Three of America’s biggest homebuilders – D.R. Horton, Toll Brothers and Century Communities – have invested in Avila Real Estate Capital‘s latest debt fund, helping push a second close that brings the total commitments to approximately $200 million as it moves toward a $1 billion goal.
The momentum behind the fund did not begin this week.
Last November, The Builder’s Daily reported that Dallas-based Hillwood Communities, one of the nation’s influential master-planned community developers, stepped in as the anchor investor in AREC’s second debt fund. Hillwood’s role provided a credibility bridge between operating land developers and institutional capital markets.
The new investment from D.R. Horton, Toll Brothers, and Century Communities now deepens that alignment, bringing some of the country’s largest homebuilders directly into the investor base of a lending platform designed to finance the land developers and private builders who ultimately supply their lot pipelines.
The AREC fund itself highlights a significant change in how capital moves within the U.S. homebuilding industry.
Instead of relying only on banks or internal balance sheets, large public builders are now investing alongside institutional capital in lending platforms aimed at financing land developers and private builders who produce the lots and homes that ultimately support the industry’s supply chain.
For Tony Avila, founder and CEO of AREC, the moment reflects a strategy that started years ago — and he now considers it prescient.
“We pivoted in 2022 to becoming a lender to builders and to land developers,” Avila says. “And I think that pivot was very prescient, because there definitely is a need, as the banks are pulling away from lending to the private sellers.”
The announcement occurs during a period when builders are dealing with tight credit, margin pressures and the ongoing challenge of replenishing land pipelines for 2027 and beyond.
In that environment, AREC’s platform – and the growing list of investors backing it – is emerging as a new structural valve in the capital system supporting residential development.
A new capital channel for an $80-to-$100 billion market
Each year, roughly $80 billion to $100 billion in land sits beneath the homes that builders plan to sell.
Financing that land – and the development work required to turn raw acreage into finished lots – has traditionally fallen to banks.
But that model has been steadily breaking down.
Regulatory pressure, deposit competition, and the complexity of land development lending have pushed many regional and national banks to retreat from the sector.
Avila says that the shift is not temporary.
“One of the major areas of focus for banks right now is bringing deposits into the bank,” he explains. “Private builders and land developers don’t generate deposits. They use cash as they grow their businesses.”
The mismatch creates structural friction.
“Land development loans are incredibly idiosyncratic,” Avila says. “Every land loan is different — different entitlements, different approvals, different municipalities, different product exposure. Land is very difficult to underwrite. Banks don’t want to do that.”
As a result, traditional AD&C lending capacity has been shrinking.
Banks such as Flagstar Bank, which was absorbed by New York Community Bank, have sharply reduced lending activity following deposit outflows and regulatory scrutiny.
Avila’s response was to build a private credit platform designed specifically for the sector – staffed by professionals who spent decades originating those loans inside the banking system.
“We hired the origination team from Flagstar Bank,” he says. “They’ve got relationships with literally hundreds of potential borrowers and a large pipeline in potential loans.”
Why the biggest builders are investing
The participation of D.R. Horton, Toll Brothers, and Century Communities in the fund underscores how the industry increasingly views capital platforms like AREC as critical infrastructure for maintaining the supply pipeline.
Avila describes the dynamic as both a realistic and opportunistic expansion of residential development and homebuilding capability writ large.
“The builders that invest with us see us as a vital element in the provision of finished lots to public and private builders,” he says.
Most large builders today operate land-light strategies, meaning they rely heavily on independent developers to produce finished lots.
Those developers, in turn, require capital.
“We’re providing capital to local land developers,” Avila says. “And that is providing an incredible service for the public and private builders.”
In fact, he notes, the connection is already deeply embedded in the industry’s operating model.
“The majority of our capital is focused on doing land development plans,” he says. “And about 80% of the lots purchased by our borrowers are ultimately purchased by the public builders.”
In other words, lending to developers and private builders helps sustain the supply chain that feeds public companies.
A shift away from build-to-rent capital
One distinctive feature of AREC’s strategy is what it deliberately veers away from in the residential development landscape: single-family rental investment.
While much institutional capital has flowed into single-family rental development in recent years, Avila says the firm made a clear choice to focus exclusively on owner-occupied housing.
“Build-to-rent is about 7% of housing production in America,” he says. “We focus on where 92% of the houses are getting built – owner occupancy.”
The emphasis reflects both market realities and investor demand.
“Our feeling is that we ought to promote ownership,” Avila says. “That focus has resonated very well with pension funds and institutions.”
The policy environment has also begun to move in that direction, with policymakers from both parties increasingly questioning the role of institutional ownership in single-family housing.
The balance-sheet mechanics
For the builders investing in AREC’s fund, the mechanics are relatively straightforward.
Their capital contribution shows up in a familiar accounting category.
“The investment would show up under ‘other investments’ on their balance sheet,” Avila says.
While the accounting treatment may be simple, the strategic logic is more profound.
Builders are effectively investing in a lending platform that finances the developers and operators supplying their future land pipeline.
Lending through the margin squeeze
The expansion of AREC’s fund also comes at a delicate moment for homebuilders.
Across the industry, executives expect net margins to remain compressed as builders use incentives and pricing strategies to stimulate demand.
Avila says the lending platform is designed to help the operators continue growing even during those tighter periods.
“We’re providing capital for them to grow their businesses,” he says.
At the same time, underwriting remains selective.
“We’re providing capital to better-performing private builders,” Avila says. “Those borrowers are most definitely going to be better performing operators.”
The goal is to support companies that can expand market share even when industry profitability narrows.
Scaling toward a $1 billion lending platform
With the second close now complete, AREC expects to continue raising capital toward its $1 billion fund target, with a final close anticipated in June. The firm’s lending ambitions extend beyond that initial fund.
“Our goal is to put out about a billion dollars in loans every year,” Avila says.
The team he assembled from Flagstar previously originated roughly $2 billion annually in builder lending. For now, the target is more measured.
“We want to be the go-to lender for private builders and local developers,” Avila says.
Given the scale of the addressable market — tens of billions of dollars annually in land development financing — the opportunity is substantial.
“There’s close to about $100 billion worth of lots underneath the houses that sell every year,” Avila says.
And for the broader housing economy, ensuring that capital continues flowing into that pipeline remains critical.
Without it, land development slows, lot supply shrinks, and the housing shortage deepens. Which is precisely why the participation of some of the industry’s largest builders in this new capital vehicle carries broader implications.
In a housing market struggling to build enough homes, the industry itself is now investing in the financing channels required to keep construction moving.
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