Public Homebuilders
What are all the different ways a homebuilder starts building a home? Is below the correct ?
- The homebuilder acquires the land outright on their balance sheet --> Hires the in-house development team or finds a fee developer to develop the lots --> Construction starts once the lots are finished
- The homebuilder partners with a land banking partner to keep the land off the builder's balance sheet --> Hires the in-house development team or finds a fee developer to develop the lots --> Construction starts once the lots are finished
- In this case, is the construction financing off the builder's balance sheet, the builder's revolving credit facility, or does the land banking partner also provides a construction loan?
- A residential lot developer owns the land and approaches the builder for (1) future lots in bulk, (2) future lots on a rolling basis, or (3) the lots are already constructed
Esque_ Link_REDev Ozymandia ResMan
If you guys are still around, would love your input.
All of the above are correct. Some additional color and methods described below.
Trying to think of what else I've seen over the years. Would have to give it some thought of other ways I've seen folks get creative. Big picture, you're on track and I'd rank them in terms of frequency / market share #1, #3, #2. The remaining outlined above are de minims in the grand scheme of things.
What do these guys get paid throughout their career trajectory? I see their titles are like "Land Acq, Land Manager" and no others. Do public homebuilders ever offer carry or profit participation to their acquisition crew and are they rolling in it and barely working any hours?
Not sure on exact compensation but I'm at a national merchant build multi-family developer and a well paid VP with carry left for a land acquisition role at a public homebuilder so has to be pretty solid.
#1 is correct
For #2, typically the land banker (in the context of a land banker performing the infrastructure work) will not lend debt to fund construction of bricks & sticks + construction outside of the infrastructure scope. Consider the homebuilder and land banker as two separate entities/capital structures to perform the work. The homebuilder will utilitize the B/S, credit facility, construction debt, etc to fund their portion of the construction WHILE paying the land banker to perform the work via an interest rate or some other unique/atypicaly structure.
#3 is correct although the builder will typically take down the lots for them to construct, not the residential lot developer. The lot developer will take down the land and typically manage the infrastructure construction/costs with the lots sold at 'pad ready'
Esque_ and Link_REDev
Thank you both for your input, I really do appreciate it.
Does anyone have any textbooks or pdf's I could use to go deeper into the above? Would love to learn more, currently interviewing with BFR shops and a group that is aiming to deploy a land financing fund.
NVR the public homebuilder is the poster child for land banking, if that's what you're curious in. Also this thread has a land banking thread.
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