Banking on the Future: Builders and Land Bankers Grow Together
Proactive homebuilders are securing their future growth by pre-acquiring land to replace existing plots and expand their operations. To achieve this, they are partnering with “land bankers” – investors who purchase the land on the builders’ behalf and hold it until the builders need it. In return, the land bankers earn a fee for their services, allowing the homebuilders to focus on their core business while maintaining control over their future development plans.
According to John Burns, land bankers are more disciplined than ever. They carefully monitor macro- and micro-economic trends and assess factors such as the builder’s financial health, entitlement and land development costs, and market conditions. Many have set up very efficient due diligence processes, often with our consulting team, which helps them respond to builder requests quickly and cost-effectively.
Both builders and land bankers see their relationship as a long-term strategy for managing capital, ensuring that both sides are compensated fairly for their efforts.
Recent statements from builders show a strong focus on land banking in 2024 and beyond:
Lennar (March 2024): “In the first quarter, we continued to effectively work with our strategic land and land bank partners, where they purchase land on our behalf and then delivered just-in-time homesites to our homebuilding machine.”
“We have now rekindled our focus on a strategic spin-off that can be cleanly focused on fortifying durable land strategy.”
“Spinning our own land, excess land in a taxable spin, we believe that we can create with permanent capital, vehicle that can option, develop homesites for Lennar and recycle capital into new homesites while distributing market-appropriate returns to shareholders.”
Meritage Homes (February 2024): “We still have very deep land banking relationships that we continue to cultivate, and we’ll activate them as needed. As we look into the next couple of years and expect a period of high growth, we don’t expect to finance all acquisition and development with our own capital, and we plan to leverage these relationships with our land bankers to ensure we grow responsibly.”
PulteGroup (January 2024): “Since making the decision to expand our use of land banking starting 15 months ago, we have placed approximately 25 communities, representing $1.5 billion worth of future land and development spend, into such structures.”