Demand from Residential Developers, Value-Add Funds Drive Increase In Land Values
Spurred by a strong multifamily market and a stabilizing single-family market, land sales are (finally) on the rise again.
Through the first six months of this year, CoStar has tracked nearly $11.9 billion in land sales compared to $9.9 billion for the same time last year - a 20% increase. Data collection for the third quarter is not yet completed, but already year-to-date sales are also well ahead of the first nine months of last year.
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To be sure, while the pace of activity is picking up, the total volume of sales is no where near the the peak market activity in 2006 when land sales totaled $62 billion a year. But on a pace that could see more than $23 billion in sales this year, 2012 is likely to be the first year since 2005 that the volume of land sales will have increased year over year. In addition, the volume is getting much closer to the 5-year average of $27.8 billion in sales annually.
This is Part One of a three-part CoStar series on the current state of land investing. Part Two: The Great Land Price Swing. Part Three: Trouble In the Heartland? Rapid Rise in Farmland Values Poses Risks for Investors and Ag Lenders Alike
Large national publicly held single-family homebuilders Lennar Corp., KB Home, Hovnanian Enterprises and Toll Brothers together have invested more than $313 million for more than 598 acres already this year.
However, the biggest spender on land so far this year in the U.S. has been Toronto, Canada-based Tricon Capital Group, which has acquired more than 2,500 acres around Dallas and Houston, spending more than $138 million.
New Money Flowing to Land Buyers
Tricon Capital this past month raised $125 million for its new U.S. distressed residential real estate fund Tricon XI LP to "capitalize on 'once in a generation' investment opportunities in distressed U.S. residential real estate that have arisen out of the 2007-10 credit crisis and related economic recession."
The fund will provide financing to real estate developers for the acquisition, repositioning and potential development of distressed properties.
"This fund marks the continuation of an investment strategy which began with Tricon IX in 2008 and we continue to see a strong pipeline of investment opportunities in all of our target markets," said David Berman, Tricon's chairman and CEO. "I believe that our timing could not be better to both acquire distressed assets and participate in the eventual recovery of the U.S. economy and housing market."
Charlotte, NC-based Crescent Resources LLC has also become an active land buyer over the past couple of weeks after raising $350 million in a secured notes offering. In addition, it closed on $50 million of a $100 million equity commitment from its existing principal equity holders, Anchorage Capital Master Offshore and MatlinPatterson Global Opportunities Partners, and entered into a new $50 million revolving credit facility.
This week, in partnership with Taylor Duncan Interests Inc., a Dallas-based land developer, Crescent acquired 250 acres for a new single-family residential community in Oak Point, TX, just north of Dallas. Planning is under way for a master-planned community of 700 to 800 single-family homes, and development is expected to begin in the next 18 to 24 months.
Also late last month, Crescent Resources acquired 258 acres in Winter Garden, FL, from Castle & Cooke for $12.5 million.
Houston-based The Lionstone Group is another investment firm raising money for land deals. It has raised $100 million for its Lionstone U.S. Land Two fund with a goal of $250 million in equity raised by November.
Lionstone's U.S. land investment strategy is to invest in large infill land sites in select U.S. cities, hold for capital appreciation, and sell land opportunistically to developers and users.
"We believe investing in infill land is one of the best large-scale real estate investment strategies available today," said Tom Bacon, a founding partner of Lionstone.
In most cases, Lionstone plans to partner with local operating partners with demonstrated experience sourcing and managing land investments. The target investment size is $10 million or larger.
Apartment Builders Also Becoming More Active
Multifamily developers have also been active. Carmel Partners, The Irvine Co. and Interland Corp. have each invested about $75 million this year in land slated for multifamily development.
Carmel Partners this past month closed its fourth discretionary institutional real estate investment fund, Carmel Partners Investment Fund IV, with total commitments of $820 million.
Through Fund IV, Carmel will continue to invest in value-add multifamily opportunities in the country's supply-constrained markets with high barriers to entry. Carmel also invests in new development and high-yielding multi-family debt opportunities. Since initiating investment activity in March 2012, Fund IV has committed approximately $250 million (30%) of equity.
Also this week, New Jersey-based office REIT, Mack-Cali Realty Corp. took a big plunge into the multifamily business and agreed to acquire the real estate development and management businesses of Roseland Partners LLC, a multifamily residential community developer and operator in the Northeast.
The deal includes Roseland's interests in 13 in-process development projects, which include nine multifamily properties totaling 2,149 apartments and interests or options in land parcels which may support 5,980 apartments. Roseland also owns six operating multifamily properties totaling 1,769 apartments.
The Roseland business and real property interests will be acquired for up to $134.6 million, subject to adjustment. The properties extend from New Jersey to Massachusetts with majority in New Jersey, in particular, at its flagship development at Port Imperial in Weehawken and West New York, in addition to the Jersey City Waterfront and other urban in-fill and transit-oriented locations.
It's a Family Affair
More private investors are also upping their holdings in undeveloped land with the 100 largest landowners having grown their investments 20% over the last five years.
The fall issue of The Land Report 100
reports that the total acreage owned by the 100 largest private landowners is up by 18.6% over the past five years, from 27.2 million acres in 2007 to 32.3 million in 2012.
"Look at farmland prices. Look at energy assets. Look at the rise in minerals and commodity prices. Each of these elements is tied to the land, which is why so many savvy investors are anchoring their portfolios with this asset," said Eric O'Keefe, Land Report editor.
"At a time when finding a place to put cash has become increasingly tough, once again land is the savvy play," said land broker Greg Fay, whose company Fay Ranches is The Land Report 100's sponsor. "Today's ranch investor understands the importance and interconnectivity of agricultural production, healthy ecosystems and quality recreation and how it affects value better than anyone."
There are several landowners new to this year's 100 list, including No. 20 Malone Mitchell, a billionaire oil and energy entrepreneur who owns the iconic Longfellow Ranch. Many of Mitchell's 350,000-acre holdings are in Texas' Brewster and Terrell counties.
Another new addition to the Land Report 100 presented by Fay Ranches is No. 25 the Flitner Family. This husband-and-wife team owns The Hideout, a working ranch with deluxe guest accommodations east of Yellowstone National Park. David Flitner is a third-generation Wyoming rancher and many of his family's 300,000 acres are near the Bighorn National Forest.
Also new to the list is No. 86 Roxanne Quimby, an entrepreneur and healthy living visionary who has become a well-known philanthropist and woodland conservationist. Quimby owns 119,000 acres, mostly in the North Woods of Maine. She was a co-founder of Burt's Bees, a best-selling brand of natural personal-care products that was sold to a multinational firm.
The 2012 edition of The Land Report 100 is an annual survey of the largest private U.S. landowners. It excludes leased and public lands and focuses exclusively on deeded acreage owned by individuals, families, family-owned companies and family-controlled foundations.
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