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New high-end homes in Santa Rosa burn areas rebuild enthusiasm from outside Sonoma County

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After completing three-quarters of a billion dollars in Sonoma County home sales in the past three decades, partners in life and real estate Jeff and Tracey Schween of Compass jumped into the postfire rebuild in the days afterward.

They then teamed up with architect Kevin Skiles, who had lost projects to the flames, to form design-builder Urban Building Workshop. The company has 65 construction employees, plus a few architects and staff working on 18 custom-style homes in the Fountaingrove area of northeast Santa Rosa. Six more homes are in the permitting stage, and three others are in design.

In this interview ahead of his participation on a panel at the Business Journal's May 29 Building the North Bay conference, Schween describes how the company has been building at lower cost in the upscale neighborhoods and what cultural reset Sonoma County needs to get out of its long-running housing shortage. It has been edited for clarity.

You have the interesting perspective of the rebuild as a top real estate agent and builder.

We don’t have anything completed right now, but we are we are going to be delivering homes, starting July. We’ll start our first delivery up on Foxtail Court. I’ve got (homes under construction on) Bristlecone, Foxtail, Windemere, Eagle, Woodbourne; that’s seven, all in the Fountaingrove-Fir Ridge neighborhood under construction right now. I’ve got three in Quietwater Ridge, which are all high-end custom homes being redone; those are $2 (million) to $3 million houses, and they’re getting windows popped in now.

We’ve got two on Vintage Circle, which would be on our lower end, like the 2,200- (to) 2,300-square-foot size, going in right now. One up on Westwood, which is a high-end custom home in the old Tuscany development; that’s like 3,600 square feet. (One on) Boulder Point, which has about 5,200 square feet, off Fountaingrove Parkway. That’s all underway right now.

And then we have Bracken Court that’s already started excavation and one on Southridge that hasn’t started yet. We just started home on Petalglen Place up in Skyfarm, and we have two others in Skyfarm we’re just going to be breaking ground on there. We’ve got a lot at 5000 The Pointe Place that’s in for permits right now. And then we’re going to start we’re starting all the architecturals on one of the most iconic lots in Fountaingrove II on the ninth and 18th green at The Fountaingrove Club on Llyn Glaslyn Place.

We’ve got a fairly exhaustive list in the size range from 2,100 up to about 5,800 square feet. And all of them fairly highline finishes, all texture, Marvin windows steel roofs, obviously complying with all the new codes.

Many of them are net zero or net zero-capable. Some of our clients have chosen that instead of being completely net zero construction, they do want some natural gas or fireplace feature or their barbecue or outdoor kitchen. Net zero, that’s a colloquialism we’re using in the industry right now. That’s about trying to get your (carbon) footprint down. We absorb solar energy, we spend that on the house, and that nets out at zero. But when using natural gas, you don’t really end up with a net zero.

Part of our program was to deliver high-quality homes but at a reasonable dollar. None of the houses we’re doing are the same; they’re all custom designed. But we’re synchronizing their build sequences, so that these four or those five are being put together in a group. We start one foundation, finish that, roll to the next, then roll to the next one. Our framing crews roll behind on each of those, and then our finish crews roll behind them.

And in that cluster, four or five homes ends up saving someone enough money that we can deliver that kind of product line at $300–$400 a gross square foot. We’re building next to the people who are building houses for $650–$700 a foot. I’m like, “You sure you don’t want to talk to us?”

We’re not doing this for a nonprofit situation, but we’re modifying the profit structure we would normally take in a market to serve the community and try to get people back in their homes, better homes, faster then they normally would with a soup-to-nuts process. They don’t have to be like, “OK, now I go where for my structural engineer, and who’s the Title 24 guy? Where do I go to pick out faucets, countertops and cabinets?”

Being an integrated design-build firm, we’re doing that all for the clients. We’re holding their hand through the process. We’re helping them at decision trees throughout the construction process: “OK, three weeks from now we have to finalize those cabinet selections. Ready to come in and go make those choices?” Same thing with roofs and windows. We have designers, 65 construction employees, a couple junior and senior architects on staff, all to keep this whole mechanism moving in the right direction and flowing, so it’s work overload.

I see it in the paper; I hear from people out in the community when we start talking about it: “Aren’t you having a problem finding like labor and help to build these homes?” Actually, quite the opposite. I probably get three to 10 calls a week from our signs that we have posted on all these sites that we’re working on. From Sheetrock-ers, framing crews, concrete crews, finish crews: “Hey, we’re doing some work in the area. We saw your sign. If you’d like us to bid out some work, we’ve got lots of crews and we can probably deliver a good product and affordable price for you.” There was one week I got four different foundation crews called me on the same day.

We have not encountered any kind of shortage in the workforce that’s willing to go to work, and at the same time you do not have to have people pay $600-$700-$800 a foot for a house.

In the construction trade, you’ll typically see construction quotes get put out to clients, and it’ll delineate windows, roof, framing, labor, materials - 65 different line items. You get down to the bottom and see overhead 10%, profit 10%, then the final number. Then you see someone’s contingency fee for whatever their “oops” or changes are during the process.

What we did for people that jumped on board with us early on and put their faith in us, we shrunk (our 20% overhead and profit) down to 12.5% total, essentially saving someone 7.5 percentage points, which on a $1 million or $2 million construction bid is $75,000 to $150,000 savings on building a new house. We did that for people the first year.

This year, we’ve changed that to 15%. We’re still below market on that, but we’re trying to obviously manage our profits and costs on this side too.

We just had a new-construction build meeting with a new client referred to us in Skyfarm. ... She was just in the middle of finishing her home when the fire happened — hadn’t even got the final permit. A really sweet elderly woman who works all around the world: “Listen, I can’t do this again. But I need someone to do this again.” We’re going to work on a construction quote for her project this week. My stomach turns and my eyes water every meeting, because we have to hear everyone’s story.

What is the outlook for new construction?

… We really need all types: market housing, renter housing. It’s a little bit of a quagmire. The question is, how do we deliver it all?

The county and the city have been pretty tough on developers over the last several decades: “Oh, you want to build 100 units? Well, you need to build 20 of those as below-market-rent units.” And then what happens? No one builds it. And so now you don’t even get 100 units.

It sounds like a pretty recipe: Every time someone builds, you provide people with (affordable) housing options. The mistake with that is you’re trying to grapple for the crumbs on a table to serve a community that needs 5,000–7,000 units of housing in that capacity.

You lose sight of the fact that if you let one developer, or 10 or 100, come into town and build homes or apartments, they are very smart people; they understand the numbers. There’s no one that’s going to say, “Well, I’m going to build 1,000 $2 million homes all at once for all these people that lost their homes.” That ain’t gonna happen. Someone’s going to have their head handed to them in a bankruptcy.

So what we need to do as a community and as government entities is let the developers call the shots on what it is. We need more units — period. If you delivered 30,000 new units to this county in the next five years, I guarantee you would abate runaway prices on for-rent, for-sale.

But if you only delivered 3,000, 4,000 or 10,000, we’re still gonna have the same old problem. The restrictions we’re trying to put on people to make sure that they contribute to an affordable offset keeps stuff from getting built. So the can gets kicked down the road, and rents that were $1,000 month become $2,000 a month; $2,000 a month becomes $2,800 a month; $2,800 a month becomes $3,400 a month. Who can afford this stuff?

It’s a fallacy within our governmental system that we’re going to make sure anytime someone builds something, they give the community something: Developers who develop a subdivision build a new park, donate it to the city or the county. Then it became inclusion of below-market houses or apartments. That’s when the funnel got shut off in people building stuff. “I gotta pay $60,000 to $100,000 every time I permit a new house, and if I’m going to build 30 of them and you want me to give you five of them below market, I can’t make that on the margins. So I’m just gonna say no, and not build it.”

How are sales of fire lots versus existing-home resales or new construction?

We have only seen a few tests of the new-construction market, because it takes that long to build a home that can be moved into. For instance, a friend of mine had a builder build a home up on Rocky Knoll, sold that home for $1,675,000. It was 3,030 square feet; that means that house sold for about $575 a square foot for what it had, between the view, lot size and finish quality. There’s a watermark for that kind of product. I think we’re going to see new-construction resale available maybe as low as $400 a (square) foot. A new 2,000-square-foot house might be $800,000.

You’re going to see also $500-$800-a-square-foot stuff too, part of it based upon lot attributes, locale of those lots, and quality of finishes. You can put in steel Blomberg windows, or you can put in Milgard vinyl. Both are windows that function, but someone is willing to pay a premium for a certain type of window versus not a premium. It’s hard to say definitively where those scales are going to be, but I have earmarked different spots.

Within northeast Santa Rosa in the fire rebuild area, it’s reasonable to expect a home to sell for $400-$450 a square foot in one location. In another area, based on lot sizes, locality and configurations, you could probably expect $450 to $500. Another site could fetch $525-$575.

On lots in Skyfarm or Fountaingrove Meadows, you’ll probably see stuff selling in the $650$-$750 range. There are a couple other resales out there that have been happening. One just closed in Quietwater for $775 a square foot.

At the Mayacamas, that very-high-end country club off of Shiloh Road (north of Santa Rosa), those houses are going to trade out at $900-$1,100 a square foot.

In Santa Rosa, that’s your top tier. Your next high-line type of homes going to be Skyfarm, Quietwater, Fountaingrove Meadows, The Foothills and Redwood Hill, trading out in that $700-$900 (per square foot) range, depending on quality, finishes and features: pool, composition or steel roof, basic versus wonderful windows, flooring, type of HVAC system, advanced technology.

The next level of homes are on a half-acre or an acre in Fountaingrove or Riebli Valley. Those are going to sell at that $550-$650 (a square foot) price point.

Below that, you’re going to see more reproduction of old production housing in Fountaingrove, like what Christopherson built years ago in Deer Meadows, Sienna at Tuscany or Garden View. That will be in the $425 to $500 a square foot range.

We’re already seeing sales in those markets, where production homes existed before and are being rebuilt, either as is or with some improvements to them. And those are already percolating through the market. We just seen a home that came on (the market) on Kendall Hill for $3.5 million, and it sold right away. That’s about $1,200 a square foot for that house. Is the market saying, “Hey, that’s what we’re willing to pay for that kind of a house finish, and it may be.

We’ve lost people from our communities. But each time we lose someone that sells their lot, someone else is coming in and buying that lot, whether it’s a builder, or someone that’s from out of the area that says, “You know, this smelled like opportunity, I need to get up there and buy a lot so we can build a house.”

In northeast Santa Rosa, one of the dominant factors is going to be the new Fountaingrove golf and country club. (Before the fire), the building, nature and use of it were really regarded by many as substandard for what it was, and essentially probably held back that area of our market in value, based upon lack of the appropriate commodity being there.

And now the clubhouse has been redesigned. They’ve gotten smart with the design: layouts, materials and the finishes. And now that country club is adding new members month over month. They’re practically at the point of where they were prefire.

A bunch of people sold and left, but a bunch of other people have bought in a full club membership without having a club(house) there, because they’ve seen the drawings and the promises. And it’s being funded by their insurance that has been paid out already. So people are already buying into the fact and betting on it for themselves with their own money that is going to be better than it was before. And it’s going to be a part of town that’s gonna be stepped up from what it was before.

Prefire, you had markets that were “in equity” — Annadel Heights, Montecito Heights, Fountaingrove area — arguably, parallel neighborhood values a resident would place on them. Now, you’re going to see Fountaingrove be really the pinnacle within the city of Santa Rosa of high-line construction and desirability.

I have five other builders I represent on the real estate side of things, doing spec(ulative) projects all throughout northeast Santa Rosa, everything from $5 million down to about $800,000. Amongst those guys, they’re building 17 different spec homes. They are locals and from out of the area.

Some builders coming from out there are looking at innovative building products to build more durable housing, while incorporating more forward-thinking design elements. I’m seeing enthusiasm for this; people are showing up to our town from San Diego, Walnut Creek, Sacramento, L.A. They’re like, “Listen, I think I want to go and get four lots and build some great houses. I think I need to buy 10 lots and build some great houses.” That didn’t happen before the fire. It just didn’t happen.

Are rebuild areas poaching buyers?

I don’t know if I think of it as poaching or cannibalization, because there hasn’t been so much product available for delivery. If you go a year out from now, you have a lot more inventory that’s gotten built, and we track who’s moved in and where they moved in from and why, then you probably have data points so you can start delivering a critical accounting.

In our county, when you go past that end of the market, say $1 million, there’s not really anywhere else in our county where you’re seeing a lot of new construction for a million bucks and up, other than northeast Santa Rosa. So it would be hard to figure poaching from there.

With the new enthusiasm about Santa Rosa, all the new construction going on and the new Fountaingrove country club, we’re getting a lot of inquiries from out of the area that you didn’t have a year or two or three ago. People from San Mateo, Walnut Creek, San Jose, San Diego or L.A. are saying, “That looks pretty cool!” And they’re saying that about an area that literally had a home stock that was somewhere in the average age 30 years-plus.

We’d show them homes in Skyfarm, Riebli Valley, Redwood Hill, Wallace, or some of the old ’80s portions of Fountaingrove, And they’d go, “Well, gosh, the course is really pretty. I like the location. But what am I gonna do with this house? It doesn’t fit any of my dream wishes, as far as floorplan or style goes.”

The proposition beforehand was remodel it, tear this down, tear that down, open this up. That was not exciting to many people coming to our area. But those same people are now coming into the area, going, “Oh, I like that! Now, that’s a fresh start. I could live there. I would live there.” They’re looking at a brand-new house with all the newer, safer construction methodologies, but also delivering on home-automation systems and incorporating all the new things that we have within our design purview these days that excites people.

When you think of those areas that got lost in the fire, how many of those homes where people bought and had to drop $300,000-$800,000 remodeling and trying to deal with that process. Most people would rather just buy a new home and not have to deal with the remodel.

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