The business and investment objective of Southeast Capital Land (SECL) is to maximize total return on capital by purchasing residential land on a discounted basis. We are disciplined in our acquisition criteria, seeking distressed land in strong submarkets and that is well positioned in the marketplace:

We focus on residential land that is in the next logical developable area or other opportunity where the property may lie in the path of progress. Specific criteria we look for are:

• Finished and partially finished residential and commercial lots being disposed of at price points below replacement cost, identifying specific markets where there is still substantial sales velocity and viable long term growth

• Sewer and water must be currently available, as well mixed-use opportunities to further diversify the land holdings
• We prioritize parcels that are currently zoned and entitled, as well as those properties that have finished lots with little off site work that remains
• We also seek properties where smaller pods can be sold if necessary as opposed to the entire property

LOCATION is still the cornerstone of property investing, and there has never been such an opportunity to accumulate prime land with minimal competition. Due to the massive depreciation in property values, financial institutions, developers and homebuilders are forced to liquidate and write down real estate assets. This provides opportunities to acquire properties with residential land value of zero and a substantial discount on the hard costs of completed physical improvements.

In these uncertain times, land will be purchased in an unleveraged position, and then conservative debt placed on the property at a later time, if any at all.

SECL completes the civil, land and amenity development then sells finished lots to healthy homebuilders and developers at a new basis that can compete with existing resale product in the market. Our market research shows which sub-markets are close to reaching equilibrium in absorption of product.

SECL has spent the past 2 years cataloguing the inventory of lots to delineate between those of smaller, unconventional size in sub-standard locations and those of well-positioned and standard-sized lots. Most of the subdivisions comprise “bite-sized” unit counts that can be safely acquired to build as you sell.

Residential real estate has been in its 4th year of decline and seems to be stabilizing. The general “extend and pretend” and modification strategies by current lenders have led to much less than expected supply. Large REO liquidations seemed to be below what one would have expected given the level of non-performers. This is partly because the modification angle has not yet taken its full course.

Opportunities ahead still look promising but require a great deal of due diligence upfront, value-added management throughout, and perhaps an all-in risk-adjusted expected return in the teens and not twenties some distressed funds are/were initially targeting. This means that some degree of leverage still needs to be used and is selectively becoming available even for distressed real estate. Direct investments require a great deal of detailed property-by-property analysis and the right infrastructure to manage and service.

We see continued devaluation, although becoming more slight in residential and considerable in commercial until employment and capital market stabilization. We continue monitoring the southeastern states markets for indications of bottoming out. We have many indicators in strong sub-markets that equilibrium is imminent, based on homebuilders and not just investors vying for this product type.

We believe that the floodgates of sideline money awaiting the declaration of a bottom will, as in all previous cycles, result in an immediate float in pricing. In the event of a U- or W-shaped recovery, we will acquire “Main and Main” locations at appropriate pricing as a safer strategy than waiting until full market upswing to deploy capital on the leftovers.