2014 Housing Giants - The New Home Company

May 2014
www.ProBuilder.com
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2014
Housing
Giants
Special Report:
Eric Lipar
Chairman and CEO
LGI Homes
2012 JESSE H. NEAL
AWARD WINNER
PHOTO: BEN SKLAR / DBPHOTOAGENCY
• In pursuit of capital: the ﬁnance gap / 32
• The long road to energy efﬁciency / 38
• The resurrection of Orleans Homes / 46
• Ranking the nation’s largest builders / 50
special report:
Notching their best year since 2008, the nation’s biggest
builders took advantage of an improving economy and
a better housing market to find revenue in new places.
By Patrick O’Toole, Denise Dersin, Mike Beirne, Kyle Clapham, Scott Sedam
housing giants report contents
special pull-out giants map
28
overview and analysis
29
in pursuit of capital
32
the long road to energy efficiency
38
resurrection: the saga of orleans homebuilders
46
housing giants rankings
50
methodology
Professional Builder has been compiling its list of Housing Giants for more than 40
years. Firms that wish to submit their information for the list must complete a questionnaire. In addition, Professional Builder retains the services of researchers who contact
large building firms that have not volunteered information in order to cast the widest
net for the biggest home building firms. The rankings are based on new-home revenue
only. Firms with fewer than 30 starts cannot be included in the rankings. To learn more
or to inquire about applying for next year’s list, please contact Professional Builder’s
awards coordinator Heidi Riedl at [email protected] or (847) 391-1000.
n the more than 40 years this publication has compiled its annual list of the nation’s largest builders—
the Housing Giants—seldom, if ever, have the results
over time reflected such a deep and prolonged decline
in revenue and output as the one experienced by
builders over the past several years.
In 2008, as builders began reporting their initial descent, the largest 225 firms tallied $81.4 billion in revenue on 317,361 closings. At the bottom, in 2011, those
figures shrank by nearly half to $42.3 billion on 172,750 closings. The good news: The 2014 Housing Giants report clearly
shows that the downturn has been replaced by a housing
market filled with new opportunities and new challenges.
This past year, the largest 225 Housing Giants (of the 293
Giants reporting) made double-digit gains to get within earshot of levels from five years ago and banked $75.4 billion in
revenue on 254,218 closings. On the face of it, their recovery
seems nearly complete. But these gains hide the breadth of
changes underway at the nation’s biggest building firms. The
gains also obscure the diversity of approaches required by
most builders to succeed today. This Housing Giants report,
which includes the annual rankings and a heat-map poster of
the United States, as well as deeper discussions of financial
and energy efficiency strides made by builders plus a profile
of a builder making a comeback, demonstrates that today’s
www.ProBuilder.com Professional Builder
29
housing giants market share
19%
Giants 1 to 20
(14 4,225 CLOSINGS)
Giants 21 to 75
(58,228 CLOSINGS)
8%
Giants 76 to 150
(36,0 02 CLOSINGS)
5%
Giants 151 to 225
2%
1%
Non-Giants
65%
total new residential revenue
Giants 226 to 293
(8,551 CLOSINGS)
baSE: 293
SOURCE: pROfESSIONaL bUILdER hOUSING GIaNtS REpORt 2014
(499,431 COmpLEtIONS)
$ b ILLIONS , CO mpaRES t Op 225 h O USING GIaN t S
(15,763 CLOSINGS)
$81.4
$75.4
317,361
$53.5
$48.9
254,218
$42.3
196,769
RE VENUE
C LO S I N G S
RE VENUE
2008
C LO S I N G S
2010
207,907
172,750
RE VENUE
C LO S I N G S
RE VENUE
2011
C LO S I N G S
2012
RE VENUE
C LO S I N G S
2013
t hE hO U S I NG GI aNtS S UR V E y waS NOt CO NdUC tE d I N 2009 / baSE: 225 / SOU RCE: p ROfESSION aL bU IL d ER h OU SIN G G IaNt S REp OR t 2 0 1 4
housing market is grounded in new and sometimes unfamiliar
fundamentals. The new fundamentals have led big builders
to add new skills and new geographies and, in general, to be
more nimble and entrepreneurial.
new fundamentals
From the early 1990s until 2007, Housing Giants tended to
operate within clearly defined niches—single-family starter,
single-family attached, first move-up, luxury, etc. That is no
longer the case today. Due to myriad factors—the availability of finished lots to the relative buying strength of some
demographic cohorts over others—big builders are working
with what the market is giving them, even if it happens to
be very different from what they have done in the past. To
achieve their gains in 2013, Housing Giants broadened their
product offerings, expanded into new markets with better
30
Professional Builder May 2014
job growth, and exhibited an entrepreneurial flair to make it
happen. This was true from the top of the list to the bottom.
Once focused almost exclusively on starter homes, KB
Home, No. 8 on this year’s list with $2.1 billion in revenue,
now builds 22 percent first move-up and 11 percent second
move-up. Likewise, Beazer Homes USA, No. 13 on the list
with $1.27 billion in revenue, now builds only 50 percent
starter homes, with the rest divided between first and second move-up and active adult. Ranked No. 39, DSLD, with
$300 million in revenue, is expanding its product offering
to reach more move-up buyers. The fundamental reason is
clear: The market for starter homes is weak. Millennials are
simply not entering the market for new homes in the same
numbers as their parents did.
Consolidation continues to play a role as builders seek
new geographies and better markets. No. 15 builder David
biggest challenges anticipated by giants in 2014
36%
High material and labor costs
Availability of land
52%
28%
N/A
27%
31%
Scarcity of skilled labor
Government regulations
Increased competition
14%
14%
13%
20%
biggest opportunities anticipated by giants in 2014
45%
43%
Operational efficiencies
32%
Economic recovery
59%
30%
Niche-market opportunities
41%
28%
Market expansion
Move-up buyers
44%
28%
N/A
n 2014
n 2013
base: 293
source: professional
builder housing
giants report 2014
Weekley Homes in recent years expanded into Indianapolis
and Phoenix via acquisition. This is due, in part, to higher
prices and higher demand for finished lots in A locations as
builders stay away from riskier suburban edge communities.
The No. 5 builder, Toll Brothers, which billed $2.7 billion last
year, acquired Shapell Homes for $1.6 billion last year. A driving motivation for Toll in seeking that company was its 5,000plus entitled lots in coastal regions of California. Ranked No.
47 last year, TRI Pointe Homes acquired Weyerhaeuser Real
Estate, the No. 14 builder by revenue, at the very end of 2013
in a deal valued at $2.7 billion (Weyerhaeuser Real Estate includes Pardee Homes and Quadrant Homes, among others).
Separately the company acquired 892 lots in California and
Colorado via a flourish of fourth-quarter transactions.
In 2013, the name of the game also was to actively open
new communities to meet pent-up demand. Toll opened 80
smaller houses, higher prices
Average
Sq. Ft. for
Housing Type
2013
2012
%
Change
Detached
Starter
1,781
1,763
1.02%
Detached First
Move-Up
2,367
3,791
-37.56%
Detached
Second
Move-Up
3,107
4,908
-36.70%
Median Price
for Housing
Type
2013
2012
%
Change
Detached
Starter
185,000
175,000
5.71%
Detached First
Move-Up
270,000
250,000
8.00%
Detached
Second
Move-Up
388,975
375,000
3.73%
b a se: 2 9 3 / sou rce: profession a l b u il de r hou s i n g g i a n t s r e p or t 2014
communities. Shea Homes, ranked No. 16 with $1.1 billion
in revenue, opened 73 new communities. This proliferation
of new communities translated directly to more new designs, more new model homes, and more new design centers. Cincinnati-based Drees Homes, No. 22 on the list with
$568 million in revenue, said its “single biggest change” last
year was to build new models along with a new design center. Many others did the same.
This Housing Giants report offers a composite picture of
the largest builders—a landscape that is diversified, varied
and, above all, growing. For 2014, Lennar is expecting 30
percent growth; Toll Brothers, 42 percent; Weekley, 10 percent; and Drees, 15 percent, just to name a few. Our survey shows that many companies feel similarly optimistic.
A year from now, we expect to be reporting another good
year for big builders. PB
www.ProBuilder.com Professional Builder
31
in pursuit of
By Mike Beirne, Editor
LGI
Homes would be ready to go public once it
closed at least 2,000 houses a year, a benchmark that was probably a couple of years away,
or so Eric Lipar thought. But when Tri Pointe Homes, an Irvine,
Calif., builder with 144 closings in 2012, raised $156.3 million
in net proceeds from its IPO in January 2013, Lipar knew the
time was right to take his Houston-based company public.
“It really was a signal that the market was open to smaller
companies because Tri Pointe was essentially a startup,” says
LGI’s chairman and chief executive officer. “Even though (Tri
Pointe) had a very nice balance sheet with really good equity, they were just starting to get closings into the company.
When we saw that, we wanted to get out there before that
window closed.”
Before LGI completed its $90-million offering last November,
Lipar and his team made several stops at various providers of
capital along a journey that started when the company closed
its first house in 2003. That trek, in a sense, encapsulates the
varied sources of money that home builders are tapping—private equity, public debt, and the common stock market—ever
since banks pulled back on credit after the start of the housing market collapse in 2007.
“Financing has changed in the sense that there is a more
diverse range of sources available and needed,” says Dave
Ledford, senior vice president of housing finance and regulatory affairs for the National Association of Home Builders. “I
think that this will be more than just a temporary sign because community banks are not going to be able to have 80
percent of their portfolios in construction and development
loans going forward. The regulators made that very clear.”
the go-go years
The stretch between 2003 and 2006 was a good one for LGI
as it was for builders in general. Closings for the company
steadily increased to 418, and bank credit lines were readily
available. LGI had aspirations to be a multiregional builder.
On the construction side, its business model focused on building entry-level homes with a yard, priced as low as $115,000.
A steady inventory of move-in ready product was created
by setting building activity against projected closings, not
32
Professional Builder May 2014
executed contracts, and the even-flow construction schedule was managed to finish a house within 45 to 60 days from
breaking ground.
On the sales front, LGI blanketed Houston and San Antonio
apartment complexes near its subdivisions every five weeks
with direct mail pieces announcing that it could turn renters
into homeowners through no frills, no down-payment mortgages—typically mortgages backed by the Federal Housing
Administration or the U.S. Agricultural Department’s rural
housing program—that cost less than or were on par with the
target market’s current monthly rent. Those mailers generated as many as 100 leads a week.
“We have a very disciplined and systematic approach to our
sales process, our direct mail, and with our construction staff.
When you look at our growth strategy, we have the system,
we have the process, and all we’re doing is duplicating it and
opening stores across the country similar to a franchise concept,” Lipar says.
The builder had designs in 2006 to grow to 1,000 closings
by 2012. Then the downturn hit. Banks stopped lending, and
LGI’s primary source of construction loans announced it was
getting out of the Texas market. Without more capital, the
company’s growth plans were in jeopardy.
So LGI’s management team sought friends and family financing. Lipar set up a private placement memorandum
and raised $2.1 million from employees, trade contractors,
and friends—17 individual investors in all, kicking in at least
$100,000 each. They were told that in three-to-five years the
return on their investment would be about 20 percent. With
that capital, LGI entered the Dallas/Fort Worth market by
acquiring 210 foreclosed lots in the Deer Creek community
and was building houses there by 2009. Still, LGI needed more
capital to reach its next growth phase, particularly since land
was priced at a bargain thanks to the Great Recession.
“In 2009 and going forward, that’s when we saw opportunities to buy distressed finished lots with lower replacement
cost, and that’s when we got really excited about going down
the road to raise private equity and raising friends and family
capital to do whatever we needed to do to take advantage of
those opportunities,” Lipar says.
capital
IPO, bond, and private
equity money flocked to the
Housing Giants. Is there a
finance gap for everyone else?
In March 2010, the builder picked up a $50-million infusion from Golden Tree Insite Partners, a New York-based real
estate investment firm now called GTIS Partners. With that
cash, LGI purchased 175 lots in the Chisholm Spring subdivision in Fort Worth, and 393 lots across the street from its
Canyon Crossing community in San Antonio. The following
year, LGI planted a stake in Phoenix, buying 103 lots in San
Tan Heights, and then Austin, Texas, by purchasing 102 lots
in the Sonterra development. In 2012, LGI launched in Tampa,
and last year in Atlanta, Orlando, Albuquerque, and Tucson.
expansion barriers
The builder closed over 1,000 homes going into last year,
but pushing even higher created hurdles with private equity.
LGI needed even more upfront capital to develop land and
break into growth markets—an exercise that required more
time than the period private equity investors typically allot
before collecting their 20-plus-percent return on investment.
Banks were not an option, and LGI seemed to be another 1,000
closings and years away from being IPO ready. But after Tri
Pointe became the first home builder to go public since 2004,
LGI quickly followed suit.
“We went as fast as we could to prepare for it,” Lipar says.
“This was not an exit strategy. This was an event to help us
further grow in the future, so the multiple we went out at, and
the price to earnings ratio we went out at wasn’t important
to us. The important thing was getting out and getting the
capital raised so we could grow the company in the future.”
A total of six builders—Taylor Morrison, WCI Communities,
UCP, and William Lyon also completed IPOs—went public last
year. The New Home Company, Aliso Viejo, Calif., finished its
$86-million offering in January and Newport Beach, Calif.based City Ventures is scheduled to debut on the public market this year. When it does, the industry will have 24 publicly
traded companies that predominantly build detached singlefamily homes, the most since 2005.
And why not? Wall Street had an appetite for new investment opportunities after sitting on the cash sidelines during
PHOTO: BEN SKLAR / DBPHOTOAGENCY
the public road
Eric Lipar, chairman and CEO
LGI Homes, Houston
www.ProBuilder.com Professional Builder
33
the slow economic recovery. Last year, capital raised by IPOs
from U.S. issuers jumped 40.5 percent to $57.1 billion (201
deals) compared with $40.6 billion (126 deals) in 2012, according to Thompson Reuters. Top builders that were able to hold
onto or get access to land and upscale move-up and movedown buyers rebounded early last year. When those builders
sought to sell common stock in order to raise capital and buy
land, investors were eager to get in on the action.
Doug Bauer, Tri Pointe’s chief executive officer, jokes that
perhaps he should collect a “finders fee” or some sort of rebate as a result of other builders going public after his company’s IPO. He admits that he would have doubted back in
August 2012 whether there was an IPO market for his company. But $150-million financing from Starwood Capital, a clean
balance sheet, and quality management eventually added up
to a compelling lure for investors. One negative since going
public is the company incurs more accounting and legal expenses related to compliance with the Sarbanes-Oxley Act—a
cost of equity that the builder didn’t have when it was private.
But Bauer calls that more of a change than a negative.
“Frankly, I’d be a public company in any industry, especially
home building,” Bauer says. “It imparts a certain amount of discipline that I think makes a company a better operator and a better steward of its capital so you can survive the ups and downs.”
After its January IPO, The New Home Company moved on
the $74-million purchase of Arantine Hills, a proposed master plan development in Corona, Calif. The site is surrounded
by established communities, already sits within a school district, and will have somewhere between 1,300 to 1,600 newhome sites. That deal would not have been possible without
the builder raising money through its January IPO, says Larry
Webb, chairman and chief executive officer.
“I’ve been doing this for 30 years and during most of my career, during the good times and good market conditions, the
capital was very plentiful for both the private and public builders,” Webb says. “But coming out of this recession, private builders have a much more difficult time having access to capital.”
the private side
Joel Shine
34
Perhaps the debate about the advantages of public versus private is
not as salient as discussing whether a builder is large enough and
well-capitalized enough, which
can be the case whether the company sells stock or is privately held,
says Joel Shine, chief executive officer of Woodside Homes, Salt Lake
City. Last September, the privately
held builder raised $220 million
Professional Builder May 2014
in 6.75-percent senior unsecured
notes due in 2021. He says that
a downside with being public is
the headline noise that can affect
share price regardless of the company’s performance.
“I was talking to one of the pubDoug Bauer
lic builder CEOs, and he said ‘I’m
growing by 10, 20, 30 percent, and
my stock gets dinged because the analysts think that it should
be growing by 40 percent,’” Shine says. “‘They don’t understand
that growing that fast has a downside, but because they decided that is how fast I should grow, they’re going to ding me for
it.’ There are some extremely savvy, smart analysts out there,
the Ivy Zelmans of the world and a small handful of others.
Then there also are some guys out there who call me, they say
stuff, and I scratch my head, and I just go, ‘Really?’”
public debt
Builders were among the many private and public U.S. companies that also took advantage of relatively cheap money by
issuing public debt in 2012 and 2013. Issues in the U.S. investment grade market reached $1.02 trillion last year, topping
the previous all-time high of $1.01 trillion set during the previous year, per Thomson Reuters. That push was partially the
result of companies trying to beat rising interest rates during
the second half of last year after the Federal Reserve Board
signaled that it was considering reducing its monthly bond
purchases, which had kept rates stable.
Well before that rush, David Weekley Homes, Houston, in
February 2013 issued $200 million of senior unsecured debt due
in 2023 at 6-percent interest, one of the more favorable terms
for a private builder. The money was raised through a 144A-forlife bond offering, which carries reporting requirements, but
the privately held builder only discloses its numbers to investors who are qualified to buy the bonds. That avenue was an
attractive alternative to other forms of issuing debt or raising
money in the public market, particularly if shareholders and
Wall Street analysts pushed for dividend payouts or buybacks
at the expense of such Weekley practices as profit sharing with
employees and donating 20 percent of pretax earnings to charity. The builder used the bond money to pay down bank lines.
“The cost of public debt was 1-to-1.5-percent higher (than
bank line rates available at that time), but what you’re paying
for is the interest risk rate,” says Heather Humphrey, Weekley
Homes’ chief financial officer. “Revolving rates are not staying
put, we’re locking in at 6 percent for 10 years. All other borrowing
is variable. That’s about the lowest fixed rate we’ve ever seen.”
William Lyon Homes, Newport Beach, Calif., also took
advantage of lower interest rates in 2012 by refinancing a
% Custom Homes
% Active
Adult/Retirement
PulteGRouP Inc. — Bloomfield Hills, MI
Richard J. Dugas Jr. / www.pultegroupinc.com
1950 $5,424,309,000 17,766
19.2%
$259,681,000
SFD,
SFA
25
46
29
3
3
lennaR coRP. — Miami, FL
Stuart Miller / www.lennar.com
1954 $5,292,072,000 18,290
51.5%
$643,023,000
SFD,
SFA
36
59
5
4
4
nVR Inc. — Reston, VA
Paul Saville / www.nvrinc.com
1948 $4,134,481,000 11,834
32.5%
$0
SFD
5
5
toll BRotHeRs — Horsham, PA
Douglas Yearley / www.tollbrothers.com
1967 $2,711,838,000 4,235
44.0%
$52,238,000
SFD,
SFA
5
60
20
10
6
8
tayloR MoRRIson — Scottsdale, AZ
Sheryl Palmer / www.taylormorrison.com
2007 $2,264,985,000 5,829
65.4%
$30,371,000
SFD
23
31
31
15
7
6
HoVnanIan enteRPRIses Inc. — Red Bank, NJ
Ara K. Hovnanian / www.khov.com
1959 $2,089,729,000 5,927
21.1%
$66,926,000
SFD,
SFA
31
32
24
13
8
7
KB HoMe — Los Angeles, CA
Jeffrey T. Mezger / www.kbhome.com
1957 $2,084,978,000 7,145
34.7%
$12,152,000
SFD
56
22
11
11
9
9
tHe RylanD GRouP — Westlake Village, CA
Larry Nicholson / www.ryland.com
1967 $2,082,838,000 7,027
64.9%
$57,917,000
SFD,
SFA
23
42
34
1
100
10
10
stanDaRD PacIfIc HoMes — Irvine, CA
Scott D. Stowell / www.standardpacifichomes.com
1965 $1,911,756,000 4,627
58.4%
$40,530,000
SFD,
SFA
26
47
26
1
100
11
11
MeRItaGe HoMes coRP. — Scottsdale, AZ
Steven J. Hilton / www.meritagehomes.com
1985 $1,783,389,000 5,259
50.1%
$31,270,000
SFD
24
49
24
3
100
-5%
12
12
M.D.c. HolDInGs Inc. — Denver, CO
Larry A. Mizel / www.richmondamerican.com
1972 $1,626,700,000 4,710
41.3%
$80,665,000
SFD,
SFA
47
53
13
13
BeazeR HoMes usa — Atlanta, GA
Allan Merrill / www.beazer.com
1994 $1,279,212,000 5,056
28.4%
$8,365,000
SFD
50
14
41
WooD PaRtneRs — Atlanta, GA
Ryan Dearborn / www.woodpartners.com
1998 $1,249,800,000 4,275
447.9%
$0
15
14
WeyeRHaeuseR Real estate co. — Federal Way, WA
Peter Orser / www.weyerhaeuser.com/business/WRECO
1971 $1,218,430,000 2,939
40.0%
$57,282,000
SFD,
SFA
16
15
DaVID WeeKley HoMes — Houston, TX
David Weekley / www.davidweekleyhomes.com
1976 $1,124,000,000 2,899
30.5%
$0
SFD,
SFA
4
87
9
100
10%
17
16
sHea HoMes — Walnut, CA
Bert Selva / www.sheahomes.com
1968 $1,092,703,000 2,440
43.3%
$51,926,000
SFD,
SFA
31
11
20
38
18
17
M/I HoMes Inc. — Columbus, OH
Robert H. Schottenstein / www.mihomes.com
1976
$993,000,000 3,472
33.1%
$44,000,000
SFD,
SFA
40
30
18
10
19
18
tHe VIllaGes of laKe suMteR — The Villages, FL
H. Gary Morse / www.thevillages.com
1959
$961,011,584 3,419
33.2%
$0
SFD
20
20
HIGHlanD HoMes llc — Plano, TX
Rodger Sanders / www.highlandhomes.com
1985
$760,600,000 1,915
21.5%
$0
SFD
16
80
4
95
21
21
asHton WooDs usa llc — Roswell, GA
Kenneth Balogh / www.ashtonwoods.com
1989
$728,691,000 2,241
36.6%
$5,427,000
SFD,
SFA
28
39
33
100
22
22
DRees HoMes — Ft. Mitchell, KY
David Drees / www.dreeshomes.com
1928
$568,009,000 1,512
8.8%
$16,100,000
SFD,
SFA
15
85
10
23
27
WIllIaM lyon HoMes — Newport Beach, CA
William H. Lyon / www.lyonhomes.com
1956
$566,221,000 1,435
68.1%
$18,692,000
SFD,
SFA
40
32
28
100
24
23
PeRRy HoMes llc — Houston, TX
Kathy P. Britton / www.perryhomes.com
1967
$545,170,000 1,693
20.2%
$8,200,000
SFD
25
50
25
100
25
NR
BRooKfIelD ResIDentIal PRoPeRtIes — Calgary,
Alberta, Canada; Alan Norris / www.brookfieldrp.com
1956
$511,000,000
NA
$74,000,000
SFD
26
28
claRK BuIlDeRs GRouP llc — Arlington, VA
Keith Anderson / www.clarkbuildersgroup.com
2003
$505,785,040 1,598
51.3%
$606,893
27
25
MHI (McGuyeR HoMeBuIlDeRs Inc.) — Houston, TX
Frank B. McGuyer / www.mcguyerhomebuilders.com
1988
$494,600,000 1,574
21.3%
$7,400,000
SFD,
SFA
10
25
65
20
28
29
Gl HoMes of floRIDa — Sunrise, FL
Itchko Ezratti / www.glhomes.com
1975
$491,335,000 1,020
55.0%
$0
SFD,
SFA
9
36
18
29
NR
sIMPson HousInG llP — Denver, CO
J. Robert Love / www.simpsonhousing.com
1948
$440,006,900 1,357
NA
$0
R
30
30
WooDsIDe HoMes — North Salt Lake, UT
Joel Shine / www.woodsidehomes.com
1977
$438,103,000 1,507
40.0%
14
42
44
855
Types
$3,076,591
2014 Forecast
2
% SemiCustom Homes
2
% Production
Homes
SFD,
SFA
% Vacation/
Second Home
% 1st Move-Up
% 2nd Move-Up
and Beyond
$222,534,000
Total Other
Revenue
% Starter
% Revenue
Change from 2012
41.1%
2013 Closings
1978 $6,432,314,000 25,161
2013 Housing
Revenue
D.R. HoRton Inc. — Fort Worth, TX
Donald R. Horton / www.drhorton.com
Year Founded
Previous Rank
1
Company
2013 Rank
1
100
30%
5
100
42%
100
R
100
2
90
10
100
0%
5
75
15
15%
9%
R
SFD,
SFA
37
80
5%
100
N R = N OT RA N KE D
50
Professional Builder May 2014
% SemiCustom Homes
% Custom Homes
2014 Forecast
% Active
Adult/Retirement
2%
5
3
13%
10
100
50
50
100
30
30
40
92
10
35
55
100
20%
SFD
50
50
100
0%
$0
SFD,
SFA
20
20
23.3%
$0
SFA
$289,925,095 1,089
17.9%
$0
SFD
50
1993
$286,894,000
694
744.4%
$198,474,000
SFD,
SFA, R
100
tHe neW Home Co. — Aliso Viejo, CA
H. Lawrence Webb / www.nwhm.com
2009
$266,266,753
424
145.4%
$0
SFD,
SFA
NR
stoCk Development — Naples, FL
Brian K. Stock / www.stockdevelopment.com
2001
$261,000,000
434
NA
$175,869,080
SFD,
SFA
46
63
Century Communities inC. — Greenwood Village, CO
Robert Francescon / www.centurycommunities.com
2002
$254,820,070
752
91.6%
$784,750
47
108
tri pointe Homes inC. — Irvine, CA
Doug Bauer / www.tripointehomes.com
2009
$247,091,000
396
218.9%
$10,864,000
48
24
tHe bozzuto group — Greenbelt, MD
Thomas S. Bozzuto / www.bozzuto.com
1988
$243,054,122 1,116
-46.0%
$1,132,532,558
49
57
lgi Homes inC. — The Woodlands, TX
Eric Lipar / www.lgihomes.com
2003
$241,000,000 1,617
61.2%
50
49
ivory Homes ltD. — Murray, UT
Clark D. Ivory / www.ivoryhomes.com
1986
$240,810,000
51
66
legenD ClassiC Homes ltD. — Houston, TX
Scott Bauer / www.legendhomeshouston.com
1989
52
61
neal Communities oF soutHWest FloriDa llC —
Sarasota, FL; Patrick K. Neal / www.nealcommunities.com
53
52
54
34
First texas Homes inC. — Dallas, TX
Keith Hardesty / www.firsttexashomes.com
1986
$377,053,638 1,245
28.5%
$2,250,463
SFD
33
32
polygon nortHWest Co. — Bellevue, WA
Jeffery Gow / www.polygonhomes.com
1991
$376,615,995 1,287
26.1%
$4,000,500
SFD,
SFA, R
34
36
CroWn Communities inC. — Conyers, GA
Francis J. Downey / www.crownus.com
1999
$375,205,186 1,540
34.1%
$0
SFD
35
26
Habitat For Humanity international — Atlanta, GA
Jonathan Reckford / www.habitat.org
1976
$364,000,000 3,367
-7.8%
$0
SFD
100
36
42
stanley martin Homes — Reston, VA
Steven Alloy / www.stanleymartin.com
1966
$323,831,770
42.5%
$27,549,270
SFD,
SFA
37
45
mattamy Homes - us group — Winter Park, FL
Steve Parker / www.mattamyhomes.com
1978
$320,464,000 1,224
56.1%
$0
SFD,
SFA
38
19
a. g. spanos Companies — Stockton, CA
Dean A. Spanos / www.agspanos.com
1960
$317,000,000 2,329
-53.3%
$23,114,000
39
46
DslD llC — Denham Springs, LA
Saun Sullivan / www.dsldhomes.com
2008
$299,679,299 1,597
51.3%
$0
40
43
FisCHer Homes — Erlanger, KY
Henry Fischer / www.fischerhomes.com
1981
$296,780,000 1,008
35.8%
41
40
epCon Communities FranCHising inC. — Dublin, OH
Philip Fankhauser, Edward Bacome / www.epconcommunities.com
1995
$290,715,049 1,072
42
37
geHan Homes — Addison, TX
Timothy Gehan / www.gehanhomes.com
1994
43
179
sares-regis group — Irvine, CA
Geoffrey Stack / www.sares-regis.com
44
NR
45
588
Types
$0
% Starter
32
Total Other
Revenue
NA
2013 Housing
Revenue
$404,000,000 1,911
Year Founded
Previous Rank
1957
Company
2013 Rank
Wermers Companies — San Diego, CA
Jeff Bunker / www.wermerscompanies.com
% Production
Homes
45
NR
% Vacation/
Second Home
40
2013 Closings
% 1st Move-Up
20
% 2nd Move-Up
and Beyond
% Revenue
Change from 2012
80
60
31
R
45
R
60
70
98
2
50
100
100
100
35
20
35
40
SFD
25
50
25
100
SFD,
SFA, R
25
30
45
100
$0
SFD
95
5
41.1%
$0
SFD,
SFA
17
50
21
$239,294,597 1,357
83.1%
$0
SFD,
SFA
45
30
1970
$228,873,156
68.0%
$7,754,636
SFD,
SFA
16
mungo Homes inC. — Irmo, SC
Steven W. Mungo / www.mungo.com
1954
$227,977,000 1,082
37.6%
$7,320,000
SFD,
SFA, R
79
Dan ryan builDers — Frederick, MD
Dan Ryan / www.danryanbuilders.com
1990
$226,518,352 1,010
118.8%
$1,612,419
55
35
albert D. seeno ConstruCtion Co. / DisCovery
builDers — Concord, CA; Albert Seeno / www.seenohomes.com
1938
$225,017,000
491
-21.0%
$145,340,452
56
134
tHe Community builDers inC. — Boston, MA
Bart Mitchell / www.tcbinc.org
1964
$224,094,536
459
291.3%
$0
57
55
Fulton Homes Corp. — Tempe, AZ
Douglas S. Fulton / www.fultonhomes.com
1975
$223,766,400
696
45.8%
$3,630,100
58
53
van metre Companies — Fairfax, VA
Albert G. Van Metre Jr. / www.vanmetrecompanies.com
1955
$221,020,000
476
40.3%
59
106
ameriCan West Development inC. — Las Vegas, NV
Lawrence D. Canarelli / www.americanwesthomes.com
1984
$220,888,128
730
60
44
JoHn WielanD Homes — Smyrna, GA
Greg Huff / www.jwhomes.com
1970
$217,247,341
467
769
10%
100
SFD,
SFA, R
714
30
5
0%
65
20%
100
100%
100
7
5
58
42
25
80
18
73
11
89
11
62
30
8
100
22%
SFD,
SFA
50
40
10
100
22%
SFD
20
58
22
94
6
3%
SFD
15
25
40
15
85
85%
$96,196,000
SFD,
SFA
61
34
180.1%
$43,000,000
SFD
2.5%
$2,696,500
SFD,
SFA
7%
2
10%
30%
R
6
20
5
25
75
60
31
100
11%
100
3
80
19
1
www.ProBuilder.com Professional Builder
31%
51
$235-million and 10.25-percent interest term loan due next
year with a $325-million issue of senior notes with 8.5-percent interest. Lyon raised another $150 million to buy 540
infill lots in Orange, Los Angeles, and Santa Clara counties in
California with a 5.75-percent senior note issue completed
in March. Other builders that have dipped into the highyield market for capital recently include D.R. Horton, Fort
Worth, Texas; Beazer, Atlanta; Hovnanian, Red Bank, N.J.;
Lennar, Miami, and Ashton Woods, Roswell, Ga.
But raising capital through bonds, obviously, is not available
for smaller builders. Humphrey, Bauer, and Lipar agree that a
$200-million issue is the minimum buy-in for issuing public
debt. Anything less makes the bond too expensive for the issuer.
private equity partner
Some builders raised capital through partnerships with equity investors willing to take an ownership stake or set up a
joint venture. Mountain Real Estate Capital LLC, with offices
in Minneapolis, Charlotte, and San Diego, has committed $800
million through about 60 deals in the past four years. Many
of the partners are builders that some Mountain employees
worked with since their days with GMAC’s construction lending group. Mountain’s investments range from $5 million to
$75 million with the average deal size being about $12 million. Some deals are short two-to-three-year partnerships;
others are six-to-eight-year stretches, and some of its builder
partners have visions of going public in two-to-five years.
“We’ve found that if a builder is at 150 homes or more (a
year), we are a pretty good partner for them,” says Joel Kaul,
Mountain’s managing director. “If they’re under 150 homes,
it’s hard for us as institutional investors to figure out how
we’re going to help them grow their business.”
He explains that a smaller builder with $5 million in capital
doesn’t need an equity investor because he can just “recycle that
capital through his home building company.” But a builder with
150 to 200 closings has outgrown his friends and family financing. If that builder wants to double his production, his company
probably needs another $5 million to $15 million to do so.
“We’re a really good resource
for the builder to partner with. We
move a lot of their new projects
into a joint venture, and then we
finance the land acquisitions, development, and home building in
our partnership. We are more expensive than debt, but it is a great
structure for a conservative builder who wants to grow, but doesn’t
want to sign up for a bunch of
Larry Webb
debt right now,” Kaul says.
36
Professional Builder May 2014
the financing gap
Banks will still be the dominant
provider of credit but, like equity
investors, they will be very selective and favor large companies
with stellar balance sheets.
Small- and medium-sized buildHeather Humphrey
ers are at a competitive disadvantage because even if the housing
market returns to normal activity, there will be a gap that has
to be filled with alternative capital sources since banks will
not be able to carry the load they carried before the crash.
“We’d like to see our smaller builder members have access to credit and not be at a competitive disadvantage, but
presently it’s hard to argue that they are not,” says Ledford
of the NAHB. “That is why we are trying to level the field in
that regard.”
Details are in the works, but Ledford says that such a program could launch this year. Unlike previous hodgepodge efforts that tried to match builders with financing preferences
until the program ran its course, the NAHB is developing a
plan to continuously provide capital on a regular basis.
“(It’s) sort of like how the commercial paper market works
for you. You’re able to keep the money flowing from investors,
and there’s an intermediary working for you servicing the
loans so the investors don’t have to be concerned about that,
and there’s confidence in the process,” Ledford says. “That’s
the key: to get confidence in the process so the investors don’t
have to look through every little detail in how the money is
applied and repaid. As long as that happens, they should be
satisfied and do it at a cost that is workable for the builders.”
Credit watchers such as Experian Information Solutions,
Fitch, and the Federal Reserve note that banks are loosening lending standards and underwriting more mortgages and
business loans. Although banks will remain the main provider of capital, there is a financing gap that will have to be filled
by an alternative money source—or not. Nevertheless, the
industry will have to reckon with the notion that the Great
Recession has fundamentally changed how builders acquire
financing.
“For most of my career when looking at the home building
industry, I have felt that about 50 percent of new homes went
to private builders and the other 50 percent went to the public builders,” says Webb of The New Home Company. “Moving
forward I really believe that five years from now, you’re going to see that 75 percent of houses sold in America are from
public builders. There will always be well-run private companies; but public builders, because of their access to equity, will
have an incredible competitive advantage, and I don’t see that
changing in the short term.” PB
executivecorner
Going from private to public, Larry Webb
talks about being a builder after the IPO
H. Lawrence Webb
Chairman and CEO
The New Home Company
Aliso Viejo, Calif.
the best of being private and public. I’m still in charge, and I
still have a major investment in my own company, but I have
access to much cheaper capital and much more capital than
I ever would have in the private sector.
Q
A
W
henever Larry Webb participated in a home builder conference panel discussion about private versus public, he would
expound on the virtues of being privately held. After leaving
John Laing Homes in 2008, Larry and three other former John
Laing executives started a new company during the depths of the
housing crash in 2009. The New Home Company eventually attracted capital from private equity investment firms and grew to
build in 22 communities on its own and in joint ventures. Then the
builder completed an IPO in January 2014 and raised $86 million.
Q
A
Why did you go public?
We just came to the conclusion within the last 18 months
that we had a lot of opportunities to continue to grow
the business. We have this great team of people, and what
we were constrained by was access to capital and access to
well-priced capital, and that is what going public does for you.
It allows you to expand and grow your business, and you’re
only limited by the opportunities you can come up with. If
we were going to stay a relatively small company with two or
three housing programs in each area, then I would’ve stayed
private. But we own or control over 6,000 lots now. In California that represents a significant amount of capital, and we
really could not take advantage of those lots unless we really
got a big influx of money, and there were only two ways to do
that. One was to go public; the second was to attract a large
private investor. I’m still an investor in this company, and I
didn’t want to be diluted. I also didn’t want a boss or a big
investment group that would basically tell me how to run the
company. By being public, I’m the chairman of the board. I
have an independent board, and they understand what we do
and are very supportive. In a sense, this move kind of gave me
92
Professional Builder May 2014
Have any notions you had about being public changed?
I knew the reporting was a lot more complicated and onerous than what a private builder goes through. I probably
didn’t recognize how much time you have to spend on that.
That’s one, but it’s something we can deal with. On the other
side, prior to this I had three other customer groups besides
my partners, so those were the four ownership groups that I
reported to. Now we’ve sold more than 8 million shares of stock,
so more of my time is spent communicating with all different
kinds of investors, and I have to be more aware of everything
I do. You know, I have to be quiet. I’m not allowed to speak to
people. I used to be able to say whatever I wanted whenever I
felt like it. In today’s world, I probably wasn’t as cognizant or
aware of the restrictions and the reasons for the restrictions,
and I’m learning that. I’m learning that if I predict something in
the future, and someone buys my stock because of me getting
on a panel somewhere, and it doesn’t happen, I could be liable
for that. So I’m a lot more aware and a lot less flip than I used to
be. I’m still flip, but not as much as I used to be.
Q
A
What are your expansion plans?
When I look at our company and people, it seems to me
that our competitive advantage is in markets where land
is constrained, and where you get rewarded for thoughtful architecture and planning. Along with that is building in markets with job growth. That works very much for the Bay Area,
Southern California, and Sacramento. When I look beyond
that, to Phoenix, I don’t mean outside of Phoenix. I mean the
inner loop of Phoenix, the Scottsdale area, and Paradise Valley. Along with that Seattle, Portland, and maybe Denver. So
it is clear that those are areas I am interested in. But with
the proceeds from the IPO, maybe all the money we raised
will go to already identified projects in California. We are still
considering these other options. It may be 12 months away, it
may be sooner. We’re really not sure yet. But the majority of
the money that we are focusing on raising was for California
projects that we already identified. PB

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