(Updated on May 5, 2010)
As the housing industry comes out of its recession, the big public companies have begun amassing land again at a frenzied pace.
Without question, as land prices have come down, more builders are pursuing land deals, some with a vengeance. In the first quarter of its latest fiscal year, Lennar spent $154 million to acquire 3,300 homesites. During the three months ended March 31, Standard Pacific spent $50.8 million on land, versus only $3.7 million in the same quarter in 2009. A few days ago, the Irvine, Calif.-based StanPac purchased 63 lakefront lots in the Rough Hollow community in West Austin, Texas, where it intends to build 2,200- to 3,200-square-foot homes.
“We would have done these deals in 2009, but land opportunities weren’t available,” Scott Stowell, StanPac’s COO, told BUILDER earlier this week. “Now, the curve is shifting towards us; land is breaking loose, finally, and we’re seeing more deals.” The builder expects to spend up to $400 million on land this year.
Also in Texas, Toll Brothers—which already sells out of 10 communities in Dallas-Fort Worth—last week picked up 171 homesites in The Reserve at Colleyville master plan. The Dallas Morning News reported that this was one of Toll’s largest land purchases in 15 years. Since November, Toll has spent over $100 million for 3,000 homesites nationwide.
Builders certainly aren’t alone in their pursuit of land for residential development, either. On Thursday, Forestar Land Partners, a venture joining the owners of the land investment company Foremost Communities and an affiliate of Starwood Capital Group Global, announced it has acquired 422 lots in the New Model Colony master planned community in Ontario, Calif., where Forestar will work with existing land owners to develop infrastructure in order to begin construction of new homes.
In fact, you can’t pick up the newspaper or turn on the TV or radio without reading or hearing about what Gregor Watson, a partner with the California-based real estate fund McKinley Partners, calls “the absolute land rush” among home builders. The Wall Street Journal last week homed in on Pulte, which paid a measly $5.7 million to an investor group to buy 88 lots for a new community in Gilbert, Ariz., it will call Lyons Gate. Dustin Bogue, a partner with Union Community Partners, a real estate development and management firm based in San Jose, Calif., told BUILDER that Pulte also recently picked up a $26 million land deal in the Bay Area.
However, the one builder whose lot accumulation seems to be attracting the most attention is D.R. Horton. Other builders and developers, over the past several weeks, have singled out Horton to this reporter as the builder that has been most active on the land front in certain markets. “I’ve noticed it, and I really can’t figure out what they’re doing because no one really knows yet what the impact of the tax credit going away is going to have on buyer demand,” says Homer Williams, a principal with Williams & Dane Development in Portland, Ore.
Horton officials did not return calls from BUILDER requesting comment about their company’s land strategy. And competitors’ perceptions about the builder’s land-buying propensity weren’t borne out in its quarterly financial statement, which it released on Friday morning. In the three months ended March 31, the value of lots Horton had under development, held for development or controlled, stood at $3.76 billion, only around 3% higher than the value in the same period ended Sept. 30, 2009.
That doesn’t necessarily mean, though, that competitors are wrong about Horton’s ultimate land goals. Horton certainly has the financial wherewithal to be a player on any land deal that suits its fancy. Through the first six months of its latest fiscal year, Horton reported that its operating activities threw off nearly $428 million in net cash, which was due “primarily” to the sizable federal tax refunds the builder has received for past losses. And its CEO, Don Tomnitz, told investors last November that the company wanted to add as many as 10 new communities to each of its markets over the following 15 months.
Horton has 88,500 lots under its control, but only $8.7 million in net deposits. In their conference call with investors, Horton officials explained that their company has done more land option deals than any other public builder, and has been negotiating lot takedowns at more favorable terms than its competitors because it can more quickly turn those lots into homes to sell. (The company took down $200 million in land options in the quarter, most of it for finished lots.)
Indeed, Horton’s inventory bet that the federal homeowner tax credit, which expired on April 30, would stimulate sales paid off. During its latest quarter the builder’s closings jumped 19% to 4,260 homes and it sold 103% of its backlog. Horton is also hoping for some post-tax credit momentum in buyer demand, as it still had 2,153 unsold spec homes available across the 28 states in which it operates, according to its listing of “Quick Move-In” houses posted on its website. Its greatest exposure is in Texas, where it has 609 unsold specs. In Dallas-Fort Worth alone, 188 of the 271 spec homes it offered were unsold (the rest either have sales pending or are sold). Conversely, in Las Vegas, the builder has only 76 unsold specs left out of the 244 it offered.
John Caulfield is senior editor for BUILDER magazine. Senior Editor Teresa Burney provided reporting for this article.