Success in financing master-planned communities (MPCs) has always required a mix of creative strategies and approaches as well as a responsiveness to market conditions. Changes in sizes of communities, popular amenities, and remote work capabilities, as well as the costs of launching projects have required interested parties to remain nimble and adaptive to current market demands.
Jocelyn Ansley, principal at Caravel Ventures; Mike Moser, CEO of Starwood Land; and Adam Lorry, managing principal at Landeavor, will join Zonda senior managing principal Tim Sullivan in a panel discussion during The Latest in Land & Capital session at Future Place from Zonda, Oct. 9 to 11, in Tampa, Florida, to discuss the future of financing MPCs, trends, and elements of the valuation and disposition of the largest projects in the country. BUILDER spoke with the three panelists to get a sense of the state of financing in the master plan space.
BUILDER: What shifts have you seen in the master plan space during your career? In recent years?
Ansley: I would say primarily the reliance on public financing to complete capital stacks, along with builders contributing more capital to projects. This is all primarily a function of the continued rise of land and construction costs whereby traditional senior debt and developer equity is not always sufficient to round out capital stacks.
Lorry: The costs of launching a new master plan have increased exponentially. This is a function of high land costs, high regulatory burdens, and usually very large upfront off-site road and utility requirements—due to lack of available capacity from municipalities not keeping up with growth.
Moser: From golf courses as amenities to now the large crystal lagoons, with agrihood projects leading some areas. [There] seems to be fewer master plans in Florida than there were in the past, but Texas keeps producing interesting MPCs.
BUILDER: Have any shifts since the pandemic proved fleeting or longer-lasting?
Ansley: I think we are already seeing that many of the pandemic-induced social norms are changing and the ways in which people live, work, and play continue to evolve. From a finance standpoint, given the strong demand for housing since 2020, which has put upward pressure on prices, operators have had to sharpen their pencils, so to speak, on how they are capitalizing deals. That’s where companies, such as Caravel, have been able to opportunistically deploy capital into high-quality housing communities.
Lorry: The pandemic accelerated a work-from-home movement that persists today. This has put more emphasis on space and functionality, which in turn has increased demand in more remote locations where affordability can be achieved.
Moser: Suburban, well-amenitized, or themed MPCs in inferior locations have benefited from pandemic work-from-home [shifts], which is going to last in certain industries. [This trend will make] MPC developments that much more viable, especially if you can deliver shopping and retail [in the community].
BUILDER: Are there any emerging trends in the debt and equity space of financing?
Lorry: Debt is still very hard to come by for MPCs. In the past few months, equity interest is returning to the market as the strength of housing has persisted despite the high interest rate environment.
Moser: Debt is very expensive and hard to find, and many private equity firms have pulled back from the land space. Many build-to-rent investors have disappeared as well.
Ansley: We are certainly seeing many more builders developing lots for their own benefit, which increases the need for off-balance-sheet finance options. Separately, there are many more private capital sources, including Caravel, providing debt solutions as traditional debt sources have contracted.
BUILDER: What are your expectations for the future of financing MPCs?
Ansley: Housing has fared positively in recent years, which has made it an attractive real estate investment proposition; however, this will not always be the case. Therefore, having financial stakeholders that are aligned in their expectations is critical for the ultimate success of MPCs over their life spans.
Moser: I don’t think financing has ever been easy, nor do I see it getting any easier tomorrow than it is today. Debt markets remain very tight, and costs of capital are often in the low- to mid-teens, which is OK in hot markets but not when things slow down.
Lorry: I think MPCs will continue to be a niche investment with a limited universe of equity investors and an even more limited universe of debt investors.
BUILDER: What can attendees expect to take away from the conversation during your panel at Future Place?
Moser: I hope they will understand a bit better the typical ways of financing an MPC, along with [how] the execution of the developments is changing rapidly. Many builders are seeking asset-light business models that can be very profitable, yet risky.
Ansley: Knowing the moderator, Tim Sullivan is sure to throw the panel a couple of curve balls and interject some speed-round questioning, which should hopefully be entertaining and engaging for the audience.
Hear more from the panelists at Future Place in Tampa.