Summary
The nation's homebuilders have an enormous inventory problem and it is not limited to only completed homes sitting idle on the market. Many builder-developers with planned for housing communities have seen the blueprints shelved as existing home sales have stalled and new homes garner little more than drive-by attention. As the misery index rises,many of the large land tracts committed to subdivision housing are being sold as cash starved builders try to weather the storm.
Analysis
These land tracts may come with or without infrastucture such as underground utilities,paved streets,etc. In either form,these land acquisition prospects present unique and profitable assets for REIT managers to consider. Several real estate investment firms now are starting to invest in residential land. They range from firms raising specialized distressed residential land funds such as Everest Market Street and TriPacific Capital Advisors LLC. to firms investing their main real estate funds, such as Prudential Real Estate Investors, Colony Capital LLC and Blackstone Group.
Residential land nationwide is now estimated to be worth 25% to 33% less than it was two years ago. The value of some properties has been reduced by as much as 75% according to the International Association of Assessing Officers (IAAO). Investors' current interest in residential land is a departure from traditional institutional investment in commercial real estate that is close to fully leased in primary real estate markets.
Many builders simply need to liquidate this land as cash is in such short supply. Between 1999 and 2006, publicly held homebuilders spent $160 billion on land. Now, as new home building has slumped, they are trying to unload some of that property. Up for sale is raw land as well as building sites complete with water pipes, electric lines and other infrastructure. For example,in November of last year Lennar Corporation sold 11,000 home sites to Morgan Stanley Real Estate for $525 million. The reported net book value on these properties was $1.3 billion!
2008 will offer unheard of land buying bonanzas and the discounts will only continue downward. Will Rogers was REIT!
