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Who Controls the Land?
Sullivan Group Inventories Finished Lots in Las Vegas

In the midst of such challenging times in the economy and the housing market, one would expect land acquisition to be low on the list of homebuilder and investor priorities. But as the market nears a bottom as Sullivan Group believes it will in 2009, many organizations are strategizing for the future, including considering the demand for land and lots.

In recent months, perhaps as much as any time in our more than 10 years in the Las Vegas market, we were finding that builders, investors, and funds were increasingly asking, “Where can I find lots?” particularly in an environment where land development has slowed substantially.

When considering homebuilders, there are two types asking this question. Several larger public homebuilders are finding their finished lot inventories dwindling quickly, even at current sales paces. And smaller, entrepreneurial builders (many of whom are well capitalized) are finding that, to paraphrase Warren Buffett, the time to be greedy is when others are fearful and that now is the time to pursue well located lots.

But in the course of our ongoing market research, we found that nobody truly had a comprehensive understanding of how many finished residential lots were in the market, where they were, or who controlled them. We set out to definitively answer these questions.

We pulled hundreds of plat maps from throughout the metro area and with a team of experienced researchers, spent weeks inspecting subdivisions across Las Vegas to count single family detached finished lots. We tested our results with selected homebuilders and developers, asking them to confirm the data for their own subdivisions. Builders commented that the data was “remarkably accurate” and “very impressive.”

So how many lots are there?

Our survey of the Las Vegas found more than 18,000 finished single family detached lots in the market and more than 4,400 rough graded lots. Our survey revealed the following:

• Private homebuilders control half of the finished lot inventories in Las Vegas. While the largest single owner of finished lots in the marketplace is a public homebuilder, there are currently six builder entities that control more than 1,000 finished lots each. Three of these are privately held homebuilders and these three builders combined control more than 3,700 finished lots.

• Current finished lot supplies represent about a one-year inventory in Las Vegas for a “typical” year (but closer to two years in this distressed market). Consider that the metro area averaged more than 20,000 new home sales per year from 1999 to 2002 and that detached sales typically account for 75% of the total. In the peak years of 2005 and 2006 when condo conversions and luxury high-rise sales were prevalent, attached sales accounted for as much as one-third or more of all sales. Those numbers were substantially lower in 2007 and it looks like the attached market will represent less than 15% of new sales this year.

• The largest concentration of lots is in southwest Las Vegas. We found that more than one-third of all finished lots were in the southwest or what is sometimes referred to as the West Las Vegas submarket (that region generally west of Interstate 15 and south of Charleston Boulevard and Summerlin). The distribution of lots is logical. Since 2004, roughly one-third of all new home sales in Las Vegas have taken place in West Las Vegas.

• About half of all finished lots are located within Las Vegas area master planned communities. Substantial concentrations of finished lots exist in “stand-alone” communities that are outside of traditional master plans.

Our survey offers a detailed inventory of detached finished lots in the Las Vegas metropolitan area. Portions of the report may be purchased by those organizations interested. Please contact Ken Perlman at 858-523-1443 x151 or at k.perlman@sgrea.com.

Sullivan Group Real Estate Advisors conducts feasibility studies, strategic plans, repositioning and product, pricing and absorption analysis for homebuilders, developers, lenders and the public sector all over the United States. In the last 12 months, we have completed 350 studies in 50 metro areas. Please contact Tim Sullivan at 858-523-1443 x152 or at t.sullivan@sgrea.com.