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WESTWOOD : Developers Find a Window of Opportunity


Last year, in the midst of one of California's worst housing markets, David Schwartzman brought together several other twentysomethings to launch a real estate development firm.

"Suicide," said his older, more-seasoned colleagues, a few of whom more politely suggested that Schwartzman, 26, and his associates reconsider their timing.

One year and $27 million in sales later, the Westwood-based Patriot Homes has dispensed with the conventional wisdom. Targeting low-end and first-time home buyers, and maximizing its best asset--youthful energy--Patriot Homes has muscled its way into the more successful ranks of California's home developers. Last quarter, one of the company's developments ranked the fifth-largest in sales statewide. For next year, the company is anticipating sales of $50 million.

"This is the best time to start a (development) company," said vice president Erik Pfahler, 28. "We're able to take advantage of depressed land prices."

So far, the firm has built approximately 200 homes and condominiums in projects in Fresno, Newbury Park and Thousand Oaks, and is eyeing an expansion into San Diego County. Scrupulously holding down costs and keeping the company lean has given Patriot profit margins three to five times that of other development firms, said Schwartzman.

"We're not a company building 600 homes with 200 employees," he said. "We're a company building 200 homes with 15 employees."

Though Schwartzman is hesitant to attribute Patriot's success to the age of its principals, he says the company emphasizes a spirit of innovation and flexibility, and solicits potentially high-return but labor-intensive projects.

For example, Pfahler says that Patriot looks for unzoned land to develop. Though such properties are cheaper than zoned ones, few development firms are willing to invest the "sweat equity" to get the bureaucratic clearances to zone the land, then build on it.

Patriot also seeks to exploit what Schwartzman terms the most lucrative part of the current and future housing market: first-time home buyers with access to FHA, Fannie Mae or Veterans Administration financing. Most of the company's properties are priced between $115,000 and $175,000, with three-quarters of Patriot homes sold so far listing under the FHA lending limit of $150,000.

To these homes, the company offers buyers a variety of features and options to differentiate what are essentially tract houses and condos--from front and back yard landscaping and built-in entertainment centers with large-screen televisions to such minor amenities as the ability to widen and reconfigure closets.

"We'll leave more of our profit on the table to sell the project more quickly," said Pfahler.

Patriot's marketing strategy is similarly aggressive. In Fresno, the recent opening of a 479-home project was announced with huge parties and a laser light show that lit up the sky for 15 miles. Upcoming promotions for the development will include a home giveaway and the airing of a 30-minute infomercial. Needless to say, such marketing schemes are a first in the normally tranquil housing market of the San Joaquin Valley.

"A lot of people from big companies are used to doing things in a certain way, but we don't have set ways," said Schwartzman. "We're highly energized."

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