Starting this week, there'll be a new distress player on the residential beat. Florida-based real estate developer The Kolter Group is partnering with an affiliate of global investment firm Och-Ziff Capital Management Group to buy $1 billion in residential assets throughout the Southeast. The companies plan to officially announced the joint venture today.
Kolter management said acquisition targets will run the gamut from raw land to finished units, as well as equity and debt interests in residential communities.
With access to deeper pockets, Kolter will be able to grow its portfolio of businesses--particularly its home building and land development subsidiaries, Kolter Homes and Kolter Land Partners (KLP). Currently, Kolter Homes' footprint is limited to Florida, but plans have been laid to expand outside the state, just as KLP has begun to do. In addition to its existing projects in Florida, KLP has its proverbial feet on the ground in the Carolinas and Georgia. While the company has yet to ink a deal outside Florida, management has been doing the math on a number of potential acquisitions.
To date, most investment funds of this ilk have been unsuccessful in sealing deals, as the spread between bid and ask prices on land and related debt have been too wide. However, Kolter chief investment officer Howard Erbstein told Big Builder in an e-mail that he expected that could change in the back half of the year, as builders and developers find their window to collect tax refunds against back profits closing.
"Given the two-year, look-back period, we expect late 2008 to see carry-back-motivated selling as builders seek to achieve rebates on taxes paid in 2006, the last solidly profitable year for most home builders," he wrote. "Carry-back selling may continue in 2009, but we expect that 1Q2009 will be the last quarter to see any significant activity because of the losses most builders incurred from 2Q2007 on."
It's a familiar move to the Kolter team. Last year, as M/I Homes worked to sell off raw land and more than 3,700 lots across Florida, North Carolina, and Washington, D.C., before year-end, Kotler picked up a considerable chunk of the Ohio-based public builder's Florida assets.
To date, Kolter's real estate project portfolio has a sales value of more than $9 billion. Roughly $5 billion of that total is concentrated in residential projects, which account for more than 10,000 housing units. Management expects single-family communities will generate 85% of the revenues from residential projects.