We acquire and develop land, create communities and provide homebuilding services in central Texas. Our management team includes experienced land acquisition and development professionals who are knowledgeable about both the local and national real estate and housing markets.
Since our inception, we have acquired or have options to acquire approximately 2,430 acres of land in central Texas that we expect will yield approximately 6,000 lots for sale. We have an inventory of approximately 120 developed lots which are ready for sale to homebuilders and we are in the process of entitling and developing approximately 1,328 acres.
Our 2007 business activities will be focused on developing our current land holdings and entering into the homebuilding business. Over the next 3 to 5 years we intend to expand our land development and homebuilding activities into additional regional and national markets. We will focus on markets that have steady employment and population growth, increasing home prices, presence of national homebuilders and a sensitivity for environmentally conscious development.
Industry Overview
The real estate industry is fragmented and highly competitive. We compete with numerous developers, builders and others for the acquisition of property and with local, regional and national developers, homebuilders and others with respect to the sale of residential lots. Additionally, in 2007, we expect to compete with local, regional and national homebuilders in the sale of new homes. We also compete with builders and developers to obtain financing on commercially reasonable terms.
We have concentrated our activities in central Texas where we are developing land and where we expect to build homes in the future. Most of our competitors have substantially greater financial resources than we do, as well as much larger staffs and marketing organizations. However, we believe we compete effectively in our existing market as a result of our development expertise, and our reputation as a producer of quality residential lots. We have seen the financial resources of our competitors increase as a result of the industry consolidation experienced in the past few years.
Our Strategy
Our business strategy is focused on two segments: •
Land acquisition, development and related services; and
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Homebuilding and related services
Land Acquisition
The core of our business plan is to secure land strategically, based on our understanding of population growth patterns and infrastructure development. We believe that national homebuilding companies focus their acquisition efforts on very large tracts of land. In our opinion, these factors create an opportunity for us to secure high-quality, smaller tracts (i.e. less than 1,000 acres) that may be overlooked. Additionally, by providing a timely and diligent land acquisition effort with decisions approved locally, we expect to have an advantage in the pursuit of larger tracts that become available in our market.
We expect to use our available assets, (primarily cash from issuances of equity and subordinated notes, plus cash from operations) for land acquisition, development and homebuilding activities. We are not limited by the amount we can invest in any particular stage of development of the land. Almost all of the land and related development projects will be financed by conventional real estate loans. Based upon individual project parameters, we expect to finance approximately 50% to 75% of our acquisition and development activities with conventional real estate loans. Additionally, we will defer payment for land when possible and use owner-financed payment plans, such as the rolling option. The rolling option has a variety of forms. One variation allows us to pay the landowner for sections of lots as they are actually needed and utilized in our business. We expect that a substantial portion of our future revenues will be generated through the development of subdivisions and land sales. Our anticipated land sales will include sections of lots that are ready for immediate home construction with all infrastructure in place, as well as sections of lots that have all necessary approvals to begin construction but have yet to be physically improved.
While we anticipate that the majority of our revenues will come from sales to national and regional homebuilders, we also expect additional revenues from the sale of lots and homebuilding services to smaller, local builders. Lot sales to local builders will typically involve fewer lots per transaction than sales to larger national and regional companies.
We plan to support the purchase of land and development of our communities with specific analysis of our target markets. Our analysis will go beyond benchmarking the current competition in the marketplace. We intend to utilize more thorough research processes used within the auto, retail and banking industries. For example, successful automakers target their products to a type of consumer, based on the consumer’s age range, family and lifestyle attributes. We will utilize a similar approach, gathering consumer preference data and customizing our product offerings for a variety of buyer segments. We strive to attract a diverse group of buyers by designing multi-product neighborhoods within each community that will be desirable for homebuyers at differing income levels and with different needs. By providing a more customized product mix of varying lot sizes and amenities in our communities and addressing underserved segments, we believe we can accelerate the absorption of our subdivisions and earn superior returns for our stockholders.
Land Development and Related Services
In tandem with our land acquisition efforts and based upon our strategic market analysis, we plan to subcontract for the preparation of land for development. We seek to add value to the land through the process of development, which may include permitting and constructing water and wastewater infrastructure, master-planning of the community, and the construction of roads and community amenities. We also plan to sell entitled land to others for development. Entitled land is land subject to development agreements, tentative maps or recorded plats, depending on the jurisdiction within which the land is located. We anticipate offering assistance and site-specific analysis to land owners desiring to maximize land values. Such analysis can help owners design neighborhoods with pocket parks, natural space and varying lot sizes to attract a broader range of buyers, accelerating the absorption of the subdivision and thereby maximizing value.
In conjunction with our land acquisition activities, we expect a portion of our land revenues to come from sales of entitled land, developed land and bulk lot sales. To date, our revenues have been derived from lot sales and sales of undeveloped parcels of land plus revenues from services provided to two homebuilder customers. The revenue from these sales has been consolidated into our results. We expect that sales of large parcels of land and sections of developed lots will be sporadic, resulting in fluctuations in our revenues and gross margins, while the sale of parcels of developed lots and delivery of services to homebuilders will be less volatile.
We intend to invest in real estate and real estate related activities and are not limited as to the percentage of our assets that we may invest in any single type of investment or as to the kinds of real estate assets in which we can invest. A vote of our security holders is not required to change the allocation or concentration of such assets. However, we may be subject to certain limits from time to time because of covenant requirements under our agreements with lenders.
Current and Future Properties
We intend to sell some of the lots in our various projects and buying and selling additional properties on an opportunistic basis as market conditions warrant. We believe that our properties are adequately insured, and are suitable for their intended purposes. Because of the nature of our land sales and land development services operations, significant amounts of property are held as inventory in the ordinary course of our business.
Details of the properties we own or have options to purchase are set forth below:
| Name of Project | Approx. Acreage | Date | Location |
| Rutherford West | 697 | June 30, 2005 | Northern Hays County, Texas, |
| Georgetown Village | 665 | August 22, 2005 | The City of Georgetown, Texas, Georgetown Independent School District |
| Villages of | 534 | October 18, 2005 | Eastern Travis County, Texas, Pflugerville Independent School District |
| The Bohl’s Tract | 428 | January 25, 2006 | Eastern Travis County, Texas, Pflugerville Independent School District |
| Elm Grove | 91 | December 15, 2005 | The City of Buda, Texas, |
| Highway 183 | 15 | May 31, 2005 | U.S. Route 183 at Evelyn Rd., |
Rutherford West – Rutherford West is a 292 lot residential community on approximately 697 acres located southwest of Austin, Texas, in the Texas Hill Country. Rutherford West is planned as an acreage development and each lot includes a deed restricted conservation easement. The land for this project was purchased in June 2005, with a combination of bank financing and cash on hand. Development of this project commenced in October, 2006 and will continue through 2010. The property is pledged as collateral on a $6.2 million land, development, and construction loan, with an outstanding balance of $6.2 million as of December 31, 2006. Interest payments are at 0.75% over prime (i.e. 9.00% as of December 31, 2006) and are due monthly and principal payments in the amount of $800,000 are due quarterly beginning June, 2007. The bank financing matures in June 2008.
Georgetown Village – Georgetown Village is an approximately 665 acre master planned development in Williamson County, Texas, located just north of Austin in Georgetown. Employers such as Dell, Toppan Printing Co., Ltd., Photronics, Inc. in Round Rock and Abbot Laboratories, Motorola, and Solectron in Austin are all less than 20 minutes via the new Highway 130 corridor. Currently, Georgetown Village includes approximately 350 single-family residential homes. The land for this project was purchased under an option contract in August 2005. Under the option contract we are required to purchase a minimum of 30 acres on an annual basis through 2017. We have purchased approximately 52 acres and 25 residential lots as of December 31, 2006. The initial purchase of land for this project was acquired in November 2005 with a combination of bank financing and cash on hand. Development of this project commenced in January 2006 and will continue through 2013. The property is pledged as collateral on a $3.0 million land, development, and construction loan, with an outstanding balance of $2.25 million as of December 31, 2006. Interest payments are at 0.5% over prime (i.e. 8.75% as of December 31, 2006) and are due monthly and minimum principal payments in the amount of $494,000 are due quarterly. The bank financing matures in March 2008.
Villages of New Sweden – New Sweden is an approximately 1,700 residential lot project located on 534 acres in Manor, Texas. New Sweden is planned for mixed use master planned community which includes single family residential homes, commercial properties, an onsite school, an amenity center, a fire station, and an open green space. The land for this project was purchased in October 2006 with a combination of bank financing, seller financing and cash on hand. Development of this project is expected to commence in second half of 2007, and will continue through 2017. The property is pledged as collateral on a $15.5 million land, development, and construction loan and $2.5 million of seller financed notes payable, with an outstanding balance of $3.6 million and $2.5 million as of December 31, 2006, respectively. Interest payments on the bank financing are at 0.5% over prime (i.e. 8.75% as of December 31, 2006) and are due quarterly and principal payments in the amount of approximately $600,000 are due quarterly beginning 90 days after the completion of construction. Interest payments on the seller-financed notes payable are fixed at 7% and at 2% over prime (i.e. 10.25% as of December 31, 2006) and are due quarterly and principal payments are due annually in the amount of approximately $1.1 million in 2007, $0.3 million in 2008, $0.5 million in 2009 and $0.5 million in 2010. The bank financing and seller financed notes payable mature in October 2009 and October 2010, respectively.
Bohls – Bohls tract is part of the New Sweden master planned community and has approximately 1600 residential lots located on 428 acres in Manor, Texas. The land for this project is under an option contract entered into by us in January 2006. Under the terms of the contract and related amendments, we are required to purchase the land for approximately $7.3 million on April 9, 2007. We are currently exploring our financing options.
Elm Grove – Elm Grove is a 320 lots residential project located on 91 acres south of Austin, Texas in the city of Buda. The master plan includes single-family residential and open green space all within walking distance to Elm Grove elementary school. The first phase of land for this project was acquired in December 2006 with a combination of bank financing and cash on hand. Development of this project is expected to commence in first half of 2007 and will continue through 2010. The property is pledged as collateral on a $792,000 land, development, and construction loan, with an outstanding balance of $792,000 as of December 31, 2006. Interest payments are at 0.5% over prime (i.e. 8.75% as of December 31, 2006) and are due quarterly and the outstanding principal balance is payable upon maturity in December 2007.
Highway 183 – We own approximately 15 acres in Travis County that has a note payable of $280,000. The land is along the state highway 130 corridor and 10 acres of such land is currently under condemnation by the State of Texas. We are in the process of obtaining an appraisal and have hired a law firm that specializes in condemnation hearings to represent us to obtain the best price for the property. The offer from the State of Texas is currently approximately $259,000 for 10 acres and will leave us with a remaining parcel of 5 acres.
The core of our business plan is to secure land strategically, based on our understanding of population growth patterns and infrastructure development in central Texas and its surrounding areas. We believe that our management team has the expertise to acquire large tracts of land in central Texas, and get them entitled in a relatively short time frame. In our opinion, this creates an opportunity for us to secure high-quality tracts that may have been overlooked. We expect to finance 50% to 75% of acquisition and development activities with conventional real estate loans. Additionally, we have developed a set of guidelines which address environmental responsiveness, resource efficiency, and cultural sensitivity. Some of our guidelines are: •
Planning of homesite orientation;
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Preserving natural open space;
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Respecting Conservation Easements;
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Connecting and enhancing our communities with walking and biking paths that provide easy access for meeting neighbors;
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Reserving land to provide public space for neighborhood public gardens;
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Establishing common areas irrigated with “gray water” along with rainwater collection and drip irrigation systems that will help minimize water usage;
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Ensuring that storm water runoff is filtered and/or treated by the use of wet ponds and vegetative filter strips prior to its release;
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Respecting the local history of the land and cultural diversity;
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Creating mixed-used communities that encourage foot traffic with less vehicular traffic;
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Seeking opportunities to enhance our relationships with builders, partners, governmental agencies, and partnerships with environmental and community-based organizations; and
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Restoring or recycling of existing structures.
Homebuilding and Related Services
Currently we are not engaged in homebuilding. We expect to commence homebuilding in June 2007. We intend to build homes on portions of our land currently under development. We plan to select and prepare our home designs for each of our markets based on local community tastes and preferences of homebuyers. Substantially all of our construction work will be performed by subcontractors. We plan to retain subcontractors for specific subdivisions pursuant to contracts which we plan to enter into during 2007. We plan to enter into homebuilding under the name Green Builders, Inc. We currently have an option to purchase the local homebuilding company Green Builders, Inc. Under the terms of the option, we have an exclusive right to purchase Green Builders for a period of two years at a “fair market price” as agreed to by both parties or based on an independent valuation on the date of purchase. We paid $15,000 to Green Builders to enter into the option. Green Builders is a local homebuilding company which built four homes in central Texas in 2006. Green Builders is one of our homebuilder services clients. Our strategy on homebuilding is to build homes which are environmentally responsive, resource efficient, and culturally sensitive.
Our strategy is to target “green” building. Green building today is most often thought of in terms of products and technology. “True” green building is more importantly an approach to the entire business from land planning to plan design, from administration procedures to field processes. “Green” is a recognition that there are other options and choices within most areas of how we conduct our business. We will start by evaluating our process options for earth-friendly alternatives that are attainable yet reasonably cost-effective and are a sustainable value for the customer. To address our homebuilding activities we will consider a unilateral awareness of earth-friendly and efficient processes to create our “Whole-System Thinking” such as: •
Considering employees’ attitude and awareness of efficiency in their office space, processes and daily routines;
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Partnering with vendors and trades in the field to eliminate waste, and create earth-friendly processes and procedures for job site that efficient and mutually beneficial;
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Incorporating sustainable building practices and energy-saving systems that respond to the demands of a particular environment in a specific region;
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Monitoring of the marketplace and industry for new technology;
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Emphasizing job-site awareness, supervision and communication pursuing earth-friendly procedures;
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Evaluating the marketplace for new home design and product technology acceptance;
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Exploring earth-friendly options for consumer choice, efficient applications and implementations;
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Emphasizing lot and site considerations, home orientations, sustainable lot improvements, low-maintenance landscaping and impervious cover; and
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Using environmentally-friendly products.
Geographic Expansion
We are pursuing a strategic expansion philosophy based on potential growth opportunities within what we believe are the most stable areas throughout the United States. We plan to grow by investing available capital in our existing market and into operations and strategic acquisitions in new markets. After reviewing the market activity in the top 100 sub-markets, we believe that within the next two to five years we can expand into five to ten markets that have shown the following trends: •
a steady increase in the employment rate over the past three to five years.
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an unemployment rate below the national average.
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population growth reported steady and positive population rates greater than the national average.
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an increase in average home price or less devaluation than the national average.
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the presence of national builders that have been active for a considerable amount of time (Greater than ten years).
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being rated in the top 50 cities with the most stable growth rate.
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being rated in the top 50 cities moving in the direction of being environmentally sensitive either in their governmental attitudes or in their planning and entitlement processes for each city.
The preliminary markets outside Texas that exemplify the criteria above are: Denver, Colorado; Las Vegas, Nevada; Nashville, Tennessee; Phoenix, Arizona and Raleigh, North Carolina. These markets will allow geographic diversification in our sources of revenues and earnings. We believe this diversification strategy will mitigate the effects of regional economic cycles and position us for greater future growth. Through strategic acquisitions in markets with the qualifications above we hope to gain established land positions and inventories; existing relationships with local governments, land owners, and developers; and a positive impact on our sources of revenues.
Target Market and Market Data
Our current market, Austin, Texas, ranks in the top three places among the 150 metro areas ranked by Forbes magazine (May 2005) on such criteria as business costs, living costs, number of engineers, crime rates, job growth and employment rates. According to Forbes, Austin’s gross metro product is expected to rebound to seven percent annual growth rate through 2008, thanks to one of the nation’s most highly educated work forces. Two of the key indicators of Austin’s economic health are the steady growth of the employment base and above average employment growth rate compared to Texas and the nation, with the exceptions of 2001 through 2003. Over the past ten years, Austin has added nearly 180,000 jobs and has typically exceeded Texas and national job growth rates.
