SOME DREAMS DIE HARD. PRODUCTION building executives who flew in for the BIG BUILDER '05 conference in November quite understandably may have zoned involuntarily into fantasy-land at the sight of endless acres of open space surrounding the sprawl of Las Vegas. All that vacant ground gets one to salivating, visions of one's company's product filling massive swaths of the wide-open territory.

But as the plane touches down, alas, reality strikes: The federal government owns most of that ground. Welcome to Vegas. Land is plentiful—and unavailable.

EYES ON THE PRIZE: San Diego is one city that has attracted the attention of builders contemplating an infill acquisition play.

In places like Las Vegas, big builders—many of whom are seeking any and all ways to keep up their 20-percent annual growth rates—want in on infill. But because it's a whole different business, as anyone familiar with it will warn, acquisitions and joint ventures with infill niche players become all the more attractive.

Builders who've ramped up on infill already may prove to be the geniuses of the lot. Not only is land increasingly hard to find in many places, home buying and demographic trends point directly at infill. Chris Nelson, director of urban affairs and planning at the Metropolitan Institute at Virginia Tech, cites surveys conducted by the National Association of Realtors that indicate that a good third of empty nesters, the fastest growing market segment, “don't want the yard anymore. They want access to restaurants, shops, and the like.” Further, he notes, AARP surveys show that 71 percent of its members want transit accessibility as an option. Anecdotally, Miller also guesses that about 20 percent of his graduating students will gravitate to urban centers, a contrast to 1970s trends, when most graduates got married and headed straight to the suburbs. The result: “My estimate is that a third of the housing demand over the next 10 years would be for infill locations in central cities and first and second tier suburbs around them,” says Miller.

EYES ON THE PRIZE: San Diego is one city that has attracted the attention of builders contemplating an infill acquisition play.

DIVING IN Because infill is a business that draws on such different skill sets and competencies, many big builders are on the prowl, seeking out expertise. William Friedman, CEO of Tarragon Corp., a public company that builds towers in Florida and the Northeast, sees interest reaching a boiling point on the home builder side. In his patented flair for understatement, he calls it “lusting after my turf.”

Jody Kahn Kline, senior market analyst at Michael P. Kahn and Associates, has worked with two potential buyers interested in infill during the past 12 months. “The jury is still out” on the deals, she says. Many of these companies operate under the radar, and don't show up on lists such as the Builder 200, Kline observes. (For a listing of a few acquisition candidates, see “The Apple of Their Eyes,” page 30.)

URBAN LUXURY: Standard Pacific took its infill skills to Playa Vista on the west side of Los Angeles and put up Chatelaine, a 45-unit luxury project completed in August.

Infill acquisitions and JVs are nothing new. In 2003, Toll Brothers bought The Manhattan Building Company, which operated primarily in Hoboken and Jersey City, N.J., and turned it into its own division, christened City Living. That division now is pumping out a steady stream of product. Currently under construction are 700 Grove, a 700-unit project across the river from Manhattan, the 800-unit Maxwell Place (also on the Hudson), and Hudson Tea, a conversion project on the Hoboken waterfront, previously home to Lipton Tea Co.

Even before Toll Brother's acquisition, Centex made a pioneering infill play, purchasing City-Homes, an upscale urban town home builder in Dallas, in 2001. More recently, last February WCI bought Renaissance Housing Corp., a Reston, Va.-based luxury builder with tower capabilities. And on the startup side, KB Home launched KB Urban in late October. President Jeffrey Gault says his goal is for his division to represent 10 percent of KB's business in five years, with a focus on organic growth, although he didn't rule out acquisition. Earlier in the year, John Laing Homes launched an urban division as well, assembling a group of talent from both the commercial and homebuilding businesses.

SELL OUT: Standard Pacific sold the 99 units in Carabela, which was completed in September and is part of Playa Vista, for between $400,000 and $800,000.

WHERE IN IS ON For infill acquisition activity, keep your eye on the following markets and regions, say acquisition mavens: South Florida, California, Chicago, the Northeast (New York/New Jersey and Washington, DC), and, yes, Las Vegas, where land prices go as high as $1 million an acre. New infill entry Silver-Stone Communities expects to be “a $1 billion company” by 2007, according to Jim Pugash, chairman and CEO of Hearthstone, which launched Silver-Stone in 2004. SilverStone expects to open two new divisions by year end and another two in 2006. Among those new divisions: Chicago and South Florida. “We're also going to look at the Northeast,” he says, citing New York and Washington, D.C., as possible markets for expansion.

“I don't think the big builders, in order to get the kind of growth they're looking for, have any choice but to get into infill projects,” says Michael Kahn. “To get that kind of growth, they're probably going to have to do some acquisitions.”

Learn more about markets featured in this article: Los Angeles, CA, Las Vegas, NV.