Who would have thought so soon after the housing tsunami in the US, accompanied by the lowest number of new housing starts since 1963, that institutional investors would be investing in residential land, even land that is not fully entitled? Partially developed subdivisions are in vogue, attracting capital at prices that are a fraction of the historic development costs with the land thrown in for free. The mid Atlantic region and Southern California are very popular, with competitive bidding now the norm. Lenders have smartened up, offering foreclosed assets and even mortgage notes locked in complex legal webs through sophisticated national brokerage firms that have formed specialized units for this purpose.
I am working with an institutional investor that launched a grand program to buy infill multi-family sites in major coastal markets. Again, some of the sites are not fully entitled and/or are in breach of entitlement provisions with local municipalities.
I think these strategies are certainly riskier than buying fully leased commercial properties, but the going-in unleveraged yields of 4% to 7% have become boring. Institutions have decided to take more risk.
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