Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/143044
markets with strong economies such as Orlando, Fla., Nashville, Tenn., and Charlotte, N.C. Te Texas economy has remained stronger than most of the U.S. throughout the downturn, and the prospects for land investment ofer compelling opportunities in all the major markets. For example, national homebuilder Lennar is building in a number of Texas and southeastern markets. Austin continues to be a winner in all real estate categories, and home building remains strong. For land buyers who want to hold, well-priced deals are hard to come by. Dallas-Fort Worth is experiencing strong demand for well-located land, with 44 commercial land sales of up to 25 acres during the frst two months of 2013. As demand for single-family housing is strengthening, Dallas has less than three months of fnished home inventory, while Fort Worth has only four months of inventory. In the glow of an energy boom, Houston land prices are high and heading higher, due to both apartment and single-family home construction in many areas, as well as the highest rate of 2012 housing starts in the U.S., according to the Real Estate Center at Texas A&M; University. While less robust than other Texas cities, San Antonio is projected to see signifcant employment growth. Several regional homebuilders, such as Ashton Woods, Taylor Morrison, NVR/Ryan Homes, and Ryland Homes are active in the Southeast Changes in Land Value 3 Closing Land Deals Land Price Index 2.5 2 1.5 1 0.5 0 2005 2006 2007 2008 2009 2010 2011 2012 2012 (Q3) Source: Lincoln Institute of Land Policy www.lincolninst.edu/resources/ markets of Nashville, Raleigh, N.C., Charlotte, Orlando, and Atlanta, focusing on major cities that have stable economies and strong employment. Orlando's economy is benefting from a tourism rebound and the retirement market. For example, Hamlin, a 600-acre residential development located just north of Walt Disney World, is experiencing strong sales due, in large part, to a new tollway that provides a gateway into western Orange County, Fla., for builders and developers. Interest in the Charlotte market has grown with its improving economy and job growth. In the past two years, 37 companies have relocated to the city, bringing 8,000 new jobs. Tis trend is expected to continue as the city plans to add as many as 30,000 new jobs through 2014. Atlanta, where the economy has historically been heavily focused on development, is just now recovering from job losses and a glut of 24 residential inventory. Although metro Atlanta home prices continue to rise, they have yet to recover to their pre-2008 levels, creating a strong afordability index for companies choosing to relocate. In comparison to other cities of its size, Atlanta has not bounced back as quickly, and more accelerated job growth will be required to absorb the large supply of lot inventory that remains on the ground. Elsewhere in the U.S., reports of surging housing prices don't necessarily signal strong markets. Cities such as Detroit, Las Vegas, and Phoenix are rebounding from huge declines but still face challenges with large foreclosure inventories, high vacancy rates, and slow-to-no growth economies. However, even in some of these weaker markets, discerning investors can fnd pockets of land value. For example, while the overall statistics show Phoenix as a lagging housing market, Vistancia, a 7,100-acre development located just north of Phoenix, opened an additional 3,450-acre section in response to pent-up demand. Potential buyers are anxious to view new-to-market lots in high-quality developments that had suspended growth during the bust. In Southern California, good opportunities for longer-term land investments are possible, but they are rare and require equity positions. For example, Stratford is the lender for the Blue Sky development, a 440-unit multifamily project that recently broke ground in downtown San Diego on land the developer has owned since 2004. In 2011, Stratford became an equity partner with the developer of Millenia, located south of San Diego, to develop the $4 billion, 210-acre master-planned community over the next 20 years. July | August | 2013 Unless investors are cash buyers, closing land deals is challenging. Few traditional capital sources want to fund land investment, and many banks are still trying to ofoad land loans from their balance sheets. Some hedge funds, sovereign funds, and other institutional buyers are able to buy with all cash. Timing and availability of capital has been — and continues to be — the best way to acquire land. Te ability to close quickly remains key to purchasing the best deals. While large groups with cash are able to purchase signifcant tracts of land and portfolios, local purchasers looking to acquire smaller tracts have a harder time fnding capital. With the absence of adequate capital to fnance land transactions, smaller buyers continue to turn to private debt to close the gap. Stratford has been able to close this lending gap by providing nonrecourse land fnancing to a number of groups that ft this profle. Land investing in 2013 will be active primarily for those who intend to begin construction on single-family residential or multifamily developments. Te demand for these asset classes is strong in most markets, particularly those that exhibit clear signs of recovery. Land investors who are able to close sizable acquisitions during 2013 are likely to be cash buyers or the few well-capitalized investors who can secure fnancing. David Moore, CCIM, is senior investment manager for Stratford Land in the southeastern U.S. and based in Atlanta. Contact him at dmoore@ stratfordland.com. Commercial Investment Real Estate