“The base of land in California is shrinking,” notes Doug Bauer, chief executive of TRI Pointe Group Inc., speaking last week toward the difficulty of area homebuilders finding good spots to build on, particularly in Orange County.
As Bauer knows well, the base of local builders, especially publicly traded ones, is also shrinking.
In 2018, CalAtlantic Group—the successor to long-established Standard Pacific Homes of Irvine—was bought by Lennar Corp. for $5.7 billion, and Ron Simon’s RSI Communities was snapped up by fellow Newport Beach firm William Lyon Homes for $460 million.
William Lyon Homes (NYSE: WLH), in turn, is being bought by Arizona’s Taylor Morrison Home Corp. (NYSE: TMHC) for about $800 million, not factoring in debt; the deal was announced in November and could close any week now.
The result of the area industry tumult leaves TRI Pointe (NYSE: TPH) entrenched as the largest public builder based in Orange County, with a market capitalization of $2.3 billion and annual sales in the $3 billion range.
It now ranks among the country’s 10 largest builders by total sales, and in OC it ranks No. 7 based on local home sales last year, according to this week’s list of top Homebuilders (see list, page 26).
There’s been “a lot of consolidation among public homebuilders,” Bauer noted while speaking with the Business Journal.
“The top national homebuilders continue to grow their market share by capitalizing on favorable economic conditions, expanding to new markets and continuing to focus on design and buyer demands that delivers products at all price points,” said Bauer, whose firm is at the Google Center along Jamboree Road.
It’s a different scene from 2009, when Bauer launched TRI Pointe along with co-founders Tom Mitchell and Mike Grubbs. They left William Lyon Homes in the teeth of the Great Recession—a time when builders were retrenching or shuttering altogether; a different type of industry consolidation.
“The competitive landscape among public homebuilders has drastically changed in the past decade,” Bauer said of the latest wave of industry mergers, which has left his firm and Aliso Viejo’s New Home Co. (NYSE: NWHM) as OC’s only publicly traded builders.
TRI Pointe—which was the first U.S. homebuilder in nearly a decade to go public when it hit the New York Stock Exchange in 2013—was an early beneficiary of that trend.
It joined the ranks of the nation’s top homebuilders later that same year when it acquired Weyerhaeuser Co.’s homebuilding division in a $2.7 billion deal. The deal added some 27,000 home lots to the upstart firm’s base; it now counts 29,000 lots either owned or controlled, according to its quarterly earnings report.
“That was a transformational acquisition, [it] put us on the map in a big way,” said Bauer, who earned the Business Journal’s nod as Businessperson of the Year in Real Estate for those 2013 efforts.
Since then, “we have continued to differentiate ourselves by having a great team, and focusing on our customers,” said Bauer, who cited numerous areas of growth for the company of late.
About a year ago, TRI Pointe established offices in Charlotte and Raleigh, its first locations in the Carolinas, one of the country’s best markets for new homes.
Also at the start of 2019, the firm paid about $60 million for Dallas-based Dunhill Homes and its affiliated business Nathan Carlisle Homes, which makes homes for buyers 55 and older. It was TRI Pointe’s first buy in Texas.
The company currently operates in nine states. It ranked No. 5 on the Business Journal’s list of Orange County’s fastest-growing large public companies in October, with two-year revenue growth of 34%.
2nd Decade Plan
More’s on the way, said Bauer, whose firm recently rolled out an ambitious plan for its second decade of operations.
The 10-year plan calls for a doubling revenue to $6 billion. That volume of sales would place it among the top five builders in the country last year.
“Our growth plans will be augmented by new mergers and acquisition deals in existing and new markets,” Bauer said.
The 10-year plan includes growth in existing markets such as the Carolinas, Texas and California, as well as eyeing new opportunities in the Southeast region and the West.
Wall Street appears receptive to the plan; TRI Pointe’s shares are up nearly 30% over the past year and are trading at its highest level since mid-2018.
TRI Pointe was among the first area builders to respond to demand for affordable housing, diversifying its products and prices along with its markets to offset slumps in the housing market.
That’s meant more development in the Inland Empire, where it’s among the region’s top builders.
The strategy has its challenges, especially in California, where the scarcity of developable land is “exacerbating the affordability crisis,” Bauer said.
Another headwind for builders in the state is regulations that prevent projects from “being approved in a timely fashion.”
“The state is still tied up in a highly regulated industry that ties the hands of the developer, and ultimately consumer,” Bauer said. “We are working with state and local leadership to be able to identify these regulations, so we can help loosen up the supply of land to build more affordable housing.”
Still, the company wants to maintain a presence in the place that houses its headquarters.
It currently has five open communities in OC, in Huntington Beach, Irvine, Rancho Mission Viejo, and most recently, Anaheim.
Model homes opened last month for a new townhome and single-family community, Canvas, at a 15-acre site near the city’s popular Packing House food hall.
Construction on the estimated $150 million project, which will include about 230 homes, is slated to wrap up during the second quarter, with prices ranging from the high $500,000s to the $800,000s.
TRI Pointe is also one of four builders selected to build at Rienda, a new neighborhood within Rancho Mission Viejo that will open by early 2022 (see story, page 22).
“We focus on four locations in Orange County—the three master-planned communities and infill locations—and we are open to pursuing more projects here,” Bauer said.