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Business Observer Friday, Feb. 7, 2020 4 months ago

D.R. Horton, Lennar among most prolific Gulf Coast residential land buyers

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Two of the region's largest homebuilders have invested hundreds of millions of dollars into land over the past five years. Deals going forward could be harder to find.
by: Kevin McQuaid Commercial Real Estate Editor

Nearly a half a billion dollars. Just over $485 million, to be more precise.

That’s how much money two of the region’s largest and most active homebuilders have invested in land along the Gulf Coast since 2015, when each publicly traded residential provider emerged from the prolonged economic recession that began in 2008.

D.R. Horton Inc. and Lennar Corp. acquired the land, from Polk County in Central Florida to Collier County in Southwest Florida, in a series of more than 80 individual transactions, according to an analysis of land purchases of $1 million or more that each company made in a nine-county region of Florida between 2015 and 2019.

Of the two, Lennar has invested more, at $302 million, even though it executed just 31 land buys, vs. D.R. Horton’s 51 during the same time period and in the same geographic area.

D.R. Horton’s investment in land during the five-year window totaled $183.16 million, the property records analysis indicates.

“It’s a huge number, even considering it’s taken place over five years,” says Nancy Surak, managing broker with commercial real estate brokerage firm Land Advisors Organization, in Tampa.

At least part of the total stems from rising land prices.

“Land is so much more expensive now than before,” Surak says. “Fifteen years ago, there weren’t $25 million land deals as there are today.”

Nancy Surak is Managing Broker in Tampa with Land Advisors Organization

Although Miami-based Lennar and D.R. Horton, the nation’s largest homebuilder by volume since 2002, based in Texas, aren’t the only two residential builders active along the Gulf Coast since the recession’s end, their purchases provide a unique window into residential building in the region. 

For one, while companies like Pulte Homes Corp., Taylor Morrison, Neal Communities, Medallion Home, Mattamy Homes and M/I Homes, among others, have made significant land acquisitions, none have exercised the breadth or depth of D.R. Horton and Lennar, records show.

Also, Bill Eshenbaugh, founding broker and partner at Tampa-based Eshenbaugh Land Co., notes that together Lennar and D.R. Horton control 45% of the housing market in the Greater Tampa Bay area.

“You can only win the battle in homebuilding by controlling land,” he says. “And $500 million isn’t a crazy number when you think that some projects cost $25,000 to $35,000 per acre.”

Surging demand

Along the Gulf Coast, D.R. Horton over the past five years has developed new housing communities such as Willow Walk, Silverleaf, Palms of Cape Coral and Solera, to name but a few. Lennar, by contrast, has focused more on master-planned communities like Lakewood Ranch, which straddles Sarasota and Manatee counties, and mixed-use projects such as the Westshore Marina District, between Tampa and St. Petersburg.

Neither D.R. Horton nor Lennar representatives responded to inquiries for comment for this story.

But experts say the builders’ interest in the west coast of Florida stems from a single statistic: 950 — the number of people moving to Florida daily. “There are some great demographic tailwinds happening,” says Kristine Smale, a senior vice president at Meyers Research.

Also, while demand is surging thanks to new residents and job creations, analysts note that oversupply has yet to be an issue, as it was more than a decade ago when it contributed to the 2008 economic meltdown. “We’re just getting back to where we were from a numbers perspective pre-recession,” Surak says.

“This region in particular is nowhere near the number of housing permits that were issued, by comparison, in 2005,” Eshenbaugh says. “Today, we’re not at all overbuilt, and the demand is real.”

COURTESY PHOTO — Bill Eshenbaugh is the founder and principal broker with Tampa-based Eshenbaugh Land Co.

Bruce Erhardt, executive director of commercial real estate brokerage firm Cushman & Wakefield’s land practice group, based in Tampa, concurs.

“What we’re seeing today is not financial engineering by any means,” Erhardt says. “Since the recession, homebuilders haven’t met the 20-year average for new inventory.

“That’s led many to believe the assumption, and I’m on board with it, that there won’t be a boom and bust cycle this go round and, as a result, we could have 10 more years of positive growth.”

Bank on it 

The concept of sustained growth, however, doesn’t mean builders are gobbling up land tracts along the Gulf Coast.

“I think builders would say that the price of land and the availability of land are their biggest obstacles to new inventory,” Smale says.

But while builders like D.R. Horton and Lennar may be concerned with rising land prices, they haven’t resorted to buying land tracts for future developments.

So-called “land banking” proved to be problematic for builders like Lennar and D.R. Horton when the recession of 2008 hit, leaving them with huge positions and liabilities on their corporate balance sheets.

Lennar, in particular, decided to forego land banking in most parts of Florida in the years after the economic crisis.

“Builders said never again to holding three years worth of land inventory on their books, but guess what?” Erhardt says. “Today they’re all taking positions because they have to because of all the job and population growth. Builders are telling me they need land for 500 lots, for 1,000 lots. The difference is today there’s no sign of boom and bust.”

Surak says land banking was a way to mitigate risk, and one that can still benefit builders hoping to rush to market with new product.

“If you can control land as a builder, that’s where you want to be,” she says. “It’s all about how fast can they get it done.”

Costly clusters

In both the case of D.R. Horton and Lennar, property records show that the companies began buying land tentatively out of the recession. Neither acquired a single land tract valued at more than $1 million in 2015, for instance, using their corporate names.

The following year, D.R. Horton spent $27.63 million on land. Lennar acquired $54.48 million worth, in four transactions, but one purchase — in the master-planned Lakewood Ranch — cost it $38 million.

In 2017, D.R. Horton bought $49.35 million worth of land in 20 separate transactions, and then topped that figure in 2018 with $59.97 million worth of purchases in the Gulf Coast’s nine-county area, records show.

Last year it bought 16 different tracts for $46.15 million.

Most of its purchases were clustered, in areas like Naples, where it bought 10 pieces of property, followed by Davenport in Polk County, with eight; Sarasota, with six; Fort Myers, with five; and Bradenton, with three.

Its largest land deal came in November 2016, in Cape Coral, where it spent $20 million. Only four of its 51 deals topped $10 million, and a dozen came in at $2 million or less.

MARK WEMPLE — Bruce Erhardt is executive managing director of Cushman & Wakefield's land practice

Lennar moved slowly, as well. In 2017, its handful of transactions cost it $37.03 million. But in both 2018 and last year, its purchases topped $100 million each year.

Lennar’s purchases were, in contrast to D.R. Horton’s, spread out geographically. Its biggest cluster of deals occurred in Tampa, with seven, followed by Lakewood Ranch/Bradenton, Ruskin in Hillsborough County and Fort Myers, with four each. It made multiple purchases in Riverview, Naples and Port Charlotte, as well.

Of its 31 total purchases since 2015, 11 of them were for $10 million or more, with the largest being the $38 million deal in early 2016 in Lakewood Ranch.

In contrast to D.R. Horton, just one of Lennar’s deals was for less than $2 million during the five-year period. That’s because the company seeks out master-planned communities where costs are often higher, Eshenbaugh and others say.

Going forward, experts say the region continues to demand more housing. So the land deals will keep on coming. 

D.R. Horton, too, is showing signs that it plans to keep building. Late last year, its Forestar Group land development affiliate spent $10.3 million in Pasco County to acquire 194 acres for future development.

“We’re still growing and I don’t see any signs of a slowdown,” Surak says. We’re still creating jobs — 30,000 last year in Tampa alone — and with all the in-migration, people need places to live.”

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