Single Family Building/Development Modeling Resources??

Does anyone know good resources to learn more about the process of Single-Family Development, specifically modeling, understanding the process, costs associated on both a smaller/regional type builder to the major players such as Toll Brothers, Lennar, etc? Any courses, textbooks, general resources that are good quality would be very much appreciated.


 

ORO-Real Estate

Does anyone know good resources to learn more about the process of Single-Family Development, specifically modeling, understanding the process, costs associated on both a smaller/regional type builder to the major players such as Toll Brothers, Lennar, etc? Any courses, textbooks, general resources that are good quality would be very much appreciated.

Not a helpful comment, but I have yet to encounter any such resources (or at least good ones). It’s an interesting space that, to me, seems much more fragmented than other corners of real estate. I don’t know if others here would necessarily agree with that, but if true, such fragmentation might explain the paucity of useful public resources.

If others have a different viewpoint I’d definitely be curious.

 

It's best to think of home building in terms of manufacturing and land development merely as a means of producing a widget.  The modeling you are accustomed to in commercial real estate is going to be dramatically different in single-family land development because ultimately the home builder is trying to feed the machine and as long as they can sell the home for a profit they will continue to build.  Think of it more in terms of a consumer discretionary good rather that a real estate investment.

If you, or anyone, has some very specific questions - more than happy to answer with what I know.

 

Thank you for the response and willingness to help. If you get a chance I would love to hear your perspective on the following. Please let me know if you like me to add/edit for clarity.

(i) How much different is the analysis between a institutional/national type shop relative to a regional developer aside from scale? Is the analysis similar or are the top players building extensive models where as the smaller firms more BOE?

(ii) How do you make accurate assumptions on costs for large scale projects? Is it all subcontractor bids, pricing software, or just learned over time?

(iii) What are considered good returns for both a large scale transaction vs the regional shops? If Toll Brothers Reported a Gross Profit of 21.6% for 2Q2023 and are like a fine tuned machine is that the top end of where projected returns should be? What other variables are considered to make a deal more/less appealing?

(iv) would you recommend anywhere/resource/anything that I could work off to learn how to model either a larger scale deal and/or regional/smaller type development?

 

Just to clarify, are you talking about land development or home building?  They are different, but complementary, businesses.  And yes, some home builders also have in house land development - but they are still separate functions.

As an example, a DR Horton ($DHI) both develops land and builds homes.  But Forestar Group ($FOR) just develops lands.  Then there are yet other builders that only build homes and do not develop land.

 
Most Helpful

I will answer the question from a home builder's point of view and then let you, or anyone else, follow-up with further questions or questions on land development, which is a completely different business.

  1. Think of home building similarly to manufacturing.  The decision to move forward on signing up for lots in a new community is very simple, whether you're at a national production builder or a local builder.  It effectively boils down to: I can build a home for $X, sell it for $Y, make $Z which is %Z profit margin.  As long as the builder feels they are making sufficient profit margin and they have the capital to move forward, they are happy.  Even then, in some environments when they aren't making sufficient profit margin they may still sign up to 'feed the beast.'  Because in home building, similar to manufacturing, if you significantly slow down, or shutdown, the operations for an extended period of time, you will lose human capital.  Your superintendents, sales, and so forth will go somewhere else.
  2. Builders don't have large scale projects.  Conceptually Builders are buying 'finished lots' (lots ready to build homes on) from land developers and then building a home on that lot.  They have 'lot takedown schedules' where they sign up to 'take down' (purchase) X lots per period (monthly / quarterly) from the land developer.  This adds to their vacant finished lot inventory and they build homes as they see fit on these lots.  Before they begin building in a community they will have an idea of the product they want to deliver and yes, they will get 'take-off estimates' from their architects when designing and then formal bids from subcontractors before they start breaking ground to build the home.
  3. It varies widely depending on the type of product you're delivering, the market you're in, and etc..  A private, semi-custom home builder who focuses on small volume in a local market may have 60%+ gross margins.  A public, production home builder who focuses on massive volume across the nation may have 20% gross margins.  Then you have everything in between.  Also consider margins expand and contract at various times across the industry.  So margins peaked in 2021 and are down in 2023.  But also remember that build times are important to home builders because it measures how fast they recycle their capital to build the next home.  So if your build time went from 12 months in 2021 (because of labor shortages, material shortages, etc.) to 9 months in 2023, that's meaningful to your bottom line even if margins compressed.  Think of it as a return on equity calculation.  For example, you may be okay with 20% margins if you can build a home in 6 months versus 30% margins if that home takes you 12 months elsewhere.
  4. I don't understand what you mean by development and my best guess is you don't really understand the difference between land development and home building.  But would start with the easily accessible things like YouTube, 10-Q reports for the public builders, and so forth.  If you're interested in the land development side, I think there's a YT channel called "Land Development 101" that will give you a brief overview of what all that entails - which is completely different than home building.
 

A major difference between SFR models and other development models is that SFR developments can cycle cash. You can use the sales proceeds from units completed and sold earlier to fund the construction of later units. So the amount of equity you need to raise from outside investors is less than the overall amount of non-debt cash you need to complete the project.

 

Enim eveniet repellat et et eum. Quis inventore dolor fugiat ab. Voluptas vel modi officiis. Qui necessitatibus in est eius repellat quaerat.

Aperiam vero perferendis error aperiam sunt dolorum tenetur. Magnam voluptatem saepe nisi. Ut est illum et qui voluptatum aperiam expedita. Veniam aliquid harum nobis ducimus dolores doloremque rem. Natus et officiis harum repudiandae.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Perella Weinberg Partners New 98.9%
  • Lazard Freres 01 98.3%
  • Harris Williams & Co. 24 97.7%
  • Goldman Sachs 16 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.9%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 05 97.7%
  • Perella Weinberg Partners New 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.9%
  • Perella Weinberg Partners 18 98.3%
  • Goldman Sachs 16 97.7%
  • Moelis & Company 06 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (21) $373
  • Associates (91) $259
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (68) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (148) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”