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The next trend in real estate?

Posted by: Dean Foust on May 30, 2007

Had a chance recently to catch up with a friend who is a real estate attorney (representing developers of various ilk). We talked about the homebuilders, and he surprised me with this prediction: Given that the big homebuilders are sitting on thousands of parcels of land lots for sale.jpgthey don’t want, and given that some seers in the industry are now predicting it could be several years before demand builds back to the levels of recent years, you’re going to see a number of regional managers for the big builders — say, the folks who run the Phoenix, Tallahassee or Richmond operations for a big builder — spin off to do their own thing. He’s in discussions with some regional managers who fit this profile and who are looking for an attorney, but doesn’t want to name names at this hour.

Why would they go out on their own in this kind of market? Because they believe that the big builders are dead money for the next several years -- the stocks will, at best, tread water, meaning there's no upside in hanging on to their stock options. But more to the point, they know that the builders are desperate to get their land holdings off the books. So they get a pool of patient, long-term investors, offer to take some land off the builders for, say, 40 to 50 cents on the dollar, then hold tight for another year or two until demand catches back up with supply. (Being backed by patient money is key.)

Then they start building. And if the market rebounds even modestly, building on cheap land will provide fat margins.

The big, publicly traded builders in recent years argued that they could sustain their heady growth because the industry was so fragmented (the biggest builders only represented something like 20% of the market) and there was ample room for consolidation. They could squeeze out the small builders. But now I'm wondering if we might see the opposite, at least for the next few years, as mid-level execs jump the mothership at form their own firms.

Reader Comments

murdock mcintyre

May 30, 2007 6:34 PM

I believe on the label of my subscription which I have had on and off from my college days in the early 70s is proof of my subscripsion (r0701d120) which for the first time I am considering cancelling. I own a Mortgage company in southern california and have used articles in your magazine many times in my sales meetings as reference material. Dean Foust is the first writer associated with your magizine that I really feel he does'nt know what he is talking about. if I was to start writing articles I would label it to much mis-information about the sub prime loans.first of all the people who you refer to make no independent decisions about who qualifies, this originates from the investors in the secondary market who buy that paper once the loan is made based on thier guidelines. they made decisions on how liberal they would be with certain credit scores and when their judgement proved to be in error there was no warning given to the mortage originators. back in 1988 when fha stopped doing a 15% down non owner occupied loan no irresponable writers blamed the person writing the loan per fha guidelines the congressional people who looked into the rapid rise in forclosures put the blame on the proper door step the people at hud who wrote the fha policy. please when you take so much joy writing about the folks, get it straight who the folks are. M.E. mcintyre proud to be a mortgage broker who does sub-prime when it's what the customer after becoming familiar with the facts deicdes is appropriate for them; what proffessionals call an informed decision.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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