GTIS Partners, which spent about $1 billion since 2009 to buy more than 35,000 lots in 27 markets, has been selling for double or quadruple the price it paid, said CEO Tom Shapiro.
“Land has a lot of convexity to it,” Shapiro said in a telephone interview. “If home prices go up 5 or 10 percent, land prices can go up 20 or 30 percent. You have to be careful because it also works on the way down, which is how people got really hurt.”
The housing crash pushed many developers and landowners into bankruptcy, giving investors the opportunity to buy large, unfinished master-planned communities for distressed prices. In 2012, for example, Paulson paid $17 million, or 6 percent of the outstanding debt, for a post-bankruptcy acquisition of 875 acres (354 hectares) in Lake Las Vegas, Nevada, according to the Contra Costa pension fund report.
That’s less than $20,000 an acre in a market where homebuilders now typically pay $400,000 to $450,000 an acre, said Dennis Smith, CEO of Home Builders Research, a Las Vegas consulting firm. Not all of that increase would turn into profits, because much of the Lake Las Vegas land is set aside for open space and Paulson invested in improvements, such as restoring a golf course.
Slowing Gains
Paulson may face risks as prices moderate. Finished lot prices, after jumping as much as 28 percent in 2013, increased just 2 percent in the first quarter from a year earlier, according to John Burns Real Estate Consulting. Homebuilders are cutting back on land purchases after “aggressively” spending from 2010 to 2013, Barclays Capital Inc. said in a note this week.
Wheelock Street Capital, which bought 24,000 lots starting around the same time as Paulson, has been a steady seller, said Dan Green, principal at the real estate private equity firm.
“We wanted to get in and buy and enjoy the recovery and not hold until the top” of the market, Green said
Master-planned communities can take years to liquidate. Paulson’s first targeted disposition locations include Belmont and Triple Creek in the Tampa, Florida, area; Southshore at Aurora and Crystal Lake outside of Denver; and Lake Las Vegas.
“It’s not because it’s time to get out, but because you’ve got to start to sell these larger, longer-term assets,” Barr said. “We still think we’re mid-cycle in most of our markets.”