How Empty Land in the Arizona Desert Gets Turned Into Homes

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, you know, we've talked a lot about the home builders, and the factors that go into building a home, the supply chain crunch, the effective rates. We've seen this big collapse in a single-family home construction over the last year since rate hikes, but there's a pretty big component of housing that I don't think we've really hit yet.

Tracy Alloway (0:39)

Yeah, that's right. We talk a lot about building the houses, but we don't actually talk about securing the land that those houses are going to be built on.

Joe Weisenthal (0:48)

Right, and so this is also a pretty big element. And if you read the transcripts of some of the big publicly traded home builders, a lot of the questions they have to ask are like, well, what's your strategy with land acquisition right now? Because you can't build if you don't have more land.

But on the other hand, that's a big capital cost. You're bringing that onto your balance sheet, et cetera. I doubt they want to just have tons of land sitting around. So the question of thinking about acquiring land for housing is a pretty big dimension of the adequate housing story.

Tracy Alloway (1:21)

Totally, and it also taps into a lot of other big picture questions like, what are the best markets to actually build in? Do people take into account maybe climate change considerations, places that are popular now? You think of some of the sunbelt states.

Are those going to be viable markets in the future?

Joe Weisenthal (1:39)

Yeah, all kinds of questions like that. So I want to talk about the land decision because again, we talked about the rate hikes.

So one of the things that we've seen with the rate hikes is that actual physical building of supply, it seems to be pretty sensitive. And we've seen this big drop in the amount of new homes built. But I don't know anything about how sensitive land decisions are to rate hikes and how fast that they can respond and how fast new land can be acquired, because that seems like a pretty big process.

Tracy Alloway (2:11)

Well, the other thing I would say is this is just an interesting business, the business of securing land that you then sell on to home builders for development. And I was not aware that this was a business model that existed. I kind of assumed that the developers themselves would go out and buy the land and then just build it and do everything themselves, but that is not the case.

Joe Weisenthal (2:32)

That is apparently not the case. I just, I didn't even think about it that way. I just assumed, oh, there's plenty of land out there. You just put up a home.

I didn't quite think of it.

Tracy Alloway (2:39)

No, there's all these permits and regulatory red tape that you have to jump through.

Joe Weisenthal (2:43)

Just to get the land itself. Okay, well, we are going to be speaking to someone on the land specific side of the question.

In studio with us, we're gonna be speaking with Chase Emmerson. He is the co-CEO of Emmerson Holdings, a boutique land investment group and broker based in Arizona, which as we know, is one of the hottest, I guess, in multiple ways, one of the hottest real estate markets in the country about the business of land. So Chase, thank you so much for coming on Odd Lots.

Chase Emmerson (3:13)

Great to be here.

Joe Weisenthal (3:14)

Thank you so much. So why don't you just, big picture, what is Emmerson Holdings? Why don't you just sort of give us the top line view of like where you sit within the housing industry?

Chase Emmerson (3:25)

Big picture with our funds and with investor funds, we buy land right on the edge of existing development. We then master plan and design a community, obtain all of the engineering approvals and permits and then sell to top 25 national home builders.

Tracy Alloway (3:43)

So my big question, and I alluded to it in the intro, but why does this business model exist? Like why doesn't a big institutional housing developer just buy the land themselves and then build on it?

Chase Emmerson (3:55)

It's a really difficult industry for institutional investors. So much of it depends on local knowledge and relationships. And so while many institutions have tried buying land and having land funds, for example, few have had success at that.

Looking at the home builders also, home builders have typically started to just buy land that has all of the final approvals in place.