Thousands of people in Asia, Germany, Canada and elsewhere are betting from $10,000 to over $300,000 apiece that they can make money speculating in land in Jackson and Barrow counties.
But if it happens, payoff probably isn’t in the immediate future.
The Walton Group, who through its subsidiaries is the largest property owner in Jackson County, has sold thousands of interests in its proposed local developments to “retail investors” — individuals — throughout Asia, Germany and Canada.
Those investors, reportedly advised at the beginning they would have to wait six to 10 years to get a return on their shares of various Walton projects — at $10,000 a pop — have stakes in more than 6,500 acres of Walton proposed developments in Barrow and Jackson counties.
Since most of the company’s purchases locally were from 2010 out, investors shouldn’t expect a return on their money until 2016 or later, Walton officials note.
It’s an investment/financing mechanism that works, say Ed Fleming, president of Walton Development and Management USA, and Paul Beidel, president of the group’s Southeast division. It works, they say, because Walton is a family-owned company that doesn’t have to produce short-term profits like most publicly held corporations and can take a long view with its projects. The two sat down for a one-hour interview recently at MainStreet Newspapers’ Jefferson headquarters.
Walton, based in Calgary, Canada, owns 77,000 acres in the United States, land that it began acquiring in 2008. Of that, some 11,000 are in Georgia and approximately 6,500 acres are in Jackson and Barrow counties.
Walton has drawn attention locally for two reasons. First, it raises capital by selling those $10,000 “partial interests” to what it calls “retail investors,” most of whom are individuals who live abroad, principally in Asia.
And second, because it has yet to turn a shovel of dirt in any of its local holdings.
It’s basically crowdfunding for real estate, they say.
“Our strategically located land-based assets have historically been able to provide distributions to our clients while creating communities that will stand the test of time: hometowns for present and future generations” the company’s website proclaims.
The company has been criticized by some locally who say Walton pitches its conceptual plans as the final site plans to local public officials. Some local officials appear to be under the impression that Walton will build out exactly what they show at local government meetings. In reality, the companies that eventually buy the Walton land are likely to follow their own plans for subdivisions and retail centers.
A look at the qPublic Jackson website shows that Walton bought the first 336 acres of its 1,605-acre Arcade Meadows project from Brand Bank on Aug. 11, 2008, for $10.5 million. Through May 2013, the company raised $27.8 million by selling 1,620 “partial interests” to mostly-Asian buyers.
Biedel said Arcade Meadows is still “a couple years away” from moving dirt.
Land banking is a practice Walton uses to finance most of its 122 “master plan” development projects in America, as well as its Canadian holdings.
It is also a practice that raises questions among people unfamiliar with that kind of investment plan. Their first reaction when they see the long lists of partial owners in a Walton project is often that the system is illegal.
Fleming and Beidel acknowledge that unfamiliarity with land syndication confuses people, but they say that numerous regulatory agencies in the U.S. and abroad who monitor investment plans have raised no red flags. Syndication is a popular investment method used throughout Asia and is not unique to Walton in America.
“Investors can go to their financial consultants and buy into Walton U.S. Land Fund 5 just as they could buy into Oppenheimer, Vanguard or any other fund,” said Fleming.
The company raised $7.95 million by selling partial interests to 399 investors in the proposed Commerce Center development off Hospital Road and old U.S. 441 in Commerce.
“It’s a hedge,” explained Fleming of the land investment. “If they (investors) don’t want the volatility of the stock market, they can invest in land, which has some risks associated with it. The risk of time is really the biggest risk, and the risk of illiquidity, because it’s not liquid.”
But for those willing to wait a little longer — say saving for retirement — the duration is less critical.
And, Fleming notes, the long-term investment means investors will pay a capital gains tax, which is lower than the ordinary income tax, on any profits.
Each project has its own budget, determined in advance by analysis of the property and its potential, Fleming and Beidel said. With the initial influx of investors’ money, they say the company spends two to four years getting “entitlements,” which include all of the local, state and sometimes federal permits, including zoning, and to mitigate any environmental issues (such as buried fuel tanks or improvements to dams), secure the land against trespassing if necessary, hire consultants for engineering and development plans, to pay taxes and to cover other expenses. Part of that cost covers re-design when local governments balk at the original concept, as happened with both the Arcade Meadows and Commerce Center developments.
When the company has the entitlements in place and feels that the market is right, Fleming said the next step is to seek institutional investors, such as hedge funds, pension funds and bank and equity funds. Those investors buy out the “retail investors,” and eventually sell it to developers who build the houses, stores or industrial buildings.
“When you make a decision to develop the land, you’ve got to have two things in place. You’ve got to have your entitlements — permits, your site plans, your approvals — but you’ve also got to have a market,” Fleming said. “Somebody’s got to want to be there, to build a house there or put a store there or both, so unless you have one or the other, it doesn’t make any sense to start developing the land. Once we have both those things, then we get an institutional investor.”
“The retail investors then exit,” Fleming explained. “They get their investment back, plus their interest.”
At this point, very little, if anything, has changed on the land itself.
“What the people (retail investors) bought into is raw, undivided dirt. What they are selling is what we call paper lots,” Fleming said.
Walton also markets the land to homebuilder groups and commercial and industrial developers, depending on the project.
The long “hold time” explains why only five of Walton’s 122 master plans in the U.S. are in the construction phase so far, Fleming said.
“2008 plus seven (years) is 2015,” he points out.
What actually winds up being built will not necessarily follow the conceptual plans presented to local governments at zoning or annexation hearings. While whoever builds out the plan will have to follow the zoning, permits and other “entitlements” Walton procured, the companies that buy the land will develop it according to their view of what the market will accept — within the constraints of the entitlements.
Walton says its “retail” investors are warned up front that the hold period can be extended if the market requires it, but sometimes it may be shorter as well. Given Walton began buying as the recession hit, that hold period is more likely to be extended.
The hold period refers only to the time frame during which the retail investors are involved. Once a project moves to the next phase, it’s up to the developer and the market to bring the project in. As for the Arcade Meadows project, full build-out is anticipated to take up to 30 years.
“One of the key principles is there is no debt on this land, which allows us to look at the timeline,” Beidel said. “We’re not racing to get out of it. We’re trying to do the best set of entitlements not only for the land, but also for the community.”
At the Commerce Center, the company has 409 acres for which it paid $4.5 million. Its 399 listed investors put $7.95 million into the project. For the retail investors to just break even, the institutional investors would have to pay more than $19,000 per acre. The retail investors expect to do better than break even, of course.
There is nothing new about foreign investment in U.S. land, notes Frank Norton Jr., president of The Norton Agency, a leading area real estate company.
“We’re seeing the emergence of large institutional or private money entering the market and holding property,” Norton said. He noted that foreigners still see the U.S. economy as the most stable in the world, and its land as a safe investment.
Additionally, Norton said, “Large tract builders always use intermediaries to hold land rather than putting it on their books. Then they do a slow takedown. …A major subdivision might take multiple years.”
And, $25,000 an acre for permitted ready-to-build land “sounds about right,” Norton declared.
He said foreign investors see such purchases as a “land bank account” in the U.S.
Formed in 1979 by Patrick and Maurine Doherty, the company was named after a friend. Fleming points out that people often assume that the company is connected to the Walmart Waltons of Arkansas. It is not. The company’s headquarters are in Calgary.
Walton Global Investments has three divisions — Walton International Group, Walton Development and Management and Walton Asset Management. Walton Development and Management has two parts, USA and Canada.
In the late 1990s, current CEO Bill Doherty spent a couple of years in Asia “to figure out the Asian syndication process,” which Fleming notes is used by other companies dealing with land investments.
The company sends representatives into Asia, Germany and elsewhere, offering “opportunities” in growth-prone American real estate.
In Georgia, that means in the vicinity of Atlanta, but particularly north along Hwy. 316 and Interstate 85 — “the paths of growth,” as Beidel explained it.
“It’s not about the here and now, it’s about the future of, I think, the area we live in,” he said. “I moved to Atlanta in ‘85. We did huge developments in Atlanta that seemed like they were way out in the middle of nowhere, and today I drive through the same projects and they’re full of people.”
Walton buys land in the 25 top metropolitan statistical areas in the country, but not necessarily in all of them. It has holdings in the Atlanta, Dallas, Charlotte and Denver MSAs, but not in New York or Houston, for example. Its Georgia focus is toward Athens and South Carolina — right through Gwinnett, Jackson and Barrow counties. Each project is an individual limited partnership.
According to Fleming, company buyers walk every tract. In addition, the company uses Google Earth-based propriety software that can place up to 2,500 “layers” on the tracts, showing everything from wetlands to cemeteries, flood plains to utility lines or pipes, even water rights.
“We like to say that we know the property better than the seller,” said Fleming, who spent most of a 25-year Army career with the U.S. Army Corps of Engineers. He retired as a colonel.
Right now, those properties are idle — in the “entitlement” phase. Currently, the Jackson County Water and Sewerage Authority is considering granting an extension of a “will serve” letter of intent saying it can serve the first phase of Walton’s proposed GlenRidge development across U.S. 129 from the former South Jackson Elementary School. Walton anticipates that the 114-acre commercial development will require an average of 198,000 gallons of water per day.
Local officials, not to mention thousands of investors around the world, will be anxious to see what kind of development takes place as that 6-10-year “hold period” winds down over the next few years. Municipal and county officials hope to see an influx of new tax dollars and jobs; the thousands of investors around the world who bought into the projects are just looking for a return on their investments.
The company declined to provide any information about the return its retail investors got on the five U.S. projects now in the construction phase.
“The company does not give out that kind of information,” Fleming explained.