Homebuilders hunt for land

The housing bust left homebuilders with plenty of red ink on their books as they walked away from swaths of land they no longer needed.

But now homebuilders are on the hunt again, vying for choice parcels even in foreclosure-riddled markets such as Las Vegas, Southern California and Orlando, Fla., where prices are cheap and there are early signs of a recovery.

While experts don't see a full-blown land rush, they notice a surge in land deals since early summer as home sales and prices began to stabilize. For the better lots, the competition is fueling bids well above the asking price.

It was primarily investors buying lots in Las Vegas for the past two to three years, said Michael Stuart, senior vice president of land for Colliers International in Las Vegas. Since August, major builders such as KB Home, Richmond American and Harmony have "jumped back in the game," he said.

"Raw land is still pretty much dead," Stuart said. "Everybody realizes that nobody is producing finished lots. By the end of next year, we're going to be out of finished lots or close to it."

He represented Kimball Hill Homes, which filed for bankruptcy last year, in the recent sale of about 1,100 lots in Las Vegas to Irvine, Calif.-based SunCal Cos. for more than $20 million.

Most of the lots were in the master-planned communities of Providence, Mountain's Edge, Green Valley and Southern Highlands. Kimball Hill has cleared out most of its Las Vegas portfolio and reduced its staff from 1,600 employees to about 10, he said.

Ryland Group Inc. and Meritage Homes Corp. are among those that jumped into the fray.

Meritage recently signed contracts to buy 2,500 lots spread out over new communities in several states, including California. The builder plans to open nine new communities this year or early next.

This summer, Ryland bought land or signed option contracts to do so in several markets, including Indianapolis, Atlanta, Houston, Las Vegas and Baltimore.

"We are pursuing more deals than at any time in the past several years," said CEO Larry Nicholson.

Dennis Smith, president of Las Vegas-based Home Builders Research, said he's seen a flurry of activity from both builders and investors purchasing residential lots in Las Vegas. He reported more than 17,000 finished lots in the metropolitan area, including about 2,500 available for purchase.

Not all builders are looking to expand their land stockpile.

Pulte Homes, for example, has been more conservative. The builder added thousands of acres to its land holdings when it acquired rival Centex Corp. in August. And roughly half of those parcels are already primed for construction.

"We're not one of those who need land," said Richard Dugas, Pulte's CEO.

Before it was acquired by Pulte, Centex let the option expire on an agreement to purchase about 2,200 acres owned by LandWell Co. in Henderson. The land, former site of a World War II chemical manufacturing plant, was in escrow for two years while the soil was being tested and analyzed.

"In the past (builders) had really been the ones that had been feeding the market and selling lots to investors," said Tom Dallape, principal at Hoffman Co., a land brokerage firm also based in Irvine. "Now all of a sudden they are rushing back in."

The timing of these land deals could also be risky.

"The stability we've seen has been nice, but it hasn't been for long, only five or six months," said Megan McGrath, an analyst with Barclays Capital. "There is certainly some risk that if the market tails off again or we start to see cancellations pick up, some of those deals that previously penciled may not pencil anymore."

Still, with new home sales up 22 percent this year, builders have grown more confident in their ability to estimate what they should pay for land and expect to profit after construction costs.

Land is changing hands in Las Vegas at a faster pace than anytime in the past three years and prices are inching upward, said Aman Lal, who recently opened an office for Hoffman in Las Vegas.

That's a strong signal the city's housing market has hit bottom and is starting to recover, he said.

"There is a big misconception out there that the land market in Las Vegas is dead and all the homebuilders have gone away," Lal said. "In fact, what's happening now is just the opposite. The supply of finished lots is diminishing rapidly and builders are clamoring to snap up what's left so they won't be forced to buy raw land."

Builders are primarily looking for land in areas that are already cleared for home construction. That way, they will be ready to build and sell in just a few months.

The Associated Press contributed to this report.