What Deals are Ripe for Capital Providers?
During PCBC last week, the session, Components of Equity Today, explored the various types of equity playing within the land and capital space today, featuring moderator Steven Friedman of Cohn Resnick.
SAN FRANCISCO—Home building professionals from across the country convened in Moscone Center last week at PCBC 2018, the largest annual homebuilding trade show in the Western United States. Along with educational sessions and new events, numerous speakers and more than 350 exhibitors were on hand.
Kicking off events, the session “Components of Equity Today” featured moderator Steven Friedman, director of Cohn Resnick. Panelists included Tony Avila, CEO of Builder Advisor Group; Mike Van Epp, principal and founder of Environ Group; and David Valiaveedan, managing partner, Domain Real Estate Partners.
This session explored the various types of equity playing within the land and capital space today, i.e., JV equity, land banking, family office, entity-level capital and M&A structured finance. These capital providers discussed the types of deals they look for, how they allocate capital to the space or provider and how they see the future.
“A lot of M&A ducks are quacking in terms of buyers. It is the most active since 2005,” said Avila. “Buyers include Berkshire Hathaway, private ventures, Asian buyers and public builders.”
He offered that the motivation includes opportunities on the land side, sellers who want to retire or get out before the next shoe drops, or those who want a diversification of net worth. Avila said the types of capital for a win-win is 75% of the capital stack, costs in the low teens to targeted 20s, obtainable permitting and other low risks. On the other side of the coin, senior capital is more expensive and straight equity is in the high teens. And, there are concerns about the end of the cycle and hedge funds, he cautioned.
“It’s important to listen and build an appropriate capital structure,” Avila advised. “Also, price risk appropriately.”
The panelists pointed to Ken Rosen’s earlier PCBC remarks indicating there are two years left in this cycle. This would make a case for quicker timeframe deals able fit into that window.
The panel also acknowledged that there are substantial cost increases in the Northern California markets, of approximately 1% per month.