuring Corolla’s hallmark large-footprint, high-altitude pricing.
In 2003, those homes were under contract before the occupancy permits were issued.
Little did they know it would take until 2008 to secure all the necessary local, state and federal permits to even complete Phase I of the subdivision. Nor could they have predicted the entire market for high-end vacation homes would totally collapse, with buyers and lenders evaporating in 2007.
As Uppalapati relates, “Pricing is dictating the market now.” He is correct. Gone are the days when buyers could obtain easy money from mortgage lenders and resell a property in one or two years, pocketing a tidy profit. Buyers today want rental homes to generate enough revenue to cover the cost of debt service and other expenses. With rental rates stagnant, pricing has to be a variable that gives way to the new market demands.
The developers had to create a new game plan, one that the bank, expecting to be repaid from high-end homes and their associated high lot prices, had to accept. In addition, any change in the layout of the project, in this case adding 57 lower priced villas where large homes were once contemplated, could lead to a long delay as the entire subdivision plan was re-assessed by county planners.
To the rescue came Currituck County. Commissioner S. Paul O’Neal provided a quick history lesson.
“Back in the 90’s when I got on the board, Currituck was having such a boom in development and houses, our schools and county facilities were overwhelmed by children and other citizens,” he said. “The board made a conscious effort to make it more difficult, add more steps to slow things down.”
By 2007 the Board felt it had a handle on growth, but then came the real estate crash.
“With things slowing down, we decided to re-look at how we did business in Currituck and how we interact with people developing in the county,” O’Neal said.
In 2008, the Board decided to rewrite the Uniform Development Ordinance, a document that contained many of the roadblocks and time delays experienced by developers. That process is ongoing, but in the interim, O’Neal said, “We have empowered and instructed our staff to find ways to make things easier and quicker, but not to cut corners to make sure we can get a quality development. We just want to compress the timetables.”
Part of that process involved the county’s “Technical Review Committee,” which formerly met once a month. This committee reviewed all development plans, and if an applicant applied the day after a meeting, a minimum 30-day wait was required.
Today, the TRC is more flexible with meeting times. Of real interest is that the developer and all agencies with a right to weigh in or comment on a project attend the meeting.
“You sit around a table with everyone who can affect your project and when you walk away, you have a plan,” Uppalapati said. “It has made a world of difference.”
The county has also empowered staff to make more decisions without forcing the applicant to re-present every change or amendment to a plan multiple times before the Planning Board and the Board of Commissioners.
According to O’Neal, the Board of Commissioners now sees a project approval only one time, and the county’s economic development director recently reported the time from application to approval has been reduced from seven months to three.
O’Neal says the whole process is “about employment. Speeding up the process gets boots on the ground quicker, recognizes that ‘time is money’ and puts our people back to work.”
At this point, most developers would enter into a hard sell on their project. Instead, we take a walk out onto the deck of the model home and Raju points to all the workers swarming over 10 homes under construction.
“This is what happens when the lender, the county and the developer work together to make something happen,” he said. “We are employing over 300 people in different trades, not counting our own sales associates and staff.
“We are purchasing all the materials and supplies locally. This will have a lot of effect on their staffs and generate local tax revenues.”
The third piece of the puzzle was the bank, in this case, Towne Bank. There are dozens of stories in which local projects, some constructed 50 percent or more, have seen their banks cut off funds and abandon the project. Foreclosure is almost always the next step.
This time, the story is different. The bank has funded the construction of a model home and 10 “spec” houses, a situation not seen locally in well over five years. Towne Bank recognizes the proactive approach of Uppalapati and experience and knowledge of BD&A in the Outer Banks Real Estate Market. The bank also recognizes the difficulty in finding “secondary market” loans for rental homes. The bank offered not only conventional, conforming loans through its mortgage department, but also some “in-house” products in which the bank will hold the loans in its portfolio.
Uppalapati’s prices will also help matters on the lending end of the equation. While investment loans are hard to obtain anywhere on the secondary market, the $399,000 price point is well below the Fannie Mae and Freddie Mac limits for Dare County, which is $460,000. As a result, buyers who can qualify as second home or primary residence purchasers can take advantage of the current low rate environment.
With the median home price in Corolla still hovering around $525,000 in the midst of a real estate slump, a $399,000 home will certainly set a new standard. For many, it is also a welcome change, Four-bedroom homes, with a rec room and a courtyard (large enough for a pool if one chooses) are more akin to the type of rental home many envisioned for the Outer Banks before the invasion of “McMansions.”
Further, rental companies, which have become very conservative in their rental income projections, are predicting these homes will see 21 weeks of rental activity. With the smaller mortgages, rents should indeed cover most, if not all, of an owner’s expense.
The lower sales prices will also translate into lower weekly rental rates, which should make Corolla vacations more affordable for many families and give them more pocket money to spend at restaurants and stores.
The 57 villas are all oceanside and a short walk to the beach. This phase of the subdivision, called “The Villas at Corolla Bay” are within a gated community and will feature a community pool, picnic area and a playground, making the homes a good choice for families with children.
BD&A has over two decades of experience building locally. In keeping with his usual optimism, Uppalapati says the company is committed to a 95-day start-to-finish build out, so homes will be ready to occupy by mid-August.
“A lender and the county worked to make this happen,” he said. “We are putting people back to work, building an affordable home to rent and own, and all of this is happening within walking distance to the ocean.”