Big builders are walking away from land options by the millions, so it might be logical to assume that there are plenty of land deals waiting for small- to mid-sized builders.
While The Orange County Business Journal ran a story last week that reported how local builders now have land opportunities that weren't available to them 12 to 18 months ago, by and large most builders around the country don't report similar opportunities.
"In talking with a couple of mid-size builders they say the big guys are walking away from deposits, but the sellers have not come down in their expectations of the land's value," said Jim Williams, executive vice president of the Northern Virginia BIA.
"The smaller builders don't see the opportunity, even though everyone has expected the land to come down in price for the past 12 months," he explained.
"It will be interesting to see if any builders come to the next auction in early November," she said.
In the Atlanta area, Sean Doughtie, president of Mayfield Homes, said while it's true big builders are walking away from land, even if a small builder wants to buy and the developer is willing to sell smaller parcels, most local banks won't write construction loans today.
"I haven't found a bank yet that is open to setting up a lot deal right now," Doughtie said, who expects to close 43 homes this year.
"The banks want to see builders move some inventory so there's a better match between supply and demand, so I don't see credit opening up until March or April of next year," he continued.
In what may seem shocking given the recent news out of fire-weary Southern California, some builders in Orange County say this is still an excellent time for a small private company to purchase land.
"There's no question that this is a great time for a small builder to buy some parcels," said Randy Blanchard, CEO of Ranco Realty Group in Temecula, Calif.
"We're able to buy from the wounded deals," he said, adding that earlier this year his company bought two school sites totaling 22.6 acres that it intends to build 107 homes on. The homes will be 3,000 to 4,000 square feet and start at $1.2 million.
Blanchard says he paid $37.5 million for properties that Centex reportedly bid on for $58 million, though Centex bid on more lots than he did. He says it will take at least two years to process the property and doesn't expect to start building until 2010. He says the first homes will be available a year or two later.
"We're banking on a market turnaround and you can't beat Huntington Beach. It has good schools, shopping and it's about a mile from the beach," Blanchard said.
Scott Lissoy, senior vice president of Far West Industries in Santa Ana, Calif., also said there are opportunities out there for small builders. His company was able to buy a 13.9-acre school property last year in Orange County that Brookfield Homes walked away from. Initially appraised at $23 million, Far West paid $19.5 million for the land and intends to build 54 homes and a one-acre park in the months ahead. The houses will be 3,000 to 3,800 square feet and start at $900,000.
"Brookfield walked away from the land in the early summer of 2006 and we secured the basic deal with the school district later that summer," Lissoy said.
"About 18 months prior to that there would have been five public builders at the auction-now we have land sellers listening to us even though we're private because the purse strings of the public builders are shut off," he explained, adding that he tried for years to buy land in Orange County, but the publics were willing to pay more money and work on tighter margins.
Of course, Far West bought the land before the credit crunch and before the market went into a prolonged tailspin. Lissoy said Far West's sales are down 35 percent in 2007. He said he too could walk away from the deal, but he has too much invested.
"We've been in business in this market for 30 years with a clean track record in which we've never left a project incomplete. Other guys are doing this but we're not going to do it," said Lissoy.
"We know there will be a market, the first homes in this new project won't be delivered until the summer of 2008, so for now we'll build three models and roll out new homes eight at a time until the subprime and credit situation shakes out," he added.
Such is the reality for builders these days.
Doughtie of Mayfield Homes says the market is so tight right now, at least three bankers told him if he broke even this year his financial performance would be in the top 5 percent of all local builders. Right now, he has supers and laborers cutting grass and doing cleaning work on spec homes just so he can keep his people employed. He reduced his staff to nine from 16 this past summer.
"It was the hardest thing I ever had to do," Doughtie said, who added that even though small builders might eventually have some land opportunities, having the big publics pull out of the local market hurts small builders in so many ways.
First, Doughtie says the fire sales by the big publics put smaller builders at a distinct price disadvantage. And second, all the negative news hurts consumer confidence.
"I think we're at the bloodbath stage of this market," he said. "Once the heavy liquidation is over by January, the demand for houses will still be there, the market will normalize and it will allow smaller guys like us to operate," he concluded.
Learn more about markets featured in this article: Los Angeles, CA.