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TRI Pointe’s Post-Recession Approach

TRI Pointe Homes Inc., Orange County’s newest public company, believes a conservative business plan born out of the last recession is the way to navigate the ups and downs of California’s roller coaster real estate market.

“You try to learn things from downturns,” said Chief Executive Doug Bauer, who founded the Irvine-based homebuilding company in 2009 with Chief Financial Officer Mike Grubbs and President Tom Mitchell.

The three started the company near the bottom of the last housing cycle after leaving Newport Beach-based William Lyon Homes Inc., where they held executive positions.

What TRI Pointe learned, Bauer said, is that the two killers of homebuilders during the last recession were “too much leverage and too much land.”

“Land is a four-letter word in a downturn,” said Bauer.

Tri Pointe’s strategy since its inception has been to keep a low level in debt—as of the end of 2012 it had $57.4 million in outstanding loans—as well as a relatively modest pipeline of land that’s enough for development plans for the next two to three years.

Lots

TRI Pointe owns or controls about 2,100 lots in California and Colorado. Plans for the lots include a mix of home types that range from entry-level housing in infill locations to $1.5 million homes in San Jose.

Buying larger land sites—which likely would hold potential for bigger returns but also requires development over multiple housing cycles—isn’t expected to be a focus for the homebuilder.

“We’re not masterplanned developers,” Bauer said.

Local projects in TRI Pointe’s pipeline reflect the company’s post-recession business strategy.

In La Habra, the company is selling homes at Brio, a 91-home development that opened in February with prices starting at around $450,000. It recently closed on the former Wardlow Elementary school site in Huntington Beach, where 49 single-family homes are planned. It also owns 105 lots at Rancho Mission Viejo, where it says homes should begin selling later this year.

Bauer, a competitive triathlete in his free time, likens his company’s strategy to baseball.

“We want to hit for average—singles and doubles,” he said. “We want to be prudent.”

Investors appear to like TRI Pointe’s game plan.

The company’s stock has seen solid returns since it went public at the end of January, raising $232.7 million in its initial public offering.

TRI Pointe—whose first name stands for Think Renew Inspire—is the first homebuilder in the U.S. to go public since 2004.

The company now counts a market value of about $632 million, up about 12% from its IPO pricing. It ranks as OC’s 26th-largest public company by market value, according to this week’s Business Journal list (list starts on page 10; related stories throughout issue).

TRI Pointe’s move to the public markets was rapid. The IPO took place only about 40 days after the company filed its initial registration statement with the Securities and Exchange Commission.

Scottsdale, Ariz.-based builder Taylor Morrison Home Corp. announced plans to go public in early December, nearly three weeks before Tri Pointe, but has yet to launch its IPO.

The endurance of Bauer and his two partners was put to the test during the company’s whirlwind, 2 ½-week roadshow prior to its IPO. Their itinerary included meetings with more than 200 investors in the U.S. and Europe.

Great Park

The downside of gearing up for the IPO, Bauer said, was that the company wasn’t able to get involved in a of couple of potential land deals, such as the first phase of development at Great Park Neighborhoods in Irvine.

The company is interested in working with Great Park’s master developer, Aliso Viejo-based FivePoint Communities Management Inc., in future phases of homebuilding at the development, Bauer said.

The transition to a public company hasn’t made too much of a change in terms of personnel, Bauer said.

The company now counts about 75 employees, with a majority of its staff working out of the company’s Irvine headquarters at the Impac Center office campus.

TRI Pointe’s offices serve as a good reminder of the ups and downs of the area’s real estate market.

The Impac Center building was originally built largely for John Lang Homes, which went out of business in 2009, about a year after the five-story office was built.

TRI Pointe’s ties to another area builder, William Lyon Homes, go beyond its top executives.

Other executives who count stints with Lyon include Vice President of Operations Mark Sherman; the company’s two vice presidents of project management, Tom Grable and Mike McMillen; and the company’s division manager for Northern California, Jeffrey Frankel.

TRI Pointe’s three cofounders still play much of the same roles they did at the time of the company’s creation, according to Bauer.

Grubbs acts as the “financial brains” of the company, and Mitchell is “one of the best homebuilding operators in the business,” according to Bauer. Operations still run in a similar manner, with weekly sales-focused meetings on Mondays, and operating meetings with the company’s three divisions (Southern California, Northern California and Colorado) on Tuesdays.

That leaves the rest of the week open for the company’s executive team to travel to current and potential development sites.

The company’s largest investor is chairman Barry Sternlicht, head of Greenwich, Conn.-based private equity firm Starwood Capital Group, which helped jumpstart TRI Pointe’s operations with a $150 million investment in 2010.

Bauer said he speaks with Sternlicht—a friend he’s known for more than 20 years—about twice a month regarding the company’s operations.

“He’s the world’s best partner,” Bauer said. “He picks operators and lets them do (their work).”

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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