Unless you are an independent land developer, you likely haven’t noticed that they are becoming buggy whips and going the dinosaur route, extinct. Independent land developers are victims of soaring land and home prices and find it hard to compete in today’s land development marketplace.
Who are Utah’s independent land developers?
I have often said that Utah land development is a “cottage industry.” Most Utah independent land developers work from their homes and have often been doing the work for 30 to 40 years or more. Many are the statesman of land development and have seen and done it all.
There are also a few home-grown Utah land development firms. These tend to be small, often with no more than ten employees. These firms tend to be led by individuals like their independent developers but have grown their work to a level where they have land developers working for them.
Do I know the communities that Utah’s independent land developers have created?
Utah’s land developers had a substantial role in the business stream that created neighborhoods in the past. They found undeveloped property, tied it up with a REPC, spent six months to a year getting zoning and entitlements, sometimes built the backbone infrastructure and then sold the paper or finished lots to a home builder. This has primarily been how most of Utah’s master-planned neighborhoods were created. The names of these master-planned communities – Daybreak, Suncrest, South Mountain, Traverse Mountain, Rosecrest, Jordan Hills, Southpoint, Independence and many others – replaced the names of the cities they are in to become where Utah families live. Although an international mining conglomerate landowner served as a self-developer, even the mighty Daybreak followed the established pattern of independent land developers selling lots to home builders.
First, the dramatic rise in both land and homes makes independent land developers dinosaurs. Without immediate access to improved streets, water, and sewer, undeveloped land was affordable at raw land or agricultural values. A profit could be made in tying up land and securing entitlements in the past. Today, original landowners see the prices that others get around them or understand that the retail delivery price of today’s Utah home provides them with a much larger margin in the asking price for their raw land.
Second, the entrance of publicly-traded national home builders has dramatically changed the retail home delivery system. Staffed with their land acquisition and entitlement teams, there is no need for an independent land developer to acquire and entitle raw land. The costs of running an in-house land acquisition and entitlement team are substantially less than the profit that an independent land developer would expect as a profit for their efforts.
Third, home builders that acquire and entitle can pay more for the land because they can balance what is overpaid in land with what will be made in home sales. An independent land developer has a single place to profit, at the sale of the paper or finished lots. When packaged as a vertical profit enterprise, the developer/home builder can pay more for the undeveloped land.
Some home-grown Utah land development firms have successfully branched out into home building on the land they acquire and entitle. These firms have transitioned from being a Saber-Tooth Tiger to a modern day Tiger with remarkable foresight.
What can independent land developers do?
From talking to independent land developers, they believe their only option is to team up or consult with national home builders and lend their lengthy expertise in land acquisition and entitlements. They believe that if the escalating price path we are currently on continues, which looks like there is no visible end in sight, then the work they did in the past will be no longer needed, like a buggy whip.