January 08, 2013

SunCal Buys Texas Home Lots in $100 Million of Land Deals

By John Gittelsohn
Bloomberg

SunCal, a U.S. housing developer that survived the collapse of its biggest partner, Lehman Brothers Holdings Inc., bought a 3,000-home site near Austin,Texas, as demand for lots heats up amid rising construction.

The closely held company paid $15 million for the lots, bringing land purchases in the past 12 months to about $100 million, according to Brad Shuckhart, vice president of land acquisition. In a deal announced last month, Irvine, California-based SunCal bought 208 acres (84 hectares) near Las Vegas for $19.8 million.

“We adopted the philosophy that now is the time to buy land — a generational opportunity to acquire,” Shuckhart said in a telephone interview. “We think we’re on the precipice of a real recovery and a pickup in demand for new homes.”

Prices of U.S. housing-development sites rose 12 percent to 18 percent last year, with the appreciation pace accelerating in the second half of 2012, according to a Jan. 3 report by Jack Micenko, a New York-based analyst with Susquehanna International Group LLP. Six homebuilders he covers, including PulteGroup Inc. (PHM) and Lennar Corp. (LEN), reported losses totaling $19.3 billion related to land purchases during the housing bubble, Micenko said.

“In many cases, three times the number of buyers are showing up for land sales today compared to a year ago,” he said in the note.

Sales of new U.S. homes are picking up after a five-year slump amid low mortgage rates and a tightening supply of existing properties. Demand is also increasing as the formation of new households drives down vacancies for both rentals and owner-occupied residences.

Housing Starts

Housing starts, including single- and multifamily units, are expected to increase 24 percent this year to 967,000, the median estimate of 17 economists and analysts surveyed by Bloomberg News. Purchases of new single-family homes will climb 23 percent to 448,000, according to the survey.

Landowners have been selling to beat potential tax-code changes and cash in on price appreciation, said Greg Vogel, chief executive officer of Land Advisors Organization, a brokerage based in Scottsdale, Arizona.

More investors who bought lots at discounted prices after the real estate crash, such as John Paulson’s Paulson & Co. and Barry Sternlicht’s Starwood Property Trust Inc. (STWD), may soon be unloading their properties, Vogel said in a telephone interview.

“The private-equity groups that acquired land in 2008 and 2009 are going to be sellers in 2013 and 2014,” he said.

‘Slim Pickings’

GTIS Partners, a New York-based real estate investor, and Scottsdale, Arizona-based Harvard Investments completed a deal this month for 563 acres of unfinished lots in the Phoenix suburb of Gilbert for $36.5 million, GTIS Chairman Tom Shapiro said in a telephone interview yesterday. The price per acre is less than half of what homebuilders, who can’t purchase on a large scale, are paying, he said. Prices have jumped from the bottom of the market, when no one was buying, Shapiro said.

“Three years ago, you could buy finished lots in good locations for 50 cents of the infrastructure cost with no value ascribed to the land,” he said. “That opportunity is slim pickings today.”

SunCal, a partner with Lehman in about 20 California developments, settled bankruptcy claims with the defunct investment bank in October 2011. The company is developing seven projects, including the two most recent purchases, where Lennar, KB Home and NVR Inc. are among builders selling homes.

In the deal announced today, SunCal acquired the partially completed ShadowGlen community in Manor, Texas, about 14 miles (23 kilometers) east of Austin, the state capital, the company said in a statement. ShadowGlen has 3,000 lots, about 700 of which have homes that already sold.

Vegas Area

The company previously acquired 1,828 lots in the Park Highlands master-planned community in North Las Vegas, Nevada, according to a Dec. 21 statement.

The Las Vegas area — which had the highest foreclosure rate of any U.S. city for the 22 months through September 2011, according to data provider RealtyTrac — now faces a shortage of lots for new homes, Shuckhart said.

“Our market research shows that in Las Vegas, unless new lots are produced, there’s going to be a complete loss of that inventory within the next two, two and a half years,” he said. “Vegas is a highly constrained market from the land perspective.”