A Candid Take on Real Estate Development with Phillip Huffines

Hi, I'm Candy Evans and this is Dallas Dirt. Today I am going to be speaking with none other than Philip Huffines of H Huffines committees, the President and CEO Co-owner. Governor of Huffines Committee, which is one of the largest developers in North Texas. And who has a.

Fascinating story of how he got from fireworks, oil and gas to dirt. We love anything to do with dirt and the story behind it. I am so grateful to have you on the show today. Thank you so much for coming.

We're just gonna talk about real estate and how you do what you do and you develop some amazing communities. You are actually creating towns in Texas. Right. Candy and.

But first off, thank you for the opportunity to be here and visiting with you. It's always fun and I watch your show. It's quite good. You started when you were in college with your twin brother.

We sure did. it's a little bit old, but I do try to introduce myself this way I get around twice as often as you do. Because I have an identical twin brother, of course everyone says, oh, I saw you at such and such during college that was tough because we'd walk on campus and the girls would say, well, you sure are moody today. I never met 'em.

So we kind of shy sometimes, as an identical twin, we have been best friends for. Most of our lives. Amazing. Yeah.

You all get along really well. Most of the time until we argue. Do your parents have to settle the arguments oh, well, boys like to fight. Yeah.

So we would definitely wrestle and get in fights. Okay. But we always get along and have been partners as you just mentioned, We were in high school brother Don, he's the one, with the ideas, you know, comes out. He says, well, we need to go do this or that, and some of 'em are too grandiose, but I'm the one that does the.

Implementing Right. And he said, let's go sell fireworks. It was 1976 and a bicentennial year, and he had an idea on where we could put a stand. We had to research all of that and we're 16, 17, and had to get a state license.

Mainly what got us into real estate was we had to research all the jurisdictions for fireworks where you could sell, where you couldn't, and where it was legal. All were different. Each city was a little different state rules and regulations on it. we did that for five years, through college and high school we had multiple locations and expanded the business and so we learned land and land entitlements and a young age Let's explain what an entitlement is.

Well, you know, the buying land and what's it value what you can do with it. Isn't that how you would describe it? entitlements really refer to the local governments. And sometimes the state government about what they allow or want to occur.

local governments, municipalities or cities pass a lot of rules or laws and regulations and what can be built through zoning or subdivision. Ordinances, street widths, drainage, water, sewer, everything about how you construct or get a permit to build a house is regulated by the local government. And those are the entitlements that you When you buy the real estate, you buy those entitlements, correct? Well, it's not quite that simple.

If the previous owner went through all of the processes. But most of the time we just buy a farm or a ranch. Raw land, with no entitlements and 'cause one of our fortes or specialties is to go to local governments and get the property entitled. That increases the value because then someone say, okay, the property's worth more now because I know what I can do with it.

We call it de-risking the property de-risk. The property and that makes it more valuable. And it needs to have access to water and sewer. 'cause otherwise you can't know, you just can't bow on it basically it's, more risk.

Yeah, definitely. Because the city can deny what you want to do with the property. Yes. And devalue the property substantially.

That's why some developers actually go. Work the entitlements and then turn around and sell the property because it's now worth more money. There's a step up in value I was fascinated by the way, commercial real estate works. you were doing these fireworks, you had all these beautiful communities that you went through.

Did you ever stop and think, oh, I think we put a development here, a home development? Oh, not that age. Later after college. Mm-hmm.

Don and I were in college together. We got Texas monthly out, 400 richest Texans, and most of them were real estate or oil and gas. So he said he wanted to be in real estate. he went to work for Henry S.

Miller in real estate, and I worked for Gaty Oil Company In Houston for several years. Oil and gas went to $10 a barrel, whatever. So that was not, and it's very risky. Oil and gas is much worse than land development.

Yeah. ups and downs came back to Dallas and got into real estate. Don was brokering land we'd always been kind of attached to land. Mm-hmm.

Just like you, the dirt, you know? 'cause that's really where the underlying value is. And most real estate is the land. And also we like it because you can be creative.

It's a vacant track. a blank canvas. Let's create something really cool if we can. My father was a rancher and had, some land in Carrollton where he would check the cows every day.

And he loved doing that. He was also an automobile business, so I need to mention that. Yeah. 'cause your grandfather was in the auto business from 1924.

We had our hundredth anniversary this year and my brother Ray runs all the dealerships for a hundred years it's been in the family. That's amazing. That's true. Just amazing.

They, then you go to the ranch in Carrollton and, we saw the houses. And the subdivisions. Encroaching in that area. I discussed with my father, let's maximize the value on the property.

Unfortunately, most of it was in the floodplain. you can't build on it can't build on it if it's in the flood plain. Right. Got you.

Had to remove it from the floodplain. So we, hired people long story short, we did, we removed it from the floodplain that took several years. in 88, 89 there was a big recession Real estate was wiped out. Banks were wiped out.

My father was in banking. He lost all the banks. We lost the property. It was used as collateral for other deals.

we learned at a young age how to mitigate risk for macro environment. Something that can come up that you're not prepared for. Right, exactly. And be, be prepared for the rainy day.

Well, that was a big storm. I remember that, Overnight. Overnight. Overnight.

Yeah. Within a few months. And the reason for that in your audience probably doesn't know this land is very illiquid because it's not producing any cash flow stream. This building or retail centers produce a cash flow stream.

And even if tenants move out, there's still some cash flow, coming in. And then there's a replacement cost, right. So you can value no matter how bad it is, well I'm buying it 50 cents on what it costs to build it, or I'm buying it on this cash flow stream. Well, land just sits there.

Yeah. you have to pay taxes on it. So it's, you know, it's not free. There's a lot of risk associated with buying land, with land, and then if you own a lot of it and it's not worth anything.

we try not to have much debt. That's a good thing. try to have something free and clear. So it's not been a piece of cake to get to where you are today.

I mean, you had your ups and downs. But the lesson I learned when I was in my mid twenties when everybody went broke, including us. is be very careful on personal guarantees on wounds. When you per and most individuals, when they get into business, you have to personally guarantee the loan.

The bank wants you responsible for whatever you're borrowing the money for. But if that business goes broke, they're coming after you. the bank will come after the individual personal guarantee, before they go after the collateral. Wow.

Right, Path of least resistance. Yes, absolutely. Don't want the collateral, they want you to pay the loan. I remember covering the stories during the, REO crisis, banks do not want to get homes back because then they gotta hire a whole department.

Train 'em, sell, basically go into the real estate business and that's not their business. their business is banking. I understand that, and I try to explain that to people ahead of time. I totally get what you're saying.

The end of the eighties for Texas. we had just come here and all of a sudden it was like all my friends in commercial real estate were just selling their homes and, downsizing hugely. Mm-hmm. How did you keep going from that point?

Well, I don't wanna dwell too much on the negativity about what happened in those days. we would go to auctions. when the banks failed, the government came in, took over the banks, they would move all the loans over to a bad bank or what we call RTC, Resolution Trust Corporation. their job was to.

Sell those assets. Loans and foreclosed real estate. the best thing the government did was put a three year life on that entity. So the real estate community was sitting back, waiting for that three years to clear And then they knew that's the bottom.

'cause like I say, like everybody. Falling knife is difficult to catch. Right. Because you just don't want, you wanna wait till it lands.

Yeah. so they started having auctions and selling off assets. we found a few investors but mainly we would go to the auction or to a savings and loan and contract for subdivision lots. Okay, so these were the 300 lots, 400 lots.

and It's sitting there, no home builders. Nothing's happening. they'd give you 60 day look, 30 day close. in that 60 days we'd run all over town and sell off pieces of those subdivisions to builders.

And they would close simultaneous with us. Wow. So we would get some of the lots free and clear. we just started doing that and building lots and got familiar with how you construct them and which engineering firms.

our first master plan community was about 1998. Oh wow, that's amazing. you guys learned so much in that process that is valuable to you as a company and you took those lessons and baked it in, I think that's part of what your success has been. So what was this development?

1998? It was our first MPC and it was a difficult one. It was in the city of Rawad. we built a golf course and it's still there, It's called Waterview Golf Course.

We don't like building things that are widgets. We're not just down the street doing the same thing everybody else doing. So something unique. So we built this golf course and hired famous architects it was called a public improvement district.

Where we could sell bonds. The city was reluctant to do it, they said, okay, Huffines, you take your idea. This public improvement district to the voters. And if the voters approved that and it was six and a half million dollar bond sale, then yeah, we'll invest it in the golf course with you.

Wow. So we got the voters to approve it. Big campaign. That's where we started getting involved in politics and campaigning but it's not an 18 hole golf course.

Oh, you're supposed to ask Why? Well, because it's 21 holes, so that it's different and unique. There's a three hole training course attached to it. A par three, par four, par five.

And so the kids, the high school kids or individuals could come out. Was it your idea to yeah. So you made it 21, hosted to be a little bit different and And then you built the community around it. Correct.

That's still there. Yes. Can we talk about that a little bit? How do you decide what activities you want in these communities?

Is it based on something that's been successful previously? back in the two thousands Don and I took our team and our individuals across the country touring various master plan communities, and I think I need to explain what a master plan community is. I was gonna ask you master plan community can be small or large. Most of them are fairly large, with at least a thousand homes, maybe 1500.

Our communities vary from. 1800 to 3000 or 4,000 different home sites. And, but it's a cohesiveness. You know, what is cohesive about this community?

That's what master planning is about. the streets are all planned. The architecture deed restrictions, HOA. It has a flow to it, Correct, yes.

And you can usually tell when you're in one, from the signage or the architecture, there's a gate or there's an entrance and there's boundaries you can tell when you're in it. that's what we like to construct as a master plan community. we need a certain size in order to have a certain amount of amenities. Right.

Because otherwise. The dues would be too expensive, right. To keep up with it. Yeah.

And so we try to always purchase at least 300 acres, and that would be somewhere around three houses per acre. that would be a thousand home sites. that's usually the minimum size that we try to do. Yeah.

It depends. You lose some from drainage, flood, plain drain in the streets. Yeah, Those would be about 10,000 foot lots or 8,000. What are some of your peaks as far as the communities you've done now?

Some of the, how we came up with it. Yeah. we're always on the lookout with UULI, urban Land Institute what is it that they're doing in other parts of the country. Florida's big on master plan communities as you can imagine.

That's where Seaside and celebration And then Houston has a lot of master plans. Yes. California has a lot. They're mainly in the sunshine.

States Right. where there was land. Yes. You know, new England, everything just kinda hodgepodged.

Yeah. one reason North Texas didn't have, and still doesn't have a lot of masterplan communities is because there were so many suburbs. Right. So in Houston there were not any suburbs.

It was just one city and then they would set up these districts and then they would, 'cause there's no zoning. And here had it own zoning. boundaries run into another town. So it's really one big city.

Yeah. I think the 80 to a hundred different. Municipalities in the metropolitan area. Development instead of the developer regulating its own development.

So you had to go in and just go by whatever their entitlements or the plan, the rules that they had put in place. Right, right. So you built your communities then outside of the municipalities, correct? Both.

Both. Okay. We, We built both inside the county. in the city.

In the city. When you build outside of the community, do you find that you can offer more affordable homes? Yes. And why is that?

Well, the reason I hesitate is I don't want to throw the cities under the bus, right? but cities, create cost to a developer, and all costs, are passed on to the end buyer, right? That's the homeowner, the home buyer. And so whatever the cost of developer experiences, the home builder experiences have to be baked into the product and the product's, the house, right?

So cities add, at least. 20,000 to $30,000 to the price of a home. Impact, fees, all of the things that they charge for. Right.

Even though we love our environment and we wanna protect it, environmental laws, Home Builders Association have told me that can add almost 30%. Well, the two and I'm just talking about is a developer cost. You're just talking about the developer. Right, right.

Because we build the horizontal and I think the audience needs to know that, yes, we don't build houses. You develop the land for the the builders to come in. Correct. yes, yes.

And we looked and you're like the pallet. You clear the pallet, they come in and they do the Right. Right. Build the clubhouses, the amenities.

Yes. Swimming pools or golf course or whatever it may be that attracts the builders and thus the home buyer. Because if the home buyer doesn't like what we do, then the. Builders go away Yeah, so we try to find amenities that are popular.

Of course, pickle balls super popular. pools. Oh, giant swimming pools. you were gonna ask about two of our communities and I can talk to dying to get It's over the top.

because we know that that's what consumers want, they want these activities and amenities and it's almost getting to be, isn't it like, sort of a popularity contest now you're right, candy. you know, like Hillwood, you had Fred on your show and all these other, they go do something. Ah. Okay.

We can do that better. But that's what makes capitalism so great. You know, I can build a better product, I can do this. They're doing that.

Then he says, well, Huff Finds is doing, I'm gonna do that. Gonna do better. Right. Like the whole idea about the farms kinda like living on the farm and the nature.

Yeah. And the harvest concept But we always have to evaluate what is the cost. Yeah. And how much are people gonna appreciate and appreci that.

Yeah. And so we would go monitor. Certain activities, certain things that other developers are putting in. And what we learned is a lot of it's just the sizzle, the marketing, they really don't use it, but it looks good or sounds good.

It's a good marketing tool. And you know, people want to think they're going to use it. 90% of the people say, oh, this is great fitness. January, 60% never show up.

So tell me about your star properties. we started a community that I'm really proud of, but we don't own it. We started, we bought the land in oh 6, 0 7. It's in Arlington.

It's called Veridian. And it's huge. It's like 2000 acres. 3000 home sites.

But we got caught in the recession. And it took three years to get our quote entitlements, the zoning, the master land plan changed that long. With Arlington and it's because we put a lot of acronyms on it. Okay.

You're supposed to ask what's the acronym? What is an acronym? it's everything from a municipal utility, district of mud, A pits Oh, the M turfs, the PIs, the tur. Yeah.

And all of these triple P's we call it, where you can offset the cost of the infrastructure. And offsite utilities and all the problems with the property. With government. Participation.

Participation. That's what they're really all about. I often have to Google all these when I'm writing. Like I know, what is this one?

What is this one? What is this one? Yeah. So that's why No.

So you, um, I, that is a beautiful community, by the way. You have a lot of water features there, don't you? Yes. Big lake.

property was in the flood plain. And I had experience over the years with that. You know, from the ranch. So we had to reclaim the land, move 8 million yards of.

Dirt. The edges on these inner city properties Can usually be difficult. Because they're old. It's everything that was easy to develop, developed.

And so this property had strip joints nearby? Oh yeah. Oil and gas tanks and industrial area. 'cause it was two cities, Fort Worth and Arlington's border.

It had a landfill next to it, so we had to overcome a lot of that. And I wanna brag on Viridian. last year I was at a real estate function and an individual came up to me and said, Huff Fines. I said, yeah.

He goes, do you know what the tax assessed valuation of Viridian was in 2009 and 10? Of course it was recession year. I said, no, You take the existing value and everything that goes up above that. Some of that is rebated back to pay for infrastructure in the city.

Of course, it's their taxes, right? I said, no. He said it's 8 million. And he said, you know what?

It was last year. I said, no. He said 2.1 billion.

Oh my God. So it's been very successful. DFW Business Journal said it's third, highest median, home price in. DFW so very successful.

Very proud of it. We sold it in 16 and this was a flood plane. It was, yeah. So the city really benefit everybody.

Benefits. And so we're proud of that. But recently, I'm really proud of one we're constructing right now. Okay.

And it's called Salter Salt. Yeah. And then you, you may we know. Okay.

Well, well, we can talk about I'm really proud, of the ability to overcome a lot of the negativity in the area. And for the city to participate. it's important for us to under promise and over deliver so they can call up the mayor and say, Huffines did this deal with you guys. we usually get glowing reviews.

Oh yes, That's true. So, what I mean, would you call it the star now? next. we've got quite a few years.

These MPCs can take. 10 to 15, 20 years. Salt Tara is gonna be at least 10 or 15. Savannah, finished up a few years ago on Highway three 80.

That was 20 years. And Providence was, we were focused on that traditional neighborhood design. with rear entry and smaller homes with the board. You it's much more durable than wood, actually.

Everybody can paint it the color they want. And it looks like the house that grew up in, that was your. Community, if I remember with sort of the southern field Yes. The front porch, requirement and they had But that's what makes our communities unique, unique sidewalk widths.

You know, we were some of the first to mandate five feet. Cities still had four. So we try to narrow down the roads a lot of times. Traffic slows down traffic calming.

And trees in the front yard we try to shade all of the sidewalks. Oh, wonderful. We put trees in the parkway. Mm-hmm.

We do require trees in the front yard for the builders. We have design guidelines and architectural rules for the builders architectural rules or And I think most individuals listening, having homeowners association, right. In the old days, back when the houses were built in the sixties and seventies, there weren't a lot. But now everyone has a homeowners and It keeps the, level of quality up and makes it more harmonious.

Absolutely. someone's putting in the flowers and Maintaining it. One thing an HOA does, especially, when you're not in a city, is. What I call value enhance.

Now cities call it code enforcement. Mm-hmm. Our value enhancers drive the community and it's mainly landscape violations and handing out certified letters saying You gotta mow, you gotta trim the tree and do all these things. Right.

Which makes you, definitely, not have to be the policeman and kind of takes the heat off. So that's great. So, Salter? salt is over a we bought it from the Lucas family.

Family. Okay. In Mesquite. Mesquite.

And it's very close to 6 35. Okay. Easy access. they've owned that land for a hundred years.

Wow. they finally found a developer they trusted that could really create a legacy for them. the city of Mesquite trusted us. we are in the second phase of development.

We've already built 750 home sites and we're building another 600 now. It's been very successful. the amenities I gotta tell you about, so I think, you know, we built it. the property had trees and there was one tree that I found that is just spectacular.

It was a red oak and it was 52 inches in diameter, 140, 50 years old. I said, we gotta build a tree house here. And so who knows how to build tree houses? tree House Masters on history Channel, I used to watch.

we called 'em up, they came out and built this giant tree house. In this red oak we trimmed it up improved all the grounds underneath cleaned it all up it's a beautiful park, and the tree house is probably the largest tree house in a community. And so we had a. It, it, it's, it's just spectacular.

And now when I say that, the clubhouse, it, it's just now being finished and the swimming pool is Unbelievable. Spray park for the kids swim up bar and an adult pool swim up bar. And then we've got something, no one's seen yet. It's a blob that's in the middle of the pool.

the kids can climb up and slide down and, do all kinds of activities on this blob. Oh, I've seen those at Boot Ranch. They're amazing. Oh yeah, yeah.

Down in the hill country. That's amazing. But a swim up bar that is awesome. I think most people have been to Cancun or M Mail and they all have it, so I said we gotta do it.

we're also in the. Multi-family business. We built over 2000 apartments, so we built a big swim up bar in the apartment complex It's just fun. to be creative.

It's awesome. We have so much to talk about and I don't wanna miss, I do wanna talk to you about, affordable housing because you guys are in this business this is the topic du jour of every municipality Everyone's talking about affordable housing. Our state is trying to implement some laws to get affordable housing. The cities are handing out, 75 years of tax free, bonds or, tax credits, to get more affordable housing.

What do you think about what you're an experienced? Developer, how do we get affordable housing? What makes it affordable? What can we do to ensure that it stays that way?

Well, that's a really tough question because, it's been studied over and over by various institutions and groups. I think it's really twofold. It's where's the cost? Because it's supply and demand.

If there's a big supply, then the cost or the price comes down. If there's limited supply, then the price goes up, and then there's a cost factor where you, how can you reduce the cost of the home? And so there's individuals and groups that look at, factory built homes To lower the cost. Everything you can imagine on how the construction cost of the home can come down.

From our standpoint in developing lots for builders to purchase and build a house, a lot of it's, as I mentioned earlier, is in the cost that the city places on. Not only the home builder, but the lot developer, through impact fees or other costs. most individuals when they talk about cost, forget the soft cost. every home builder, every developer, everything you see works on a profit.

And there's usually investors associated with that time. So when a city delays a permit or delays the approval process whether it's the streets water or sewer, and it sits on some bureaucrat's desk for a month or two, mm-hmm. Most individuals require 15% minimum required rate of return. Well, that cost just was passed on to the consumer.

Because there's no revenue generated until all of that gets approved and permitted in one month delay, the cost just went up one and a half percent. Wow. On a $400,000. House's.

$4,000 if the entire cost was there. But it's staggered, you know, the expenditures. I think speeding up the process, one stop permit certainly can help. Mm-hmm.

And what the state is talking about, what you just mentioned Is. What occurred back in the 1930s and twenties and forties was zoning was approved by the Supreme Court. It limits the ability for certain communities to have affordable housing. Because the city councils are controlled by people who have a, I dunno, pick a number, $800,000 house and they don't want any $400,000 houses.

so they control the city council, and those are what we call, not in my backyard, individual, their babies. Mm-hmm. the government, the legislature in Texas and the city of Dallas is trying to, pass ordinances or laws that says, well, you don't need zoning for single family. You can build it wherever you want.

the lot size can be as small as the developer wants, or the market wants it's Market driven, and it opens up a lot of land for more housing. More housing in more convenient locations. Not apartments or can be apartments. But what the cities are talking about is detached housing.

And small lots or fourplexes, duplexes. The quads. And then that lowers the cost so that it makes it more affordable. what is the bottom line of what you can build a home for today?

Wow. That's a great question. Production builders, new home builders. Have a lot of economies of scale.

Mm-hmm. same carpet all the same time. Oh, that's right. a big bulk.

And custom builders can't, lots of cost associated this room's this size is more studs. There's more this, it's all unpredictable. So we usually focus our sales with production builders. Because they know what they're doing.

They know what they can pay, and they know what they can sell the house for. And they're not out there guessing. Right. What the question, What do you think?

400. 300. maybe a hundred dollars a foot, hundred dollars a foot And so, and that's a safe home that has. Because they have warranties associated with them.

And that's the last thing a home builder wants to deal with. Exactly. So if they have a subcontractor who's not performing, they can get rid of that quick. 'cause they don't wanna deal with that warranty work.

So a hundred a foot, so that 2000 foot house Would be 200,000 just for home construction. Then you have to add landscaping. You have to add permitting cost. And then they have to buy the lot.

But it's usually about a quarter of the price of the one fourth of the price they sell the home for. a hundred thousand up to 400,000? 400 for a new home for 2000 square feet. Four Now the average price of a new home in Collin County is about five 50.

And what keeps driving that is demand. Mm-hmm. That governments place on housing. a household who makes $150,000 household income can really only afford about a 400, 4 50.

Right. That's it. A house. There is a big transfer of wealth that's occurring most people don't talk about.

As my parents and older parents, die off, you know, they leave some wealth. it may be $10,000, it may be. 10 million. But the inheritance allows the individual to borrow less so the mortgage is less so they can afford more, So if we don't get control of the affordability problem, we're gonna end up like California.

Yeah. a lot of the NIMBYs coming in. Or bringing that to the city councils, you know, where we're not gonna allow anybody else to build. And every home in California's a million dollars.

And the only way you can buy that is you're already in the game. Right? You're selling a house, taking your equity and profit and buying another house. Exactly.

just not what we want in Texas. the spirit and frontierism in Texas Exactly. Well, I hate that we're gonna have to stop, but we're gonna come back and do this again 'cause you have so much valuable information. It's amazing.

the growth of the Dallas-Fort Worth area is phenomenal. And this is important to know, everybody says, how can you live so far out and they're not far out from their job. Right, right. the tollway has more job there than downtown Dallas.

Downtown Dallas. You are. Absolutely on spot. Not only that, but we saw during Covid that people started working from home more.

That's right. And that kept 'em off the roads. I mean, they're not all driving to downtown Dallas. We have to get that out of our heads 'cause that's not what's happening.

I would love to check in with you periodically with what's happening, especially on this affordability issue. 'cause I'm a big. Believer in home ownership. I think that's the basis of the greatness of our country.

I wanna see that continue and I don't wanna take that away from these young kids. Absolutely. 'Cause then they're vested in the community. Exactly.

the proof is there that kids do better in school when they're in a single family home. the community does better. There's more voters. I'm sure your brother knows this when you run for council or for any state, they don't even bother with the apartments 'cause they don't vote.

Go to their homes, they vote, they care. transient. of course what I do is that basically the foundation of everything is the home and the dirt. Thank you so much.

And will you please come back, I'll come back anytime you invite me. Thank you. Thank you Thank you Thank you so much for. Watching us and listening to us today, and please bookmark us because we will be back with Philip again.

Thank you.