David Weekley Homes is halfway towards raising $25 million through an investment fund it created earlier this month with Houston-based land developer Midway Companies to acquire distressed lots in several of the 15 markets where Weekley operates.

The Midway Strategic Real Estate Fund would aggregate the capital for Midway to purchase lots in finished or partially finished subdivisions, on which David Weekley Homes could start building within 120 days of the purchase. The builder and developer hope to acquire enough lots for 700 houses to 1,000 houses through this fund. (This money would not be used to finance vertical construction.)

If this effort proves successful, David Weekley Homes might create other, larger funds. “This is our first attempt at raising [non-bank] outside financing in our 33 years, and we are walking before we run,” David Weekley, the builder’s chairman, told BUILDER in an interview last Friday.

Weekley says he was in New York a year ago, talking with hedge fund and private equity executives about raising money to purchase land from distressed owners that might include other builders, lenders and special servicers.

However, he found those investors were more interested in larger land deals—$10 million or higher—than in which he wanted to get his company involved.

Around the same time, Midway was thinking about creating its first land-purchasing fund. “One of our advisory council members suggested that we talk with Weekley, which he had heard was trying to do the same thing,” recalls Gary Campbell, Midway’s vice president-capital markets. It took the two companies six months to finalize the terms of their partnership, and another six months “to figure out how we would pay for it,” says Campbell.

The builder has bought land from Midway for many years, says Weekley, “and we’ve found them to be good developers.” Midway, which started in 1968, currently has commercial and residential projects in 22 states and Mexico, according to its Web site. These include CityCenter, a 37-acre mixed-use development in Houston with 250 lofts, 35 brownstones, and a 244-room hotel with 22 condos. Midway has also developed master-planned communities such as the 1,000-acre Spring Trails; and multifamily projects such as Harbor Walk, with 300 garden apartments.

Campbell says what also attracted Weekley to Midway is the developer’s expertise with “fund-like” limited partnerships—it has more than 30, and a network of 100 investors—and managing investors’ interests.

David Weekley Homes and Midway each is investing $625,000 into their fund, or 2.5% of the total they are attempting to raise. The rest will come from “friends and family of both brands,” says Campbell, noting that the fund is targeting “high-net-worth individuals” as investors.

It’s a five-year fund with two 18-month expansions. But Midway wants to be in and out in three years, and Campbell expects the money raised from the fund to be fully allocated within the next 12 months to 18 months.

Campbell says that Midway is looking for land from Colorado to the East Coast. He’s already found potential deals in the Carolinas, Dallas-Fort Worth and Jacksonville. Midway is leaning towards lots in “fully turn-key subdivisions” that require minimal additional development.

Some of the lots that Midway is looking at now are being offered for between 40% and 60% of their asking price a year ago. However, Weekley says it’s still hard to find land where “the bid and ask come together.”

Weekley also attributes the dearth of land bargains to builders themselves, who he says “are ambivalent” about committing to property. “The market is not back strong yet, but we all fear we’re going to be lot-constrained” if business turns around, he says.

John Caulfield is senior editor for BUILDER magazine.

Learn more about markets featured in this article: Houston, TX, Dallas, TX.