03/26/2012 06:11 pm ET Updated May 21, 2012

Small Builder Finds a Lucrative Niche in D.C. Real Estate

A bottleneck of vehicles crowds a builder sales office on opening day. There are over 30 names a week added to a waiting list for a seven-lot subdivision. There are substantial orders for upgrades. Is it 2004? No, this is happening right now and it's happening in the close-in suburbs of Washington, D.C.

The real estate market is indeed cyclical; there is little doubt about that fact. But where Metro D.C. is in this cycle right now depends on who you ask. Sellers of homes an hour outside D.C. may find themselves squarely in a buyer's market, competing with foreclosures and short sales as well as other market rate homes for sale. They are still reducing prices and watching their homes sit on the market for months. But if you ask my clients who run a downtown D.C. renovation business, this isn't their reality. They have a very specific business model and manage to double their money within 90 days. And buyers feel that crunch. Buyers inside the beltway know the bottom is behind us and their offers have to be competitive.

Big builders are putting their toes back in the water, but they are very cautious as they typically have shareholders and many levels of management to answer to. Making investment decisions isn't a one man show. It requires levels of buy-in from corporate offices -- usually made up of people living in another part of the country confronting a drastically different real estate landscape outside their door. That's always been the case though. I worked for a top builder in the heyday of 2003, and we constantly had to prove to a corporate office in Texas that our market in D.C. was thriving. So if D.C. is back on the upswing, who is making the money?

Foxhall Homes knows the Big Builder game quite well -- though a big builder they are not. The three principals of the company have pedigrees from all the national builders and a combined 80 years of experience in the D.C. real estate market. They formed Foxhall Homes when their last employer, Engle Homes, filed for bankruptcy and abandoned their assets in the metro area. The early years in any real estate venture typically involve a cash outlay with no income while the product is being built -- a huge barrier to entry. Foxhall Homes overcame this obstacle by acquiring a portfolio of finished lots to build homes and bring in cash quickly, but as any good builder knows, the real value is always in developing land. They began by acquiring a piece of land in Silver Spring off Fairland Road that would eventually be subdivided to five lots.

When Foxhall Homes put a "Coming Soon" sign in the ground, they amassed a waiting list of 20 buyers per lot. The interest was indicative of demand unmet by the real estate market. Foxhall Homes was able to secure 14 additional lots just up the street in Burtonsville, MD, when a local bank heard of their success and called to offer them a property they were currently holding a loan for. Foxhall Homes picked up an additional seven lots by the Forest Glen Metro Station -- a piece of land passed over for years by other Developers because of ingress/egress issues. The Principals of Foxhall Homes had the resources and expertise to fix the problem.

So how is it that this company is pursued by banks disposing property and bombarded with customers looking to build homes in a climate when other builders are still suffering? According to Michael Villa of Foxhall Homes, "our collective backgrounds allow us the flexibility to quickly meet the specific needs of financial partners and land sellers, quickly adjust our product to the market and, most importantly, work with our customers on a highly individual basis."

Foxhall Homes found a niche by focusing on the primary predictor of success in real estate -- location. They build in communities that are either near a metro station (very marketable in D.C.,) or a short drive to the city, and implement their business model with solid experience and reputations in the industry. They operate in the space beyond the Big Builder limitations and do it better than the other small builders who don't have the expertise to sustain their business. These guys know what they are doing and have many satisfied customers as a result.

For those who lament a sluggish real estate market, they haven't yet realized that the days of the quick buck are over. Builders are making money, but it's not like it was before. Consumers are smarter and more demanding, lending guidelines are stricter and this has made the real estate market very efficient -- especially in places like D.C. where demand now outpaces supply. There is no room anymore for people who don't know what they are doing. The real estate professionals who are successful now understand that true talent in the industry endures.


You can see more about Foxhall Homes on Youtube.


Melissa has been in the Real Estate Industry for over 10 years and is a Realtor with Sotheby's International Realty in Washington, D.C.