This week’s Information Management Network (IMN) Land & Capital conference in Las Vegas was more subdued than the past few years, reflecting a tightening in the markets. Companies have introduced cost controls leading to reduced travel budgets, while capital partners have been sent to the sidelines due to higher rates that create challenging deal economics. Having said that, cream rises to the top, and the quality of the attendees and speakers was better as a result.

• Demand for new homes remains robust, propelled by limited existing home inventory in the market. Supply chain disruptions and labor shortages are in the past, and delivery times have normalized as backlogs are being converted efficiently to the benefit of consumers and builders alike.

• Build to Rent (BTR) remains a meaningful subject of conversation and source of revenue for the builders, but interest in the asset class has stabilized. This has been a result of builders focusing on higher returning, highly demanded retail product, coupled with lot supply shortages that continue to persist with little sign of improvement. Public homebuilders are the primary source of new BTR homes today.

• Higher interest rates and the potential for economic distress have led many traditional bank lenders to move to the sidelines or reduce their exposure to homebuilders. Conversely, non-traditional lenders are enjoying the opportunity to lend to more sophisticated borrowers; their capital is readily available, the spread in their cost of capital is less pronounced than in lower interest rate environments, and advance rates are slightly higher.

• Lot supply is increasingly challenged, and it will be fascinating to see how this gets resolved. Many builders are shifting to land light models - land bankers are active, but their capital is expensive which drives housing costs up and affordability down. Developers are unable to access necessary leverage and we predict that this lot shortage will compound over the next few years.

• M&A remains active; sellers are seeking to exit, and buyers are actively engaged. Acquisitions can drive growth, access to new markets and price points, enhanced lot positions, and allow buyers to establish an adequate footprint in markets previously considered tertiary. We have successfully closed two homebuilder M&A transactions this summer and welcome a conversation to discuss your needs.