3 minute readStick around long enough in a business, and things repeat. This includes jokes.
American Homes 4 Rent (NYSE: AMH) (the “Company”), a leading provider of high-quality single-family homes for rent, and Värde Partners, a leading global alternative investment firm, today announced that they have entered into a land banking facility agreement. This facility provides $500 million in initial capacity to acquire and develop new land opportunities as part of American Homes 4 Rent’s internal development platform. The two firms have recently closed their first six land transactions into the facility, representing total acquisition and development costs of over $150 million, and due diligence is underway on additional sites. … “Our facility with Värde Partners will enable us to continue the strategic expansion of our development pipeline while also maintaining our commitment to a best-in-class investment grade balance sheet and reducing long-term risk,” said David Singelyn, Chief Executive Officer of American Homes 4 Rent. “With a continued focus on our disciplined underwriting process and a robust pipeline of development opportunities, we are well-positioned to execute our three-pronged growth strategy in our diversified portfolio footprint while driving value for shareholders.” What’s observable in the data now is this. The fundamentals of need for housing of all types and the fundamentals of “can pay” for housing of any type are entirely separate from one another, and the “can pay” segment is shrinking as cost-of-living and payment power go in opposite directions for so many households. On the other side of the coin, the fundamentals of capacity to develop and build versus the fundamentals of building, developing, and selling (or renting) for profit are entirely separate buckets as well. As an industry, there’s a mismatch – overcapacity in what’s less affordable and under-building of what’s more attainable – that cost inflation, overregulation, and lack of innovation have made more pronounced. “Long on land” is in one way or another an issue of timing. To recognize which organizations may be long on land, John Burns says keep watch on “months of supply” as a proxy for where prices – prices paid and prices sold-for – are headed. Another expert point of view suggests that “long on land” may be decipherable in another of builders’ key metrics, pace. Ivy Zelman, ceo of Zelman & Associates, wrote what seems like a lifetime ago, in 2005 when she was equity research analyst at Credit Suisse: What will differentiate builders in a more challenging housing market is the quality of the land purchased during the past three years, as well as a company’s ability to alter its investment strategy. As [home]buyers become less abundant and supply begins to outweigh demand, fringe investments are likely to fare far worse. As with any land purchase, absorption rates (homes sold per period) are a key assumption to research when evaluating a parcel. While builders do not imbed home price appreciation in their pro forma analyses, the level of absorption does serve as a good proxy for the amount of maneuverability a builder has. If velocity declines from one’s original assumptions used to purchase the parcel, future sales, margins, and return on capital naturally come under pressure. It won’t be until the country experiences a market slowdown that builders will be punished for bad land purchases. Those who buy prudently are more apt to sustain a competitive performance trend. [emphasis added]. What’s uncanny is how well the same punchline plays as well now as it ever did. What’s also uncanny is how unfunny the joke is every time.Join the conversation
![Image source: Company reports American Homes 4 Rent (NYSE: AMH) (the “Company”), a leading provider of high-quality single-family homes for rent, and Värde Partners, a leading global alternative investment firm, today announced that they have entered into a land banking facility agreement. This facility provides $500 million in initial capacity to acquire and develop new land opportunities as part of American Homes 4 Rent’s internal development platform. The two firms have recently closed their first six land transactions into the facility, representing total acquisition and development costs of over $150 million, and due diligence is underway on additional sites. … “Our facility with Värde Partners will enable us to continue the strategic expansion of our development pipeline while also maintaining our commitment to a best-in-class investment grade balance sheet and reducing long-term risk,” said David Singelyn, Chief Executive Officer of American Homes 4 Rent. “With a continued focus on our disciplined underwriting process and a robust pipeline of development opportunities, we are well-positioned to execute our three-pronged growth strategy in our diversified portfolio footprint while driving value for shareholders.” What’s observable in the data now is this. The fundamentals of need for housing of all types and the fundamentals of “can pay” for housing of any type are entirely separate from one another, and the “can pay” segment is shrinking as cost-of-living and payment power go in opposite directions for so many households. On the other side of the coin, the fundamentals of capacity to develop and build versus the fundamentals of building, developing, and selling (or renting) for profit are entirely separate buckets as well. As an industry, there’s a mismatch – overcapacity in what’s less affordable and under-building of what’s more attainable – that cost inflation, overregulation, and lack of innovation have made more pronounced. “Long on land” is in one way or another an issue of timing. To recognize which organizations may be long on land, John Burns says keep watch on “months of supply” as a proxy for where prices – prices paid and prices sold-for – are headed. Another expert point of view suggests that “long on land” may be decipherable in another of builders’ key metrics, pace. Ivy Zelman, ceo of Zelman & Associates, wrote what seems like a lifetime ago, in 2005 when she was equity research analyst at Credit Suisse: What will differentiate builders in a more challenging housing market is the quality of the land purchased during the past three years, as well as a company’s ability to alter its investment strategy. As [home]buyers become less abundant and supply begins to outweigh demand, fringe investments are likely to fare far worse. As with any land purchase, absorption rates (homes sold per period) are a key assumption to research when evaluating a parcel. While builders do not imbed home price appreciation in their pro forma analyses, the level of absorption does serve as a good proxy for the amount of maneuverability a builder has. If velocity declines from one’s original assumptions used to purchase the parcel, future sales, margins, and return on capital naturally come under pressure. It won’t be until the country experiences a market slowdown that builders will be punished for bad land purchases. Those who buy prudently are more apt to sustain a competitive performance trend. [emphasis added]. What’s uncanny is how well the same punchline plays as well now as it ever did. What’s also uncanny is how unfunny the joke is every time. Join the conversation](https://develop.housingwire.com/wp-content/uploads/2022/06/Screen-Shot-2022-06-06-at-1.41.27-PM.png 1280w){kind=link}