Private equity firm Encore Capital Management is in talks with its institutional investors to create a new fund to buy land and build affordable, entry-level, and senior housing for sale, according to people familiar with the matter.
The firm is seeking to raise $400 million for this fund. Its investment strategy includes buying land in bulk, which it will either develop itself or sell to other builders. It will also lend money to other developers to buy and build homes.
While private equity firms bought thousands of homes to rent out after the housing crash a decade ago, they don’t usually build and sell them. The market for construction has long been dominated by individual builders and by corporations such as Lennar Corp. and DR Horton Inc.
Those groups haven’t kept up with demand in recent years, especially for homes for first-time buyers, leading to a chronic shortage of available properties. Bidding wars and price spikes are frequent news in hot coastal markets like Seattle and Silicon Valley. The dearth of supply is also driving up home values elsewhere and making it harder for buyers to get into the market. Encore has sought to capitalize on this underserved sector.
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