For Ron Simon, the cost of home upgrades trumps the value of a new home itself, based on the Newport Beach business leader’s two recent blockbuster sales.
The second such sale in several months came last week, a $460 million deal involving RSI Communities, the homebuilder he founded in 2009.
Newport Beach-based William Lyon Homes announced last week it was buying RSI, which builds entry-level homes in Texas and the Inland Empire, where it has about 11,000 home lots between the two markets.
The deal, William Lyon’s entrée into the Texas homebuilding market—the second-largest market for new homes in the country—should close in the next month. It will boost William Lyon’s land holdings to 28,500 home lots owned or controlled, a nearly 63% boost.
The sale comes at a relatively affordable price compared to a recent, larger transaction involving a firm Simon founded in the late 1980s, Anaheim-based cabinetry and home storage products maker RSI Home Products Inc.
American Woodmark Corp. in Winchester, Va. bought it in a deal valued at nearly $1.1 billion, closing last month.
The RSI Communities deal was an all-cash affair, while the sale of RSI Home Products included a cash payment of $346 million, roughly $140 million in American Woodmark stock, and the assumption of $589 million in RSI Home debt. RSI Home shareholders now own about 8% of American Woodmark’s stock. The latter’s market value is $2.4 billion.
“We feel this (stock investment) is a significant positive as it clearly shows the confidence that RSI investors have in this deal,” said Cary Dunston, chief executive of the Virginia firm, in December when the deal was announced.
RSI Communities five years ago was valued at about 60% of what American Woodmark paid for it, when Simon engineered a buy-back of the 50% interest in the firm he didn’t yet own for a reported $323 million.
Next Act?
The combined $1.53 billion from the sales of the two largest companies overseen by Simon’s Newport Beach-based umbrella company, RSI Holding LLC, should boost the bottom line of the area entrepreneur and 2005 Horatio Alger Award winner, whose fortune the Business Journal last year estimated at $1 billion.
The deals could also be a boon to the charitable causes he supports.
His Simon Foundation for Education and Housing, which has reported providing more than $30 million in high school and college scholarships to at-risk students, and supports affordable workforce housing efforts, was listed as a shareholder in the deal with American Woodmark.
The foundation formed the Simon STEM Scholarship Program with Chapman University and Orange High School, among other initiatives in recent years.
Whether Simon, who first bucked conventional wisdom by starting a U.S.-based cabinet maker when the industry was losing market share to low-cost foreign competitors, then took a chance by starting a homebuilder after the Great Recession, has another line of business in store remains to be seen.
Simon, 83, couldn’t be reached for comment on the recent transactions.
His firm filed documentation with the state last year to start energy-focused venture RSI Solar LLC, but the Newport Beach-based LLC was cancelled a few months later, state records show. It’s unknown whether it remains on the drawing board.
Texas Focus
Switching courses midstream, as appears the case with RSI Solar, isn’t out of character for Simon’s firms. RSI Communities went through several iterations and executives before becoming the homebuilder William Lyon snapped up.
The company aims to make homebuying more affordable for purchasers through a streamlined homebuilding process using manufacturing techniques honed by Simon at his cabinet maker.
RSI Communities has by turns embraced infill-development projects in largely built-out areas, including Costa Mesa; undertaken master developments outside the region; embraced rent-to-own strategies and building stand-alone, for-rent homes; and acted as a “super-sub” for homebuilders, developers and real estate investors.
It’s now seen as a more traditional homebuilder, thanks in part to an executive team with ties to former Irvine-based builder Standard Pacific Corp., William Lyon executives said last week.
“There are a lot of things we liked about RSI. First … start with the real estate and probably more importantly the people and their historical perspective in the industry in their local markets,” William Lyon Chief Executive Matt Zaist said last week.
RSI Communities Chief Executive Todd Palmaer hails from Standard Pacific, which changed its name to CalAtlantic Group in 2015 after a merger, as does Chief Operating Officer John Bohnen, who’ll run William Lyon’s new Texas division.
Texas is the furthest east that William Lyon has built. RSI’s nearly 8,000 home lots there, most in the Austin region, are “the first step in a broader Texas strategy,” Zaist said.
It’s still too early to see if RSI Communities’ manufacturing processes and technologies will be used more extensively in other William Lyon divisions, Zaist said.
“I think there are opportunities to enhance cycle times, as well as create incremental purchasing synergies through the combination of our two companies.”
William Lyon’s market value is $840 million. The RSI Communities buy is its largest since it paid $520 million in 2014 for Polygon Northwest Co. LLC, a Bellevue, Wash.-based builder that gave it a presence in the Pacific Northwest.
