Dallas-based Choice Homes is pulling out of San Antonio after five years and will sell its remaining lots to other builders.
Coming in the middle of the building boom here, the decision may seem oddly timed, but the company said it never secured enough land or vacant lots to meet its goal: becoming one of the city's predominant builders.
In San Antonio, Choice Homes has built in the Mission del Lago, Hunter's Pond, Heather's Cove, Lakeview Estates and Heimer Gardens subdivisions, and in Schertz in the Fairways at Scenic Hills neighborhood. It also built Datapoint Townhomes in the Medical Center.
The company focused on entry-level buyers in the San Antonio market, with nearly all of its homes priced under $200,000, and many below $150,000.
The decision to leave was based on the company's limited land position here, President Dan Couture said.
"We love San Antonio as a market," Couture said. "It's one of the best markets in the country, but we find ourselves in a position where we've never been able to crack into the large-volume market."
This year the company has built about 225 homes in San Antonio.
Other builders have had the same problem cracking into the market or maintaining their position, said Becky Oliver, executive vice president of the Greater San Antonio Builders Association.
"There's a shortage of lots. There's a shortage of developments right now," she said.
Jim Gaines, research economist with the Real Estate Center at Texas A&M University, said the San Antonio market has put developers in the driver's seat. "My guess is that any builder that goes in and wants to build 750 homes but doesn't want to develop the lots themselves is stuck," he said.
"The developers are playing the strengths of the market."
Volume builders not only need to secure a large number of lots, but they need them close together, or at least clustered in groups of 50 to 100.
"It's not only the volume of lots, but the spatial distribution of lots," Gaines said. "Their economies of scale are to take their building crews and kind of keep them concentrated in one geographic area.
"They can schedule out their construction and not worry about the time delay of traveling around the city. That's why so many of the big developments are around the periphery of San Antonio."
The privately held Choice Homes also has built in the Austin area, but pulled out about 18 months ago.
Now the company will focus on its home base in Dallas and on Houston. It expects to build between 1,500 and 1,600 homes in Dallas and Fort Worth next year, and between 750 and 850 in Houston.
Couture said the company couldn't reach its goal of building 750 to 1,000 homes a year in San Antonio because it didn't own or control enough vacant lots.
"There's a big demand for land positions," he said. "We find ourselves holding our land positions, but never improving it."
Purchasing more lots or vacant land was possible, but would have required much more money per lot than in some of the other cities where Choice already holds a large share of the market, Couture said. Choice found itself in a similar position in Austin.
Michael Moore of Ironstone Development said land prices have been rising — especially as outside investors have moved into the market — and that the cost of extending utility lines has increased, along with the costs of complying with city codes such as the tree ordinance.
Plus, San Antonio's strong real estate market means developers can ask builders for cash up front for lots — something builders are loathe to pay, but often must if they want to gain a foothold in a particular subdivision.
"It really can change the economics of how much a company can buy," Moore said.
In other cities, it is more common for builders to agree to buy lots over time.
Couture said improving Choice's land position in San Antonio or Austin would have tied up too much capital compared with building in Dallas or Houston.
The company will complete its homes already under construction or contract in San Antonio, and all of those should be finished by late March, local staff members said.
Choice Homes will sell its remaining 340 lots to a variety of builders who are already operating in San Antonio, Couture said. All 340 lots are under contract.
Its 16 full-time employees have agreed to stay with the company while it winds down operations here, Couture said.
The company is also setting up 800 numbers for customers and will continue to provide warranty help for its homes, he said.
Choice Homes was founded in 1987 and is the 28th-largest homebuilder in the nation, and one of the largest in the Dallas-Fort Worth area, according to the company's Web site.
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