A $150 million investment in then-upstart builder TRI Pointe Group Inc. in 2010 has proven to be a big money-maker for Greenwich, Conn.-based private equity firm Starwood Capital Group.
The deal hasn’t been too bad for Irvine-based TRI Pointe, either, which over that time has grown from a builder with limited operations in Southern California to one of the country’s largest homebuilders, with a market value of about $2 billion.
The beneficial partnership is about to end. Starwood disclosed this month that it plans to sell its remaining stake in TRI Pointe in a secondary share offering.
The nearly 12 million shares being sold by Starwood had a market value of nearly $150 million last week, based on the builder’s current stock price.
That’s roughly the same amount Starwood Capital put into TRI Pointe in 2010, helping jumpstart the operations of the builder, which launched the prior year.
Chief Executive Doug Bauer founded TRI Pointe with President Tom Mitchell and Chief Financial Officer Mike Grubbs. Three are former executives of Newport Beach-based William Lyon Homes.
The company got its start as a fee-builder constructing homes in Irvine for Newport Beach-based Irvine Company, and had largely stuck to projects in and around Orange County prior to the deal with Starwood.
The investment made the private equity firm the majority investor in then privately held TRI Pointe, which soon undertook an expansion plan inside and outside of California.
Starwood’s stake in the company fell in the intervening years. It had about a 7.5% interest in the builder earlier this month.
Its investment had an element of luck; TRI Pointe’s Bauer previously told the Business Journal he’d been friends with Starwood Chairman Barry Sternlicht for nearly 20 years. The investment was their first deal together, he said.
Starwood has about $52 billion in assets under management, and Bauer has called Sternlicht “the Warren Buffet of real estate.”
Sternlicht serves as TRI Pointe’s chairman and is one of two directors at the builder with ties to Starwood.
The makeup of the builder’s board of directors, and Sternlicht’s role at the company, are likely to change following Starwood’s planned stock sell-off.
TRI Pointe’s latest annual report notes that Starwood and its affiliates have the right to nominate one member to the company’s board as long as it owns at least 5% of the builder’s outstanding common stock.
Four other institutional investors had stakes in TRI Pointe of between 5% and 8% as of late last year, according to regulatory filings: Hotchkis & Wiley Capital Management LLC, Dimensional Fund Advisors LP, BlackRock Fund Advisors and Vanguard Group Inc.
IPO, $2.8B Buy
This month’s roughly $150 million offering isn’t a matter of breaking even for Starwood. The firm has sold a considerable portion of its holdings in the past four years, starting with TRI Pointe’s 2013 initial public offering, which was the first U.S. homebuilder IPO in about eight years and the biggest IPO in Orange County in several years.
TRI Pointe raised about $233 million in the IPO, and Starwood got back about $63 million of its initial investment.
Starwood had about an 83.5% stake in the builder prior to the IPO, and afterward was reported to own about 45%, which was worth roughly $270 million at the time.
It has sold off portions of the remaining holdings through smaller stock sales. The firm also saw its stake fall following TRI Pointe’s audacious 2014 buy of the homebuilding division of timber conglomerate Weyerhaeuser Co. The $2.8 billion cash-and-stock deal propelled TRI Pointe toward the top ranks of the homebuilding industry.
TRI Pointe was the 10th largest homebuilder in the U.S. last year, with more than 4,000 home sales the prior year, according to data from trade publication Professional Builder.
It now oversees a family of regional homebuilders, including TRI Pointe Homes and Pardee Homes, long one of Southern California’s most active builders and a former Weyerhaeuser unit that was based in El Segundo.
TRI Pointe ranked No. 1 on the most recent Business Journal list of the fastest-growing large public companies in Orange County, with two-year sales growth of 660% as of June.
Starwood has also made money off of TRI Pointe through land deals. A land venture affiliate owns several thousand home lots in the Western U.S., and the builder is a frequent buyer.
Last year, for example, TRI Pointe agreed to buy 52 lots in the San Gabriel Valley city of Azusa from the Starwood affiliate for $18.4 million, or a little more than $350,000 per lot, according to regulatory filings.
There’s been no indication that TRI Pointe plans to stop buying land from Starwood. It said in a statement that the company’s board appreciates Starwood’s support and partnership in the years since its initial investment and that the company is left poised for more growth.
“As we look ahead, we are confident that our company is well positioned to continue unlocking the significant value embedded in our long-term California assets as well as executing our operating strategies in our six homebuilding brands.”
