Sunbelt Deal: Long Awaited Benchmark in Housing

Gary Allen is the managing director of Sunbelt Housing Management, a Charlotte, N.C.-based company that in July announced one of the biggest new single-family home deals in the Southeast since homebuilders saw their long nightmare begin in 2008. Allen and Sunbelt have been 43 years in the business of developing finished lots for sale to homebuilders. Like most such developers, they’ve been on the sidelines for the past six years of the housing bust.

That ended with the Sunbelt deal to buy land for 1, 400 new home sites in St. Clair County — a combination of 350 lots in the Brookhaven subdivision and 550 acres yet to be parceled out, in adjacent Richfield, an area planned but stalled by the recession. The land was sold by Four Star Holdings, a company owned by former Greater Birmingham Association of Home Builders President Bobby Smith.

Terms of the private acquisition were not released, but the size of the deal says a lot about the uptick in housing prospects. This deal’s 1, 400 home sites compare to 15 percent of all the 9, 300 building permits for single-family homes issued in Alabama in 2013.

Allen says Sunbelt’s private equity investors dipped into buying foreclosed homes for rental cash flow, but they were late to the party. “We really focused on the rental housing thing a little late, sort of missed the boat. Our background is on the land side, rather than buying houses.”

He says he’s out in front on the current trend — private equity for new home sites — and sees no room for hesitation. “We’re moving as progressively as we can.”

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Until now, we have not acquired new properties since the financial markets were interrupted in 2008. But we’re on an acquisition drive right now to make lots available to builders. There’s a limited amount of financing available for acquisition and development loans in the marketplace, because the banks took such a hit in the recession of 2008, and that has made an opportunity for private capital to come in and fill the void.

We waited to see a substantial recovery, but we’re moving as progressively as we can, so that we have a long runway in front of us, before too many competitors are up there. There has been a tidal shift, and most of the markets are coming back in and will be picking up steam with the next business cycle. We’re trying to acquire in front of the cycle as many as we can acquire. This happens to be the first one. We had contracted a deal in Atlanta before this one, but it has taken longer to close. It’s closing in September.

We’re looking for properties in all the major markets in the Southeast, to supply home sites to builders. The National Association of Home Builders last month said there is market demand to support a 50 percent increase in new housing. There’s a shortage of new housing in the marketplace today, and the demand is going to increase.

Birmingham was one of the larger markets and the first for which our qualifications were met. Secondly, St. Clair County is one of the faster growing counties in the state of Alabama. Another thing that appealed to us was our ability to team with a large local builder whom we could rely upon to work with the building community. Without that, I’m not sure we would have made the decision. A good buying opportunity is sometimes the volume and size of the deal, sometimes the market conditions. This time it was a combination of an attractive price and the ability to tie in to large homebuilders who are well connected.

This is not the first recession I’ve experienced. There was ’70 and ’74, ’81 when the prime reached double digits, ’91 when the S&Ls and banks went down. This is the worst recession, but the good news is that it’s on the way out, according to all the trend lines we see. We were building 1.2 million homes a year in the U.S., and now it’s only 500, 000. There’s a lot of room to grow. The National Association of Home Builders says that if the lots are there and the financing available, there’s enough demand to absorb 50 percent more construction. There can be some slippage from quarter to quarter. This first quarter was down because of uncommon weather. But if you just did a graph, the trend line is up. There is not any question about it. If we didn’t believe that, we wouldn’t be buying this property.

Land development capital has not come back into the market, and, as a consequence there has not been much developed. And in the A and B locations, what has been developed has been consumed. In the A locations, there is about a seven- to 12-month supply, and in the B locations 12 to 18 months. In most markets, it takes 18 months to develop land, so the A and B locations in the top 20 markets is headed to the wall, with a shortage of finished home sites. The longer you wait, the higher the price and lower the yield is going to be. You’ve got to pay the price to get the knowledge, and we’re in our 43rd year in the business. Then, you’ve got to have the money and the courage of your convictions. That’s how you are going to win the game. We feel like we’ve done the homework, and we have the courage of our convictions.

The Atlanta deal does not have as many lots as the one in Alabama, but it’s a prime piece of real estate and in an A location and suits our primary criteria. There are 6 million people in the Atlanta market, a giant market. There will be multiple deals in the Atlanta market. The markets that we think have a good job base and expansion prospects and that have grown over the years are Raleigh, Charlotte, Atlanta, Birmingham, Jacksonville, Orlando and Tampa — all markets that we’re focused on. The most sure opportunities that we can identify are within those markets.

Chris McFadyen is the editorial director of Business Alabama.

Interview by Chris McFadyen

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