Land shortage squeezes small builders

March 19, 2003 - The shrinking availability of land in the Las Vegas Valley has driven property prices up, making it difficult for smaller builders to stay afloat. A market consolidation between large developers and builders, combining assets and capital, has left little room for anyone else to compete.

Recently, American Nevada, Pulte Homes, KB Home of Nevada and Lewis Land Co. of Nevada formed a joint-venture partnership to pursue upcoming Bureau of Land Management (BML) real estate auctions. KB and Pulte recorded 5,078 new home sales last year for 23 percent of the market share. The two companies represented nearly one out of every four new home closings in 2002.

"Land is so expensive, especially the large parcels, that if you have several parties, combining their capital resources and expertise, (there's) a much better chance of being successful at auction," said John Kilduff, president of American Nevada Corp., a Henderson-based developer.

As per the Southern Nevada Public Lands Management Act of 1998, the BLM must dispose of 27,000 acres worth of property in Clark County. There have been 12 land sales thus far. The BLM holds two auctions annually, which result in about 2,000 acres of federal land being passed into private hands.

In May 2001, American Nevada and Del Webb formed North Valley Enterprises, LLC, to successfully bid on 1,905 acres of BLM land in North Las Vegas. That parcel is currently being developed as the Aliante master-planned community, bordered by Grand Teton Drive, Centennial Parkway, Decatur Boulevard and Clayton Street in North Las Vegas. The master plan calls for 7,500-homes, plus 428 acres of recreational amenities and 60 acres of retail-office buildings.

"As it relates to master plans, the only large tracts available are being managed by the BLM," Kilduff said. "Without being successful at these auctions, there are no opportunities to do a master plan in the valley."

The BLM plans to divest roughly 4,000 acres at auction this year, double their previous amount. About 1,000 in southwest Las Vegas will go on sale on June 5 followed by 3,000 acres in Henderson on Nov. 6.

"The little guy is getting pushed-out," said Jeremy Aguero, principle of Applied Analysis, a Las Vegas-based research firm. "There is nowhere they can go to buy a 20-acre lot and develop their own subdivision. That is becoming increasingly difficult."

The top 10 home builders accounted for a market share of 53 percent in 2002, up from 48 percent in 2001. In 1996, there were 160 residential builders who sold 10 homes or more. Last year, that number dropped by almost one-third, to less than 110.

"There is available land in existing master plan developments such as Summerlin and Green Valley Ranch," Aguero said. "However, when you start looking for tracts large enough to build for a village concept - 700 acres or more - it's effectively non-existent."

The land crunch is the number one reason for rising new home sale prices, which jumped 7.1 percent in 2002, despite a 1.9 percent slip in sales. Although a new median home now costs $186,827 and property is nearing $250,000 an acre, Southern Nevada's housing market remains white-hot due to the area's job growth. With a 2.8 percent employment growth in 2002, producing 25,000 new jobs, roughly 6,600 residents continue to migrate to Clark County every month.

"Most of the smaller production builders, 50 to 100 homes a year, will either have to go for an in fill, a master plan or assemble smaller parcels in order to build a subdivision," said Dennis Smith, president of Home Builders Research Inc., of Las Vegas.

For Astoria Homes, of Las Vegas, remaining competitive has meant forming a lands acquisitions division dedicated to tracking property for sale.

"We want to make sure that (land owners) think to shop with us," said Astoria President Tom McCormick. "It's getting tougher and tougher to be an independent firm and not be a public or large company."

Last year, Astoria sold 568 new homes for a 2.5 percent market share, but anticipates 900 in new unit sales for 2003"

"We are open to doing something like a joint-venture," McCormick said. "But I think it works a lot better if a single large entity buys (land) and then sells off parcels. ... We are first and foremost a home building company."

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Article Copyright ©: T. Illia, Special to the Business Press