Four years ago, when Alan McDonald began building town homes near this city’s downtown area, his biggest obstacle wasn’t in finding lots or luring buyers.
He first had to tear down the wall of investor skepticism against inner-city home building.
“I couldn’t get a bank to finance one of my projects unless it was 100 percent sold,” said McDonald, whose CityHomes company builds luxury townhouses in the area between downtown and Highland Park.
“There was a big stigma about condominiums and townhouses left over from the 1980s,” he said. “There were very few believers in what we were doing.”
But now, CityHomes’ officers won’t have to do much explaining.
Centex Homes, the nation’s largest single-family home builder, is buying the independent developer and plans to export its in-town concept to other cities.
McDonald and others who have seen the potential in Dallas’ older, close-in neighborhoods said the Centex-CityHomes deal validates their vision.
“Now everyone is on board with what we are doing, and it’s mainstream,” McDonald said.
CityHomes has built about 400 townhouses in the McKinney Avenue area south of Knox Street, selling them for between $250,000 and $450,000.
That’s a high-enough price tag to attract companies such as Centex, which specializes in traditional suburban homes.
Dallas-based home builder George Tannous also recently shifted his strategy and entered the inner-city housing market.
“For a long time, the in-town market just wasn’t the place to go — all the emphasis was on the suburbs,” said Mr. Tannous, who has built tract and custom homes in North Texas for more than 30 years.
Tannous’ company, Glen Vista, is building 30 town homes just east of downtown.
“The demographics of the city have changed,” Tannous said. “You have a lot of young folks who are making good incomes . . . They work downtown or close in and want to live there.”
Tannous is still building in suburban Dallas markets, but he’s recognized that there are hundreds of buyers who shun the suburbs.
“If you are a builder, you have to go where the buyers want to be and build what they want,” he said. “There’s no question that having someone like Centex coming into the in-town market will have a big impact on the business.”
Centex is following three smaller home builders who have moved from the suburbs to Dallas’ inner-city neighborhoods.
Centex Homes president Tim Eller said his company “looked at this business for a long time before we decided to buy CityHomes.”
“The demographic studies we’ve done say that going forward, this is going to be an important part of the home building business,” he said.
Dallas housing market analyst Ted Wilson said the CityHomes acquisition allows Centex to diversify. The Dallas-based building giant has already made big investments in the manufactured home business and is expanding abroad.
“They have watched the in-town housing market steadily grow in Dallas and other cities,” Wilson said. “They are convinced this is not just a flash in the pan.
“They see that you can make money in this business,” he said.
In buying CityHomes, Centex gets experienced executives, land, a marketing program and a recognized name brand.
“Not every builder is willing to devote the manpower to get into this business,” Wilson said. “This was an opportunity for them to get a lot of market share and manpower.
Wilson said inner-city developments will become even more popular as suburban traffic congestion grows.
“You start to get longer and longer commute times out to the suburbs,” he said. “There’s a new generation of people who don’t want to be out there. They are willing to give up the yard and the traditional single-family house to get something instead of that long commute.”
Centex’s investment in CityHomes should make it easier for smaller companies to interest lenders and investors in older urban areas. But Centex, which has its own financing and mortgage operations, will also be a formidable competitor for those companies.
That doesn’t bother Larry Davis, who’s building townhouses in Dallas and Houston.
“Centex’s purchase won’t affect us because we are going after different buyers,” Davis said. “And I love to have them as competition.
“The big builders are recognizing that they have missed a market,” he said. “They are getting smart to the fact that people want to live in these urban neighborhoods.”
