Meritage Homes has bought a turn-key active-adult community near Phoenix while walking away from a well-located, but raw parcel of land also near Phoenix.The moves illustrate the current land strategies of large public builders to dump or mothball raw land while scouring markets for well-positioned, less expensive finished lots that will generate more cash sooner.
The Scottsdale, Ariz.-based builder recently announced that it bought Province, a 2,200-lot active-adult development chock-full of finished amenities. Property records indicate it paid $17.5 million for 433 finished lots and 885 planned and entitled lots as well.
"Meritage has been actively pursuing opportunities to acquire finished lots in good submarkets where we believe we can offer high-quality homes at very competitive prices, providing great values to our customers," said Steven J. Hilton, Meritage chairman and CEO. "We believe the acquisition of properties like Province will help us achieve our strategic and financial goals."
The award-winning Province was originally developed by TOUSA's Engle Homes in a joint venture with Phoenix-based developer Sunbelt Holdings. Both companies fell into financial troubles, with TOUSA still in Chapter 11 bankruptcy, and the land was sold by the banks that controlled the development.
Province has 50 acres of lakes, 125 acres of parks and greenbelts, a town center with a recreation center with an indoor pool, a fitness center, an auditorium, and a cybercafé, as well as tennis, basketball, and bocce ball courts.
"It had already been developed, so all the infrastructure was in," said Brent Anderson, Meritage's vice president of investor relations. "It has a beautiful clubhouse, lots of amenities. That's the expensive stuff."
And there were strong synergies for Meritage, which has another active-adult development across the street called Lakes of Rancho El Dorado, Anderson said. The company will be building new models and re-branding the sales center immediately.
In the meantime, Meritage walked away from its options on 288 acres of raw land in Desert Ridge, just north of Phoenix's 101 beltway, losing $55 million in deposits and pre-acquisition expenses in the process.
"It was a tough one to give up because we still think it's a great location, but we couldn't come to terms with the state [which owns the land] on the development," said Anderson. "They wouldn't allow us to push [development] off as long as we needed to, so we had to give it up. At some point in the future as the market returns, it will still be a great piece of property."
The state, unlike private land owners who often have debt on their land, doesn't have the need to compromise on buying terms, said Anderson. "If it was in private hands, I think we might have been able to do that up-front."
The Arizona Business Gazette reported that Meritage was the last home builder to hold vacant land in Desert Ridge. Four other large parcels for single-family homes had also been returned to the Arizona State Land Department. It also said Meritage was the sixth developer to pull out of the huge master-planned community that began in 1993 and is also home to the Desert Ridge Marketplace retail center as well as the JW Marriott Desert Ridge Resort.
Learn more about markets featured in this article: Phoenix, AZ.