Back in 2005 and 2006, loan officers at our local banks here in Denver were calling my builder and developer clients to personally invite them out to lunch, or give them tickets to sporting events. How about a big dinner at a fancy steak house?

“We’ve got money to lend you, with great rates and little risk,” the young loan officers would say.

Today, they won’t even meet for a cup of coffee. Their message is loud and clear: No more land loans! The tepid housing market is bad enough, but without financing, what chance do we have to stir some action among home buyers and build our way out of this recession?

In 2008, the TARP money went to the big banks (the ones deemed too large to be allowed to fail). Very little, if any, went to the local community banks, which historically have funded most land acquisition and development loans for small builders and developers. At the same time, the Federal Deposit Insurance Corp. (FDIC) mandated that capital reserves be increased for member banks, which is what really slammed the door on lending for builders, developers, and other small businesses.

Combine this scenario with the contraction of the overall economy, thousands of foreclosures on existing homes, and it’s no wonder building permit activity this summer reached its lowest level since the end of World War II. It’s a sticky mess for builders trying to survive.

The Good News

But demographic data shows there is still a housing market out there in the weeds: 54 million “Eisenhowers” and 78 million Baby Boomers who face housing challenges. That means there are 132 million Americans who are living in homes that really don’t fit their life circumstances. In addition, there’s the potential of 80 million Gen Ys who could be tempted back into the market with the right product at the right price. Pent-up demand is building, whether or not the current federal administration, Congress, and the national media recognize it. Opportunity is knocking — in the form of the many desirable building sites now available at discounted prices. In many cases, these sites are already zoned, with infrastructure in place.

The Right Product

Understanding the pricing dynamics builders face in markets across North America, what’s needed is detached homes at higher densities, housing forms that get prices down to levels that read as a bargain to Eisenhowers, Baby Boom empty-nesters, and growing Gen Y families. After analyzing this situation, I have designed a new single-family housing concept I call “Parkwood Courts,” which achieves eight to 10 dwelling units per acre, but still provides the detached ranch plans and two-story homes all segments of the market prefer over attached housing.

The houses are sited on small, T-shaped lanes, with the homes backing onto pocket parks, where a shared sidewalk creates a friendly pedestrian environment for interaction among neighbors. The two-story homes range in size from 1300 to 1650 square feet, while the ranch plans run from 1450 to 1850 square feet.

No Bankers Needed

The era of large-scale, master-planned communities, with all the attendant up-front costs, is all but dead for the foreseeable future, but Parkwood Courts can be built by small builders and developers without depending on banks for A&D financing. Here’s how it works:

Form a limited liability corporation (LLC) with three members. Member one is the landowner. Member two is the builder/developer, who is the managing member. Member three is an investor. Since a court only contains 10 to 17 homes, up-front costs for development are minimal, and little land is needed (making this a perfect solution for small, infill sites).

After an overall land plan has been sketched out, the landowner contributes the land for the first court, free and clear, to the LLC. A rolling option is provided to the LLC for future phases, if there is room for more courts. The builder/developer develops the T-shaped lane with appropriate infrastructure, and files for a building permit for the first three or four homes. The investor provides construction financing for these initial homes.

Compensation breaks down this way:

The landowner values each lot at 10 percent of the final sales price of the home, plus an agreed share of the profits. The builder/developer agrees to a building fee determined in advance and documented in the LLC agreement, plus an agreed share of the profits. The investor is guaranteed a 12 percent return on the cash contributed up front, plus an agreed share of the profits.

After the initial homes are sold, the LLC takes down the lots for the next four homes and the process continues until the first court is sold out. If the first court is successful, the LLC takes down the land for the next court and the process continues until the site is built out. The arrangement with the landowner is based on a non-recourse agreement to reduce risk exposure to all LLC members.

Since the homes are small and development costs have been reduced, the team is able to provide affordable new homes, in desirable locations, as the market dictates — without relying on banks or jumping through hoops of red-tape lending requirements. In these trying times, it’s back to basics, and this scenario is a throwback to the way small projects were developed in the 1970s.

Maybe it’s time to return to those good old days. They weren’t so bad, and it sure as hell beats doing nothing, laying everybody off, and crying in our beer about how things were in 2005.

A nationally renowned leader and innovator in the planning and design field, David Clinger is an award-winning land planner and registered landscape architect. More than 300,000 individuals enjoy living in communities designed by David A. Clinger and Associates, recognized as one of the leading land planning firms in the United States. David can be reached at davidclinger@dclinger.com.