As the old adage goes, you can’t make more land. For home builders, anything that helps facilitate land deals is huge. That’s where Steve Benson and his team come in—they provide land banking services for builders. Steve is the CEO of Essential Housing, and on this week’s podcast he walks us through the nuances of land banking, a booming method to get deals done. Keep reading below for some of his key takeaways.
Steve Benson, CEO, Essential Housing
Land banking 101
- Land banking is a collaborative process where a land banker purchases lots from a builder and makes a profit by assuming the risks associated with holding land.
- The builder can purchase as they go, taking down the lots they need as they build out. If the original builder decides to not repurchase the lots, the land banker may sell them to another builder.
- Builders are attracted to this business model because it is a strategic source of capital that minimizes the risk on their balance sheets.
In the business of risk
- Steve and his team are masters at assessing, assuming, and mitigating risk.
- Land bankers face all the same risks builders face—entitlement risk, market risk, etc.
- Collaborating with the right people is one of the top ways to mitigate risk. Land bankers look to work with dynamic and agile people experienced in the markets they are investing in.
A look into his crystal ball
- COVID-19 has fundamentally changed the housing industry. People are shifting the way they interact with their homes, and Steve believes these shifts are just the beginning.
- Scale is one of the toughest parts of land banking, but Steve sees land banking as a fast-growing strategy. The increased sophistication Steve’s team has brought to land banking is transforming the way builders finance their work in process inventory.