2024 Spring Issue of Urban Land - 102

Land Light
JORDAN MCKENZIE
U.S. homebuilders embrace strategies
to preserve capital and meet demand
more efficiently.
It all starts with land.
The very first step in the supply
chain for any new real estate development,
whether it's a new shopping
mall or a sprawling tech campus,
is land. It's an often misunderstood
asset in our collective ecosystem.
In the residential space, that asset
is everything. Economists routinely
quote a shortage of at least one million
homes in the United States, a
result of being massively underbuilt
in the years following the Global
Financial Crisis. Homebuilding simply
did not keep pace as millennials, our
largest generation, were coming of
age, starting families, and looking to
settle into homes. As a result, homebuilders
are constantly looking to
find efficiencies to meet that
Many publicly traded homebuilders
are now using a " land light "
strategy, working with third-party
land asset owners to identify opportunities
in the path of growth, and
studying migration patterns, development,
and economic vitality. In
doing so, they take possession of the
land as " just-in-time " inventory and
keep their capital focused on building
more efficiently and expanding
market share.
With nearly 45 years of experience
and more than 90,000 acres
(36,400 ha) in land holdings, Walton
Global has been at the forefront of
this strategy, partnering with the
country's largest homebuilders to
ensure that once they take ownership,
they can quickly develop and,
more importantly, sell homes.
Historically, homebuilders carried
the liability of raw and untitled land
102
URBAN LAND
SPRING 202 4
Walton Global's Westphalia Town Center in Prince George's County, Washington,
D.C., and Maryland.
on their balance sheets for several
years before even breaking ground.
They now have access to a healthy
pipeline of assets in desirable locations,
allowing them to be closer to
realizing a return on their investment
in far less time-something
Wall Street values. The percentage
of land assets homebuilders have
under option contracts continues to
increase year over year.
Perhaps 90 percent of existing
homeowners have a mortgage rate
at or below 5 percent, motivating
them to stay put. With the resale
market down nearly 50 percent,
increased new home inventory provides
first-time homebuyers, many in
the millennial and Gen Z demographics,
a greater chance to purchase
their first home.
Affordability remains a big issue,
and more homes added to the housing
supply across the country will
lead to more affordable options.
Higher mortgage rates are clearly
part of the equation, but they are
expected to come down further in
2024. Till then, homebuilders are
working with buyers to buy down
the rate to the best of their ability.
Consider what we've seen in
2023 and why new home buyers
and builders have optimism in 2024:
in certain markets, new home sales
represent as much as 30 percent of
all home sales today, a number that
is typically closer to 10 percent. New
homes are historically 27 percent
more expensive than resale homes,
but due to the continued imbalance,
that number is now just 4 percent.
Follow the money. Real estate
investment has traditionally been
focused on asset classes other than
homebuilding, but that's changing.
The office market is distressed with
an uncertain future, and increased
interest rates are making it difficult
for multifamily developers. Many are
shifting their sights to the singlefamily
market as they come to
understand just how underbuilt the
country is.
Even if homebuilders could deliver
a million new homes a year for the
next 10 years, it wouldn't be enough.
As a result, stocks of the publicly
traded builders are performing
extremely well and attracting highprofile
and institutional investors. Of
note, we are seeing increased capital
from overseas as international investors
react to the strength and stability
in the U.S. market.
There continues to be a significant
housing shortage in the United
States, but it is clear that homebuilders
are determined to work within
market conditions to deliver much
needed inventory as quickly and efficiently
as possible with innovative
solutions. It starts with the land. UL
JORDAN MCKENZIE is executive vice president
for finance & portfolio management at Walton Global.
WALTON GLOBAL
2024 Spring Issue of Urban Land

Table of Contents for the Digital Edition of 2024 Spring Issue of Urban Land
