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Recovery Finds Buyers With Tri Pointe IPO

Southern California’s housing market might not be back to prerecession peaks, but investor interest in the region’s homebuilders is riding high on last week’s initial public offering for Tri Pointe Homes Inc.

The Irvine-based builder raised about $233 million in the well-received IPO, which came on Jan. 31 and gained plenty of national exposure for its rarity.

It’s been nearly eight years since a U.S. homebuilder went public.

“It’s a historic event for myself, and my two partners,” said Chief Executive Doug Bauer, who founded the company in 2009, along with President Tom Mitchell and Chief Financial Officer Mike Grubbs.

All three are former executives of Newport Beach-based William Lyon Homes, which has seen its share of challenges resulting from the housing downturn, including a short stint in bankruptcy last year.

Another reminder of the recent downturn can be seen in Tri Pointe’s headquarters at the Scholle Center office campus on Jamboree Road. The building once held the headquarters of John Laing Homes, which was among the more prominent builders in the country that went bust during the market’s nadir.

Now there are encouraging signs of a sustained turnaround in the market, according to Bauer, who made an appearance on CNBC as Tri Pointe’s stock began trading on the New York Stock Exchange under the “TPH” ticker.

“The California markets are definitely in the first inning of a recovery,” said Bauer, whose company also builds homes in Colorado.

“We saw last year the improvement in the market—the traffic and the conversion had been very strong, and it (has) continued into the first four weeks of this year,” he said.

Investors appear to agree.

Tri Pointe initially registered to go public in late December, estimating it would raise about $172.5 million. Interest in the stock prompted the company to increase the size of the offering in the days leading up to the IPO.

Shares were ultimately priced at $17, above the marketed range of $14 to $16.

They closed their first day of trading at about $19, giving it a market value of about $600 million.

In comparison, Irvine-based Standard Pacific Corp., OC’s only other publicly traded home builder, counts a market value of about $3 billion, factoring in preferred shares.

• Headquarters: Irvine

• Business: Homebuilder

• Founded: 2009

• Ticker symbol: TPH (NYSE)

• Market value: About $600 million

• Notable: IPO on Jan. 31; shares rose more than 10% in first day of trading

Standard Pacific, the 13th-largest builder in the U.S. in 2011 by sales, reported 983 new home orders in the fourth quarter of 2012, and earned about $378 million in homebuilding revenues during the period. Tri Pointe said it expected to report 75 new home orders for the fourth quarter, with revenues of about $55 million in that period.

Tri Pointe’s proceeds from the offering total about $156 million, most of which will be used to buy up land for additional residential developments. At the end of 2012, the company was under contract to buy $147.2 million worth of land, which is expected to hold 775 homes in 10 different communities.

“The neat thing about what we are doing, it is immediately accretive to the value of the company,” Bauer told CNBC. “It is not for general working capital purpose but for real assets, and that’s really critical for our growth.”

Tri Pointe owned or controlled nearly 1,400 home lots across California and Colorado as of the end of September, according to regulatory filings. Local projects it has in the works include sites in Huntington Beach, La Habra and Rancho Mission Viejo.

About $63 million raised from last week’s IPO is going to affiliates of Greenwich, Conn.-based private equity firm Starwood Capital Group, which helped jumpstart Tri Pointe’s operations with a $150 million investment in 2010.

That investment gave Starwood and its chief executive, Barry Sternlicht, an 83.5% stake in the builder prior to the IPO. It now owns about 45% of the builder’s stock—roughly worth $270 million—after selling about 3.7 million of its shares in the IPO. Sternlicht remains Tri Pointe’s chairman.

Another Sternlicht venture, called Starwood Land Ventures LLC, owns 9,600 lots in California, Arizona and Colorado. Some of that land could be sold to Tri Pointe going forward, according to the company’s registration statement with the Securities and Exchange Commission.

The Tri Pointe IPO is Orange County’s first since last May’s $124 million offering by Irvine-based action-sports retailer Tilly’s Inc.

Shares of Tilly’s, which counts a market value of about $410 million, are down about 4% from what they priced at in its IPO.

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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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