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April 24, 2014

Land Rush: Builders Hurry to Acquire Lots

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Land Rush: Builders Hurry to Acquire Lots

Mounting confidence in the housing recovery has prompted more builders to expand their land and lot holdings in the past year — some by as much as 50 percent — CoStar Group reports. 

New-home inventories remain tight, and private equity firms are ready to jump in. For example, Barry Sternlicht’s Starwood Capital Group subsidiary, TRI Pointe Homes Inc., recently acquired Weyerhaeuser Real Estate Co. in a $2.7 billion transaction

"We’re building in a one fell swoop, the ninth largest homebuilder by market cap, and it will eliminate, we hope, a discount we have with the small floats that we had prior in this merger," Sternlicht says. “With almost 20,000 or two-thirds of lots located in the California market, we expect that we will enjoy the benefits of this merger for several years.” 

Last week, Toll Brothers Inc. announced it would acquire Shapell Industries Inc., a private California builder, in a $1.6 billion all-cash deal. Toll Brothers will be acquiring 5,200 home sites in most affluent coastal markets in Northern and Southern California. 

Ryland Group acquired Cornell Homes, one of Philadelphia’s largest private homebuilders, which gave Ryland 1,716 additional lots.

“Inventories of new and existing homes remain at low levels in most of our markets, and we expect the demographic drivers of household formation to result in the need for new homes for years to come,” says Larry Nicholson, CEO of Ryland. “For several years now, we have been focused on rebuilding our company to take advantage of the upturn in housing, and we continue this trend in the third quarter, ending the period with 49 percent more lots than we had in the same period a year ago.” 

Beazer has ramped up its land spending, too. It has spent $475 million on land so far this year — up about $300 million from a year ago. Homebuilder Standard Pacific plans to make land purchases this year totaling $700 million to $800 million. 

Source: “Land, Homebuilders Back in Sharp Demand by Investors,” CoStar Group (Nov. 13, 2013)

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