Three great American builders – DR Horton, Toll Brothers again Century Communities – invest money Avila Real Estate CapitalThe latest debt fund, which facilitates a second closing that brings total commitments to nearly $200 million as it nears the $1 billion goal.
The cycle of this fund did not start this week.
Last November, Builder’s Day Dallas-based reports Hillwood Communitiesone of the most influential well-organized community developers, stepped in as a lead investor in AREC’s second debt fund. Hillwood’s role provided a bridge of credibility between the world’s working developers and the institutional capital markets.
New investments from DR Horton, Toll Brothers, and Century Communities now deepen that alignment, bringing some of the nation’s largest homebuilders directly into the investor space of a lending platform designed to finance land developers and private builders who ultimately supply their local pipeline.
The AREC fund itself highlights a major shift in the way money flows within the US real estate industry.
Instead of relying solely on banks or internal balance sheets, large public builders are now investing alongside institutional funds in lending platforms aimed at financing land developers and private builders who produce lots and homes that ultimately support the industry’s supply chain.
For Tony Avila, founder and CEO of AREC, this moment reflects a strategy that started years ago – and now he considers it normal.
“We are committed in 2022 to being a lender to builders and developers of the world,” said Avila. “And I think the pivot was very smart, because the demand is there, as banks are pulling back from lending to private sellers.”
The announcement comes at a time when builders are facing tight debt, margin pressure and the ongoing challenge of re-installing the world’s pipelines for 2027 and beyond.
In that area, the AREC platform – and the growing list of investors that support it – is emerging as a new structural valve in the financial system that supports residential development.
A new channel for the $80-to-$100 billion market capitalization
Each year, about $80 billion to $100 billion in real estate sits under the homes that builders plan to sell.
Financing that land — and the development work needed to turn green acreage into finished land — has already fallen to the banks.
But that model has gradually broken down.
Regulatory pressure, deposit competition, and land development lending difficulties have forced many regional and national banks to withdraw from the sector.
Avila says the change is not temporary.
“One of the main focuses of banks right now is depositing in the bank,” he explained. “Independent builders and land developers don’t take out deposits. They use cash as they grow their businesses.”
Inconsistency creates structural conflict.
“Land development loans are incredibly complex,” Avila said. “All real estate loans are different – different rights, different approvals, different municipalities, different product exposures. Real estate is very difficult to underwrite. Banks don’t want to do that.”
As a result, traditional AD&C lending volume has been shrinking.
Banks are the same Flagstar Bankwhich was absorbed New York Community Bankthey have significantly reduced lending activity following deposit withdrawals and regulatory audits.
Avila’s answer was to create a private credit platform designed specifically for the sector – staffed with professionals who have spent decades establishing such loans within the banking system.
“We hired a team from Flagstar Bank,” he said. “They have relationships with hundreds of potential borrowers and a huge pipeline of potential borrowers.”
Why big builders invest
The participation of DR Horton, Toll Brothers, and Century Communities in the fund underscores how the industry continues to view financial platforms like AREC as critical infrastructure for maintaining the supply pipeline.
Avila defines flexibility as the practical and potential expansion of residential development and the ability to build a home.
“Builders who invest with us see us as an important factor in providing finished lots to public and private builders,” he said.
Many large builders today use world light techniques, meaning they rely heavily on independent developers to produce finished lots.
Those developers, too, need money.
“We provide money to local land developers,” Avila said. “And that provides an incredible service to public and private developers.”
In fact, he notes, communication is already deeply embedded in the industry’s operating model.
“Most of our money is focused on developing land development programs,” he said. “And about 80% of the properties that borrowers buy end up being bought by government developers.”
In other words, lending to private developers and builders helps maintain the supply chain that feeds public companies.
The transition from construction finance to rental
One unique aspect of AREC’s strategy is what it deliberately retreats from the residential development space: single-family rental investments.
While a lot of institutional money has gone into single-family rental development in recent years, Avila says the company has made a clear decision to focus on owner-occupied homes.
“Building to rent is about 7% of housing production in America,” he says. “We’re focused on where 92% of housing is built – owner occupied.”
The emphasis reflects both market realities and investor demand.
“Our feeling is that we should encourage ownership,” Avila said. “That focus is well aligned with pension funds and institutions.”
The policy environment has also begun to move in that direction, as policymakers from both parties increasingly question the role of institutional ownership in single-family homes.
Balance sheet mechanics
For builders investing in the AREC fund, the instruments are straightforward.
Their major contribution is seen in the general accounting section.
“The investment will appear under ‘other investments’ on their balance sheet,” Avila said.
Although the treatment of accounting may be simple, the concept of strategy is much deeper.
Builders are successfully investing in a lending platform that supports developers and operators that provide their future pipeline.
Borrowing using margin
The expansion of the AREC fund also comes at a critical time for real estate developers.
Across the industry, management expects gross margins to remain under pressure as manufacturers use promotional and pricing strategies to stimulate demand.
Avila says the lending platform is designed to help operators continue to grow even in those tough times.
“We provide money so that they can grow their businesses,” he said.
At the same time, writing is always preferred.
“We’re providing money to independent developers who are doing better,” Avila said. “Those who borrow will be more productive workers.”
The goal is to support companies that can expand market share even when industry profits decline.
It reaches a $1 billion lending platform
With the second closing completed, AREC expects to continue raising funds to reach its $1 billion fund goal, with the final closing expected in June. The company’s borrowing ambitions extend beyond this initial fund.
“Our goal is to generate about a million dollars a year,” said Avila.
The group he assembled at Flagstar previously originated nearly $2 billion a year in mortgage lending. At the moment, the target is very measured.
“We want to be the leading lender for private builders and real estate developers,” Avila said.
Given the scale of the market that can be addressed – tens of billions of dollars a year in global development financing – the opportunity is huge.
“There’s an estimated $100 billion in inventory under real estate sales every year,” Avila said.
And in the broader housing economy, ensuring that money continues to flow into that pipeline remains critical.
Without it, land development slows, land supply shrinks, and housing shortages worsen. That is why the participation of some of the biggest builders of the industry in this new currency has far-reaching implications.
In a housing market struggling to build enough homes, the industry itself is now investing in the financing channels needed to keep construction going.
