'McMansions' face a tough sell
The Twin Cities has an oversupply of high-end homes, as the nation's largest luxury builder is discovering.

By David Peterson, Star Tribune

April 13, 2007

At a time when Eagan came under some criticism for letting one of its prettiest pieces of open space be sold for luxury homes, Nancy and Eric Tschida had a different concern. They were worried they would miss out.
"The way the developer was talking, we thought there'd be a lottery for a chance to buy a place," Nancy said.
Today, however, gazing out their sweeping back windows toward an expanse of bare ground, they're left to wonder what happened. "Maybe there isn't that much demand for homes in this price range," Nancy said.
Toll Brothers, the nation's biggest luxury home developer, extended its empire to the Twin Cities with a burst of optimism two years ago. Now, eight months after the first home sales at Steeplechase of Eagan, the Pennsylvania company associated more than any other with the nickname "McMansion" finds itself caught in a tough period locally for high-end sales.
In the Eagan development, only a trickle of folks have moved in.
The metro area has an oversupply of high-end homes, judging by the time they spend on the market. Using the yardstick of how long it would take for all homes in a certain price bracket on the market to sell -- five months' supply is considered ideal -- the figure for homes costing $1 million and more has risen from 13 months a year ago to 19 months today. For homes valued from $500,000 to $1 million, supply rose from eight months' worth to 11.
Nationally, Toll Brothers has suffered much less than its hard-hit industry peers during the past year, but its stock price is still down substantially.
"It's a tough time to break into this market," said Tony Ashworth, a broker with RHS Realty, which has offices in Eagan and surrounding cities. "It doesn't matter who you are."
He rates Steeplechase's performance about on par with comparable projects in the metro area, and expects it -- with an attractive site and a convenient location -- to be fine in the long run.
The company also has a development underway in Maple Grove, where things are also slow, and a site near Prior Lake, of which Michael Noonan, Toll's Minnesota division president, simply said, "We're rethinking that project." Maple Grove officials report that a year after final approval, they've issued permits for only nine homes on a site designed for 200.

Disputing 'McMansion' label

Toll Brothers dislikes the term "McMansion." Salespeople for the Eagan project say they outlaw cookie-cutter construction, meaning they won't build identical facades side by side.

But, of the big national firms producing thousands of homes from standard patterns in dozens of states, Toll Brothers is the only one in the luxury niche, with average prices far higher than any other firm. Base prices start around $600,000, but buyers say add-ons add up fast.

"You look at the wonderful model, and don't realize that everything you're seeing is an 'add-on,' " said Susan Dub, a computer industry executive who recently moved into a carriage home at Steeplechase of Eagan.

Although few buyers have moved in yet -- 10 townhomes are occupied of the 95 planned -- the company has sold another 24 and has deposits on a few more, Noonan said.

"Is that slower than we would like?" Absolutely," he said. "We would love to have sold them all by now. But it's a market challenging to all builders."

Among the challenges: as much as a family might want to buy, it first needs to sell what it has. And that's tough in a market in which buyers are waiting for markdowns. Just ask the Tschidas.

"We put our old house on market last spring," Nancy said, "and it took six months to sell. We had to make double mortgage payments for a couple of months. It was a little stressful. And we had to drop our price by a lot."

'Nice incentives'

Happily, some buyers say, Toll Brothers had to be flexible as well.

"They've offered some nice incentives from a pricing perspective," said Dave Gagne, an executive who sold a $1 million house in Inver Grove Heights and expects to move into a 4,000-square-foot luxury townhome along a creek at Steeplechase within six months. "They threw in a couple of substantial options that probably saved me 5 to 7 percent."

New owners seem unconcerned about the pace of sales. Toll Brothers has various means of trumpeting sales when they do occur, encouraging a sense of momentum: Signs on lots make the point, and Monopoly-like houses on pins change color on a big map of the development inside the model home.

The model is a jaw-dropper, with its own home theater, video arcade, 18-foot ceilings and hand-scraped walnut floorboards that look as if they'd been retrieved from Mount Vernon or some other historic stately home.

And if most people's actual homes are a bit more real -- "I can only afford so many flat-screen TVs," Dub told a friend as she moved in, after being gently mocked for the old-fashioned version on the kitchen counter -- buyers say they appreciate what some call East Coast or Southern touches of an out-of-town builder, including 5-inch white trim everywhere.

All in all, said Nancy Tschida, "we are very, very happy here," in their 6,200 square feet of space. "We had some negotiating power, as early buyers, and got a good deal."

David Peterson 612-673-4440 dapeterson@startribune.com