Opportunity of Land

Tim Haywood, Managing Director for the Middle East, talks with MEA Finance about land investment in the USA, explaining how Walton International has operated in this market, and outlines the growing opportunities that it now presents.

Tell us about Walton International’s business and why you opened offices in the UAE? 

 Walton announced the opening of our first Middle East office in July 2019 to support the rapidly growing investor base throughout the GCC region. Our goal was to extend a more localised service for our clients and business partners. We continue to grow our team as our business expands in the area.

What features or qualities have brought Walton to its current level of almost 100,000 investors? 

 For 44 years, we have consistently reviewed the outcome of our offerings, learned from them and made enhancements, when needed. Our business is always evolving to respond to ever-changing market conditions, and our goal is to develop investment strategies that exceed the expectations of investors. We also form solid relationships with top U.S. companies in home building, development, third-party operators and others that help us deliver competitive offerings, and we work to meet regulatory guidelines from different countries to allow investors from various locations throughout the world to invest with us.

With more than 98,000 acres of land under management, please summarise the current US Land Assets market. 

 Builders and developers are continuing to move farther out from major cities in an effort to maintain affordability as higher priced developments occur closer to the core metro statistical areas (MSAs). Even with the shift in the U.S. market over the recent months, demand for land from our home builder clients and other land buyers remains very high. Walton is positioned to support the demand for economic development and affordable home inventory throughout the country. We are continuing to focus on acquisitions within the southern smile of the United States, where people in the U.S. want to live and population is projected to increase, but our overall goal is to follow the path of growth. There are select northern states that we are also targeting for land acquisitions this year. Our land inventory goal for 2023 is $495 million in new land assets.

How has Walton International’s business fared so far in the post-pandemic environment? 

 We are continuing to see an increase in consumers looking for properties in outlying areas of large cities and metros. Work-from-home was a main contributor but bidding wars and lack in affordability pushed consumers further out from the city’s core – in areas where Walton holds and acquires land. Record low interest rates generated an increase in home building and sales, which generated increased exits for Walton properties.

In 2021 and 2022, Walton had record years in terms of our investor distributions due to increased exits on our properties. In 2021, we distributed  $150 million to investors from both Canada and U.S. properties. Despite the market shift in 2022, we had a record investor distribution year paying out $202 million to our investors last year. We project that 2023 is going to be another positive year.

How have increasing mortgage rates affected your business? 

 In mid-2022, we were seeing the U.S. homebuilding industry facing a range of market readjustments including a slowdown in housing starts and home sales. Homebuilders responded to the market shift by re-thinking their short-term land strategies. Walton saw 6-to-12-month extensions from the original land asset takedown or deferred payment home closing schedule in certain regions and some land deals were dropped altogether. As 2022 came to an end, Walton and many of our home builder partners believed the market adjustment would be short and the delay in activity temporary.

Our predictions are proving to be correct. Based on our conversations with home builders during Q1 2023, the builder sentiment has changed and is now very positive. Many of the top U.S. home builders who pulled out of existing land deals in 2022, have recently shared that they have the directive from their corporate offices to go full force this year with land buying. Walton has daily conversations with these builders to help them fill their land pipelines. We are also working with builders on exit strategies for our established land parcels that were pushed out last year.

How does the current housing market in the USA look and what are the accompanying opportunities for investors? 

According to various economists, the United States is in the midst of a housing crisis due to a shortage of up to 6.5 million homes. Underbuilding that occurred after the Great Recession from 2010 to 2020, was the main contributor to the shortage, combined with an increase of household formations from the largest generation, the Millennials. Projections show that the U.S. needs approximately two million homes per year for the next ten years to help address the shortage, which equates to an estimate of more than 400,000 acres of land. Since land is the fundamental component to home building, we believe there are many opportunities for investors in the real estate investment space. Although the media may report that home sales are down due to recent market shifts, home sales have been up month-over-month since December. There is also pent-up demand for home buyers who are waiting for the market to settle. Based on our conversations with builders and developers, they are now preparing for that demand.

How are governmental and public concerns for environmental sustainability changing business models for Walton International? 

As part of our core land acquisition strategy, our position is to be environmentally responsive to the communities that we invest in. An in-depth biological and cultural study is conducted for each of our properties to ensure we do not disturb sensitive habitats, and we work closely with cities, municipalities, home builders and developers to factor in critical environmental needs such as wetland areas, open spaces, water, trails and parks, and we donate land for these purposes from many of our land projects. Our U.S. asset management and land teams also take part in committees, boards and policy discussions as it relates to environmental issues. Sustainability remains top-of-mind for Walton, and we are continuing to grow our sustainability efforts.

Mark Twain is quoted as saying, “buy land, they’re not making any more.” How much more land remains available to develop in the US market? 

Land is key to home building, but all land is not created equal. Generally, there is a lack of supply for developable land in the U.S., mainly due to infrastructure constraints and development policies set by municipalities and cities. There are hundreds of millions of acres of agricultural land across the country, but developing land where people want to live is key to how much land is really needed. Factors can change over time based on migration, household formation and growth patterns in certain states and regions in the U.S., and conservation and state-owned land can become available, so the land available for development is always changing.