Home builders increasingly are turning to private equity firms for land acquisition loans as banks continue to book losses on legacy loans they made during the housing boom, according to the National Association of Home Builders.
"Builders have had to find other sources of credit because the banks have not opened their doors," NAHB chief economist David Crowe told National Mortgage News.
Historically, banks and thrifts have been the traditional funders of land and construction loans, but recently trade group officials began hearing stories from their members who have been approaching hedge funds and local investors for financing.
Recently, NAHB expanded its third quarter survey on financing conditions to see how many builders were receiving loans from private equity firms. In the third quarter, 56 of the 329 builders surveyed shopped for a land acquisition loan -- and 23% received credit from a private equity firm. Another 6% said they received financing from a source "other" than a bank.
In the second quarter, 18% of builders cited "other" as their source for a loan acquisition loan. (In 2Q PE firm was not yet an option under “other.”)
The survey results show that the percentage of builders getting land acquisition loans from private equity firms and other sources jumped from 18% in the second quarter to 29% in the third quarter.
This increase in demand for land acquisition loans also indicates single-family builders are seeing new opportunities to break ground and build again.
"We are seeing bright spots in communities where people have jobs and they are buying homes," Crowe said.
