Public Homebuilders Look to Build in 2010

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					                                                           FEATURE




                        Public Homebuilders
                        Look to Build in 2010
                                             BY BRIAN J. CURRY, CRE, MAI, SRA




PUBLICLY TRADED HOMEBUILDERS, many of which were                    Some investor/speculators were having second thoughts
“sellers” of production housing lots in 2007 and 2008,              on their gamble in picking up lots at discounted prices in
have again become “buyers” in certain markets around                2007 and early 2008 given the subsequent credit collapse
the country. Residential development land was often                 in the fall of 2008 and dismal winter of 2009. Some are
characterized as an investor/speculator acquisition market          now in a position to sell the same lots to public builders
as late as the winter of 2009. Publicly traded                      for an attractive return rather than the anticipated three-
homebuilders have since re-entered some markets, often              to five-year holding strategy.
with very aggressive purchasing strategies that have left
investors and non-publicly traded private builders (those           Since public builders are indeed in the home-building
few with the financial horsepower) unable to compete.               business, lots are being acquired to build rather than
                                                                    bank. Construction critical paths suggest these markets
In many of these markets, profit margins, expressed as a            will see new for-sale housing in the summer of 2010 if
percentage of sale revenues, must be below ten percent to           not sooner. This scenario, where new home construction
consummate a transaction that has multiple bids from                will find adequate demand for market entry in 2010 was,
builder competitors. Such narrow profit margins often               for the most part, not considered realistic in 2008 and
imply non-leveraged yield rates (internal rates of return)
at twenty percent or lower. These profit and yield hurdles
are similar to those during the housing boom of
2003–2006.
                                                                     About the Author
The NAHB/Wells Fargo Housing Market Index (Figure 1)                                          Brian J. Curry, CRE, MAI, SRA, is senior
gauges builder perceptions of current single-family home                                      managing director and national practice leader of
                                                                                              the Residential Development Specialty Group with
sales, prospective buyer traffic and sales expectations for                                   Cushman & Wakefield Valuation & Advisory
the next six months. Builder perception, or confidence, of                                    Services, San Diego. As national group leader, he
near-term sales conditions affects decisions to acquire lots                                  provides a wide array of consulting and advisory
                                                                                              services to clients, team training/development, team
and construct homes. Builder confidence bottomed out in
                                                                                              management, assignment procurement, assignment
January 2009 at levels not seen in more than 25 years. The                                    protocol/management, quality control, and
recent increase would signify growing optimism on the                portfolio management. Prior to joining Cushman & Wakefield in 2005,
part of some builders going into 2010.                               Curry was a principal with Doré, Curry, & Marschall, Inc., and Integra
                                                                     Realty Resources, San Diego. He has been providing valuation and
Recent or pending public homebuilder acquisitions are                counseling services involving residential development property for more than
                                                                     25 years, specializing in detached housing, attached housing, condo-
reported around the country but are focused mainly in                minium product, military re-use plans, urban redevelopment, mixed-use and
first-tier locations in regions such as California, Arizona,         master-planned communities. Curry’s experience includes valuation, 
				
DOCUMENT INFO
Description: Publicly traded homebuilders, many of which were "sellers" of production housing lots in 2007 and 2008, have again become "buyers" in certain markets around the US. Residential development land was often characterized as an investor/speculator acquisition market as late as the winter of 2009. In many of these markets, profit margins, expressed as a percentage of sale revenues, must be below 10% to consummate a transaction that has multiple bids from builder competitors. The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales, prospective buyer traffic and sales expectations for the next six months. According to US Census Bureau statistics, the US new home median price reached an all-time high in March 2007, followed by the most severe price decline in more than 50 years. Public homebuilders buying highly discounted lots hope to build and sell product while navigating erratic and often conflicting economic and housing metrics.
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