This is simply not so. Major home builders are really nothing more than land developers. It takes a number of years to move a large rural ungraded parcel through environmental, planning, grading, street improvement, etc and into finished lots ready for homes. Builders vie with each other to purchase large parcels to give them the land they need to have in their inventory pipeline to sustain their needs for years and also to keep land (and thus market share) away from their competitors in any given market. In their yearly reports they speak in terms like âsignificant land controlâ to describe competitive holdings.
The building of homes is very much secondary to land development and serves historically mostly as a way to sell the small finished lot as Joe and Jill Average want a home for their family, not a small finished city lot. More recently home builders have discovered through "add-ons" like granite, up scale carpeting, stonework, insurance, etc they can increase their margins, but namely they are real estate land developers. The price of the finished lot determines builder profit. In interviews the company officers will speak in terms like "community" and "amenities", but this makes no matter. Behind closed doors they talk about land and zoning.
http://realtytimes.com/rtcpages/20040303_bigbuilder.htm
"Beazer, which is now active in 19 states, has boosted its land holdings significantly in the last 10 years.
In 1994, the company, then the 12th largest in the country in terms of sales, controlled almost 11,000 lots, either as the direct owner or through options. That was enough to last nearly three years.
But by the end of 2003, it had nearly 80,000 lots at its disposal, more than sufficient to keep the home building operation humming for a good five years at its current sales pace.
And Beazer is not alone, according to a recent study by Credit Suisse First Boston, which found that the nation's 13 largest building firms increased their investments in land by 22 percent between 2002 and 2003 and will boost their land holdings by 15 percent more this year.
"All of us are building (landing inventories) for the future," McCarthy said. "We're all taking large positions in land."
http://www.nvland.com/news.htm
$557 million bid lands 1,940 acres
Consortium of seven home builders buys Henderson property
John Ritter smiles after his Focus Property Group's bid of $557 million for 1,940 acres in Henderson is accepted at Wednesday's Bureau of Land Management public auction.
A 1,940-acre block of land in Henderson that didn't sell for the minimum appraised value of $250 million in November was purchased Wednesday by Focus Property Group for more than twice that amount at the Bureau of Land Management public auction.
Focus paid $557 million, or $287,113 an acre, for the land between Interstate 15 and the master-planned Anthem community in west Henderson.
"I think the price we paid for the property was reasonable, given the current market conditions," said John Ritter, chief executive officer of Las Vegas-based Focus.
In all, the BLM sold 71 parcels totaling 2,532 acres for $707.2 million, also more than twice the appraised value of $309.8 million. Some smaller parcels went for three and four times the minimum bid.
It was the largest BLM sale since the Southern Nevada Public Lands Management Act was passed in 1998, in terms of the total amount and price per acre ($279,299), said Judy Fry, BLM land sales leader.
Developers had balked on the Henderson piece in November because of the city's "inclusion zoning" that required a percentage of homes to be sold at less than fair market value.
Those encumbrances were lifted by the city. But the cost of infrastructure has been estimated at $226 million, and some land must be dedicated to public uses such as schools, police and fire stations and parks.
"A lot has happened in the last six months," Merv Boyd, assistant field manager of land sales and acquisitions for the BLM, said in reference to escalating land prices in Las Vegas Valley.
Ritter said the Henderson land would be developed into a master-planned community with a 10-year buildout. He would not guess the price or number of homes to be built.
"I think anybody in our industry has concerns about housing prices," Ritter said. "This is a big price. I didn't think it would get that high. They brought us right up to our threshold."
The bidding between Focus and Pulte-Del Webb, developer of the 5,000-acre Anthem community, opened at a slow pace to reach $300 million, then jumped to $400 million and $500 million as those who stayed for the finale shook their heads in amazement.
Backed by seven major home builders, Ritter upped the bid $1 million to $5 million at a time. Pulte's team, led by area President Sheryl Palmer and Vice President of Finance Scott Middleton, came back with increases in $100,000 increments.
"Certainly we would have loved to be the successful bidder; but at a certain point, we felt we had to protect the quality and value of homes for our buyers," Palmer said. "We came in at certain expectations of where the price should be, and that's where we stopped."
Ritter is a "skilled tactician" and knows exactly where he can go with his bidding, said Mark Bouchard, managing director of CB Richard Ellis.
He was among about 1,000 people at the high-energy auction at Sam's Town Live events center, including a record 460 registered bidders.
"You'd think after doing a few of these, you'd get used to it; but it's nerve-racking," Ritter said. "When we were going $100,000 a pop, I thought we'd be here until 3 or 4 in the afternoon. It's American capitalism at its finest."
Mark Morse, field manager for the BLM in Las Vegas, said the appraisal on the Henderson parcel was more than a year old. But the other 70 parcels were fresh appraisals, and they too more than doubled in price, illustrating how much land values have appreciated in a year.
"I think the market has changed dramatically," Palmer said. "Appreciation has been at a much higher pace over the last seven or eight months. People are still bullish on the marketplace."
Ritter said his plate was full in November with the development of Mountain's Edge in the southwest valley and Cliff's Edge, now called Providence, in the northwest.
Focus bought 992 acres in another highly competitive BLM auction in November 2002 for Mountain's Edge and 485 acres in June 2003 for Providence.
This time, he came with a consortium of home builders: KB Home, Toll Brothers, Woodside, Pardee, Beazer, Kimball Hill and Meritage. The land will be divided among those builders.
Ritter said it will take at least 18 months to build the infrastructure, estimating the first model homes will be ready in late 2006
The next BLM auction, which includes 4,000 acres in North Las Vegas and Kyle Canyon, is scheduled for January, after environmental reports are completed.