A YEAR AGO, WHEN THE BUREAU of Land Management tried to unload 1,940 acres in Henderson, Nev., just southeast of the Las Vegas strip, there were no bidders. Earlier this summer, the sentiment changed as seven major home building companies formed a consortium and paid $557 million for the land.
The big builders—KB Home, Beazer Homes, Kimball Hill Homes, Toll Brothers, Pardee Homes, Meritage Corp., and the Woodside Group—have partnered with Focus Property Group to develop and build the as-yet unnamed property, which will be neo-traditional in design with only four units per acre.
“We're currently working on processing our specific master plan through the city,” said John Ritter, CEO of Focus Property Group. “But for the sake of discussion, four to the acre is a reasonable estimate at this point.”
Twice The Appraisal The consortium paid more than twice the property's $250 million appraised value at an auction sponsored by the BLM, a price that left some of the city's highest rollers scratching their heads in wonder. Even some California builders and developers are blushing.
BLM officials say they too were a tad surprised at the bid. Ritter, however, says he believes the final figure—$287,000 or more per acre—was something of a bargain.
“It's not out of line,” he said, noting that the price reflects much more of a retail cost befitting an end user as opposed to a price paid by someone acting strictly as a developer.
“In retrospect, we think it was a pretty reasonable price given the current market conditions here,” he said.
“We paid less than $300,000 per gross acre, but land in Las Vegas is running $500,000 to $600,000 an acre for a ‘super pad type parcel.' It may be more than what they are paying in California's Inland Empire, but not for Southern California,” says Ritter. “They're paying $1 million to $3 million an acre there in some places.”
“Housing costs here have accelerated dramatically over the past couple of years, but I expect appreciation to plateau rather than continue,” he said, noting that the group used current prices to formulate its winning bid.
According to Ritter, the median price in Las Vegas area master planned communities is only slightly higher than the median for all new homes in the valley, which in May was just more than $281,000, according to Home Builders Research, which maintains a database of recorded home sales in the Vegas area.
Mandate Dropped BLM's initial attempt at auctioning the property failed, largely because the City of Henderson had made it known it would require builders to offer a number of houses at affordable prices in order to obtain permits. That stipulation was not a part of the sale. But potential buyers balked anyway, knowing that inclusionary zoning would eventually be an issue.
This time around, though, the city somewhat begrudgingly dropped the affordable housing restrictions, leaving the Focus Group team to fight off bids by Pulte Homes that at times were increasing at $100,000 increments, according to news accounts. The property is adjacent to Anthem, a community being built and developed by Pulte's Del Webb division.
KB Home, the largest player in the consortium, will get roughly 940 acres, about a year's supply of land for the Los Angles-based company's Vegas operation, according to company officials.
Toll Brothers, which entered the market in 1997 and built 1,200 houses in the area last year, has 213 acres. “We are excited,” said Toll senior vice president Richard Hartman. “Attractive sites in Las Vegas are becoming more difficult to acquire, and we believe this is one of the best.”
Toll plans to offer the full array of products it builds in the valley at the new community, including models targeted to empty-nesters as well as move-up families.
No More Middleman This buy-up was the third time Ritter's company has purchased land at a BLM auction, a process that has been lauded by the Department of the Interior as a national model for disposing of public land.
In November 2002, he acquired nearly 1,000 acres in the southwest valley, which is now part of the 3,000-acre Mountain's Edge. And in June of last year, Ritter landed 485 acres, which is now part of the 1,200-acre Providence in the northwest valley.
Mountain's Edge will hold 12,500 units in 71 single-family and multifamily subdivisions with an overall density of six units per acre, about a 50 percent greater house-to-land ratio than at the new Henderson property. Providence will contain 8,000 units in 36 subdivisions with an estimated blended density of seven units to the acre.
In previous auctions, the developer acted on his own. This time, Ritter called on builders he had been doing business with for the past 10 to 15 years to act as his partners.
“It was a mutual thing,” he explains. “We began to recognize a couple of years ago that because of the limited supply of land here and the strong demand, pretty soon there would be no room for a middleman to hold onto the ground for five years while you secure the necessary entitlements and improve the land before you sell it off.
City Land BLM often sells surplus public land at auctions throughout the West. But in the Las Vegas valley, where the federal government controls almost 70 percent of the undeveloped property, the Southern Nevada Public Land Management Act allows the agency to dispose of land it cares for—if the land is within specific city limits—so it can concentrate its resources on open space, national parks, and other protected land.
Under the 1998 law, 5 percent of the revenue derived from land sales in southern Nevada is earmarked for the state's general education fund and 10 percent goes to the water authority.
To date, according to BLM spokesperson Kirsten Cannon, 17 auctions have resulted in the sale of nearly 8,000 acres for a total of $1.4 billion, of which $35 million went to the education fund and $65 million to the water authority. The remainder of the profits has gone to funding capital improvements at national, state, and local parks.
In the most recent auction, a total of 2,532 acres (including the 1,940 acres purchased by the big builder consortium) in 71 different parcels was sold for a total of $707.2 million. Most of the land was sold in 1.25-, 2.5-, and 5-acre increments, according to local newspaper accounts and BLM.
The most expensive piece, a 5-acre tract at the corner of Lake Mead Boulevard and Rock Springs Drive, brought in about $5.4 million, which is more than $1 million an acre.