Building Up: Walton Global’s Strategic Land Insights

Podcast
Land is precious. Without it, we can’t build homes, and you wouldn’t be reading this because we couldn’t have had Kate Kaminski, Chief Operating Officer at Walton Global, as our latest guest on the New Home Insights podcast. Kate and Walton Global know land. They bank it, they buy it, they develop it. Here are some highlights from the latest podcast: Kate gives her take on land banking, land development, the land market, the housing market, and more.

Featured guest

Kate Kaminski, Chief Operating Officer, Walton Global

Transcript

Dean Wehrli:

Hello, listeners, welcome to the New Home Insights Podcast, I’m Dean Wehrli. It’s time to look at the world of land again, that always scarce commodity that drives the rest of real estate. To navigate that very tricky space we have Kate Kaminski. Kate is the Chief Operating Officer at Walton Global, is a now Phoenix-based land banker that is active all over North America. We’ll start with a lot about land banking, then some about the housing market, then we’ll talk about the land market. Kate, how are you today?

Kate Kaminski:

I’m doing great. The sun’s shining outside so happy to be here in Phoenix.

Dean Wehrli:

You’re in Phoenix, the sun is never not just shining outside. Let’s start in the usual way that we do here on this podcast. Kate, tell us a little bit about yourself and then a little bit about Walton Global.

Kate Kaminski:

Well, Kate Kaminski, Chief Operating Officer here at the Walton Group of companies. I’ve been with Walton since 2007 and came to Walton via the new home building industry here in Phoenix. I’m sure that point in time doesn’t surprise you that I made a change from working for a new home builder to another company that was looking to acquire land as many others were looking to dispose of assets. So I joined the company. They were really focused on increasing their footprint here in the United States. Walton is a company that’s been in business for 45 years, it’s family-owned and operated. Started out of Canada, Calgary, Alberta, and really expanded throughout Canada before moving to the US. In 2006, we made our first acquisition, and this is where Walton’s been focusing since that point in time.

We’re a global land asset management and investment management company. Think about Walton, think about land and cash. We raise capital around the world from various sources such as institutions, high-net-worth investors, family offices, but also retail investors to deploy into land assets. Those assets could take various forms. It could be land banking, it could be developments, they could develop lot structures. We’ve discussed build-to-rent strategies, et cetera. We really focus our footprint on that southern half of the United States. Really we’re driven to markets and new acquisitions by our buyer partners which are predominantly the US public home building space.

Dean Wehrli:

I like that. Land and cash, two things that people always want, especially in this business, the land part. So let’s start then with land banking. Let’s take a pretty deep dive into land banking. Our audience is pretty diverse so let’s start with what’s to you, Kate, obviously, it’s going to be super, super basic. Just tell the audience the very basics of the idea. What is land banking?

Kate Kaminski:

It certainly can take different forms depending on the capital that’s out there and what sort of restrictions they’re going to place on that capital. In Walton’s world, we’re really focused on those early stages of land banking. Buying land in the path of development, sometimes taking it through the zoning and entitlement process, but oftentimes looking for our buyer partners, builder partners to take it through the zoning and entitlement process. We sell it back to them.

Typically in a phased takedown, oftentimes with terms … Might receive a down payment with deferred payments to be received at a point in time in the future, oftentimes when homes are sold to a third party by those builders. Really the builders with the land banking model that we employ are looking to defer that land acquisition cost as long as they possibly can, stretch it out as far as possible, even to the point in time where they’re getting paid for selling that to a third party. Now, of course, there are other land banking vehicles out there, more traditional large ones that are … They have a tighter buy box if you will. You have to be further along in the entitlements process, and development work has to be undertaken. They’re oftentimes also funding development costs. That’s not really the space that we play in yet.

Dean Wehrli:

Development is … You add a lot of risk there. I give it the risk of being overly simplified here, but let’s … What’s in it for them, what’s in it for you in this land banking model?

Kate Kaminski:

Well, really it’s about deploying the capital, the available capital that you have as wisely as possible. There is not a lot of capital out there that’s willing to fund land acquisition costs because what is land doing on your balance sheet while you’re holding it? Nothing for you. It is not an income generating asset. And let’s be clear, public home builders do not see any value in their stock price from taking capital that they have and deploying it into non-income-generating assets. They need to be selling homes and generating margins off of those home sales.

The market, especially since 2008, has continued to push these home builders to find ways whereby they can not pay as much upfront for the land, and take that capital that they have and use it to fund other things such as development costs, construction costs, getting new communities off the ground. And that’s really where you’re going to see them preferring to deploy that capital in addition to things to get buyers into homes. I’m sure we’ll talk about it later in the segment here. The theme of 2023, and continuing to 2024 is incentives, and how can the builders get people to close on homes, and with mortgage rates where they’re at. That has predominantly been through rate buy-down programs and offering incentives to make it economically feasible for people to close.

Dean Wehrli:

Let’s talk about that when we talk about the housing market in just a minute. Before we talk a little bit more about the who of the land banking is … I forgot to ask you this, is how did you get into land banking? Was that strategic or was it more you were sort of pulled into it from some of those builder partners that you’re talking about?

Kate Kaminski:

I would say I fell into it. I honestly thought I would stay in the home building space, I really enjoyed what I was doing. Was looking for opportunities that were not … Were maybe going to have a strong future. With the decline in Phoenix, which really happened far before the bottom fell out in 2008, I started sourcing new opportunities through my network. And I knew a couple people who had come to work at Walton and I found their story, their strategy quite interesting, especially given what was going on in the market.

Dean Wehrli:

Was Walton already doing land banking at that point or did that come later after you joined up in 2010?

Kate Kaminski:

Walton was already doing land banking but it was primarily in Canada, in Alberta and Ontario. They started to do research here in the United States, natural transition in terms of growth, and a tremendous amount of capital that had a desire to invest in the US real estate market. And so this was a natural transition, as I said, to move to the US. So they started doing diligence in 2002 and really saw what was happening with subprime lending in 2006. Made their first acquisition here. It was like a hockey stick in terms of focusing on expanding our footprint across the US while many buyers out there were not. Now, that being said, the prolonged recession and recovery in the US was also something that, of course, impacts timeframes, impact deals for people right across the board. Continued to expand into additional states right across the country, primarily in the southern smile of the US. Until the last few years, have been adding additional states: Washington, Utah, Nevada, other new markets under our belt.

Dean Wehrli:

Let me get back to that in just a minute, into the geography of where you are mostly active. First I wanted to follow up on the who. You mentioned a second ago that it’s sort of Wall Street and the investor class that really wants to see the land off of the books of the big public builders. Is the who of land banking, from the builder side, always the big publics? Is there any room here for some of the private smaller builders at all?

Kate Kaminski:

So there definitely is. I would say the cost of capital is adjusted based on who your buyer is going to be. For us, we’re really focused on the balance sheets of our buyers. What sort of security do we have for those deferred payments that they need to be making? And we need to ensure that there are viable payment solutions in the future in case something were to go wrong with a particular property. We’re we highly focused on investment grade companies in terms of those that we’re looking to do transactions with but also its scale for us. As you’re deploying significant sums of capital, doing a small deal here and there does not move the needle in terms of deploying that as quickly as possible. Our focus really has to be on some of the larger publics just because of the volume that they do.

D.R. Horton and Lennar building one out of five homes in the US alone every year. If you focused on those two alone they could feed your entire pipeline and keep you quite busy in terms of deploying capital. Some of it’s strategic. Is it to say that we wouldn’t look to that in the future? Again, I think it really comes down to that buyer profile and what comfort level we have with their ability to make good on those payment obligations.

Dean Wehrli:

You didn’t say it but I’ll say it. We found out in 2008 those personal guarantees only go so far when the world ends. Are you still in expansion mode? Are you looking to grow the business, grow that pipeline for land banking?

Kate Kaminski:

We certainly are. The great things about our assets under management expanding and the opportunities for putting those under contract is it really afforded us a seat at the table with a lot of these larger public home builders who need land inventory to feed the machines that they have going. We are very good at raising capital. Looking to continue to expand those relationships to meet the demand that they have for land banking and off-balance-sheet financing. Our capital tends to be a bit more flexible in terms of, as I noted earlier, that buy box where it’s representative in the rates that we expect to be paid for holding that earlier cycle land. But there is, I think, a huge opportunity in the industry, in that space.

That is something that we’re continuing to look for new creative ways to structure deals with each of the buyers that we work with. They all do it the same but different with their own spin on it, of course. As those opportunities progress, as deals close, it’s also spun off new business lines for us. Instead of Walton sourcing the deal we actually have builders bringing us deals and looking for us to bank them. It’s created a tremendous opportunity and certainly expanded our footprint as a result.

Dean Wehrli:

Other than the wherewithal of the builder partner, what is the biggest risk factor for you in any given line banking deal?

Kate Kaminski:

We just came off of a meeting talking about Q1 results and I can-

Dean Wehrli:

Oh.

Kate Kaminski:

I should just take my notes from that meeting and read them to you and that’ll say it all. I think the continued challenges that we’re seeing right across this country in terms of development-ready land, and zoning and entitlement approvals being obtained, or the lack thereof, is the biggest risk factor we’re seeing. It is getting harder and harder to get land approved for development in a timely manner, in a cost-effective manner. The changes that you’ll see that sometimes come out of left field, other times you knew that they were coming. The taxes that are being imposed, it is really putting significant constraints on the industry, and I don’t see that changing anytime soon I just see it getting more and more difficult.

I talk with my colleagues, and talk about what is it that we can do different to really control our revenue streams that are coming in from deals closing, which oftentimes are tied to zoning and entitlement approvals being obtained. When those are factors that are out of your control it puts forecasting completely at risk and unpredictable. That’s an area where I think there has to be some sort of reform. We need more housing to fill the gap that was created from the underbuilding of the last decade, but more importantly, we need affordable housing. You’re not going to get that inner city. You’re certainly not seeing that in the resale market with home price escalation. And there’s nobody there to help get buyers into homes with incentives.

We need land that is on the periphery and in the path of development that’s going to be more cost-effective to be approved for development. Not only is that going to happen by the municipalities putting better practices and policies into place but also the government. The state government, federal government, local governments effectively allocating resources and capital to infrastructure, and ensuring that that infrastructure is going to be able to support the development.

Dean Wehrli:

I mean, I think your first statement is correct though. It’s sad, but I don’t think that’s ever getting better, that only gets worse. As land gets more scarce, the folks who control that land I think get a little more jealous about the control of that land. There’s no long-term solution, honestly, which is a little depressing. I know. In terms of the deal structure, I’ve always thought that … On land banking deals, one of the dangers, of course, for the land banker, or for you guys in this case, is that the builder walks away. That something bad happens in that deal and the builder walks away. And most of the time he’s like “That’s” … “Land is so scarce that’s not going to happen.” It seems like if it did happen, the reason would be there’s some general really market tanking which means it’d be hard to resell that land because everybody’s tanking. Is that something that concerns you? Is that observation sound?

Kate Kaminski:

It’s definitely a concern because there could always be something that comes up with a deal that could potentially crater the deal. I would say with good diligence and underwriting, you hopefully are building contingencies in there. It’s typically that time component. It’s not the if it will happen it’s when it will happen. When will you get an approval, when will you get over whatever hurdle it is that you’ve determined? I.

It’s also about smart contracts. Getting your buyer to be invested enough in the deal that they won’t walk away. Looking to get strong non-refundable deposits, but then also, as I said earlier, really focusing on getting our buyers to do that planning and entitlement work, to do the final engineering, the big lift to get the project off the ground. I think as those dollars are spent, as that capital is injected which is easy to track from a hard cost standpoint, not nearly as easy to track from those soft costs, the human capital that goes into these huge master plan communities. I mean, we’re talking millions of dollars before a shovel’s ever been put in the ground. It’s definitely a risk, but I would say that that is secondary to the approvals risk. If you can get your approvals, I think the likelihood of a deal moving forward, like I said, it’s not if it’s simply when.

Dean Wehrli:

That’s the nature of land development though, isn’t it? It really is so much cost before you’re ever going to start making money. It really is almost an all-or-nothing thing potentially anyway. God, that just must be so nerve-wracking. As a segue to us getting your take on the housing market more generally, I wanted to talk about the land banking market, I guess, how you look at markets in order to do your land banking. You’ve touched on a couple of these things. Let’s say this. In general, would you rather be in a sort of a safe and stable, relatively stable, housing market, or do you go after those high-flying markets even though there might be a little more risk or fluctuation there?

Kate Kaminski:

I would suggest where we are pretty focused on the markets that have all of those underlying fundamentals that make them perceived as more safe. People, permits, jobs, development-friendly. We’re looking at all of those various factors determining what are the risks associated with moving forward in this market, and primarily focusing on those areas that … Nobody’s recession proof so I won’t use those words, but there is certainly markets that are going to weather the storm more effectively. And we saw those out of 2008, there weren’t many of them. But there are a lot of markets that because of those strong underlying market fundamentals and strong jobs within a market or relatively affordable home prices, et cetera, they’re able to weather the storm a little bit more effectively.

We certainly look to new markets for good opportunities, but we’re going to want to make sure that when we do that that we’re underwriting deals that are going to put some protective measures in place for us that … Maybe it’s one phase and the … It’s a simultaneous close so you’re going to reduce that option risk. And the only risk you’ve got on the table is that deferred payment risk, but, of course, looking for strong security from our buyers there. I think there’s opportunity right across the country in every market, but it’s really going to be how do you structure the deal in total to mitigate some of those risk factors.

Dean Wehrli:

So you will tighten up your part of the risk in markets that you perceive as maybe a little more risky. Fair?

Kate Kaminski:

Yes.

Dean Wehrli:

Okay. Have you ever followed a builder? Just flat out some builder, buyer, partner of your say, “Hey, we really want to go to MarketX.” You’re not familiar with MarketX and they sort of persuaded you to go there?

Kate Kaminski:

I wouldn’t say there’s any persuasion. We’ve got a deal in St. George, Utah, certainly have not been there previously myself. The fundamentals of the deal met our scorecard in terms of fitting within our fund acquisition criteria. And really looking at the risk associated with the deal we were able to get very comfortable with the new market, somewhere that we hadn’t been, because we didn’t feel that our risk was substantial in terms of those levers that we were ensuring were in our favor. I think not much convincing needed if we can get comfortable that this is really … We’re just funding a transaction, and that market risk is effectively removed from the deals in those instances.

Dean Wehrli:

I’m just curious, did you fly into St. George? Have you been there since this deal? Have you been there?

Kate Kaminski:

I have not actually.

Dean Wehrli:

Okay. They’ve moved their airport, but they used to have an airport, I’m not kidding, on a cliff. I drove from Vegas.

Kate Kaminski:

Okay.

Dean Wehrli:

I would fly to Vegas, we’re doing a study there, and drive the rest of the way because I’m not a huge fan of airports on cliffs. I think they’ve moved it.

Kate Kaminski:

Have you been to the Telluride airport?

Dean Wehrli:

No.

Kate Kaminski:

That one-

Dean Wehrli:

Is it scary?

Kate Kaminski:

The end of the runway is a cliff.

Dean Wehrli:

Oh, okay.

Kate Kaminski:

If you don’t take off you’re going one way, next down.

Dean Wehrli:

I’m going to hard pass on Telluride Airport then. You’ve intimated here, you’re in the Sun Valley, you’re in the small states. Are you everywhere? What markets are you in? Are you also in some of the, I don’t know, cooler climes as well?

Kate Kaminski:

We are. When I said the southern smile before that certainly would start in central, northern California and then work its way across the southern part of the US, and then back up the eastern seaboard and into Maryland and Virginia. We’ve recently made first acquisitions into Delaware. A lot of people going there for tax reasons.

Dean Wehrli:

Okay.

Kate Kaminski:

Everybody’s interested in deferring tax. We’re paying less tax where possible. We have not gone up into the deep northeast. Really focused more on some of the other southern markets that are typically more pro-development, development-friendly. Again, trying to factor in that risk, that I mentioned earlier, of getting your approvals, people wanting you there, and bringing development along with you. We were in the … Outside of the Chicago market. We’ve got a huge number of assets in Colorado. We’re continuing to expand our footprint in Colorado. And then I mentioned Utah, Nevada, the state of Washington. I would say we are interested in what are the deal terms, how long does our capital need to be at risk. If you were to show us a deal … I’m not going to say North Dakota.

Dean Wehrli:

Okay.

Kate Kaminski:

Maybe North Dakota.

Dean Wehrli:

Okay.

Kate Kaminski:

Probably. We’re interested Arkansas, Missouri. I would say anywhere that the builder can show us that the deal metrics work and they’re going to meet our underwriting scorecard we’re interested in going there.

Dean Wehrli:

It’s funny you say that because I was going to actually ask you, is there … And you don’t have to name it, but is there any market that you’ve just said, “Nope. We looked at it, we’ve written it off.” You don’t have to name it but have you done that?

Kate Kaminski:

Definitely.

Dean Wehrli:

Okay. You said North Dakota. Just kidding.

Kate Kaminski:

I don’t think that we’ve ever written any deals in North Dakota actually. Been to Wall Drug in North Dakota when I drove through it once, but other than that that’s my experience.

Dean Wehrli:

Now all of our North Dakota listeners are going to be very upset. I don’t know if we have any listeners in North Dakota but if we do we apologize. Let’s talk now about your take on the housing market. Not the land market, let’s do that next, but the housing market so prices, sales, that kind of thing, and then we’ll talk about the land market specifically. So just real generally, just what is your take right now? Housing market, your outlook for let’s say ’24 into maybe next year, optimistic, stable, high-flying? Any reasons for pessimism? Just your general outlook right now.

Kate Kaminski:

I’ve been asked that question quite a few times this year and I continue to say it’s a very optimistic outlook. As new data comes out there is nothing yet that has changed that. In fact, I would suggest that the February results were only strengthening that sentiment. Starts continue to see increases, permits continue to see increases. Those, of course, being indicators of future sales activity and performance. When we’re seeing year-over-year housing starts are increasing across all US regions, you can’t dispute that data. Permits. We didn’t necessarily see increases across … Or month over month. But if you’re looking year over year, again, we’re seeing permits increasing across every region so the Northeast, the Midwest, the south, and the west. We’re seeing a little bit of turbulence, I would say, month over month. But again, looking at where we’re at year over year, we’re seeing increases. And considering that 2023 ranks, what is it? Third-best sales year since 2008, I would say 2024 being at increased rates from … Or paces since 2023, I’m pretty optimistic about the outlook.

Dean Wehrli:

Can I ask you about something about permits before we move off of that? Permits, in my mind, I think can be a little bit misleading, especially in supply-constraint markets. I mean, supply constraint for the seller is, of course, a very good thing. We look at permits month over month, and even we look at permits year over year. To me, that’s a little bit misleading though because by ’23 it was … Things were already had slowed down. When we look at permits like current permits versus say ’19, pre-COVID, we’re still pretty darn undersupplied, especially in those classically constrained markets. Do you think about it that way? I still feel like supply is really pretty constrained relative to quote-unquote normal times.

Kate Kaminski:

Yeah. I mean, a month supply of new homes, I think the last number I saw was at about 8.4 months. I think that we are continued to be constrained. We have not made up on that gap of underbuilding in the last decade. The continued permits that are being issued I hear what you’re saying that it can be a little bit misleading, but at the same time we’re continuing to see the sales pace and the volume that is supporting that. While you could say that about permits, the fact that starts are also up across all markets, and then home sales increased year over year across most regions. We saw increases in the northeast year over year, huge increases, right? Over 60%.

Dean Wehrli:

I did see that. It’s a little surprising, honestly.

Kate Kaminski:

Yes. I’m from the Midwest, I’m from Chicago originally, so always tracking that one, that increased as well, 15%. They’ve been doing quite well. Maybe not inner city but definitely on the periphery. And then the west continues to outperform. They threw up huge numbers as well, in the 40s. So the south, I think we saw some decreases. That was the only market that had decreases year over year in terms of home sales. But again, I think that some of that may have been just so much activity within that market. Whether it’s institutions or speculative buying. Transactions happening just because of that significant increase in value of homes. I think that the South probably had a little bit of adjustment, that was on the horizon, and … But still continuing to post really strong results.

Dean Wehrli:

All of those trends are … Could be a little bit of a denominator effect, right? The South had expansive growth. And in the same way, the Northeast and the Midwest were coming off slower time so percent increases can get a little bit exaggerated maybe.

Kate Kaminski:

Definitely.

Dean Wehrli:

How about resales? Do you still see resales as critical to bolstering the new home market where, of course, all of your build-to-buyer land banking partners are?

Kate Kaminski:

Most definitely. I mean, I think the home builders are continuing to bank on the fact that their run is likely to continue as long as mortgage rates stay where we’re at right now. We’ll see if the Fed cuts starting in June and for the balance of the year. That seems to change depending on who you’re talking to.

Dean Wehrli:

It’s feeling iffy right now kind of.

Kate Kaminski:

Yeah, it certainly is. But with that, you’re seeing existing home sales for 2023, 22% I think lower than they were for 2022. That continues to be a result of that lock-in effect. People that have mortgages that are below four and 5%, and people with so much equity in their homes, historic amounts of equity in their home, they’re … They would be crazy to sell and get into a home with such a high-interest payment. I don’t think that we’re going to see that change at all in 2024 which is just going to continue to catapult the new home builders forward.

Dean Wehrli:

It shows you how much of the … How big an impact the pent-up demand that you’ve talked about. You’ve mentioned a couple of times we’ve under building for a decade or more really. A decade or so of pent-up demand. The reason I say it’s important is because it surprises me that, as you said, new home builders can incentivize and get it down to whatever, 5.875, whatever it is. Low fives even. That’s still a heck of a lot higher than 3.2, 3.0 with those golden handcuffs. The fact that those folks are moving, a lot of that is that 10 years of pent-up demand. Okay, so let’s talk about the land market now. I think I know the answer let’s … We still have to ask. The land market in terms of pricing, in terms of build demand, in terms of your demand as a developer, is it … Would you characterize the land market as hot, stable?

Kate Kaminski:

That’s a great question. I would say that it’s definitely market-specific. But most of the markets that we’re in are extremely active right now. I would say it’s hot. That again, I don’t mean to beat a dead horse here, but I do think that it ultimately comes back to that lack of development-ready land. People fighting for land, that is a smart acquisition in terms of access to infrastructure, being in pro-development markets. Being in markets where you are already seeing a strong presence of players, defined communities, and sales track records there. All of the markets that we’re looking in we’re competing against the buyers of the home builders, we’re competing against the buyers working for the developers. Land for good value is tighter than it’s ever been. That is certainly causing land prices to increase.

Everybody is working to try and control that across the board because, of course, we’ve just seen such significant increases in home prices over the last number of years, especially since COVID, that you … Something has to give somewhere whether it’s land price, development costs, builder margins. People can only afford to pay so much for a home. And so really ensuring that the buys, like I said, are … That you are doing your diligence and ensuring that these are deals that your infrastructure costs aren’t going to crater it is the most critical component.

Dean Wehrli:

That’s actually a great segue to my next question which is, besides the sort of anti-development and a lot of jurisdictions being antagonistic to new development, that you’ve mentioned earlier, is the biggest impediment to your new growth finding places where you can build attainably priced home given the issues of affordability?

Kate Kaminski:

Yes. That continues to be a challenge because, of course, there is this strong desire for estate lots and mega mansions to be built out in rural areas which is just not what you’re going to see. The reason people look on the … In the path of development, on the fringe of development is because you’re going to drive value there. You’re going to be able to pick up farmland instead of land inner city. There is certainly going to be economies of scale in those purchases. Also, high development costs associated with those.

Within a lot of these municipalities, the sentiment is typically, we don’t want a bunch of super dense communities, a ton of rooftops where people aren’t going to take care of their homes. I think that needs to be controlled because, of course, that’s where you’re going to be able to put a house on the ground for a reasonable price. You could see markets, some of your smaller secondary markets, $200,000 home, those aren’t very … They’re few and far between anymore. Even in other markets, just looking to drive into the three to $400,000 price range, you just … You can’t find that inner city. There is a real disconnect between what this country needs in terms of affordable housing and what municipalities want to pass in terms of lot sizes. And the builders, I mean, they are getting really creative with their product types, and continuing to build more efficient homes in terms of size. Whatever you can do to put somebody into a home, as compared to renting, and getting those approved I think is the challenge.

Dean Wehrli:

Well, come on out to California more often because a lot of the cities here are actually looking to increase densities. In fact, I’ve done plenty of market feasibility studies where the city may be overpushed on densities relative to what the market is demanding or could sell. Have you seen more density in at least some suburban markets? Is there even a little incremental acceptance of greater densities?

Kate Kaminski:

I wish that I could say that was an easy answer of yes, but it’s … It really has not been a theme within any specific market. If you go to Texas you might be in areas where they’re keen on more rooftops. Certainly opportunities for tax funding through putting districts and mechanisms in place to recoup infrastructure costs in the future. So you may see the desire to have more rooftops but then challenges on how is all of that going to be funded and when is that funding going to go through. It’s chicken and egg here because you might be able to get approvals in some of those places but that doesn’t mean that you’re going to be able to develop until you’ve got that infrastructure accounted for. That’s why you work with groups like Walton, or the partners that we have who are going to be able to work through those challenges and make sure that these projects are going to be successful at the end of the day.

Dean Wehrli:

You mentioned the inner city locations, or the urban locations are usually pretty expensive. It’s hard to get some affordable homes in urban areas even when they’ll let you go more dense. Tell me if this is just beyond the pale of what you do, but I’m always interested in the remote work and that arm wrestle between remote workers and employers. It seemed for a while there that everybody … The employers were saying, “Remote work is dead we’re going to call them all back into the office.” The death of remote work was greatly exaggerated it turns out, it’s actually popping back up again more recently. Are you seeing movements more from the exurbs or the suburbs into urban areas because of the pullback? Are people who once were working way, way far away from their central employer are now having to move back? Do you notice that at all? Any trend like that in the deals you’re doing?

Kate Kaminski:

I’ve read so much about companies demanding employees come back to work but that is not what I’ve seen as much from an implementation standpoint. Not just here in Phoenix. I would say especially here in Phoenix people really desire to work from home because Phoenix is all suburbs, right? Not a huge downtown. It’s not like Manhattan where people are living in small footprint apartments and really desire to get out of their space every day to change that scenery. We continue to see a pretty, I would say, lackluster performance in the markets that we’re in from a commercial perspective.

And just a continued desire for residential development because of that challenge that landlords are having with getting tenants in or keeping tenants because their employees want to work from home. And so I would say the hybrid approach is really what we’re seeing across the board. But with that, that is still driving people to want to have a home, want to have more space in an office or a place to work in that’ll be different from where they’re going to hang their hat for the evening. I think that’s continuing to have a significant impact on the residential space as well as the commercial space.

Dean Wehrli:

The hybrid is really interesting to me because in hybrid work schedules there’s those Goldilocks areas that are not too far away from the central city where their job may be located that they have to go to a couple times a week at least, but close … So close enough to commute but far enough away where they get more bang from the buck in the house. Do you know where those areas are relative to urban cores and various metros? Do you see growth in those little Goldilocks locations?

Kate Kaminski:

We have not started tracking that because I think that there’s still so much opportunity within the urban areas or some of the larger metro areas that that has really been our focus. I do think as the market continues to see constraints that we’re certainly going to see more areas like that really have strong demand. We talked about St. George earlier, but that is one of our best performing communities. We don’t have any desire to limit where we’re looking.

Dean Wehrli:

Okay. One more question on land and then we’ll wrap up. How much risk will you take in the sense of size? In other words, would you go do one of those deals where you got to wrestle five landowners to aggregate that land, and make it sensible, and get a big enough piece to make it worth your while?

Kate Kaminski:

That is really how Walton, I would say, made its mark here in the US initially. We have certain master plans that are 3,600 acres, 2,000 acres. One conglomerate of land that’s about 6,000 acres in Hunt County, Texas in … Outside of DFW. We bought from many landowners in those instances and amassed these large master plans. There is huge benefit in doing that. But then also, that can be a mountain to move in the future. And so really looking for very particular buyers in those instances. And I would say we’re seeing significant success with some of those master plans, that I just noted, really focusing on green energy master plan communities. Data centers are a huge buyer of those larger tracks that we have right now where you can have a mixed-use component but you can have these huge campuses for these really new technology developments, if you will.

We certainly used to focus on doing that, especially pre-2008 when everyone was looking to buy large tracts of land and large land supply. Today I would say we really focus on tracks that are more in the 200 to 600 acre range and really … That’s just about controlling time, controlling IRR as it pertains to the deal. The more homesites you have the longer it’s going to take you to get out if you’re under that deferred payment model. But we certainly are interested in those larger tracks if there is good potential for those alternate land uses.

Dean Wehrli:

I’m glad you mentioned that about data centers and such because I think I teased at the beginning we might talk about commercial, and maybe a little SFR, but we’re not going to have time to do that so I’m glad you touched a little bit on the commercial sector because I know you guys are active in commercial sectors as well. I always like to ask my guests some kind of a crystal ball question looking forward. In this case, I’m going to ask something specific to Walton Global which is, are you going to do more land banking deals this year, 2024, than you did in ’23?

Kate Kaminski:

Yes, we most definitely are. I would say that is a result of what I talked about earlier with a lot of our products that we’re offering now are spinoffs, our version 2.0 of our original land banking model. As our products continue to get better and better in terms of the security, and the underlying assets, and the deals that we’re acquiring, our pool of capital is expanding as a result. We are very excited for some of the new relationships and markets that we’re forming and we think it’s going to be a banner year in terms of placing capital. I know that our builder partners have an insatiable appetite for this capital, so if we can raise it we can place it

Dean Wehrli:

And then ’25 even more again, let’s just keep going. Awesome. Thank you Kate so much for coming on this has been phenomenal.

Kate Kaminski:

Thank you for having me. Look forward to doing it again soon.

Dean Wehrli:

Absolutely. Perfect. This has been Dean Wehrli for the new Home Insights Podcast. Please join us again in a couple of weeks.

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