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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Mick Mørmøny who wrote (44017)	11/3/2005 10:02:00 PM
From: Mick Mørmøny	Read Replies (1) \| Respond to of 306849

Builder CEOs see land challenges Firms increase use of options in tougher environment By John Spence, MarketWatch Last Update: 2:37 PM ET Nov. 2, 2005 BOSTON (MarketWatch) -- Home-building companies are facing challenges as free lots to build on are becoming more difficult to come by, and the entitlement process becomes more stringent, chief executives say. "If you don't control land today, you can't grow later," said Richard Dugas, Jr. CEO at Pulte Homes Inc. (PHM) at a home-builder conference Wednesday hosted by UBS. "Entitlements are getting tougher and the timeframes are getting longer," he added, saying land is a "zero-sum" game for public builders. Dugas also noted that more communities are objecting to housing development in a "not in my backyard" policy. In response to the increased costs and time involved with the entitlement process, builders are increasingly using options on lots rather than buying them outright. "Options help mitigate risk during the entitlement process," Dugas said. "We like to control land resources without stressing the balance sheet." R. Chad Dreier, chief executive at Ryland Group Inc. (RYL), said in a perfect world, "we'd own half our land, and option the other half." Some executives say the home-price increases in the hot markets are partly a result of fewer building permits being granted despite stronger demand. "The regulatory environment is getting tougher," said Ara Hovnanian, CEO at Hovnanian Enterprises Inc. (HOV) As a result, Centex Corp. (CTX) Chief Executive Timothy Eller said his company plans to slow land purchases to reduce expenses. Even though builders are much less leveraged than they used to be, they're being forced to become land developers as the environment changes, executives say. "Land deals are larger and there are entitlement delays, so we hold land longer not because we want to, but because we need to," said Antonio Mon, CEO at Technical Olympic USA Inc. (TOA). Because land is more expensive to buy and takes longer to acquire, and because all the "easy-to-build-on" land has already been snapped up in the more speculative markets, builders with sizable land positions are more tempting acquisition targets, Mon added. tinyurl.com John Spence is a reporter for MarketWatch in Boston.