Vultures Swoop In On Builders' Land

One major player looking for distressed land deals is Starwood Capital, a Greenwich, Conn., private-equity firm that is considered one of the smartest opportunistic investors in commercial and residential real estate. Starwood Capital recently formed a new joint venture called Starwood Land Ventures to target distressed homebuilder projects.

"The timing for making investments is very good," says John Peshkin, CEO of Starwood Land Ventures. He agrees that opportunities are starting to open up after land prices having been generally stagnant over the past year.

Starwood is mostly looking at the previously "overheated" housing markets of California, Arizona, Las Vegas, Florida, and the Mid-Atlantic for deals.

The Starwood joint venture has three properties under contract set to close in coming weeks. Two of the deals are with public homebuilders, but Peshkin declined to say which.

All three deals are in the overheated markets, Peshkin says. Starwood is purchasing finished lots, an entitled community and a partially developed community.

In each case, Starwood plans to sit on the projects for at least a year, and possibly longer. Peshkin says the housing market recovery is still two to three years away. And he warns a recovery will not result in an immediate return to peak prices once again.

When the market reaches equilibrium, the developments and raw land will likely be worth around 20% to 25% less than their 2005 peak values, he says.