The race is on to build and deliver new units while the upturn still has momentum, but the frenzied pace of competition has bumped up land prices significantly.
Developers purchased more than $3.6 billion in new development land in the first quarter of 2013, according to data from New York-based Real Capital Analytics (RCA). This is the largest amount of new development land purchased in the first quarter of a year since the Great Recession began.
Steven Coon, a principal at Kansas City-based Land Development Strategies, said securing financing isn’t the most difficult part of getting a land acquisition deal done. In today’s market it’s more about finding a prime location to build upon and hoping it has been primed for the beginning stages of development.
“You buy raw sites when the market cycle is down,” he said. “Since the market cycle is up, most people are looking for a more developed site because they want to build now. They want to be able to deliver new product---now, as soon as possible.”
Coon estimates the price of land has risen by about 10 percent over the last year as the race to find a good place to develop gets more competitive.
As the demand to break ground on multifamily housing grows, so do the pockets of those who bought land to develop.
Demand is pushing some land owners to consider selling even though their property isn’t on the market, Coon said.
“We like to build our apartments within an area that has already been primed to have quick access to urban areas,” he said. “We look for shopping and parks close by. (We look for) walking trails and jogging trails: There’s always a lot of competition for those. And those types of sites aren’t always necessarily on the market for sale.”
Mark Drumm, a chief risk officer for a land management company, agreed that it's a seller's market.
“If someone hits what we believe is a good price today for the land, then we will sell it,” he said.
Drumm, who works for Dallas-based Stratford Land, suggests land owners should consider how much they believe the land is worth and if they would pay that price in this market. If the seller would buy the land at the price being offered, then he or she should sell, he said.
“I’m not trying to take every last dime off the table,” he said. “That’s how you get into trouble.”
While equity is the most common way to get a deal done, debt isn’t scarce either. Banks are the primary source for land acquisition debt, with most being interested in diversifying their portfolios. However there are other lenders stepping into the scene to try and get a piece of the action.
Coon said his team prefers a targeted approach for land acquisitions. “We buy a specific piece of land with a specific purpose and build within,” he said.
Meanwhile, the team at Stratford prefers to buy a large parcel and divide it up. Stratford recently purchased The Canyon in Oak Cliff, a 200-acre plot of land that is being developed about five miles outside Dallas.
Stratford purchased the land about five years ago, and sold the first parcel to a developer, who wrapped up construction on The Canyon's first multifamily project in 2012. The land management company continues to hold most of the undeveloped land as they work with the city to get sewage and accessible roads put in for both commercial and residential development.
There are still plenty of land acquisition opportunities coming down the line since market rate developers haven’t been as vested in the market over the last year as the affordable developers.
Frank Chang, director of acquisitions of AMCAL Multi-Housing, Inc., said the market rate developers are creating a buzz as they throw down the gauntlet and step back into the arena.
“Affordable developers have been doing most of the development during the downturn,” he said..
Agoura Hills, Calif.-based AMCAL recently purchased a site in Long Beach, Calif. from a bank using private equity and a loan from another bank. The 128-unit development, a transit-oriented development, is a $26.8 million project and will be worth every penny, Chang said.
The location speaks to how coveted accessible land is. The development sits on a plot located near a hospital and office space with accessibility to downtown Long Beach. The transaction closed about three months ago, is the development be open by next summer, Chang said.
In addition to the Long Beach development, AMCAL is also working on several other projects on land they’ve acquired recently.
“There’s definitely more interest and activity, which kind of stirs this kind of demand and expectation of demand,” he said. “If you have multiple people calling brokers, then it creates a buzz that there is more opportunity.”