November 23, 2010 / 8:23 PM / 8 years ago

Exclusive: Homebuilders hover as Wheelock buys Austin land

NEW YORK (Reuters) - Most homebuilders have survived the housing downturn by targeting first-time homebuyers who do not need to sell a home to buy another.

Yet there still are still prime areas, such as Austin, Texas, where there is life in the move-up market for current homeowners.

Wheelock Street Capital, a real estate private equity firm founded in 2008, told Reuters exclusively it bought The Canyons of Sweetwater, a stalled 1,600-home development in one of the Austin area’s top-ranked school districts.

It will further develop the land, which already has a road and some utilities, and will put lots up for sale in as soon as six months, Principal Dan Green said.

Homebuilder confidence remains stuck at historically lows, according to the National Association of Home Builders/Wells Fargo Housing Market Index, which was 16 in November. A reading above 50 indicates more builders view sales conditions as good than poor. The index has not been above 50 since April 2006.

But big builders are sweet on Sweetwater.

“To tell you who’s interested would be a kind of “Who’s Who” of public builders,” said Eldon Rude, who directs market research in Austin for real estate information company Metrostudy. “There are not many public builders in our region that wouldn’t be interested in building homes in Sweetwater.”

Builders such as Toll Brothers Inc (TOL.N), Lennar Corp (LEN.N) and Meritage Homes Corp (MTH.N) have used the housing market downturn in the last four years to buy land on the cheap. They also did their best to purge lots bought at peak prices during the boom.

Wheelock did not disclose Sweetwater’s purchase price, but said the average lot could fetch about $60,000, 25 percent less than the peak price of $80,000 for a comparable piece of land.

Homebuilders “can only pay what they can pay to try to get a profit,” said Green. “It’s not like it was in the bubble days, when you just threw it out there and everybody was competing to get a hand on it. It’s just nice to have somebody call you again.”


Home to the state capital, Texas’ flagship university and a thriving tech sector, Austin is one of only three markets — along with Raleigh, North Carolina and southern California — where big homebuilders will still buy land outright instead of paying a smaller amount for the option to buy it, said Wheelock vice president Ayesha Menon.

D.R. Horton Inc (DHI.N), the biggest U.S. homebuilder, is also the biggest in Austin, Rude said. KB Home (KBH.N) and PulteGroup Inc (PHM.N) are the second and third biggest.

Sweetwater offers homebuilders what is becoming an increasingly rare opportunity to build for Austin’s more affluent citizens in the school district they favor, which also happens to be located in a beautiful and environmentally protected part of town, said Tim Riley, a broker with Land Advisors Organization.

“These types of transactions show the builders’ faith in the market,” said Riley, who is representing some of the builders bidding on Sweetwater lots. “They want to solidify their positions.”

Wheelock’s plan includes homes priced from $250,000 to more than $1 million for those that are custom-built, said Green.

“This is getting into some of the higher price points,” Riley said. “This is one of the paramount projects in Austin.”

The deal would not work for either Wheelock or its potential buyers among the builders unless the firm bought the land at a sufficient discount, said housing consultant Richard Gollis, who is based in Newport Beach, California.

The sellers were an affiliate of Bank Midwest and other lenders, who had foreclosed on the property.

Gollis projects that, by 2014 at the latest, Austin will be selling 12,000 homes a year. That is off the peak rate of 16,000 in 2006, but up sharply from the current rate of about 8,000 in the last year.

“Builders need to stock their pipeline for 2012, 2013 and beyond,” he said. “Sweetwater is in a really good place.”

Reporting by Helen Chernikoff; and Andre Grenon

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