Bringing diversity to real estate returns

In today’s lower-for-longer rates environment, where bonds no longer provide the reliability in returns and safety that investors want, yield with controlled risk is highly sought after. The US housing sector can fill the gap, say senior executives at Walton.

Amid the demand from homebuyers in low-density suburbs across many Southern US states for homes that are yet to be built, the key to success for homebuilders and developers alike is flexibility, especially in terms of capital and liquidity.

Walton, a real estate asset management firm, is rising to meet this demand: acquiring ready-to-develop land throughout the US with leading homebuilders ready to meet the growing appetite among buyers.

By taking advantage of joint venture partnerships or option contracts to secure land inventory for expansion, builders can free up cash that would otherwise be tied up in land and redirect it to homebuilding. A just-in-time approach to land inventory offers additional benefits. Builders are able to maximise operational efficiency and return on investment by limiting owned lot positions to near term development that will transition to saleable real estate within 18 to 36 months.

This addresses a big hurdle for builders – conservative lenders. “The US banks still remember the global financial crisis,” said Todd Woodhead, executive vice president at Walton Global Holdings. “Even public builders need to find alternative sources of capital.”

DEVELOPING SMARTER SOLUTIONS

This reinforces a strategy that Walton had pivoted to long before any signs of the pandemic. Given its experience in the US real estate market and the shift by the largest homebuilders in the country towards ‘land-light’ strategies, the firm had been broadening its core business beyond owning vast assets of pre-development land.

Ultimately, this focus is about becoming nimbler and more innovative in the exit-focused aspect of the business.

Achieving this enables Walton to appeal to a wider investor base; not everyone interested in land and real estate wants exposure to a growth strategy that might take several years to materialise.

In the current landscape, this creates new opportunities for investors looking for a balance between risk and yield.

“It offers investors exposure to a hard asset in the US coupled with the fact it is also tied to public homebuilders with good balance sheets,” said Woodhead.

Such diversification appeals to Asia-based investors as well. “With options around the world starting to shrink due to instability and uncertainty, this is a welcome niche,” added Gary Tom, president of Walton Group of Companies in Asia.

Walton is well-placed within this emerging business model, given that it owns large land inventory across several metropolitan areas in the US that are among the fastest growing in the country. At the same time, the firm has a mix of past land transaction experience and ongoing discussions with 13 of the country’s top 15 homebuilders.

BUILDING NEW RETURN STREAMS

Along with this new way to leverage land inventory and relationships with homebuilders, the firm has  been able to revamp its existing product – direct ownership in pre-development land –  to give it more of an exit focus.

This strategy involves Walton prioritising land that is ready to develop over the next twelve to eighteen months – and, more importantly, which builders are interested today for their future development pipeline.

Walton’s goal is to enter into purchase and sale agreement with a builder at the same time it acquires land by offering an exclusive right to purchase that land in the future.

The approach will most likely involve a phased takedown, therefore generating a diversified source of cash flow for investors in it as well.

STICKING WITH CORE CAPABILITIES

Notably, these initiatives come with Walton’s 40-year track record in acquiring land across North America and working with best-in-class builders and developers to get zoning entitlements to monetise existing assets.