Q1 2015 Tucson Land Update

Update header

08 Apr Q1 2015 Tucson Land Update

Desert Willow

Top: Bear Canyon Overlook – AF Sterling / Above: Desert Willow – Pulte

New Life in Northeast Tucson

The once quiet submarket is getting ready for multiple new communities

January and February permit levels were low to start out 2015 which caused some concern in the market. The quarter ended with 467 permits pulled, thanks to a strong March with 195 permits. While the 467 permits were there fewest pulled since Q1 2012, they are not all of the story. The lower permit counts to start the year were to be expected with the increased permits pulled in the City of Tucson in Q4 as builders took advantage of the impact fee moratorium. Each of the municipalities except Tucson and Pima County were above their 2014 permits in Q1.

While permits were down, sales were up for builders. The sales numbers reported to SAHBA by participating builders showed net sales of 161, 140, and 174 for January, February and March respectively. Each of these were higher monthly sales numbers than every month in 2014 except for March which had 163 net sales. Most builders we have spoken to are reporting even stronger sales to date in April. We hope this momentum caries through the summer.

As part of our lot inventory, we track when builders start construction on existing lots. Construction follows permits and typically follows sales, although spec homes will be started prior to sales. Most of the communities throughout the Tucson Metro area have been averaging less than two starts per month. Only 7 communities averaged more than 3 per month. When analyzing the communities with the most starts in Q1 it was evident that the NW submarket was the most active. However it was the communities with the smaller, lower priced homes that had the most activity. DR Horton started 24 homes at The Pines in Q1. The San Lucas community was a hot spot as LGI Homes started 18 homes and Richmond started 15 homes. Further north in Red Rock, Pulte started 15 homes. DR Horton started 11 homes on its smallest product line in Saguaro Bloom (19 across all 3 product lines). Outside the NW submarket DR Horton started 11 homes in Mission Antigua in the SW and KB Home started 11 home in La Cima Esplendora in the SE submarket. These top 7 communities contributed 105 of the 317 SFR home starts in Q1 (33%).

While the Northwest continues its dominance in community counts, permits pulled and home starts, the Northeast submarket is poised to make a small but important presence in the market. Long seen as a quiet, established submarket with little new home activity other than individual lot sales and custom or semi-custom homes being built, there are now multiple communities coming online.

In 2013 AF Sterling purchased Tanque Verde Village, a platted 10 lot subdivision. They opened for sales in 2014 and have one lot left to sell. Their homes have been closing at prices in the $400,000 to $500,000 range.

Sandwiched between the Foothills and the NE submarket, Maracay Homes purchased Deseo at Sabino Canyon at platted lots at the end of 2012. They have enjoyed strong sales and have closed homes in the $400,000 to $600,000 range.

These successes have caused both of these builders to find additional inventory in the NE submarket and have others looking for opportunities. AF Sterling purchased a 15 lot platted subdivision on Bear Canyon and Snyder roads. The lots are nearly finished and a model is being completed. They will be selling homes starting in the low $400s. Maracay also wants to continue their success at Deseo at Sabino Canyon and have some property tied up in the NE area that they plan to entitle and develop.

In September 2014 Pulte Homes purchased a 49 lot community on the north side of Tanque Verde Road just east of Houghton Road called Desert Willow. This will be a gated community with lots around 20,000 square feet. Pulte should open for sales later this year.

In addition to these more traditional communities, Rancho Soldados is a 100 lot gated, acre+ custom home community that is opening up in the area as well. Homes here are targeted to be in the million dollar range. This gives a range of homes and prices for prospective home owners in the area.

Although the NE is not as deep of a market as the NW in regards to population, there are similarities that should result in strong sales. Like the NW, the typical homeowner is more affluent than average and the existing homes are aging. Existing home owners want to stay in the area but there have not been any significant new home options for home buyers to choose from until recently. We are looking forward to seeing this submarket thrive.

Please contact us for additional insight and information.

Rcho Soldados

Rancho Soldados

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2015 Residential Land Transactions

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Market Overview

Lot Supply

The finished lot supply was reduced by 52 lots in Q1 with a total finished lot count of 3,645. There were 265 new finished lots in four communities added to the market in Q1: 108 lots in Sierra Morado (Pulte); 60 lots in San Lucas (DR Horton); 63 lots in Los Saguaros (Toll); and 34 lots in Rancho del Cobre (Maracay). During Q1 there was a total reduction of 317 finished lots, 74 more than in Q4 last year.

There are currently 7 communities (750 SFR lots) under construction throughout Tucson. Of these up to 129 lots could be completed in Q2 2015. Two new communities could be added next quarter and additional lots could be added to existing communities.

There are approximately 80 active SFR communities in the Tucson Metro area. Three communities were built out during the quarter, but still selling the remaining specs: 2 in the NW and 1 in the SE submarket. As many as six more communities could build out in Q2 2015 based on recent building trends.

Lot Supply Statistics

Q1 ’15 vs. Q1 ’14 vs. Q1 ’13

Finished Lots: 3,645 / 3,906 / 3,961
New Lots Added: 231 / 268 / 191
Total New Lots Added – prior 12 mo: 1,136 / 1,328 / 201
Total Quarter Permits * 467 / 518 / 644

(Permit data from Bright Future Real Estate Research, LLC)

SFR Community Statistics as of March 31, 2015:

80 active traditional SFR communities
3 communities were built-out or closed in Q1 (most still selling specs)
4 new communities were finished or opened in Q1
7 communities under construction (750 lots / up to 129 could be finished in Q2)
up to 3 new communities could be added in Q2
8 residential land transactions in Q1 2015 totaling over $10.16 million
4 rolling options in 4 communities
2 investor land transactions
There were no bulk finished lot transactions in Q1

Lot Ownership

During Q1 2015 investor inventory was reduced by 83 lots. This reduction was from the option DR Horton has for Eagle Point Estates in SW Tucson.

Builder controlled lots: 2,769 (76.0%)
Investor controlled lots: 876 (24.0%)

Investor Ownership Q1 2015:

47.0% Far South submarket (292 lots)
24.8% Northwest submarket (367 lots)
19.8% Southeast submarket (115 lots)
6.1% Southwest submarket ( 40 lots)

LGI - San Lucas Bk7

San Lucas – LGI Homes

DRH Pines

The Pines – DR Horton

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Forecast

There were 467 permits pulled in Q1 2015. January and February were abnormally low at just 124 and 148 permits respectively, but this was not unexpected after the surge in permits pulled in December by builders taking advantage of the City of Tucson’s impact fee moratorium in eligible communities. Q1’s 467 permits were 51 fewer than the 518 pulled in Q1 2014.

While Q1 started out slowly in regards to SFR permits pulled, home builders started 74 more homes in Q1 than in Q4 2014. Some of this may be attributed to the additional Tucson permits pulled in 2014, but the communities starting the most homes were outside of Tucson: San Lucas, The Pines and Red Rock. We anticipate Q2 to be significantly stronger than Q1.

Based on current building trends, as many as 6 communities could build out in Q2. Only two new communities should open in Q2. Other lots that are close to being finished will be added to existing communities. We anticipate the overall number of communities will drop in 2015. We still anticipate there to be a modest increase in permits in 2015.

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RAH SL

San Lucas – Richmond

KB La Cima

La Cima Esplendora – KB Home

Our lot supply numbers represent only traditional SFR lots. We do not track multi-family, active-adult, or custom lots. Our definition of a ‘finished’ lot is one that is fully improved and a building permit can be pulled. Lots are no longer considered available once trenching has been initiated. Sales do not affect our counts – only starts. Builder lots include all lots under their control, including options.

We currently do not include platted lots in our inventory or ownership counts. However, there is an increasing amount of activity from both builders and investors in acquiring raw and entitled land in the Tucson area. We do track them and will include them in our counts as they are developed.

Investor lots include investors, developers and other non-builders.

* Permit data from Bright Future Real Estate Research, LLC

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About Our Company

CHAPMAN LINDSEY Commercial Real Estate Services, L.L.C. was formed in 1991 by successful real estate professionals who wanted to better serve their clients. As a full service commercial real estate company, CHAPMAN LINDSEY offers brokerage and leasing services with an emphasis in vacant land sales. CHAPMAN LINDSEY’s three partners combine over 76 years of commercial real estate experience to provide a focus of expertise in the areas of land, investment properties, property
leasing, acquisition and deposition services, and tenant representation.

The company is an active member of the Southern Arizona CCIM (Certified Commercial Investment Member) Chapter and the Tucson Association of Realtors.

Dan Feig and Aaron Mendenhall specialize in the sale of land and developed lots to investors, developers and home builders in Pima County.

Highlights

CHAPMAN LINDSEY has closed over $600 million in transactions.
CHAPMAN LINDSEY has also closed over $125 million in land alone in the past 6 years.
CHAPMAN LINDSEY has exclusively represented the following home builders with the purchase or sale of their own land/excess inventory;

Cornerstone Homes, DR Horton Homes, Ducati Homes, KB Home, Lennar Homes, LGI Homes, Maracay Homes, Meritage Homes, Milestone Homes, Miramonte Homes, Pepper-Viner Homes, Richmond American Homes, Standard Pacific Homes and TJ Bednar Homes

If you are looking to buy or sell land, please contact us to discuss how we can put our expertise to work for you.

Daniel Feig / 520-747-4000 x103

danf@chapmanlindsey.com

Aaron Mendenhall / 520-747-4000 x102

aaronm@chapmanlindsey.com