Six Secrets from Behind the Headlines at the International Builders Show in Las Vegas
Everybody talks these days about “take-aways” when there’s an industry event of significance. Last week, we hunkered down in the trenches, mostly behind the scenes of the NAHB International Builders Show in Las Vegas with our industry friends–home builders–and tried to learn which way their fates and fortunes are headed: up, down, or sideways.
You have heard and seen in other reports that the sentiment among attendees was positive although attendance at last week’s International Home Builders Show was middling at best. File them under wishful thinking–if optimism turns out to have been well-placed, it will be less the result of what challenges are likely to play out, and more to do with what lucky turns of events are unlikely to play out.
As for take-aways, here are a half-dozen IBS show nuggets you can’t make up if you try:
- 1) A senior management executive from one of the fastest-growing, most successful private home building companies in the country right now says this:
“So, do you think this ‘green stuff’ is here to stay?
You’d think that might be a rarity to hear among home builders, but it’s surprising how widespread an attitude it is among those who believe that if home buyers won’t pay for energy performance, then it’s not a consideration. Period.
- 2) Carl Mulac, whose JEN Partners-backed Joseph Carl Homes is about to grand open CantaMia, a 1,700-unit sustainable (solar and thermal standard in every unit) active adult community in the Estrella, Goodyear, Az. master-planned development has been out presenting to potential capital partners. At one such event, the former Engle Homes’ Phoenix division president had his “You Lie!” moment. Opening his power point preso recently, he says to a roomful of prospective lenders and investors:
“My name is Carl Mulac, and I’m starting a home building company.” A heckler, whose name will go unpublished, responded: “You’re crazy!”
Still, in an environment where bank funds to go vertical are as rare as rocking horse dung, Mulac and company got $2 million to build on from National Bank of Arizona, so expect the sound of saws and hammers out at CantaMia to echo through the foothills of the Sierra Estrella Mountains.
- 3) Lewis Ranieri is said to be raising $2 billion to buy up distressed home mortgages, write down the principal, and keep people in their homes … yes, the same Lewis Ranieri who’s credited to be the inventor and father of mortgaged backed securities. A home building capital specialist comments:
“[The Selene Residential Mortgage Opportunity Fund] It’s his attempt at atonement. But $2 billion is $2 billion, and there are hundreds of billions of home mortgages in distress right now, so it’s not going to put a dent in foreclosures.”
- 4) One of the Las Vegas Valley’s most active entry level home builders may have pulled a fast-one with former lenders. He shuttered one company, but not before he drew down a big check from a bank facility in the days before. Within weeks, he was plunking down cash on tracts of finished lots, right up there with the big boys, and has never looked back. Or maybe he is looking back. Says one local land specialist:
“There’s talk he withdrew cash from the credit facility set up for the old company and is using it for the new company. How he’s going to wind up getting away with that is anybody’s guess.”
- 5) One large bank equity home building and building materials analyst noted that we wrote here about how private home builders would best consider exploring secondary and tertiary markets to find the volume opportunity they need to navigate through the next 24 months or so. This way, the privates wouldn’t have to compete in the bidding for land parcels against multiple other strategic bidders, driving up the purchase price for the lots. Says this analyst:
“You talk about privates, but why would public companies continue to counter-bid one another and drive their own land acquisition prices up? Who’s going to be profitable this year? NVR, yes. Maybe, Meritage. Who else? How insane is it for them to be overpaying for lots just like they did three years ago just because they all want the same parcels?
- 6) Woodside Homes, which agreed to meet conditions of its plan for reorganization on Dec. 31, 2009 after 14 months of bankruptcy, emerged from Chapter 11 on Jan. 14, 2010. With 83 current communities, and 10,000 lots in various stages of development in 11 markets across the U.S., Woodside no sooner surfaced from its lengthy reorganization process than it caught the eye of public home builders covetous for finished, lower-price lots, with billion-dollar treasure chests of “dry powder” cash. Third-generation home building scion Joel Shine, who’s taking over as chairman and CEO of Woodside, and fully intends to operate the company, has this to say to public builder CEOs who are around kicking the tires:
“We’re in the process of developing a strategy to operate the company and generate value as an operator going forward. We’re not for sale.”
That’s not to say that scores of lenders and creditors who retain significant influence on what Woodside’s asset portfolio should ultimately do to generate them value won’t ultimately push for sale of the company.
Still, they worked through a long, painful process to come to new terms as a top-five private builder operator, so it seems likely they should at least give Shine a strong crack at his strategy:
“A private builder culture that looks like a public builder.”
Sounds like he might be aiming to navigate the balance of the market downturn and position Woodside to go public when the right moment comes along in the months ahead. Still, that doesn’t stop Woodside from being–like the North American home building operations of Taylor Wimpey, including Taylor Morrison–assets that may find high regard among public builders.
Other than these take-aways, about all we know is that exactly no one is sleeping easy about what happens to the market come the sunset of the the extended and expanded home buyer tax credit on April 30 for sales, and June 30 for closings.
After the Colts-Saints bash-fest on Feb. 7, 2010, in Miami, Saturdays and Sunday afternoons reopen as that traditional time for couples of many ages to renew their nesting instincts. Spring selling season this year, should it actually occur, may reset the bar of expectations for whether the housing recession can end this year or drag on into 2011, where the IBS venue will return to Orlando.
The IBS this year was populated by a group of intrepid believers in the industry, ones who tend to drop into a disaster scene as soon as possible after a calamity ends. They’re the ones who say, “we’re going in,” and they start the mission of stabilizing the place for a more concerted recovery operation. We didn’t hear optimism at the show. We heard determination. We heard urgency. We heard in the voices of many we trust, this message:
“The time to hesitate is through.”
Face it, practicing with the short stick might make the puts go straighter, but not too many folks we spent time with wouldn’t give up some birdies for a string of quarters operating in the black.
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