Land investors are slowly returning to the market. But despite a plethora of available finished lots in many metros, deals so far have been scarce and small, with many delayed by economic uncertainty and its impact on future asset values.

“We have several proposals out there, but nothing’s closed yet,” says Larry Taylor, a partner with Taylor-Duncan Interests in Dallas, which earlier this month formed a joint venture called TD Star Land with Starwood Land Ventures. That venture is looking for land acquisition and development opportunities in the Dallas-Fort Worth market, where there are more than 90,000 vacant finished home sites. Taylor—who has been buying and selling land for two decades and saw all this turmoil before in the late 1980s when he acquired real estate from troubled savings and loans through the FDIC and the Resolution Trust Corp.—tells BUILDER that $75 million has been committed to the first tranche of this venture, which has eight years to place that money into the market.

Similarly, last month the Scottsdale, Ariz.-based investment firm Laguna Pacific announced its intention to spend $94 million over the next 12 to 18 months to acquire finished lots in California, Arizona and Nevada. In February, Laguna Pacific formed a joint venture called The Southwest Land Opportunity Fund, 80% of whose capital comes from a Europe-based investment bank. Laguna Pacific is focusing on buying properties that would cost between $2 million and $20 million, and have been zoned and entitled for either multifamily or assisted living development, according to Paul Charles, the firm’s vice president of site acquisition and development. “We are in heavy due diligence on a couple of deals now,” he said in an email to BUILDER yesterday.

Laguna Pacific is targeting properties that can throw off an internal rate of return of at least 18%. But Charles expects his company will need to hold onto this land for three to seven years. Taylor says his venture—which will buy land in a market that didn’t experience anywhere near the same housing bubble as the rest of the country—will probably need to retain the land it purchases for “a minimum” of two to three years.

The challenge when making long-term investments is that it’s still a mystery whether prices have bottomed or how long the market will take to recover. Consequently, there continues to be relatively little acquisition activity. And when there’s not much trading going on “it’s hard to figure valuations,” says Mike Forsum, president of Starwood Land’s Newport Beach, Calif.-based West region. “What we’re seeing are more and more little [land] transactions, which are giving visibility to what land is worth. But the process has taken a lot longer than we thought it would.”

Forsum says that a “delta” still separates what investors and landowners think assets are worth. (The New York Times recently quoted economists at Goldman Sachs who estimate that banks were continuing to value their mortgage portfolios at close to 91 cents on the dollar.) But Forsum is encouraged that there’s more dialogue about distressed land between buyers and sellers “than there was before.”

There are several explanations for this. While banks aren’t dumping land assets yet, they are being pressured by regulators “who want to see performance on these properties,” says Taylor.

Second, the sheer magnitude of vacant lots in many metro markets—Atlanta, for example, is saddled with an eight-year supply of finished vacant lots—is motivating sellers to find willing buyers. Charles says that some of the deals coming to Laguna Pacific are being offered at “50 cents on the infrastructure dollar and zero for the land itself," which is zoned at three to four lots to the acre.

The big question mark is how aggressively builders will jump back into the land market, and when they will do so. Lennar framed its recent $15 million purchase of 230 home sites in Cary, N.C., as evidence of its commitment to its Stonewater master planned community there. And Pulte's officers presented their company's merger with Centex, in part, as giving Pulte access to finished lots in Texas and the Carolinas.

But Forsum—whose company purchased 250 lots from D.R. Horton last fall through a joint venture—expects more builders, going forward, to move away from carrying huge land portfolios and choose instead to take down land from developers “to manage their risk. They’ve seen how land [ownership] can eviscerate their businesses.” In that vein, Charles says Laguna Pacific would be open to a land joint venture with builders.

How many builders will be around to buy land on which to build, though, is anyone’s guess. Taylor predicts that over the next 12 months many builders “will stick up the white flag” and close their doors. If that happens, even more land could go back onto the market, which would further complicate the pricing and timing of acquisitions.

John Caulfield is senior editor at BUILDER magazine.

Learn more about markets featured in this article: Dallas, TX, Phoenix, AZ, Los Angeles, CA.