Back to Blog

A Builder’s Guide to Reviving Zombie Developments

Share this post:

The zombies are here, and this can be a good thing if you’re a home builder – zombie neighborhoods and developments that is. Everyone’s talking about zombies these days, whether they are on popular television shows or cult classic horror movies. Likewise, some builders and developers are finding that picking up zombie developments at a good price, completing and updating infrastructure and then re-selling or building out can be a great way to meet their need for lots and gain a relatively quick return on investment. There’s still an opportunity for big profits from zombies, especially for local and regional builders, and the good news is that you usually don’t need to get bloody to make money.

What Are Zombie Developments?

Blocked Entrance to Zombie Development

The pace of residential development was extraordinary as the housing market approached its peak around 2006 and 2007. New communities were sprouting all across the nation, especially in the highest growth markets, and were stretching the suburban borders of where people would buy new homes.

But as the housing bubble burst, everything stopped. Developers already had housing and residential construction projects underway, but many of these projects halted midstream thanks to a sudden lack of demand from home buyers for new homes and builders for lots (along with the disappearance of both loans for home purchases and construction funding). Builders and developers went out of business, and often the land shifted to the banks or into limbo.

Lying half-completed and unused, many market experts began to describe these neighborhoods as zombie developments or zombie subdivisions. Such zombie neighborhoods can be found all over America, especially in the rural areas and far suburbs that were expanding prior to the financial crisis and economic downturn. Some blame this phenomenon on overall urban sprawl. Others blame it on poor management by planning departments. And still others blame it on overly-aggressive developers and greedy banks.

The stage of completion for these undead neighborhoods varies widely. Some have a few homes and fully finished lots that are ready to build, along with completed infrastructure (roads, utilities, etc.) and even neighborhood amenities like pools, but because only a few isolated homes may have been sold – and there no longer is a developer – the residents are not able to financially support the maintenance of the roads and facilities. Other neighborhoods are nothing more than weeds in a field with an old promotional sign out front, even though there was a grand idea and the project received all of its approvals for development to start before the housing demand disappeared. In many cases the infrastructure no longer is functional, or even necessary, and ultimately will need to be demolished.

Site Plan for Failed Zombie Development

Rise of the Zombies: The Aftermath, and the Opportunity

Most big, national builders with capital were feverishly buying up zombie developments after the market crashed, stockpiling lots in preparation for the market recovery that now is underway. Many of the large zombie neighborhoods with ready-to-build lots were the first to go, and at bargain prices. However, some in the homebuilding industry mistakenly believe that all the good opportunities are gone.

The fact is that there still are millions of completed, partially completed or approved lots in zombie developments that are available to be bought today. And although these zombie opportunities may not fit the lot and land acquisition profile for many of the large national homebuilders, they can be ideal for smaller local and regional builders.

Why Buying Zombie Developments Can Make Sense

The conditions are ripe for these zombie developments to be put back to productive use. There was almost no residential development after the downturn, but across much of the nation the housing recovery is underway. And with the inventory of existing homes dwindling — and prices rising — the new home market has been recovering nicely in many markets. The supply of finished lots is very low, so builders may want to consider finding the right zombie subdivisions to help meet their needs for lots for new homes.

In addition to the large zombie communities that were sold to big builders, there are plenty of smaller planned projects, infill sites and individual lots that can be great opportunities for smaller builders. These zombie projects can truly come back to life with a reasonable investment of time and resources.

Time has passed. That is the big factor which now means that deals that were too much “in limbo” to be sold a few years ago, may be available today…and often at reasonable prices. Developers and landowners who were able to hold on to their “dead” projects through the downturn may have worked out and settled their debts, or just adjusted their price expectations. And banks that were in financial turmoil, and unable to function properly, have been unloading projects that were on their books too long. In these scenarios, time often brings eager sellers and better prices.

Likewise, some local governments are geared up to have zombie subdivisions completed, so they may be willing to provide you incentives or concessions to get the job done.

But don’t forget that these are zombies – so there usually will be some open wounds – and it sometimes just doesn’t make sense to buy. Do not underestimate the risk that comes with trying to fix someone else’s mess. Problems may include failing roads, storm water systems, expired approvals and cut corners when the prior builder was running out of cash. Sometimes zombies just have too much baggage.

Choosing The Right Zombie Development Project

Before you buy a zombie development project, you’ll need to understand a little more about what you have to do in order to revive and turn a profit on such a purchase. In almost all cases, you’ll be finishing the uncompleted work of others in order to turn once-dead lots (whether developed, or just planned) into fully-functional homesites, and ultimately homes.

The state of progress (or demise) in zombie subdivisions varies greatly. If the development work on the site was completed (or close to it) the deal may provide a great opportunity for you to get lots ready quickly, but other projects can require a lot more time, effort and risk.

Let’s be clear – not all zombie projects are good projects. Some failed because of poor market timing, but others failed because they were being built in the wrong location or for the wrong product in the first place. And while time sometimes brings better prices, time also causes partially built projects to continue to degrade. Be thorough with your due diligence when buying a zombie project and account for all costs.

When you’re shopping for one of these projects, pay careful attention to entitlements like permits and plat approvals – and any outstanding liabilities. You must keep these in mind when planning your project and your budget. For many projects their permits and approvals may have expired by now, while in some places their expiration dates were extended for a few years by state or local laws. At the same time, newer laws and permitting requirements may impact the original designs and require additional expenses for compliance, like the EPA-mandated Post Construction Stormwater Management ordinances that now apply to new development and redevelopment in many communities. In addition, you also may find that the approved lot size and layout just does not make sense in today’s market and that you need to have the project’s plans revised and updated anyway.

Get the advice of development consultants like land planners and engineers, to make sure you understand what is involved to complete the development. It’s nice if you can get insight about any project issues, entitlements and construction status from the original developers, contractors and consultants, but these folks may be long gone by now. Still, researching the project’s history can help you avoid bad deals.

Get in the field and carefully inspect the site, individual lots, storm water controls, roads, curbs, sidewalks and other infrastructure to understand its condition and to make sure you have budgeted for any improvements that will be needed. Some common costs and problems you may find in taking over zombie developments include:

  • Expired permits and entitlements
  • Repairs to and completion of roads, utilities, storm water systems, sidewalks and other infrastructure
  • Repairs to and completion of neighborhood amenities, landscaping, signs and playgrounds
  • Demolition of existing infrastructure that is not needed or is in poor condition
  • Underfunded or dysfunctional homeowners’ associations and other community associations

When reviving a zombie, you will need to work closely with local planning and utility departments. They can help you confirm that you have all the approvals that you think you have, and help you understand what you still need to obtain. Be aware that some local officials may carry animosity about the project, especially if it has been an eyesore or one where the municipality was left holding the bag on some of the costs for maintenance and upkeep. But consider this an opportunity for you to establish yourself in a positive role – you are the one who is coming in to rescue this zombie project. Try to help them feel like part of the team, so that together you will help bring this community back to life. They may be willing to help you make the project happen through efforts like expedited approvals or concessions.

It can be wise to have a lawyer on your team when buying a zombie subdivision. In addition to helping you navigate some of the local rules and regulations, as well as the status of permits and approvals, an attorney can help protect you if you need to have a written agreement with the local government or if you need the developer entity to assign rights to you. Likewise, they can advise you on the risks and benefits of different deal structures, like an asset purchase compared to a purchase of the landowner or development entity. Be careful to avoid buying liabilities that you don’t anticipate.

Zombie Development Sales Center - CLOSEDFinally, as with any development or construction project, it’s important for you to do economic and market projections for the area in which the zombie community is located. Economic recovery often occurs in different pockets and sub-markets. And though many of these projects may have had some hope at the market peak, they may fail under today’s conditions.

If you are moving forward with reviving a zombie development, be sure to be open and candid with existing homeowners, neighbors and local officials. Some harbor anger, but many of these people will be very excited to see progress and will appreciate you including them in the revival of their community.

 

Related Articles & Resources:

Homebuilding and development pros can go to the Homebuilder and Developer Resources Page to find out about our features and powerful online tools that were created to meet your needs, and will help you buy and sell lots, land and new homes.  And real estate pros, be sure to see our Real Estate Agent and Broker Resources to see how LotNetwork.com can help you buy and sell lot and land properties.

It’s easy and affordable to sign up for a Listing Plan so you can sell your property on the nation’s premier site for residential lots and land for new homes. Tap this button to learn more about pricing and listing plan options:

Sign Up Now Button

Discussion

  1. Stephen Kemp says

    Great article, we are looking for lots in Minnesota. Lots must have be buildable and have 5 sold comps.

    Thank you

    • says

      Thanks for the kind words, Stephen. We agree that this article has some great, practical info in it.

      Be sure to search LotNetwork.com for the Minnesota lots you want to find. There are over 6,300 lot and listings in Minnesota on LotNetwork.com today, so I’m sure you can either find something that will meet your needs or be able to connect with someone who can help you. Best of luck.

  2. Judith says

    What is the road that people already living in these zombie communities should take? Builder almost broke wants to build cheaper homes. He also wants to take the Over 55 Section of his development and turn it into Multi Generational lots. This would leave the over 55 s already there with children next door instead of seniors. The builder is not forthcoming with any truthful information, before we spend money on a lawyer, what do you advise we do? Thank you so much for your wonderful articles.

    • says

      Hi, Judith. Sometimes the situation can be very difficult for existing homeowners in a zombie community. Sorry to hear about your issues.

      As an easy initial step, I suggest you review the covenants or deed restrictions that apply in your community. These documents should provide a good guide for both existing homeowners like you and any builders or developers. For example, if the covenants require age-restricted dwellings on certain lots then those restrictions must be followed. The covenants or deed restrictions will give you some good guidance on what the limitations really are, and ultimately it’s in the best interest of potential builders to make sure the restrictions are being followed.

Join the Discussion

Your email address will not be published. Required fields are marked *