Conference Call Highlights: Who Will Buy Land?

Plenty of land for sale out there, not many buyers:

From Lennar’s Q408 conference call: (LEN)

We generated positive cash flow this quarter and that was a result of our operational focus on significantly reducing land purchases… to only $64 million during the quarter, which is approximately 75% below the quarterly land purchase run-rate through the first nine months of 2008.

Lennar is setting up a fund to make land purchases, but isn’t buying yet:

While it is still premature to be making asset purchases right now, our strategy going forward will be to segregate our homebuilding manufacturing program from our more capital intensive asset opportunity program, much as we did in the early 1990s, as we built what became LNR Property Corporation. We are confident that as the market corrects and ultimately it will that we will be able to create meaningful value for the company through this vehicle.

KB Homes' Q408 conference call: (KBH)

We are also thinking creatively about how best to seize opportunities for land and lots in our markets without compromising our substantial liquidity. While 2009 will likely offer attractive land acquisition opportunities we intend to reload conservatively in a capital-sensitive manner… When the time is right and where possible we will acquire lots on a rolling option basis. We are also exploring creating alliances with investors for land and lot opportunities where bulk purchases are required.

Standard Pacific Corp.’s Q308 conference call: (SPF)

Land sale revenues decline from $49 million last year to $5 million this year.

Q: Given you guys have a decent amount of drive power to look for opportunities to buy land, what do you think that the government taking more action maybe to bail some of the banks out or potentially help support home prices; what do you think that does to the opportunities in the land market?

A: I certainly don’t see anything near term that says land prices are going to spike at all. I think it’s more trying to put a floor on that as opposed to stimulating a price increase.

Beazer Homes’ FQ408 conference call: (BZH)

We have been focused on generating liquidity, reducing overhead and direct costs and limiting investment in land and unsold home inventory.

For the fourth quarter we experienced a total revenue decline of 35% from the same period in the prior year. This decline was driven by a 45% decrease in home building revenues offset by an increase in land sales revenue.

For fiscal 2008 we spent $333 million on land and land development compared to $824 million in fiscal 2007. Based on current sales paces we have relatively few active communities that will require significant land or land development spending in 2009. In light of this and with our intense focus on maintaining liquidity our current expectation is that land and land development expenditures will be further reduced in fiscal 2009.

Regional banks and developers have plenty of land and are probably not buying much:

ProLogis (PLD) has $2.7 billion worth of land, $1.1 billion in the U.S. alone.

Independent Bank Corp.’s Q308 conference call: (IBCP)

For fiscal 2008 we spent $333 million on land and land development compared to $824 million in fiscal 2007. Based on current sales paces we have relatively few active communities that will require significant land or land development spending in 2009. In light of this and with our intense focus on maintaining liquidity our current expectation is that land and land development expenditures will be further reduced in fiscal 2009.

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Comments

[Guero:]

Yes, too many single family homes are being built. That is the result of a production homebuilder's business model. They can't help themselves, they have to build a lot of homes to achieve economies of scale worthwhile enough to be a going concern. Very much like a virus, they take over the landscape.

Jan 14 09:53 AM

[axelrod608:]

Good article, thanks. I am surrounded by folks who think this is the time to buy. Just like I was 3 or 4 years ago. Based on home price fundamentals where I live - Florida - I don't see any possibility of a bottom for YEARS. Here, inventory is growing as foreclosures outpace sales.

Obviously, the big homebuilders have a different perspective, but the bottom line is the same. Prices will continue to decline until unemployment stops growing.

Jan 14 09:54 AM

[CoinMiner:]

The savvy smally end boutique non-traded REITs and the nimble small investor will buy raw land at this point in the credit cycle. They will conduct due dilligence, initial feasibility, ensure proper zoning and pull first permits on only the choicest remaining parcels.

By the time this is done, they will be able to sell to the developers on the next upswing, as long as they are in a position to hold. Developing small parcels for custom homes featuring the best energy saving and sustainable techniques and materials provides the most viables economic niche at this point in the cycle.

Jan 14 10:06 AM

[xom-only:]

nicely done, maybe they go to the tarp for 0% and sit on their land like citi reinvested in treasuries. anyway 0% interest would help their balance sheets and their ability to pay on debt.

Jan 14 02:04 PM

[johngonole:]

In Florida anyway land prices still have much further to fall. In Alachua county we are still about 15000 - 20000 too much for a one acre lot versus the prices in 2003 - 2004. Alachua county still has low unemployment but I'm starting to see more empty commercial buildings. That said looking around Florida land prices seem to have held up more than finished house prices. I still think land prices will fall. That is more an opinion than something I've rigourously researched. That said there are plenty of Mom and Pop developers under water doing just what coin miner recommended above. I can name three large developement off hand that came to market just when demand dried up. Lots of lots for sale while interest is being paid on debt. At same time prices are still way too high to garner any interest. I'm talking about a few hundred lots and nothing sold at all in 2008. Nothing Zip zero. Prices must come down.

Jan 15 12:01 AM

[sickofthehype:]

Financing is not an option for raw land right now. Banks won't touch it. That's why there are no sales. With the prices to be had there are most likely many buyers, but without the cash to pony up for the full sales price, they can't buy.

It's always that way. In times when the deals are out there, 99% of the population doesn't have the resources to take advantage of it.

One thing that WILL help is when the tidal wave of inflation kicks in and our dollar is destroyed. You'll see some land sales then, as people flock to real assets.

Jan 15 08:49 AM