June 10, 2010

SunCal Buys Kimball Hill Lots

By Teresa Burney
Builder Magazine

A partnership between SunCal and The Roanoke Group, a private real estate investment company, has bought 734 former Kimball Hill Homes lots in Chicago and Northern California out of bankruptcy for $8.3 million, SunCal announced. The deal included 552 lots, most finished, in seven separate projects in the Chicago area. Another 182 finished lots and four model homes in a Stockton, Calif., community called Cornerstone were also part of the purchase. Suncal will manage the Kimball Hill land.

Peter Kyte, principal with The Roanoke Group, said the deal was a long time coming. “For a year we were sitting by the sidelines trying to get deals lined up,” he said, adding that banks were reluctant to sell for prices that made sense to Roanoke, which is a developer and investor. Kyte said the company is looking for more partnerships, including providing vertical financing, mezzanine debt, equity financing, and senior debt for land buyers and developers.

“The SunCal deal is a good example,” he said. “They brought us the deal, and we partnered with them. We are relying on their expertise on the management side to source future deals.” One problem that has hampered Roanoke’s investment in land is competition from well-capitalized public builders who don’t need to achieve the same rate of returns on their investments because they are end users of the land, said Kyte. Now that Roanoke has closed the Kimball Hill deal, he is hopeful more will follow.

“I think it’s an opportunity for us now that we’ve actually closed on a couple of deals to not only meet with brokers, but also developers and potentially some private builders–those that are out there and have weathered the storm”–to offer financing help, Kyte added.

The latest Kimball Hill purchase was SunCal’s second major buy of the shuttered builder’s assets. Last November, in partnership with D.E. Shaw, it bought 1,073 home lots in 11 Las Vegas communities for $20 million from the same Kimball Hill portfolio of assets. Suncal also bought a number of lots in Las Vegas from the LandSource bankruptcy last year, giving the company about 1,700 lots in that market.

“We have actually since sold out of them all,” said Casey Tischer, vice president of land acquisition for SunCal. “We did quite well on it actually.”

Ryland, Lennar, and KB Home were among the lot buyers, he said. Interestingly, Lennar, which has in interest in LandSource, ended up buying most of the Las Vegas LandSource lots back “for well above our purchase price,” he said. “There has been a notable turn in the market.” Tischer is hoping its investment in Chicago lots pays off for the company as well as the Las Vegas portfolios have, but he’s not expecting that market to be as robust. Chicago has been less of a popular market for builders reinvesting in land.

“We are not really looking for enormous growth here,” Tischer said. “Organic growth alone will drive new home building there.” But the lots were bought low enough for SunCal to make a profit even at slower absorption rates. “Effectively what we need to be successful is some return to normalcy” in the market, he said. “Chicago is several quarters behind the recovery in the Southwest [markets]. [And] it’s behind Florida.”

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