Why homebuilders are buying hundreds of lots all around metro Phoenix

R.L. Brown Housing Reports tracked 1,053 land transactions with 30,617 acres and 14,194 lots purchased in 2023 in Maricopa and Pinal counties. That's down from 1,442 land transactions over 47,359 acres in 2022 — though the amount of lots purchased was actually up 8.5% from the13,088 lots that were purchased in 2022, according to R.L. Brown Housing Reports.

"I expect land to continue this pace in 2024 to keep new home product permitting in the 22,000 range and new home closings at 23,000, as we forecasted in December," said Jim Daniel, president of R.L. Brown Housing Reports.

Meanwhile, Michael Ingram, founder of Scottsdale-based El Dorado Holdings Inc., expects to see at least a 10% to 15% increase in new home sales and homebuilding permits in 2024 over 2023.

Faith in Phoenix's residential real estate market is evident in the flurry of recent lot acquisitions by homebuilders, who are scooping up land throughout the Valley with dreams of building up communities to serve huge employers such as Taiwan Semiconductor Manufacturing Co.

Houston-based CastleRock Communities, for instance, just dropped $34 million in cash for 230 acres at the Northpointe at Vistancia master-planned community in Peoria, according to Tempe-based real estate database Vizzda LLC. The land transaction represents 479 lots, said CastleRock CEO Lance Wright.

Plans call for developing three product lines ranging between 1,500 and 3,500 square feet, with estimated prices between $500,000 and $800,000.

"We'll bring all-new product; we haven't started drawing the product," he said. "We will create it new just for Vistancia."

Business Journal Special Report: Housing market analysts offer predictions on how 2024 Valley housing market will play out

The Vistancia purchase is part of a wider Phoenix push for the Texas homebuilder.

CastleRock also recently bought 149 lots from Pulte Homes in the city of Maricopa, while securing two other communities in Prescott Valley. The company has plans to continue buying land in the Valley, Wright said.

"Phoenix is a big market," he said. "As we were growing, it was always one of our primary targets. We love the jobs environment. Vistancia was a great opportunity for us to plant a flag. It is a nice deal with long-term opportunities."

CastelRock anticipates at least a three-year runway for Vistancia, where the company will "most likely sell some lots to a second builder," Wright said. With nearly 3,500 acres, Northpointe is the northernmost portion of the 7,100-acre Vistancia master-planned community and will include up to 3,200 residential dwelling units. Vistancia will also feature a 370-acre commercial mixed-use development with up to 1,900 medium- to high-density residential dwelling units.

In 2021, Newport Beach, California-based IHP Capital Partners teamed up with Minneapolis-based Varde Partners to acquire Northpointe. For the most part, the lower portion of Vistancia is sold out, said Chris Bley, co-president and chief investment officer at IHP Capital Partners. After selling to CastleRock, another 1,000 lots remain to be sold at Northpointe, he said.

The master-planned community is a few miles from Taiwan Semiconductor Manufacturing Co.'s $40 billion plant being built in north Phoenix.

"I think there will be a huge symbiotic relationship, not just for the employees at TSMC but tangible jobs that come along with it," Bley said. "That's one of the reasons we really want to create a truly well-rounded master plan."

Mark Hammons, principal of Land Resources, the development management team for the IHP/Varde venture, said he's optimistic 2024 will be a very good year.

"The sales pace is better than we originally had thought," Hammons said. "I believe that builders are doing a great job in working through some interest rate buy-downs and incentives to really attract the buyers on the sidelines right now. We have already received a lot of interest from our homebuilder partners."

For instance, Shea Homes purchased 125 lots for its age-restricted Ridgecrest at Northpointe community, said Hammons, who noted that Shea is planning four phases with 414 total home sites.

Ridgecrest is among the first of several Triology Boutique Communities around the country that Shea Homes' Active Lifestyle Communities division is building for homebuyers over 55 years of age. Prices will start in the high $400,000s.

"They make their residents feel very special; they have a strong following across the country," Hammons said. "We're very happy to have them in our community. They do an outstanding job."

Homebuilders look to the west

Tempe-based Fulton Homes also is bullish in the West Valley.

After making its mark in the East Valley over the past 40 years, Fulton Homes plans to develop four communities totaling 3,600 homes in the West Valley.

"You can just see that's going to be the vibrant area of the Valley going forward," said Norman Nicholls, president of Fulton Homes. "We're East Valley builders, but you really see the growth potential. All our land selection is focused in the West Valley, especially along Loop 303."

With homes ranging between 1,340 to 3,688 square feet, prices will start under $400,000 and go well into the $700,000s, he said.

Elsewhere in the West Valley, Landsea Homes Corp. (Nasdaq: LSEA) paid $4.8 million to DMB Associates Inc. for 145 platted and engineered lots at Victory at Verrado, a 55+ active adult neighborhood within the Verrado master-planned community in Buckeye, according to Vizzda.

Heather Cammiso, Arizona division president for Landsea Homes, said she continues to see success in this market and remains bullish as Landsea is "aggressively seeking new land opportunities."

So far this year, she has seen an increased demand for new homes in metro Phoenix with interest rates stabilizing.

"The pace of sales within the Landsea Homes portfolio continues to improve as we open more communities," she said. "In fact, we just recently sold out at Madison Square in north central Phoenix, Sunset Farms in Tolleson and we're down to just three opportunities at Centerra in Goodyear."

Cammiso said she remains cautiously optimistic for the Valley's housing market, as "early trends are showing improved traffic and a notable increase in sales as we enter 2024," she said.

David Weekley Homes works both sides of town

David Weekley Homes recently broke ground on a model home at Sentiero at Windrose in Waddell, an unincorporated area west of Phoenix. The 89 homes within this community range between 2,300 and 3,300 square feet.

David Weekley Homes, one of the homebuilders at Vistancia at Northpointe, has 20 communities currently under construction and 14 open for sales in metro Phoenix, said Mark Weber, division president for David Weekley Homes.

David Weekley Homes just paid $15.7 million to Tri Pointe Homes Inc. (NYSE: TPH) for 112 lots southeast of Phoenix in San Tan Valley, according to Vizzda. Those lots at the northeast corner of N. Kenworthy and E. Hash Knife Draw roads are within Ware Farms, according to Vizzda. In April 2022, Tri Pointe bought the entire first phase at Ware Farms, representing 252 acres and plans to build 774 homes.

Tri Pointe and David Weekley Homes are in discussions regarding additional land transactions, which, if consummated, would allow both companies to build out the community in the coming years, said James Attwood, division president at Tri Pointe Homes.

"We are optimistic for a solid year in 2024 with moderate growth," Weber said. "Phoenix continues to benefit from strong job and population growth, which is boosting permits for most all price sectors. In addition, with the outlook for stable to declining interest rates, consumer confidence appears to be returning."

Also in San Tan Valley, Brookfield Property Group paid $28.68 million to an entity tracing to Haven Realty Capital on Feb. 1 for 173 platted and engineered lots, according to Vizzda. Brookfield purchased those lots as landbanker for K. Hovnanian Homes, Vizzda data shows.

Troy Wahlberg, vice president of investments for Brookfield Asset Management in Scottsdale, confirmed the transaction.

"We closed on this property in conjunction with K. Hovnanian earlier this month," Wahlberg said. "The project consists of 173 finished lots and is our 15th deal in the greater Phoenix MSA."

Brookfield's Home Builder Capital team has been funding these type of land-banking transactions since 2017, with active projects around the country spanning from the Pacific Northwest through the Sunbelt and up to New Jersey, Wahlberg said.

Andrew Brausa, managing director of Brookfield Asset Management, said more homebuilders continue to deploy a "land light" strategy as public companies are more focused on return on equity and stock valuations, as well as overall growth. Land banking helps on all fronts, he said.

"As the industry continues to move toward asset-light models, it should continue to create a large opportunity for land banking capital," Brausa said. "Land banking capital allows homebuilders to control access to a much larger pipeline of land assets held off balance sheet with a fraction of the capital. This structure improves returns, minimizes risk and facilitates liquidity and growth for companies in the housing market. While this type of capital comes with a cost, for a homebuilder the benefits should far outweigh the cost."

Communities opening around the Valley

As homebuilders continue to scoop up land that could be ready in two to four years, they are also breaking ground on new projects and opening other communities.

On Feb. 3, Camelot Homes hosted a grand opening of Willow, a gated community with 14 homes each on quarter-acre lots on 15th Avenue between Northern and Glendale avenues in Phoenix.

Homes range between 3,100 and 4,100 square feet with prices starting around $1.5 million.

JIM POULIN | PHOENIX BUSINESS JOURNAL