The land market heats up as builders look to replenish lot pipelines at a lower cost basis.
The newly minted Trumark Homes usually has plenty of company when it comes time to bid on land to grow this three-month-old California-based home builder, said Trumark principal Michael Maples.
“We are finding a lot more competition from everything from public builders to private funds,” said Maples. “And a lot of prices are being thrown around, and who knows what they are going for.”
Luckily, Trumark already had a contract to buy its most recent piece of land, 11 acres with room for 68 to 72 single-family detached homes, in the Lake Forest area of California's South Orange County. Trumark paid $4.8 million for the parcel, less than it had contracted to pay for the land in 2010. The owners, The Whisler Family Trust and Silver Oak Investors, dropped the price to close the deal earlier.
“We were fortunate to find a site in a constrained market where we could deliver homes at a compelling value,” Maples said of the deal.
After shedding what high-cost land they could and mothballing what they couldn't, some builders are finding themselves in need of new land, reset at lower prices and in the right places, to keep what's left of their home building machines going.
“We are definitely seeing a lot more land transactions and really a lot more land for sale,” said John Burns, CEO of John Burns Real Estate Consulting. “K. Hovnanian, D.R. Horton, Meritage, Richmond American are bidding aggressively on land because they are out of good land in their markets. It's the land bidding wars all over again, but I will say the high bidder is paying $0.30 on the dollar of what somebody paid at the top of the market.”
Tom Tait, a principal with Phoenix-based brokerage Land Group, said he's seen the land market in Arizona do a 180 of late. “It's like somebody flipped the switch,” he said.
During the winter and spring, business was slower with a bunch of investor types doing deals here and there, but “you couldn't do a builder deal at a builder price,” he said. But something changed in June, and since then, all the bigs are back in the market in a big way.
Meritage Homes CEO Steve Hilton mentioned it during the company's quarterly conference call. “There are seven to eight public builder competitors competing for finished lots,” said Hilton. “There is no question that public builders are back buying lots again. A lot of transactions have not closed yet, but I do see the land departments of our competitors being pretty active.”
Toll Brothers is even looking to hire land buyers, recently advertising for a land acquisition manager.
“Some of them will buy land to break even [on the home sales] even if none of them will admit it, because a lot of them can build twice as many homes without having to add any more people,” Burns said. “It's either that or leave the market.” —Teresa Burney and Sarah Yaussi
Learn more about markets featured in this article: Los Angeles, CA.