Sumitomo Corners Key Carolinas Lot Pipeline with New Developer Deal

Taking a long view of growth, revenue diversification, and business expectations--not only for its Dan Ryan Builders MidAtlantic power builder, but as a gate-keeper through which other builders and multifamily developers who want access to finished, developed lots in the red-hot western Carolinas market must pass--Sumitomo Forestry America acquired 60% ownership of a strategically critical South Carolina beachhead, land developer Mark III Properties, based in Spartanburg.

The deal, finalized in mid-August, follows closely on the heels of Sumitomo's $370 million (plus payment of $380 million in debt) acquisition of the much larger, multi-state residential and mixed-use land development assets of Crescent Communities, which also does business in South Carolina's Spartanburg-Greenville-Anderson market. This tri-city area, some 75 miles west of Charlotte, N.C. on I-85, is considered among many big builders--especially ones who're intent on tapping into a growing vein of entry-level and lower-priced tier home buyers--to be a critical pin on their operational maps.

On the face of it, the transaction achieves a "win-win" outcome for sellers and buyers. Sellers get immediate access to big-time capital from Sumitomo, who's got an aggressive strategy to be a 5,000 a year, top 20 home building portfolio of operators in the U.S., and an opportunity to pay down debt and "take chips off the table," as risk intensifies in an aging recovery. At the same time, the buyers--Sumitomo--get a compelling foothold for both single- and multifamily development in a market viewed by many in real estate to be an almost sure bet for land demand, even as the housing market enters a narrower fairway of opportunity.

Especially in a stretch of the housing cycle expected to focus heavily on price, operational excellence, fundamental demand, and a structurally resilient regional economy, lots and land in the right place at the right timing is a non-negotiable for builders who want access to an entry-level marketplace that has shown no visible signs of slowing down despite murkier optics on the geopolitical, global trade, and national political stage. By dint of sheer economic growth, demand among lower-end households for homeownership options looks to be only gathering strength.

All of which hold true in the mid-Atlantic's Carolinas marketplaces, where it's still possible to build both affordably and profitably providing an operator can execute at a high-level of velocity and rhythm--keeping trades, lot inventory take-downs, construction cycles, costs, and procurement flows smoothed and mistake-free.

Mark III Properties, a two-generation, family-run residential single- , multifamily, and light commercial developer in Spartanburg, has distinguished itself in its 44-plus years as a land developer as a trusted-partner for both land sellers and builder buyers. Mark III principal and founder John Beeson, whose son Jay and daughter Laura [Beeson Henthorn] serve respectively as vp of Operations and vp of Administration at the company, worked with San Francisco-based Builder Advisor Group on the deal.

According to a press statement, builders and multifamily developers in the Tri-City area get from 25% to 30% of their lots and land tracts in the markets from Mark III.

"At least a quarter of all new homes in the GSA area are built on Mark III lots. Last year the company sold over 1100 [1,153] lots to top tier local, regional, and national home builders with over $50 million [$57 million] in sales. They expect continued growth and production this year. Spanning various stages of development from raw land under contract to completed neighborhoods with only a few lots remaining, Mark III has nearly 80 independent projects currently on its books."

On a more macro level, the broader builder-developer relationship and business model may be evolving from a longstanding boom-and-bust, grow and retrench cyclical template. Instead, a more resilient, product-and-service-development-like, vertical construction strategic platform might offload and relocate costs and waste associated with cyclical spikes and turns from builders' operations and balance sheets, especially as they learn to make better money buying land on almost a retail level, but for nearly wholesale price discounts, like NVR.

D.R. Horton, with its Forestar venture, and North American Sekisui House, which has also acquired U.S. home builders, and Lennar, with its Five Point Communities development entity, seem to be mapping to a cycle-resilient, land-light operational strategy, while securing first-dibs access to developed lots where economics and demand is strong.

This strategy not only secures a visible pipeline of developed and develop-able homesites, but it can also work to box out competitors, and make a premium in profitability on the sale of such lots to companies who run short of them in still-torrid housing markets.

For Sumitomo and Mark III, a third synergistic and logical opportunity area lies in a multi-spoked connection--today and in the future--among those two entities and two other Sumitomo franchises, the Crescent Communities empire and Dan Ryan Builders, which is taking on responsibility and strategy for Crescent's Fielding Homes unit, which has been a player since 2016 in the Charlotte, N.C. market.

"We've been in the process of doing a deal with two sellers for 750 lots in the Boiling Springs market, and this infusion and Sumitomo's support--with both the builders demand and the capital--are going to enable us to make this deal work," says Laura Beeson Henthorn. "We're really excited about the possibilities, because our market is red hot and not stopping."