For small- and medium-sized builders, finding the land on which to build can be a major concern. Large private and public companies have access to resources and capital that’s impossible for “the little guys” to match. But just because a small or medium builder doesn’t have the same financial backing as larger competitors doesn’t mean these firms can’t find land deals that work for them.
A session at the Builders’ Show next month, called Competing with Big Builders by Developing Your Own Lots, to be held Jan. 9 from 9:30 to 10:30 a.m., will provide these types of builders with ways to get creative in finding and obtaining land. Led by Illinois attorney Richard Guerard, “Competing with Big Builders by Developing Your Own Lots” will focus on specific strategies to finance the purchase and development of land.
The No. 1 issue, he notes, is the lack of financing available to smaller companies. “The small and medium builders were crushed during the recent land depression in the recession, and a lot of their equity base is just gone so they don’t have the cash to close or the equity that is now required for a lender,” Guerard says.
To overcome this obstacle, he recommends that smaller builders take a different approach to acquiring land. He suggests working with the seller to have the builder pay as they sell the lots. “So he in a way becomes your partner or financier for part of it,” Guerard says of the seller. Another option he proposes is to work with the seller to acquire smaller pieces at a time. For instance, if there’s a 20-lot subdivision, strike a deal to purchase five lots at a time. Smaller builders can also think about banding together to finance and purchase a plot of land, he adds.
The session will explore different partnership structures that use creative financing and will highlight what banks are looking for in these transactions.
There are advantages to being small, Guerard notes. A local builder possesses local knowledge and has local relationships. “He has the ability to network on a personal basis,” says Guerard, “so whereas the big builder has to cover a region, he has the ability to build relationships. His advantage is himself.”
Plus, a smaller company doesn’t need a huge tract of land to be profitable: “Small guys can work on small land,” he says.
Bigger companies have the resources and expertise, Guerard says, but there’s also bureaucracy that comes along with being big. Those companies “often have to go through several layers of people in decision making,” he notes. “A small guy can do something in a day that takes big builders a month.”
