Watching the moves of big investment companies is often a way for smaller investors to identify some of the hottest trends. Varde Partners, a global investment firm, announced in November 2020 it had raised $2.6 billion to invest in what it called "the historic market dislocations and economic disruption resulting from the COVID-19 pandemic." Now, Varde has made a big move in the U.S. housing market, putting over $250 million toward three different transactions. These transactions highlight major growth trends within housing.
Betting on a hot homebuilder
All three of the deals that are part of Varde's investment focus on the Sun Belt migration trend.
The larger part of the Varde investment is a $100 million land bank facility with Dream Finders Homes (NASDAQ: DFH). Dream Finders Homes recently entered the public market. The company is based in Jacksonville, Florida, and since its founding in 2008 has been one of the fastest-growing homebuilders. Part of that growth has been through acquisitions -- shortly after going public, it purchased Orlando-based Century Homes Florida.
Varde's land bank will be used to buy land in markets where Dream Finders is already active including Jacksonville and Orlando, Florida, and Denver. Dream Finders will then create communities in these areas. Varde previously invested in Dream Finders and was listed in the company's S-1 as a Series C investor.
Two deals in very hot housing markets
The second acquisition is in Scottsdale, Arizona, an area that has seen rapid growth in recent years. Varde bought Verde River, a master-planned community that includes 55-plus housing. As part of the arrangement, Shea Homes, the builder of the community, will keep developing the rest of the project for a total of 1,210 homes.
The third acquisition takes Varde to another hot market: the Austin, Texas area . As part of an acquisition of the large Sunfield master-planned community, the fund will create a joint venture with IHP Capital Partners. Located in Buda, Texas, part of the Austin metropolitan area, Sunfield has over 6,500 lots, less than half of which are still available. There are multiple homebuilders at work in Sunfield, including PulteGroup (NYSE: PHM) and Taylor Morrison Home (NYSE: TMHC). The expansive community includes its own schools and multiple amenity centers, including one with a lazy river.
A vision of long-term trends
With these investments, Varde is capitalizing on multiple real estate trends within the housing market. The first is that household formation is set to increase after a pause during the COVID-19 pandemic. As interest rates remain low and sales of new homes continue to soar in 2021, there should be a solid demand for these properties.
In a release on the funding, the company indicated it believes the segments it's entering are ones particularly well-positioned to succeed. It mentioned the role of government support, including the stimulus packages and forbearance policies. As those policies end, Varde feels there will be a desire for more suburban housing. Varde has invested in a variety of master-planned communities before, including Daybreak in the Salt Lake City area and Windsong Ranch in Prosper, Texas.
The Millionacres bottom line
What investors can learn from this large fund's $250 million investment is that the demand for single-family homes in fast-growing Sun Belt cities isn't just a COVID-19 trend but instead is part of a years-long demographic shift.