By now, almost everyone has heard the line from the baseball feel-good movie, ”Field of Dreams” — “Build it and they will come.”

In Nevada, and the Las Vegas area in particular, the phrase needs a serious upgrade to “Hurry up and build it. They are still coming!”

The Demand
How big is the demand for development in Nevada? No matter how much you can imagine or have seen or heard about the tremendous growth in Las Vegas from watching episodes of “CSI: Crime Scene Investigation,” the real numbers are staggering.

It has been conservatively estimated that over the past four years, 40,000 jobs have been created – each year in the area comprising Clark County (NV), the city of Henderson, the city of Las Vegas, and the city of North Las Vegas.

To fill these jobs, between 60-70,000 people have relocated to the Las Vegas Valley in each of the past few years. Compound this with the fact that the 2000 U.S. Census illustrated that a whopping 710,000 people moved to Vegas during the 1990s!

The Supply
While it appears by looking on a map that there is plenty of land, looks can be deceiving. Unlike in the Phoenix and Mesa, Arizona areas where developers and homebuilders acquired desert land and expanded outwardly from the urban centers to create their own business niches, the situation in Nevada is much different.

In October 2003, the Bureau of Land Management (BLM), along with other federal military, energy, park, and forest agencies, still controlled about 87 percent of the land in Nevada and 80 percent of the land in Clark County - five years after the enactment of the 1998 Southern Nevada Public Land Management Act.

Therefore, it isn’t the scenario in most parts of the country where a builder, developer, or investor can knock on the door of a property owner and offer to purchase a hundred acres of their property. In many parts of the western U.S., but especially Nevada, the process is much different.

Southern Nevada Public Land Management Act (SNPLMA)
On October 2, 1998, Congress passed the SNPLMA that authorized the Secretary of the Interior to dispose of certain federally owned lands in Clark County, Nevada, and use the proceeds to purchase environmentally sensitive land and for certain other activities.

The Act allows for the sale of land within the Las Vegas Valley, with the proceeds benefiting Nevada residents and visitors. Five percent of the proceeds benefit Nevada schools, 10 percent go to the Southern Nevada Water Authority for infrastructure to support development, and the balance (85 percent) goes to a special fund for use by the Secretary of the Interior. The Secretary may use the funds for land acquisitions in Nevada, capital improvement on federal land in Clark County, development of parks, trails, and natural areas in Clark County in partnership with local governments, and for development of a multi-species habitat conservation plan for Clark County.

By November 2002, land sales had generated more than $155 million. Almost a year later, on August 31, 2003 the BLM tally had risen to $567.3 million from the sale of 4,901 acres through live and Internet auctions of southern Nevada land – over $115,000 per acre.

An Interior Department inspector, Earl Devaney, who oversaw the 2003 SNPLMA audit, predicted land sales in southern Nevada would yield more than $1 billion through 2006. Believe it or not, it looks like he underestimated.

On June 2, 2004, the Focus Property Group won an auction for 1,940 acres in Henderson, Nevada. The price tag – a staggering $557 million - $287,113 per acre.

On February 3, 2005, a consortium of homebuilding companies, again led by Focus Property Group (Focus), was the successful bidder for 1,712 acres in the northwest section of the city of Las Vegas. While the property had an appraised value of $323 million, Focus paid nearly $300,000 an acre with a $510 million grand total.

Building a Winning Team
In order to secure its winning bid earlier this year, Focus utilized a somewhat unique consortium of acquisition and financing partners.

Focus organized a consortium of some of the largest home building companies in the nation, including KB Home, Kimball Hill Homes, Lennar/US Home, Meritage Homes, Pulte Homes, Ryland Homes, Toll Brothers Homes and Woodside Homes.

The consortium placed $408 million into escrow for payment to the BLM, which, when added to the $102 million paid on the date of the auction, represents the total price of $510 million it bid for the BLM land. The group simultaneously closed $490 million in acquisition and development financing from a consortium of banks and institutional lenders led by Wachovia Bank and Wachovia Capital Markets, LLC.
Tom DeVore, the chief operating officer at Focus, is responsible for the daily operation and coordinated the Focus-led groups that won the past two auctions.

“In the past we (Focus) have arranged purchases in virtually the same manner as other real estate investment companies,” relates DeVore, “but this one was clearly unique. Our experience and the history of development in this area certainly provided us with this opportunity to bring together a number of quality partners.”

Securing multiple homebuilders was an initial step. However, it was Focus’ financing that raised a few eyebrows in the industry. They obtained financing from Wall Street through lenders led by Wachovia Bank and Wachovia Capital Markets, LLC. It is rare for a real estate company to go to Wall Street for financing; typically only large publicly traded companies will obtain financing from Wall Street. And unlike those large companies that get their company rated by the rating agencies, Focus sought successfully to get the transaction itself rated.

“The size of this transaction raised interest from outside normal financing,” explains DeVore, who worked for 15 years as an associate attorney and partner in the highly regarded real estate law firm of Goold, Patterson, DeVore, Ales & Roadhouse where he gained extensive experience in commercial real estate and finance transactions. DeVore represented national homebuilders, master developers, institutional lenders and real estate operating companies in numerous complex transactions.

That experience has certainly been beneficial in these mega-deals. Focus Property Group has been involved in transactions exceeding $5 billion and holds a portfolio with a valuation of more than $1 billion.

Don Boettcher, Vice President of Land Acquisitions for Pulte Homes, further explained that while partnerships are not uncommon in the industry, this one was a little different because there were eight builders involved.

“Joint ventures with other companies, including other homebuilders who may be considered competitors, really isn’t that unusual,” says Boettcher. “However, we are accustomed to teaming up with one or two builders. A group this size is rather unique.”

However, as Boettcher continues, it is clear that circumstances in this market create this situation. As a resident of the Las Vegas Valley for the past 12 years after stays in Detroit, Houston, and Dallas, Boettcher understands the dynamics.

“The huge disproportion of government land has constrained the growth of the area,” he says. “The result is that companies like ours need to be more creative and work to develop different financial models.”

“In a situation where it is extremely capital intensive to secure your business activity in a region – just to get in the game – it is clear to see why you would join a coalition to position yourself to be at the auction table and obtain a prime piece of real estate,” Boettcher explains. “We needed to enhance our opportunity to be successful and mitigate our risks, and becoming a part of this group was a wise business move for Pulte.”

Who Gets What?
Focus, which is responsible for the planning of more than 10,000 acres and eight master planned communities in the Las Vegas Valley and throughout the Southwest, works with the city as well as the homebuilders before, during, and throughout the planning process.

“We are working closely with the city of Las Vegas to thoughtfully incorporate the natural features of the land into the community design. We also intend to develop an environmentally sensitive community that honors the land,” said John A. Ritter, CEO of Focus Property Group. "This respect for the area’s natural features and the conservation of water and other resources has proven to be attractive to the home buying public.”

While most of the negotiating on which portion of the land each member of the consortium will receive takes place well before the papers are signed, some decisions remain in flux for months after the auction is completed. Plans for the parcels’ development are not approved prior to the sale of the property. This is another factor in the relationship that has been built and fostered between Focus and the various municipalities.

The 2005 winning bid by Focus was actually the company’s fourth. The two earliest auctions have resulted in the 3,000-acre Mountain’s Edge and 1,200-acre Providence master planned communities. Therefore, members of the consortium each had a pretty good idea of what their master-planned community would look like and what was likely to be approved.

However, at $300,000 an acre, builders certainly have some important decisions to make. They each have to analyze the market and their competitors.

“We re-posture our products and position our company in a manner that we believe will drive consumers into our homes,” explains Boettcher.

As might be expected where the supply of housing units is having trouble meeting the demands, housing costs are starting to increase. However, the diversified product mix offered by so many developers is expected to help keep prices affordable. In fact, it is not uncommon to find price ranges between $200,000 to $1 million for anything from lofts, single-family homes, and high-rise condos.

Another story for another time will be the evaluation of Focus’ decision to implement a ‘new urbanism’ master-planned design for the Henderson development. It is Focus’ most expensive project on a per-acre basis. Called South Edge, the development will feature seven villages of 200-250 acres each and contain 1,250-2,250 dwellings. Also included will be four elementary schools, one middle school, and a high school along with a 300-acre Town Center.

“At some point,” explained Jim Widner, division president of KB Homes Nevada – which owns 48.5 percent of the Henderson project— “you have to start changing the way communities are designed.”

He told Las Vegas’ In Business that while “everyone would like to live on a 10-acre parcel,” a pedestrian-friendly environment has proven to be liked by many. Time will tell if new residents of Las Vegas will agree.

One thing, though, is certain. There won’t be a shortage of prospects to purchase homes in the new communities.  SLDT