Here's the gist of a conversation we had last week with a high-level management executive of a private home building organization that operates in two metro areas:

When it comes to competing for an ever-tightening supply of finished home building lots to restock at a lower land base, privates are getting muscled out.

In their own back yards, they're losing out to the nationals, whose corporate offices are upping the ante on outright competitive aggression, and getting deals done fast with cash in hand. Never mind soft takedowns and sharing the profits come the deal at the closing table. Private companies with established reputations among buyers--some are even No. 1 in their markets--and with strong lines into local real estate intel on where the opportunistic land deals are surfacing can't hold a candle to the publics, who are raking in Uncle Sam NOL dollars on the one hand and buying up finished lots at distressed price points on the other.

And the funny thing is ... this may all turn out as a way to save the privates to fight another day.

"We had a deal with a seller, and it was going toward closing, when all of a sudden at the last minute, [one of the top five public builders] swooped in and paid cash for the deal," this executive told us. "The publics can come in and outbid us and pay cash every time, and that's not what we can do," he added.

Privates are stuck in the creative capital structure game, looking to cobble a rolling-options program that makes a land seller or a developer a winner later on down the pipeline. Whereas many land sellers may want or need or prefer just to get out of the action with a clean cash deal, which is something most private companies won't be able to achieve amid the commercial real estate credit crunch we're likely to have around for the foreseeable future.

Horton, NVR in its markets, Meritage, M.D.C. Richmond American, and Ryland to some extent are all rabid for finished lots right now, and they're motivated by varying degrees of proficiency and urgency to buy low and produce lower-priced new homes that can go head-to-head [relatively speaking] on a monthly payment basis with resales, including foreclosures.

The fuse of federal policy support measures is running quickly to its end. NOL claims, home buyer tax credits, MBS purchases, etc. ... all the policy aimed at helping housing on both the supply and the demand side may run its course by midyear or so. After running up a series of red numbers in quarterly earnings announcements for the past two-plus years, the publics have mostly declared 2010 to be their return-to-profitability year, at least on a run-rate basis. This means they need to win at the tactical reload game soon, which is why most of them are ravenous for finished lots at the lower cost base right now.

What this means is that the capital-constrained private companies are "out of their league" in the bidding for most of the large-market land auctions these days.

"We may actually be in a position to have to exit a market where we're No. 1 because we're not going to be able to match their cash offers for lots," said the executive.

The result:

• The most obvious effect is that we'll likely see a greater consolidation of market share among the nationals in the usual suspect larger markets.
• Less obvious, we'll start to see a migration of smaller, agile companies into secondary and tertiary markets. These markets may have fewer total permits that what may have been the baseline a few years ago. What they also have is fewer competitors--ergo, less competition for available building lots, which can make sense for a flexible home building operation whose product line might synch up with what the market needs, albeit at a lower volume.

The national landscape further polarizes, with fewer public home builders seizing ever greater amounts of the business on a percentage basis in the most active home building markets, and privates scattering off the radar to chase opportunity where the big guys are too unwieldy to play.

Already, we've gotten word that Lennar is readying a divisional start-up in the Atlanta market. It won't be long before we start hearing of privates' exit from markets they'd made a strong name for themselves in search of greener pastures and no Wall Street-funded rivals for the lots.