The pair considered it “a sign from God,” says Arsenault.
They agreed to start liquidating as fast as they could, ultimately
selling about 85 percent of RCS’s residential properties.
For the next two years, Arsenault and Wells waited out
the worst of the housing bust overseas. In Spain, which had
sufered an even worse downturn than the U.S., they scooped
up distressed waterfront properties that they could resell to
investors looking for cheap vacation homes. By 2009, while
much of the U.S. was still reeling from the Great Recession,
Arsenault and Wells started seeing new opportunities. And,
they realized, they were among the few independent players
poised to take advantage of a coming real estate rebound.
SINCE ARSENAULT AND WELLS started
reinvesting in the U.S. housing market,
they’ve counted on two diverging trends:
a coming surge in demand for new homes,
and a plummet in the number of
entrepreneurs who can build them.
While homeownership rates are widely declining, more
than 62 percent of Americans remain owners. The 84 million–
strong Millennial generation has the potential to become the
largest home-buying generation ever. Meanwhile, their parents in the Baby Boomer generation—the nation’s second
largest at 80 million, and by far the richest American generation ever—are fast becoming step-down buyers, trading in
their larger homes for smaller pads, as they progress through
to adult communities and assisted living.
“I WAS ABLE TO SEE THE DOWNTURN COMING,”
SAYS ARSENAULT. “IF WE HAD EXPANDED INTO
THE CRASH, WE WOULD HAVE BEEN CRUSHED.”
RCS is betting on what it, and economists generally, see
as the next housing boom, driven by a cycle of new demographic and econometric forces. “We believe favorable
demographics and the realization of pent-up demand
will drive a strong upward trajectory in housing demand
through 2020,” Morningstar analyst Brian Bernard wrote in
a July report on Lennar Corporation, one of the big public
homebuilders. (Morningstar and Inc. share an owner.)
Arsenault calls it a “silver age” of housing—silver, because
there are still enough unknowns in the global and domestic
economies to produce a recession at some point, but conditions are rebounding sufciently to have his frm preparing
for a surge in demand and investing in once-distressed markets like Las Vegas. Household formations are growing at
1. 3 million to 1. 4 million annually, according to recent Census
Bureau fgures; new construction is at 700,000 to 800,000
units annually; throw in demolition of old housing stock,
and you come up short some 700,000 units.
“If you take those long-term demographics, then an
abnormally large number of people are making decisions
around home buying,” says Jonathan Smoke, chief econo-
mist for Realtor.com. “At the very least, we are going to
have above-average historical numbers being required on
the new construction front.”
This housing shortage isn’t restricted to the famously
ridiculous San Francisco market. Go up the coast to
Tacoma, Washington, where RCS has several condo proj-
ects, and home prices are up 25 percent in two years. Or
travel to rapidly growing Jacksonville, Florida, near where
RCS is building homes; the city’s average property sells in
51 days, nearly 30 percent faster than the national average,
according to Realtor.com.
What’s missing from the equation are local homebuilders. Prior to the meltdown, the top 200 builders controlled
just 43 percent of the homebuilding market, according to
Builder, an industry trade publication. In many communities, local builders tied to local banks did the bulk of the
home-construction business. But after the recession, many
such entrepreneurs never got a chance to reboot. They
had no funding to do so: The meltdown wiped out national
subprime lenders such as Washington Mutual and hundreds of local banks that had large real estate portfolios.
For many surviving lenders, real estate became radioactive.
That’s where RCS and its spigot of fnancing comes in. By
surviving in this consolidated market, Arsenault and Wells are
also boosting the prospects of other real estate entrepreneurs.
Take Bob Comstock, CEO of Comstock Homes and a veteran
California developer-builder, who says the vast majority of the
builders in his state were victims of the die-of.