Building value from the ground up: How John Hutchinson and Trez Capital are mastering lot development

Trez Capital's John Hutchinson shares how data-driven strategies and risk management are driving success in residential lot development

Building value from the ground up: How John Hutchinson and Trez Capital are mastering lot development

This article was produced in partnership with Trez Capital.

Private credit may have made its name in direct lending, powered by banks retreating from leveraged loans and private equity’s relentless growth. But, as interest rates edged higher and private equity deals slowed down, credit investors have had to evolve, expanding into diverse asset-based financing structures.

In this new game, it’s no longer enough to play by the old rules—sourcing and fundraising require creativity, while smart underwriting and clear communication about risks remain essential. And as the competition stiffens, those who differentiate themselves are the ones who will thrive. Amid these changes, Trez Capital has found success by focusing on a unique area of expertise: lot development.

Trez Capital’s lot development edge

Lot development is often seen as the “uncharted territory” of real estate investment, an area where many firms are reluctant to venture due to the complexities involved in underwriting the financing. But for Trez Capital, it’s an area of deep expertise. John Hutchinson, Co-CEO and Global Head of Origination, had been in the home building business for 14 years before joining Trez Capital in 2010, having led operations in North Texas for Ryland Homes—a major player on the New York Stock Exchange before its merger. During his time there, Hutchinson was responsible for the development of 5,000 lots and the construction of 11,000 homes in Dallas alone. Fast-forward to today, at Trez Capital, he’s leveraging that experience to turn lot development into a competitive advantage, one that most lenders find difficult to navigate.

Trez Capital's team includes several professionals who, like Hutchinson, come from a home building background, which gives them a unique edge. “Other lenders don’t get into it because they are unfamiliar with lot development. So that’s great for us,” he says. Unlike traditional real estate investments where cap rates are the norm, lot development relies on internal rate of return (IRR) as the key metric—a nuance that many miss. But Trez Capital’s knowledge of this niche allows them to navigate it with confidence, bringing both debt and equity deals to the table.

Since establishing its U.S. office in 2010, Trez Capital has completed over 250 lot development loans, totalling approximately $5 billion in financing. The firm works with some of the largest developers in Texas, the Sunbelt, and beyond. Hutchinson notes nearly 70% of their business comes from repeat borrowers—clients who return because they trust Trez Capital’s ability to close deals smoothly. He attributes this to the firm’s entrepreneurial roots which are backed by a diverse team of talent who have a deep understanding of the real estate industry and the capability to put together creative financing offerings. “We have a niche, and we’ve done quite a bit of business in it,” he adds.

A data-driven approach to market selection

The key to success in lot development lies in understanding where the growth opportunities are, and that requires a data-driven approach. Hutchinson emphasizes the importance of looking beyond surface-level market trends to identify promising submarkets. “It’s not enough to just follow broad trends; you need to dig into the details. We look at vacant developed lot inventory, housing starts, job growth, and population growth. This helps us pinpoint where the demand for residential lots will be strongest.”

Market studies are essential to understanding the potential of each project. “We always conduct detailed market studies,” Hutchinson explains. “They give us a forward-looking view of what’s happening in terms of job growth, population trends, and housing starts. We want to know where the market is going—not just where it’s been.”

Lot development projects often thrive in regions experiencing strong job and population growth, particularly in states like Texas, Florida, Arizona, and the Carolinas, where housing demand continues to climb. However, Hutchinson is quick to note that even within larger metropolitan areas, submarkets can vary greatly. “One neighbourhood might have a shortage of lots, while another could be oversupplied. We take a boots-on-the-ground approach and have a lot of contacts around the country who provide us with localized information – it’s all about understanding those hyper-local nuances that allow us to invest smartly.” For Trez Capital, that kind of granular analysis is key.

Rigorous risk management

While lot development offers significant upside, it also comes with its own set of risks. Managing these risks starts with selecting the right borrowers—those with extensive experience in the industry. “We don’t work with people who are new to the business,” Hutchinson says. “We want to see they have successfully completed similar projects before. We conduct deep background checks and market studies to ensure we understand both the borrower’s experience and the opportunity.” Additionally, the firm doesn’t engage in speculative lending; instead, it focuses on entitled land—property that has been zoned and approved for development.

Another way lot development mitigates risk is through the use of earnest money deposits from builders. “A builder’s financial commitment to the project is crucial. They put up significant earnest money, which reduces our risk and aligns interests. If they don’t follow through, they stand to lose a lot, which gives us confidence they are in it for the long haul,” Hutchinson explains.

He emphasizes that regular inspections and careful tracking of development progress are key to managing risk. “We take a hands-on approach throughout the process to make sure our investments are well-protected. Our in-house Asset Management capabilities ensure the best outcomes for our investors and provide the required monitoring of the financing’s underlying each business plan while properly tracking the investments from start to finish.”

The growing demand for residential lots

The housing market, especially for first-time and move-up buyers, continues to show strong demand, making lot development investing a timely strategy. As Hutchinson points out, U.S. homebuilder stock prices are at all-time highs, signalling optimism about the future of the residential housing market. Builders are securing lots aggressively, anticipating continued demand for housing even as interest rates fluctuate.

Lot development has proven resilient; in 2022, as interest rates began to rise, many worried about a potential collapse in the housing market. Stock prices for homebuilders initially took a hit as fears grew that the higher rates would stifle demand. However, by the fall of that year, builder stock prices rebounded, and the market stabilized. Hutchinson attributes this to builders’ ability to adapt quickly; giving the example of U.S. builders addressing the challenges of high interest rates by buying down the rates for their homebuyers' mortgages. Noting that builders are able to offer this support due to their continued higher margins compared to pre-pandemic levels.

“It starts with the borrower – their experience level and the knowledge they bring to the project. At Trez Capital, we work with reputable and experienced developers. Their ability to manage profitability and maintain demand from qualified builders has kept the housing market—and by extension, lot development—healthy.”

Looking ahead: Expanding lot development’s reach

Hutchinson believes new opportunities in lot development are on the horizon. “We are expanding into regions where job and population growth are strongest. Texas, Arizona, Florida, the Carolinas, and other Sunbelt states are key areas for us, but we always watch for new markets showing promise.”

For Canadian investors, Trez Capital offers a unique value proposition. “We have offices across the U.S.—Dallas, Miami, New York, Phoenix—and that gives us boots on the ground in major markets,” Hutchinson says. “We’re not just flying in from Canada to make deals. We have a deep understanding of the U.S. market and local expertise that helps protect our investors.”

Despite concerns about the broader economy, Hutchinson remains confident in the future of lot development. “I’m always thinking about the future, but when it comes to lot development, I think we’re in good shape,” he says. The housing market is healthy, builders are in a strong position, and demand is there. Lot development is a critical part of that equation.

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