Industry Vets Saw Void in Land Development – And Filled It
Original content by Brian Croce at Builder: http://www.builderonline.com/land/industry-vets-saw-void-in-land-development-and-filled-it_o
During the depths of the recession, industry veterans Mike Koch and Sean Cooney noticed a lot of land developers going out of business. And when the market began to pick back up, they noticed that there weren’t many companies developing lots.
So the two took their observations and turned it into a business plan. In January 2015, they launched Phoenix-based Suncrest Real Estate & Land.
“It stood to reason that at some point when the demand came back there would be a shortage (of lots),” recalls Cooney. “That’s when Mike and I decided that we really had to focus on a business where we could deliver lots to builders in select growth markets and so far we’ve been executing on that. It’s taken a little bit longer than we thought but we are executing.”
The company began buying land in 2016. It has acquired six projects and is now managing the development of roughly 2,000 lots in four markets – Phoenix, Dallas-Fort Worth, Raleigh, N.C., and Nashville. Suncrest currently has partnerships with major public builders, including D.R. Horton, Pulte Group, and M/I Homes.
Although Suncrest is headquartered in Phoenix, Koch and Cooney have been setting their sights on the Southeast because a lot of the land is held by private owners instead of institutions. Koch says they’d like to develop more lots in Phoenix or Southern California but the numbers are tough to pencil. “The economics just don’t make sense; the land is just too expensive, the home values are too little,” he says of markets like Phoenix which are driven by institutional investors. “Builders’ margins are being squeezed, therefore there’s almost close to zero room for a developer.”
In markets like Raleigh and Nashville, Cooney says, Suncrest has found success dealing directly with private owners. “Even though the supply is tight in those markets you have the ability to actually go and negotiate directly without broker interference,” he adds.
To that end, Suncrest recently purchased a 194-acre parcel outside of Nashville in Lebanon, Tenn. from a private owner. The firm has partnered with D.R. Horton and Brentwood, Tenn.-based Celebration Homes on the community that will be called Woodbridge Glen. Suncrest will deliver about 770 home sites on which townhomes and single-family homes starting in the low $200s will be constructed. The community is slated to open in spring 2019.
A big part of Suncrest’s business model is to find land in high-growth markets and lock down building partners before closing a deal. “By having the builders contracted when we close mitigates time risk,” Koch says. “Ideally we close on the land and we’re in the ground within six-to-nine months.”
When Suncrest targets a property it has a “keen sense of which builders are most active, what their inventory looks like, and who are the suitable builders by product-type for that particular property,” says Koch. “It’s just a process of elimination. All our properties we get multiple offers and we’ll select the group that is best to work with on that project to make that project successful. Not all builders are equal.”
Cooney adds that the market and project will dictate which builder the firm selects, but notes that these days Suncrest gets periodic phone calls from land acquisition employees from the nation’s top builders on a region-by-region basis.
In April 2016, Suncrest and a New York real estate fund acquired 165 acres in Wake Forest, N.C., outside Raleigh, and is currently developing 452 lots for Pulte Del Webb. The first 90 lots were delivered in the third quarter of 2017 and the grand opening of the active-adult community, called Del Webb at Traditions, took place in October 2017.
Koch and Cooney are on the road often scouting new locations and meeting with industry professionals. The company has four employees and works with third-party contactors in each local market. Suncrest was self-funded initially but now brings on an institutional private equity fund for each project. “We don’t syndicate to multiple investors,” Koch says. “Typically it’s one partner and us.”
“During the downturn, one of the biggest casualties of the crash were developers and not all of them have come back,” says Cooney. “So the ones that are active are very active, but there is competition but it’s funny, we’re rarely competing for deals.”
The company has been able to geographically diversify with private equity and national builders in a relatively short period of time, adds Cooney, which is a position a lot of developers would envy. “We have fought and scratched and found every nickel to grow this business and now we’re at the point that when we find a deal the capital is there,” he says. “That’s a feather in our cap.