U.S. Homebuilding Surging Amid Uncertainty

August 03, 2020 - 06:27
U.S. Homebuilding Surging Amid Uncertainty

- Walton International Group’s Strategic Relationships with Top U.S. Homebuilders Set to Reap Rewards


SINGAPORE - Media OutReach - 3 August 2020 - Covid-19 is having a profound impact on thehomebuying decisions of many Americans, as witnessed by the rapid recovery ofthe U.S. housing market in the past quarter. Walton is uniquely positioned tocapitalise on current trends as a result of its relationships with large U.S. homebuildersand the flexibility of the land inventory platform it offers.


Before Covid-19 themigration of millennial and other homebuyers to more spacious, affordable communitiesin the suburbs was already underway. Now, the combination of cabin fever fromprolonged lockdown, new acceptance of work from home and historically lowinterest rates is turbocharging what some real estate analysts are coining "TheGreat American Move".


In June 2020, theU.S. Census bureau reported the highest level of single-family detached homesales since July 2007 and the National Association of Home Builders/Wells FargoHousing Market Index saw its largest-ever monthly increase on record.  Key metrics such as sales orders and buyertraffic mirror a mix of increasing mortgage applications and low interestrates. In fact, some homebuilders saythey have never seen so many first-time buyers as in May and June 2020.


The financial impactof Covid-19 seems to be relatively limited in the suburbs where most of the newhomes are being built. Additionally many of the highest growth housing marketsin the southern states such as Texas, Arizona, Georgia and Florida are set tobenefit from a wave of onshoring as U.S. owned manufacturing businesses plan torelocate or expand factories in the U.S. in the near future. Recent examplesare commitments by the chipmaker TSMC to Phoenix, Arizona and the carmakerTesla to Austin, Texas which are set to bring thousands of jobs that will buoy localeconomies and add to demand for new housing in their suburbs.


This will require aquick response from homebuilders to boost limited supply. Many   largeU.S. homebuilders are already reporting historically high backlogs of homesunder contract so maintaining a stable supply of land inventory will be one oftheir foremost challenges. Under such circumstances, the value propositionoffered by Walton's land platform is more relevant than ever. Walton offershomebuilders flexible land acquisition structures whereby the homebuilder isable to acquire land in phases with the bulk of land payments deferred untilthe time that homes are sold.  In return,the homebuilder takes on entitlement and land development costs.  With this investment structure, Walton and itsinvestors benefit from cashflow over the course of the development.


"Our collaboration with majorU.S. homebuilders involves Walton buying and 'banking' the land. Thehomebuilders then manage the zoning, development, homebuilding and sales tohome buyers." said Bill Doherty, CEO, Walton Group of Companies. Homebuildersare asking us to buy near term development assets to enable them to maintainliquidity."


Walton's shift in strategy was underway well before Covid-19. Given its relationship with key players inthe industry and understanding of market trends, Walton had been pivoting itsstrategy away from longer term landholdings to high volume, faster turnover ofland inventory that meets homebuilders' immediate development requirements.


"Under this structure, it creates new opportunities for investorslooking for a balance between risk and yield. It offers investors exposure to a hard asset in the U.S. coupled withthe fact it is also tied to large homebuilders with strong balance sheets. This appeals particularly to our globalinvestor base," added Mr. Doherty.


The response of thehomebuilding industry has been overwhelmingly positive. As a result, Walton hasalso been able to enhance its traditional investor offering -- direct ownershipin pre-development land -- and give it more of an exit focus. With this strategyWalton identifies land for a pre-determined homebuilder's medium-termdevelopment pipeline, typically targeting properties where development canbegin within 24 to 36 months. At the time of acquisition Walton enters into an exit-focusedagreement with the builder offering an exclusive right to purchase the land inthe future; the homebuilder benefits from being involved in the land planningprocess at an earlier stage. Ultimately homebuilders are expected to acquirethe property in a phased takedown, thereby generating cash flow for investors.


Recently, Waltonentered into an option agreement to sell 217 homesites to D.R. Horton in theEscondida Pointe community.  The optionagreement was structured as a phased takedown with quarterly lot closings.  As of June 2020, 100% of the residential lotshave been sold.  Escondida Pointe islocated at 53-954 Shady Lane, Coachella, CA. Coachella is 28 miles east of PalmSprings.


For over 40 years,Walton has researched, planned and structured pre-development land investmentslocated in major growth corridors throughout the U.S. and Canada.  Through innovative, well-researchedstrategies, it has created new opportunities for both investors andhomebuilders alike.


About Walton

Walton is aprivately owned, leading global real estate investment, land asset managementand administration company that has focused on strategically located land inmajor growth corridors for 40-plus years. The company manages and administersUS$3.39 billion of real estate assets in North America, on behalf of itsinvestors and business partners. Walton has more than 104,000 acres of landunder ownership, management and administration in the United States and Canada.For more information on Walton, its entities and the company's portfolio ofassets, visit Walton.com.