By Aaron Mendenhall, Chapman Lindsey Commercial Real Estate Services of Tucson

Improving Market Strains Lot Inventories

So far, 2016 has been a very encouraging year for home building in the Tucson area. Permits are up 25% over the first half of last year and new single family home starts are up 24%. The 966 new home starts in the first half of 2016 is greater than any first half since 2009 and Q2’s 546 starts is the most in a quarter since Q1 2010. We are on schedule to introduce over 1,700 new single family lots into the market this year, which will be the most since before the start of the recession.

While the number of new lots being delivered has been helping to maintain a relatively stable finished lot inventory number of around 3,100 lots for the past three quarters, this could change rapidly. As the permits and new home starts continue to strengthen, there will be increased pressure on the builders and developers to continue to deliver additional new lots.

Based on a 65% new single family home start to residential permit ratio and an increase of just 250 permits per year for the next 5 years, we can anticipate running out of finished lots in Tucson by 2020 if the market fails to average 1,400 new single family lots per year. To just keep up with the pace of new home starts, we will need to average 2,000 or more new lots per year.

Breaking down the numbers will demonstrate our current precarious position. Traditional single family new home starts have typically ranged between 60% and 75% of single family permits pulled in Pima County on an annual basis. The balance is in multi-family, active adult and custom homes started each year. For example, in 2015 there were 2,176 permits pulled and 1,545 new single family homes started or 71% of the permits pulled that year. In 2014 there were 2,284 permits pulled, but only 1,381 new single family house starts or 60.5% (December 2014 was when many builders pulled additional permits to take advantage of an impact fee moratorium in many subdivisions within the city of Tucson). Starts lag permits so these numbers do not correlate exactly, but over a multi-year analysis, it should be fairly representative.

This year we should easily see 2,500 permits pulled in the Tucson area. The number of new home starts should reach the 1,625 starts that would be needed to reach a 65% ratio. If we feel the market is recovering, it should not be a stretch to estimate a 250 permit increase in permits on an annual basis, particularly if we agree the target for a “normal” Tucson market would be 5,000 permits annually. With a 250 permit annual increase, we would reach 3,500 permits by 2020.

As mentioned, we should see around 1,700 new single family lots introduced into the market by the end of 2016. If this pace could be maintained or increased, the impending lot shortage could be minimized. However, looking at what is currently in the development pipeline, it will be difficult to achieve those same numbers in 2017. The first half of this year was strong with 1,091 new lots introduced. The second half should see about 620 new lots introduced, well off the pace of the first half. The lots currently under development that will not get finished in 2016 but should be introduced in 2017 total just over 800. There are another 600+ lots owned by builders that are either in the entitlement process or are being held for future phases of existing communities that should be introduced in 2018. Some of these lots could be accelerated and added to the 2017 lots, but it still appears to be unlikely that 2017 will be able to match the number of new lots introduced in 2016.

In 2015 builders purchased 19 properties with 1,281 platted lots plus raw or block platted land that could result in another 1,800 lots in the future (The majority of these future lots are in the Saguaro Bloom community purchased by DR Horton) . Of the 19 properties purchased, ten are already open for sales. Seven of these properties should open before the end of the year and only two have not yet begun development due to extended time frames of rezoning and entitlements. Of the 1,281 platted lots, 832 have already been fully developed. The remaining 449 lots should be developed and introduced to the market by the end of 2016.

So far in 2016 there have been 9 platted or raw land purchases by builders with a combined total of 621 platted lots. Five properties with 464 lots have already started to be developed. Of these, 132 could be developed in 2016. This would leave 485 to be introduced in 2017. Two of the transactions included raw land which will require rezoning and entitlements which will most likely push the estimated 450+ future lots into 2018.

We are only halfway into 2016, but unless a significant number of platted lot properties are purchased in the 2nd half, we will have a difficult time reaching 1,600+ new lots next year, much less matching the near 2,000 starts we could see if the market continues to improve at rates similar to what we have experienced the first half of 2016. Until we can start introducing at least as many, if not more new lots than what is being built on, inventories will plummet and the housing market could get extremely interesting pitting supply and demand against market tolerances or caps for pricing based on Tucson demographics. Exciting times lay ahead!

Market Overview

Lot Supply

The finished lot supply barely changed in Q2, only being reduced by 8 lots with a total finished lot count of 3,140. There were 538 new finished lots added to the market in Q2: 106 lots in CenterPointe at Vistoso (Maracay); 75 lots in Eagles Summit (Lennar); 120 lots in Estates at Capella (Meritage); 18 lots in Alamo Crossing (Mesquite); 52 lots in School Yard (Pepper-Viner); 51 lots in Sierra Morado (Pulte); 37 lots in Park Modern (Pepper-Viner); 46 lots in Villas Escalante (KB Home); and 33 lots in Camino Seco Village* (RB Price). Year to date, 1,091 new lots have been added to the market, which is 218 more than in all of 2015. This increase in new lots is much needed as builders continue to pull more permits and start more new homes. During Q2 builders began construction on 546 new single family homes, 126 more than in Q1 and the most starts since Q1 2010.

There are currently 14 communities (1,354 SFR lots) under construction throughout Tucson. Of these up to 508 lots could be completed in Q3 2016. Four new communities could be added next quarter and additional lots will be added to existing communities.

There are approximately 74 active SFR communities in the Tucson Metro area. Nine communities were built out during the quarter, but still selling the remaining specs: 4 in the NW, 2 in the SE, 2 in the SW and 1 in the Far South submarket. As many as 12 more communities could build out in Q3 2016 based on recent building trends.

*Communities not yet open for sales

Lot Supply Statistics

Q2 ’16 vs. Q2 ’15 vs. Q2 ’14

Finished Lots: 3,140 / 3,420 / 3,811
New Lots Added: 538 / 236 / 365
Total New Lots Added – prior 12 mo: 1,463 / 1,007 / 1,510
Total Quarter Permits * 750 / 622 / 617

SFR Community Statistics as of March 31, 2016:

• 76 active traditional SFR communities
• 9 communities were built-out or closed in Q2 (most still selling specs)
• 7 new communities were finished or opened in Q2
• 2 communities added additional lots to existing inventory
• 14 communities under construction (1,354 lots / up to 508 could be finished in Q3)
• up to 4 new communities could be added in Q3
• other future lots will be additions to existing communities
• 12 residential land transactions in Q2 2016 totaling over $14 million
• no finished lot transactions
• 5 rolling options in 2 communities
• 2 investor land transactions – 1 platted, 1 raw land for future development
• 5 platted lot transactions to builders – 4 in NW and 1 in SE Tucson

Lot Ownership

During Q2 2016 investor inventory increased by 33 lots in Camino Seco Village.

• Builder controlled lots: 2,230 (71.0%)
• Investor controlled lots: 910 (29.0%)

Investor Ownership Q2 2016:

• 0% Far South submarket (255 lots)
• 9% Northwest submarket (405 lots)
• 9% Southeast submarket (210 lots)
• 4% Southwest submarket ( 40 lots)

Forecast

Permits continued to outpace expectations through Q2 with 750 permits pulled in the quarter. June’s 275 total was the highest monthly total of the year and only January has had less than 200 permits pulled so far this year. The 1,370 permits pulled in the first half of the year is well ahead of the 1,092 in the first half of 2015. It also outpaces the 1,135 of 2014 and 1,209 of 2013. Should the trend of 200+ permits per month continue, we should easily pass 2,500 permits this year.

Homebuilders are continuing to start an increased number of single family new homes throughout the Tucson area. New home starts in Q2 increased over Q1 by 126 starts for a total of 546 new home starts in the quarter and 966 for the first half of the year.

We anticipate Q3 to be slightly lower in permits than the stellar Q2 we just experienced. However, based on recent permit activity and the new communities coming online, we anticipate 2016 finishing above expectations.

Our lot supply numbers represent only traditional SFR lots. We do not track multi-family, active-adult, or custom lots. Our definition of a ‘finished’ lot is one that is fully improved and a building permit can be pulled. Lots are no longer considered available once trenching has been initiated. Sales do not affect our counts – only starts. Builder lots include all lots under their control, including options.

We currently do not include platted lots in our inventory or ownership counts. However, there is an increasing amount of activity from both builders and investors in acquiring raw and entitled land in the Tucson area. We do track them and will include them in our counts as they are developed.

Investor lots include investors, developers and other non-builders.

(*) Permit data from Bright Future Real Estate Research, LLC; Sales comp data from Real Estate Daily News Comps (realestatedaily-news.com); Home builder sales data from SAHBA (sahba.org)

About Our Company

CHAPMAN LINDSEY Commercial Real Estate Services, L.L.C. was formed in 1991 by successful real estate professionals who wanted to better serve their clients. As a full service commercial real estate company, CHAPMAN LINDSEY offers brokerage and leasing services with an emphasis in vacant land sales. CHAPMAN LINDSEY’s three partners combine over 76 years of commercial real estate experience to provide a focus of expertise in the areas of land, investment properties, property
leasing, acquisition and deposition services, and tenant representation.

The company is an active member of the Southern Arizona CCIM (Certified Commercial Investment Member) Chapter and the Tucson Association of Realtors.

Dan Feig and Aaron Mendenhall specialize in the sale of land and developed lots to investors, developers and home builders in Pima County.

Highlights

• CHAPMAN LINDSEY has closed over $600 million in transactions.
• CHAPMAN LINDSEY has also closed over $125 million in land alone in the past 6 years.
• CHAPMAN LINDSEY has exclusively represented the following home builders with the purchase or sale of their own land/excess inventory;

Cornerstone Homes, DR Horton Homes, Ducati Homes, KB Home, Lennar Homes, LGI Homes, Maracay Homes, Meritage Homes, Milestone Homes, Miramonte Homes, Pepper-Viner Homes, Richmond American Homes, Standard Pacific Homes and TJ Bednar Homes

For additional information Daniel Feig should be reached at 520-747-4000 x103 and Aaron Mendenhall at 520-747-4000 x102

For full report with more graphs: CLICK HERE

 

 

By: Aaron Mendenhall and Dan Feig, Chapman Lindsey Commercial Real Estate Services

New home sales are up in 2016. Per SAHBA, monthly net sales from their 12 member builders so far in 2016 has each been higher than any month in 2015 with the exception of January’s 173 net sales which was only one sale less than March 2015 and 10 less than April. The 620 single family permits pulled in Q1 2016 was the 2nd highest in a quarter for the past three years. Q2 of 2015 was higher, but only by 2 permits. 2016 is off to a good start here in Tucson. Much of the success is due to a few strong communities, including DR Horton’s Saguaro Bloom, Pulte’s Sierra Morado and the newly opened Center Pointe Vistoso by Maracay. Each of these properties has introduced new lots this past year either as a new community or as a continuation of an existing community.

As has been mentioned in prior articles, existing and available finished lot inventory is extremely limited in Tucson and what remains has challenges relating to location, lot size or price. Builders have been forced to seek out platted or raw land properties to fill their pipelines, which they try to keep full up to at least two years out. When finished lots were more plentiful, a builder could identify, negotiate and purchase a property in 3 to 6 months and they could begin building homes immediately. With platted lots it can take 8 to 12 months after the lots are purchased to develop the lots and begin constructing homes. Most builders will not close prior to final plat, so any property that needs to be rezoned and entitled can add an additional 1 to 2 years onto the timetable.

As the market has continued to improve, certain communities have enjoyed stronger than anticipated sales and communities are building out faster than initially projected. While this is great news for builders, it also presents challenges as their pipelines need to be replenished sooner. Builders need to be constantly on the lookout for new opportunities and have the foresight to think longer term and take some risks based on future needs and inventories.

Meritage was the first and most active builder to take on platted lots since the downturn. They recognized the need of future lots and identified the Tangerine Corridor in the Northwest submarket as the place to invest in. In May 2012 Meritage purchased two platted lot communities in the Tangerine Corridor – Sky Ranch and Tangerine Crossing Phase 3. Later that year they closed Saguaro Forest in Dove Mountain with Silverbell Preserve and Rancho de Plata closing in 2013. Meritage skipped 2014 but purchased 3 platted lot properties in 2015 and one so far in 2016 for a total of 9 properties with 695 platted lots. The three platted lot communities purchased in 2012 are now each built out and the two purchased in 2013 are nearly built out with only 5 remaining lots between them. These initial trailblazing purchases have netted Meritage over 250 sales to date. Their early 2015 purchases will be opening in Q2 2016.

DR Horton, Richmond American and Pulte Homes were ranked #1, #2 and #3 respectively one year ago in the number of finished lots owned. In the past 12 months, DR Horton, Richmond American and Pulte Homes are ranked #1, #3 and #2 respectively in the number of homes sold (per SAHBA reports). This correlation extends to the other builders as well. Of the top six builders in lot holdings a year ago, each ranked the same in number of finished lots owned as the number of homes sold within the past 12 months, with the only exception of Pulte being # 2 in sales and #3 in finished lots, while Richmond American was #3 in sales and #2 in finished lots.

As of the end of Q1 2016, lot ownership rankings have experienced slight changes. DR Horton remains at #1 with 389 finished lots. Maracay jumped to #2 with 267 finished lots with the opening of its Center Pointe at Vistoso communities earlier this year. Richmond American fell to #3 with 264 finished lots and Meritage jumped up one to #4 with 239 lots. Pulte fell to #5 with 170 finished lots and Mattamy Homes entered Tucson opening its Dove Mountain community and is ranked #6 with 124 finished lots. When looking at sales numbers from just 2016, the top three remained the same, but Maracay jumped from #7 to #4, pushing Lennar to #5 in reported net sales.

When comparing current lot inventories to lots currently under construction, the finished lot ownership rankings will change even more by the end of 2016. Meritage will take over the #1 spot with over 650 finished lots as it opens . KB Home could jump to #2 as it completes the four new communities currently under construction. Richmond could fall to #6 and Pulte to #8 in finished lot ownership as each are selling well in their existing communities but only have a small number of lots currently under construction that could finish out this year.

Most builders currently have other properties in escrow that will add additional lots to their pipelines in the future, but it will take time to get them ready to build houses on. Any builder who waits too long to secure new inventory can easily find themselves with a lot shortage in 2017 and 2018 and sales will suffer as a result. If their pipelines become too depleted they may be forced into paying higher prices for the remaining existing traditional inventory or developing new product to fit the non-traditional finished lot inventory.

Future employment opportunities coming to Tucson will impact housing needs. Caterpillar recently selected Tucson for its regional headquarters and will bring 600 high paying jobs to the area over the next five years. The Rosemont Mine project is nearing its final rounds of government permitting, which if approved, could be another major source of employment for the area. The trickle down effect of these and other upcoming employment announcements will create even more demand for housing, which in turn will create additional demand for land and lots by homebuilders. Look for an active land market in upcoming years.

Please contact Chapman Lindsey or Aaron Mendenhall at 520-747-4000 x102 for additional information.

To see the full report click here: Chapman Lindsey Q1 report

By: Aaron Mendenhall of Chapman Lindsey Commercial Real Estate Services

The Tucson land market  continued to improve in 2015. Much has been said regarding the permit counts in the past as a primary indicator of the market, but as with everything else, there are extenuating circumstances that can explain away variations from the expected path. 2015 ended with 2,176 permits being pulled in the Tucson metro area. This is 108 permits fewer or a 4.7% decline from 2014 and 74 fewer than 2013. However, we know that the market did improve and that the permit number was thrown off by an increase of permits within the City of Tucson at the end of 2014.

We have been tracking the finished lot supply on a quarterly basis in Tucson since 2008 and take note of lots as they are improved and added to the finished lot inventory as well as when builders start to construct houses on the existing finished lots and deduct them from the finished lot inventory. We feel this is another way to gage the health of the market. It does lag permits, but it demonstrates actual demand and builder optimism in the construction of both speculative and sold homes.

In 2015, traditional single family builders started 1,545 new homes (this number does not include active adult, attached or multi-family homes). This is the largest number of home starts since 2009 when 2,615 homes were started. The 2015 home starts were a 12.4% increase from the 1,375 homes started in 2014. This shows a slightly better picture than the 4.7% decline in permits in the same period. To be objective, the 2015 home starts were only 2.0% greater than 2013 and 5.3% greater than 2012. Tucson is not a double-digit growth market yet, but there is growth and it has been steady over the past few years.

Finished lot inventory continues to decline as we ended the year with an all-time low of only 3,025 finished lots in the market. Builders continue to start more homes than new lots are being developed. This trend does not appear to be changing as we go into 2016 and we expect to be below 3,000 finished lots next year. This depletion of lots has not gone unnoticed and builders have been scrambling to find replacement inventory as existing communities build out. Of the approximately 67 active SFR new home communities, up to 34 or about ½ of the existing communities could build out this year based on recent sales and building trends.

Trends in land sales over the past few years highlight the limited supply of finished lots and the need for new lots from both builders and developers. The demand for land bottomed out in 2011 when there was just $34 million in land transactions with $18 million coming from investor purchases, $9.6 million in finished lot transactions, $6.2 million in finished lot option deals and there were no raw or platted lot transactions from builders.

Since then, transaction totals have increased substantially. The past three years have each recognized over $100 million in land transactions. Finished lot transactions peaked in 2012 at $51 million and have been below $10 million for the past two years. Raw land and platted lot transactions to builders have skyrocketed. Builder transaction values for raw and platted land have increased from $0 in 2011 to $73 million in 2015. These numbers do not include the many large land purchases made over the past few years by investors, many of whom are currently in the platting and entitlement phases, working to have communities and lots ready to deliver to builders.

Many of these new and future communities are located in the periphery of Tucson. Infill projects have been historically overlooked as being too small or too much work for too few lots. Lately several of the builders, particularly the smaller local ones, have turned their attention toward infill locations.

Miramonte Homes has a history of successful infill locations in Tucson. They are currently selling homes in Miramonte at Glenn, a 34 lot community at Glenn Street and Mountain Avenue where they closed 19 homes in 2015 at an average price of $267,000 at an average price per square foot of $137. They recently acquired 11 gated lots in Rancho Merlita on Wrightstown Road where they will be selling homes in the low $500s.

Not far away, Pepper-Viner Homes acquired the vacant Wrightstown Elementary School property and platted a 56 lot community called The School Yard where they recently opened for sales starting at $229,900 for a 1,457 square foot home. Pepper-Viner also just opened a new community on Blacklidge Drive and Tyndall Avenue where they are offering small homes on small lots starting at $179,900 for a 1,186-square-foot home. Their first phase is 37-lots and will have a similar number of lots in their second phase.

Mesquite Homes is closing out their two east side infill communities of The Mesquites at Riverbend and The Mesquites on Pantano. They have recently broken ground on the new 18-lot community of Alamo Crossing on Pima Street near Wilmot Road. AF Sterling purchased Red Colt Ranch, a 21-lot platted community on 22nd Street near Harrison Road last October. They should begin development early in 2016. Rick Price, a local developer, recently purchased and started development on Camino Seco Village, a 33-lot community on 22nd Street and Camino Seco. Lennar Homes was able to secure and close Robb Hill, a recently platted 53 lot subdivision on Speedway Boulevard near Pantano Road.

The majority of these infill properties are relatively small in number of lots, but the builders are expecting to capitalize on their infill location with lack of competition from other new construction homes. These opportunities are giving the local builders additional communities without having to compete directly with the national builders. However as the available inventory lots and land continues to tighten, we should not be surprised to see more nationals vying for these rare infill opportunities as well.

Lot Supply

The finished lot supply was reduced by 202 lots in Q4 with a total finished lot count of 3,025. There were 162 new finished lots added to the market in Q4 but all were in the new Maracay Center Pointe Vistoso subdivision in Oro Valley that is scheduled to open later in January 2016. No other lots were completed, although there are many under construction. During Q4 there was a total reduction of 364 finished lots, 39 fewer than in Q3 but 120 more than Q4 of 2014.

There are currently 15 communities (1,139 SFR lots) under construction throughout Tucson. Of these, 572 lots or more could be completed in Q1 2016. The majority of new lots coming online in Q1 and throughout 2016 will be in new communities. However, we will see some new finished lots added to existing communities such as Sierra Morado and Saguaro Bloom.

There are approximately 67 active SFR communities in the Tucson Metro area. Five communities were built out during the quarter with most still selling remaining specs: 2 in the Foothills, 1 in the NW, 1 in the SW, and 1 in the SE submarkets. As many as 13 more communities could build out in Q1 2016 based on recent building trends.

SFR Community Statistics as of December 31, 2015:

• 67 active traditional SFR communities
• 5 communities were built-out or closed in Q4 (most still selling specs)
• No existing communities added finished lots in Q4
• Miramonte’s Rancho Merlita was the only new community opened in Q4
• The finished lots that were added were in Maracay’s soon-to-open community
• 15 communities under construction (1,139 lots / up to 572 could be finished in Q1)
• up to 9 new communities could be added in Q1
• 14 residential land transactions in Q4 2015 totaling over $15.2 million
• 6 raw land or platted lot transactions
• 5 rolling options in 4 communities
• 2 finished lot transactions
• 1 investor land transaction

Sales comp data from Real Estate Daily News / RED Comps (realestatedaily-news.com)

For full report click here.

CHAPMAN LINDSEY Commercial Real Estate Services, L.L.C. was formed in 1991 by successful real estate professionals who wanted to better serve their clients. As a full service commercial real estate company, CHAPMAN LINDSEY offers brokerage and leasing services with an emphasis in vacant land sales. CHAPMAN LINDSEY’s three partners combine over 76 years of commercial real estate experience to provide a focus of expertise in the areas of land, investment properties, property leasing, acquisition and deposition services, and tenant representation. The company is also an active member of the Southern Arizona CCIM (Certified Commercial Investment Member) Chapter and the Tucson Association of Realtors.

Dan Feig and Aaron Mendenhall specialize in the sale of land and developed lots to investors, developers and home builders in Pima County. Contact Dan Feig and Aaron Mendenhall by email here for additional insight and information or call Dan Feig at 520.747.4000 x 103 and Aaron Mendenhall at 520.747.4000 x102.