Take a look around Florida's southwest Duval County, an area about 20 miles outside of Jacksonville, Fla., and you'll find plenty of forest-land but nary a sign of development. That fact alone might be enough to elevate the risk/analysis equation into the red zone for many big builders considering large land deals. However, Daytona Beach, Fla.-based ICI Homes is betting the city's growth and redevelopment plans will be driving expansion beyond Jacksonville's beltway—and directly into its newly acquired territory.

On Dec. 29, 2005, ICI Villages, a limited liability company formed by ICI Homes, purchased unentitled property from Atlanta, Ga.-based RMK Timberland Group, the timberland investing arm of Regions Financial Corp., in a $58 million deal, which public records show as four separate transactions. Although those records do not disclose actual acreage, an article published on January 13, 2006, in the Jacksonville Business Journal cited 3,000 acres, a number that ICI says is wrong. “The actual size of that deal was 9,000 acres, not the 3,000 that was reported,” states an ICI source.

Neither ICI CEO Mori Hosseini or Jeff Newsome of RMK Timberland Group would confirm the strategy behind the deal or the possibility of future transactions between the companies.

Sources agree that a variety of indicators support the possibility for growth in this direction, including access to I-10 as well as the city's Southwest Jacksonville Vision Plan. “It's definitely remote,” remarks Harry Guetherman, manager of the land department for the city of Jacksonville appraiser's office. “It's almost out of our county.” But noting that the available infill land in the Jacksonville area is quickly diminishing, Guetherman is not surprised by ICI's strategy. “The majors—D.R. Horton, Lennar, and Pulte—they're all here and they are taking [big parcels] down. ICI has to go out to get an adequate amount of land.”

DEAL MAKER: Hearthstone's Jeff Barcy, who was recently appointed executive vice president and chief strategic officer, was integral in the ICI deal. ICI could be looking at two-and-a-half to three single-family units per acre or 10 to 12 multifamily units per acre under the town's current residential zoning.

Guetherman says the next step for ICI will be to go through the rezoning process for the timberland—a Development of Regional Impact (DRI)—which will have to be handled through the state of Florida with local involvement from the planning and development office, due to the size of the site. “I guarantee you, it's going to be several years before they can break ground on anything out there.”

It's the tedious nature of that process and the relative uncertainty of the outcome that has traditionally kept builders and their financial backers from actively pursuing large tracts of raw land. However, as land becomes scarcer and financing becomes more sophisticated, there will likely be more obvious efforts to bank unentitled property.

In fact, ICI's Jacksonville deal stands as the inaugural financial transaction for San Rafael, Calif.-based Hearthstone since the formation of its new investment fund, which enables large builders and developers to procure funding for unentitled land targeted for prospective residential development. The architect of Hearthstone's new “Path of Growth Fund,” CEO James Pugash confirms this deal: “We are the financial partner in that transaction.”

Hearthstone executive vice president and CFO, Mark Porath, says this latest effort to “bring institutional capital to an under-supplied market niche” means Hearthstone will raise up to $1 billion in capital this year for builders seeking unentitled land to develop neighborhoods or communities.

“Traditional banks have shied away from underwriting home building projects in regions where path of urban growth is actually more predictable,” he says. “They demand current income from builders before lending. Builders can't get funding because of perceived risks associated with unentitled land—some of which are in fact manageable. As a result, nearly every major builder in the United States wants capital to fund their Path of Growth-type developments.”

OUT OF THE LOOP: ICI's 9,000 acres sit 15 to 20 minutes from downtown Jacksonville in the southwest corner of Duval County. Jeff Barcy, Hearthstone's executive vice president and chief strategic officer, will handle all originations associated with the Fund. Prior to Hearthstone, Barcy was a director of real estate investment at Credit Suisse First Boston, handling nearly $3 billion in land financing transactions for developers throughout the Western region.

“The Path of Growth Fund's strategy will be to identify, evaluate, acquire, entitle, and develop residential land in regions that are running out of developable residential lots,” says Barcy. “We'll help obtain part or all of the approvals necessary within a two- to five-year timeframe. By bringing land to a tentative or final map stage, we'll be able to track a project through every stage of the land-planning and development process.”

ICI and Hearthstone have partnered on previous deals, including the golf course community of Amelia National, which is northeast of the Jacksonville airport. In 2004, Hearthstone committed $46.2 million in a partnership with ICI Homes and Montgomery Land Co. to acquire 847 acres of land for the 745-unit single-family and townhome development.

Jacksonville Snapshot The Jacksonville metro economy is burgeoning, fueling growth in the local housing market. Yet, while affordability concerns mount across the state, Jacksonville enjoys stable appreciation, with 51 percent of metro residents able to afford an existing median-priced home.


Learn more about markets featured in this article: Deltona, FL, Orlando, FL.