A partnership between Suncal and The Roanoke Group, a private real estate investment company, has bought 734 former Kimball Hill Homes lots in Chicago and Northern California out of bankruptcy for $8.3 million, Suncal announced.
The deal included 552 lots, most of them finished, in seven separate projects in the Chicago area. Another 182 finished lots and four model homes in a Stockton, Calif., community called Cornerstone were also part of the purchase.
Peter Kyte, principal with The Roanoke Group, said the deal was a long time coming. “For a year we were sitting by the sidelines trying to get deals lined up,” Kyte said. He said that banks were reluctant to sell for prices that made sense to Roanoke, which develops property as well as invests, though the Kimball Hill land will be managed by Suncal.
Kyte said the company is looking for more partnerships, including providing vertical financing, mezzanine debt, equity financing, and senior debt for land buyers and developers.
“The Suncal deal is a good example,” Kyte said. “They brought us the deal, and we partnered with them. We are relying on their expertise on the management side to source future deals.”
One problem that has hampered Roanoke’s investment in land is competition from well-capitalized public builders who, because they are end-users for the land, don’t need to achieve the same rate of returns on their investments, said Kyte.
Now that Roanoke has closed the Kimball Hill deal, Kyte is hopeful that more will follow. “I think it's an opportunity for us--now that we’ve actually closed on a couple of deals--to not only meet with brokers, but also developers and potentially some private builders that ... have weathered the storm” and are interested in financing help, he said.
The latest Kimball Hill purchase was Suncal’s second major buy from the shuttered builder. Last November, in partnership with D.E. Shaw, it bought 1,073 home lots in 11 Las Vegas communities for $20 million from the same Kimball Hill portfolio of assets. Suncal also bought a number of lots in Vegas from the Landsource bankruptcy last year, giving the company a total of about 1,700 lots in Vegas.
“We have actually since sold out of them all,” said Casey Tischer, vice president of land acquisition for Suncal. “We did quite well on it actually.”
Ryland, Lennar, and KB Home were among the lot buyers, he said. Interestingly, Lennar, which has a financial interest in LandSource, ended up purchasing most of the Las Vegas LandSource lots “for well above our purchase price,” he said. “There has been a notable turn in the market.”
Tischer is hoping Suncal's investment in Chicago lots turns out as well as the Las Vegas portfolios have, but he’s not expecting that market to be as robust. Chicago has been less of a popular market for builders re-investing in land.
“We are not really looking for enormous growth here,” Tischer said. “Organic growth alone will drive new home building there.” But the lots were bought low enough for Suncal to make a profit even at slower absorption rates.
“Effectively what we need to be successful is some return to normalcy” in the market, he said. “Chicago is several quarters behind the recovery in the Southwest (markets). It’s behind Florida.”
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.