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Värde makes $250M investment in the single-family lifestyle

Alternative investment firm Värde Partners has provided more than $250 million of capital to purchase and fund the development of single-family residential projects across three transactions in the U.S.

“The U.S. housing market represents a significant investment opportunity for Värde, with compelling supply demand dynamics driven by low interest rates, demographic trends and secular shifts accelerated by Covid-19,” said Brian Schmidt, partner at Värde.

BRIAN SCHMIDT

“These deals demonstrate the speed, scale and flexibility with which our platform can invest across the capital structure to provide appropriate financing solutions while traditional lenders continue to retrench.”

The transactions announced today include:

A $100 million land bank facility with Dream Finders Homes (DFH), a leading homebuilder based in Jacksonville, Florida. The capital will be used to acquire land in Florida and Colorado, with a focus on Jacksonville, Orlando and Denver, to be developed into residential lots by DFH. Having first invested in DFH in January 2019, this deal expands Värde’s ongoing partnership with the company, working together to develop high quality and affordable homes in attractive communities.

 The acquisition of Verde River, an ‘active adult’ resort lifestyle master-planned community (MPC) in Scottsdale, Arizona (pictured top) including 55+ housing and an agreement with Shea Homes, one of the country’s leading private homebuilders, to continue developing and building out the project. The community will include 1,210 homes and is already well established with over 600 homes sold.

The acquisition of Sunfield, a late-stage MPC based in Austin, Texas, and formation of a joint venture with IHP Capital Partners to manage the project. Located in one of Austin’s fastest growing suburbs, the community is nearly half complete with 2,770 lots remaining out of 6,550 in a market with high demand for more affordable homes.

Sunfeld is a 2,400-acre master planned community being developed in the own of Buda that will eventually include over 6,000 single family homes.

Värde believes there are substantial opportunities in certain segments positioned to outperform the broader U.S. housing market, which entered the pandemic from a position of relative strength. Household formation was in line with new build activity, there were record low inventories and vacancy rates, relatively cheap mortgages, reasonably controlled credit, good levels of affordability, healthy levels of homeowner equity and a positive outlook on prices.

The unique nature of the disruption of Covid-19 then caused supply and demand factors to play out in a very different way to a ‘typical’ downturn. The immediate effect has been to reduce supply and bring demand forward, as home buyers seeking more space have accelerated their decision to acquire a single-family home, helping to support prices.

Government policy has also played a very important role, providing short-term stability to the market and preventing extreme scenarios that could have had a destabilizing effect. In particular, through stimulus, generous unemployment benefits and policies on forbearance, government policy has prevented the traditional translation of severe economic damage and high unemployment through to housing prices.

As the market is gradually weaned off this support, Värde expects a far more nuanced picture to emerge, caused by the differing impact Covid-19 has had on sectors, geographies and age groups. Secular trends accelerated by the pandemic, including the desire for more suburban housing, and demographic trends, such as later household formation for millennials and a large baby boomer population, will create clear winners and losers.

With a great deal of uncertainty surrounding the forward environment, the firm continues to focus on assets that are likely to perform well in all scenarios. Assets that provide an inflation-protected income stream and have strong levels of underlying demand, such as active homebuilding projects in desirable locations, offer the most attractive opportunity.

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