"Today, builders of every size, ranging from the top-ten publics to regional privates, are using land and lot bankers to move land off their balance sheets, preserve capital and concentrate on building and selling homes. The scale of this transformation is difficult to overstate. Lennar's creation of Millrose Properties, a publicly traded REIT externally managed by Kennedy Lewis Investment Management, moved $5.5 billion in land assets and $1 billion in cash off Lennar's books in a single transaction."
"Lennar went from 19% optioned homesites in 2013 to 82% by the end of 2024 to manage takedown schedules on a just-in-time basis. D.R. Horton's relationship with Forestar and the rapid growth of institutional lot bankers have pushed the entire industry in the same direction. Stuart Miller has described the goal as becoming a pure-play, asset-light, new home manufacturing company, and CFO Diane Bessette has noted the lower cost of capital Millrose offers versus the industry norm of approximately 12% through private land bank funds."
"The model works; however, a question that the industry has been slow to ask: If the land/lots are banked and the capital structure is optimized, is there a second layer of financial engineering that can further improve the economics, not just for the builder, but for the land/lot banker as well? In our experience, the answer is yes, and the opportunity is in infrastructure finance."
"To understand why infrastructure finance matters to land banking, you have to understand the mechanics of how a finished lot price is determined. In a typical structure, the land banker underwrites the total development budget: land acquisition, entitlement costs and the full scope of infrastructure required to deliver a finished lot. That budget, plus the land banker's requ"
Land-light homebuilding has become a structural shift in how builders finance operations by using land and lot bankers to remove land from balance sheets, preserve capital, and focus on building and selling homes. Builders across public and private sizes have increased reliance on optioned homesites and land banking arrangements. Lennar created Millrose Properties, moving billions in land assets and cash off its books, and expanded optioned homesites from 19% in 2013 to 82% by the end of 2024. D.R. Horton’s relationships and the growth of institutional lot bankers have accelerated industry adoption. The model lowers the cost of capital through structures offering returns below typical private land bank funding rates. A further improvement may come from infrastructure finance by affecting how finished lot prices are determined through underwriting of development budgets and infrastructure scope.
Read at www.housingwire.com
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