In the past few months, Ronald Ladell, a vice president for Arlington, Va.-based AvalonBay Communities, has seen new competitors move into the mix when he’s bidding for land in the New Jersey market. Despite still dealing with the after-effects of the housing bust, large single-family builders such as Toll Brothers and Pulte are starting to compete for land. “Twelve months ago, there was no Pulte out there looking at land in this market,” Ladell says. “Now, they’re back again. I have seen these companies pay incredibly high prices.”
Others have seen this as well. "We're seeing [the single-family builders] in selected high-barrier markets
like Boston and Washington, D.C.,” says Joe Keough, CFO for Atlanta-based Wood Partners. “In those situations where we're competing against them, they are being very aggressive.”
But there’s a catch. Instead of closing for all of the land at once, as rental builders such as AvalonBay generally do, these bidders want to close in phases—over 12, 18, even 24 months. They may be willing to spend as much as 25 percent more then their multifamily competitors, but their certainty of close on the entire parcel is much lower and entirely dependant on how sales in the earlier phases go.
“The land seller has a choice,” says Bill McDonald, executive managing director of the East Region for Dallas-based Mill Creek Residential Trust. “They may get more money in total if everything works out as planned, but get it over a longer period of time.”
Of course, sales could also collapse in the first phase, after which the land seller is left sitting with partially completed sites as the builder leaves.
So Ladell is trying to sell buyers on AvalonBay's ability to pay for everything upfront, even if it is less than for-sale builders can pay. “It’s frustrating because you have sellers who are saying, ‘I have Pulte and Hovnanian [offering premium prices],’” he says. “’Why should I sell to AvalonBay?’”
Despite the stigma, Ladell is getting some traction with sellers. “I'm able to convince some sellers that we're a better deal because we'll close earlier, in one phase, and without any financing contingency. Also, it helps to be able to show [the sellers] all of the construction that we have underway already within the same market," he says.
Of course, it could be worse. Five years ago, for-sale builders were offering twice as much. In red-hot Washington, D.C., a number of apartment builders say they aren’t seeing public builders compete for land. Toby Bozzuto, president of Bozzuto Development Co., says that inside the Beltway, the push has been towards transit-oriented development and infill, while the suburban sites are generally entitled for higher density than the public builders prefer.
Others in the market are also saying the public companies are silent in the chase for land. "We have not seen them compete in multifamily,” says Jim Butz, CEO of Mclean, Va.-based Jefferson Apartment Group.