Times have changed since the last time New Home Co. (NYSE: NWHM) founder Larry Webb departed a company as chief executive.
He left John Laing Homes in 2008, two years after selling the Irvine homebuilder for $1 billion in one of the largest ever private builder transactions, and right as the market was about to fall into a nationwide financial crisis.
Now, skies are bluer for the homebuilding industry, and the real estate veteran is more optimistic about the timing of his departure as chief executive from the Aliso Viejo-based public homebuilding company he started a decade ago.
“This is something I’ve been planning and thinking about seriously for about a year, and I think the company is in a perfect position as I step down,” Webb, who announced his departure as chief executive last week, told the Business Journal.
“I didn’t want to turn the company over to [future Chief Executive Leonard Miller] until I was sure we were in a good position.”
Webb’s not going far—he will remain active in the company as executive chairman, and he is arguably more invested now than ever: he recently increased his equity ownership to about 4% of the company, regulatory filings indicate.
“I don’t even know what to say to Larry’s announcement other than a legend moving to a new role,” said Ivy Zelman, chief executive for housing analyst firm Zelman & Associates, during the final earnings conference call led by Webb, a 2018 member of the Business Journal OC 50 listing of the area’s most influential executives.
10 Years of Change
Webb departs his role on Aug. 30, the 10th anniversary of the company he founded.
“I’m a poetic guy,” Webb joked.
Much has changed in the economy in the decade since Webb founded New Home, which was started in the teeth of the Great Recession, a downturn that claimed several builders as victims, including John Laing. The company has a market cap of about $87 million, and has been among OC’s largest builders of high-end homes since its founding.
In its first year as a public company, New Home reported second quarter 2014 revenue of $22.5 million. In its most recent filing, the company posted a quarterly profit of $1.6 million on revenue of $162.7 million.
Its stock price, however, has been trending down since early last year; its shares are about a quarter of where they were in 2015.
Company officials have previously cited Wall Street’s undervaluing of its land positions in California; a refrain other area builders and developers with a West Coast focus have also used: Newport Beach’s William Lyon Homes said recently it would entertain going private as a result of what it felt to be a weak stock price.
More recently, New Home Co. officials have said they’ve been hammered due to high debt levels, an issue they’re working to resolve.
The company will “continue to deleverage, with the goal of bringing our net debt to cap down in the low 50% range by the end of the year,” Chief Financial Officer John Stephens said during last week’s analyst call.
New Markets
As executive chairman, Webb will help with plans to decrease the company’s debt exposure and scout new opportunities, like expansion of markets and product types.
New homebuyers are increasingly looking for affordable housing, and New Home is responding accordingly.
“We have started a pretty major pivot toward being in more affordable price ranges,” said Webb. “Two years ago our average sales price was $2 million, this year it was $930,000,” and “next year it will be about $800,000.”
“By 2021, we would like to see about 75% of our housing to be below FHA limits,” which now run about $726,000 in Orange County and $430,000 in Riverside County, a growing source of business for the builder.
The move inland is bolstered by what Webb sees as a reduction in demand from China in pricier regions like Irvine. It doesn’t have any wholly owned projects in Irvine, the state’s fastest-growing city several years running. A few years ago, it was one of the larger builders there; its first big project was the Lambert Ranch development in the city.
“Long term, there’s always going to be demand for move-up housing,” said Webb, speaking of markets like Irvine. “But clearly, it’s facing a headwind today.”
As Webb steps away from the day-to-day, he’s thinking big picture ideas for New Home, such as entering new markets outside California.
“I have a lot of long-term relationships in other West Coast states, and I would like to leverage those to expand into new markets, like Denver, Reno, Boise and Portland,” Webb said.
Miller Time
Leonard Miller, who Larry Webb hired in 2017 as president of New Home Co., will take over at the end of this month as chief executive.
“I brought Leonard on with the intent of him taking my place as CEO, and he exceeded my expectations every day,” Webb said.
Prior to New Home, Miller worked at Richmond American Homes, with regional and divisional responsibility for several markets in the western United States. He started his career as a CPA at Arthur Young.
“When people in the industry ask who you would want to go work for, the answer is always Larry,” Miller told the Business Journal. “I’ve always admired how he treats customers and employees. He truly walks the walk.”
For Miller, the new gig is “a dream come true.”
He has plans for how to steer the ship in Larry’s wake.
“We are moving down in price point, becoming more operationally efficient, all while increasing our cash flow to make us more sustainable and increase value for shareholders,” Miller said.
The shift to more affordable housing will bring a decrease in average selling price, but an increase in closings, Miller said.
“Our entry and first move-up communities are selling twice as fast with higher margins than our higher-priced products, and we want to grow our closings to about 400 to 500” in each market like the Inland Empire, Sacramento and Phoenix.
“We are targeting to grow closings by 20% to 25% per year, and looking to double closings in the next 24 months,” said Miller.
In addition to Miller, the executive team at New Home now includes Chief Financial Officer John Stephens, who was recently promoted to executive vice president, and Chief Marketing Officer Joan Webb, wife of Larry Webb.
