No-Fly Zones

IT'S HARD TO ARGUE WITH JIM MIGLIORE, CEO OF BILL CLARK HOMES IN Greenville, N.C., when he boasts that land for new-home construction “usually comes to us.” Last year, the builder acquired the land assets of developer Bledsoe Properties in Fayetteville, N.C. Another parcel it recently bought in Apex, N.C.—after a national builder backed out of the deal—is expected to yield 263 homes. In Myrtle Beach, S.C., Bill Clark Homes has a relationship with Burroughs & Chapin, one of that market's biggest landowners.

Bill Clark Homes also is one of the leading builders in Wilmington, N.C., a market whose two big builders—Centex and D.R. Horton—barely register. The company's closings in six markets rose by more than 50 percent in 2005, to 883 units, and are expected to hit 1,400 in 2006. But Migliore is a realist when he admits that he's not exactly sure where his company is going to find land in the future. He's less sanguine about the emergence of another deal like Fayetteville any time soon, and his company continues to wrestle with land-acquisition challenges in Raleigh, N.C., where, he laments, “we aren't in the top 10.”

The competitive tipping point for builders across the country continues to be how much land they control, which often correlates with their ability to increase their share of a given market's closings. For growth-minded national builders, their prospects for finding sufficient real estate to meet their objectives usually determine whether they enter a market or stay there. And for local builders, land control has proved to be their best defense against such invasions.

BD060601120L3.jpgClick here to view image gallery.

Credit: Photo: Pardee Homes

BD060601120L3.jpgClick here to view image gallery.

Credit: Photo: Pardee Homes

ROOM TO GROW: This year, markets were ranked by total permits, not just single-family permits, as in the past. This leads to a clearer view of which markets were most dominated by their top 10 builders (see chart at left), some of which build attached product.

CAPITAL DESTINATION: The Reserve at Rokeby Farm, a Centex Corp. community in the suburbs of Washington, features large cluster homesites averaging ¾ to 1 acre and estate homes ranging from 3,759 to 5,849 square feet.

Credit: Photo: Centex Corp.

FAMILIAR FACES: Once again, the top 75 markets were dominated by Florida, Texas, and California. Some of the markets changed slightly, due to new definitions by the U.S. Census Bureau, but the trend remains the same. Florida claimed 14 of the top 75 markets, which together accounted for nearly one-fifth of all permits pulled last year. The three states are approaching a 50 percent share of all permits.

OPEN TO OPPORTUNITY: The Fredericksburg II is among the most spacious and open floor plans built by D.R. Horton, the No. 1 builder in Fort Worth, Texas. In the city's Tehama Ridge community, this plan comes in at 2,078 square feet and starts from $175,500

Credit: Photo: D.R. Horton

CLOSE IN: Located just six miles north of downtown Sacramento, Calif., the Hamptons community built by KB Home features houses ranging in size from 1,364 to 2,561 square feet. Prices range from the mid-$300,000s to the mid-$400,000s.

Credit: Photo: KB Home

REALITY CHECK: Big builders started looking to expand beyond the top 50 markets several years ago, setting out to grab market share from smaller local builders. But a comparison among markets, divided into three tiers here, reveals an interesting fact: The markets ranked 1–50 are actually less concentrated than the markets ranked 51–75. The large private companies are doing well for themselves in markets 51–75; in five of those markets, none of the top 10 national builders ranks among the Local Leaders.

YES, DEERE: The Carmichael is one of the plans being built in Trenton, a North Carolina community by St. Lawrence Homes that is co-branded with John Deere Corp. Each home includes custom landscaping, a John Deere riding tractor, and a set of landscaping tools.

Credit: Photo: ST. Lawrence Homes

EAST MEETS WEST: Standard Pacific Corp., a top San Diego builder, offers luxurious living in its Chesapeake Bay community in coastal Carlsbad, Calif. Floor plans range as large as 4,452 square feet, with as many as six bedrooms. Prices start from $1.2 million.

Credit: Photo: Standard Pacific Corp.

NATURAL PLAYGROUND: Meritage Homes Corp., Tucson's No. 4 builder, has won awards for Canoa Ranch, a gated active adult community located in Green Valley, Ariz. The Vega plan appeals to buyers looking for a single-story home and includes three bedrooms, two baths, and a two-car garage.

Credit: Photo: Meritage Homes Corp.

TOP TENS: This year's Local Leaders data reveal that the top 10 national builders don't dominate the top 75 markets as some might assume. Though seven of the 10 are among the top builders in 20 or more of the Local Leaders markets, members of the group claim the No. 1 spot in fewer than half, and three of the builders are not No. 1 in any of the markets. Of course, this gives them plenty of room to grow.

WATER'S EDGE: Signature Properties, No. 7 in the Oakland, Calif., market, built Harborwalk, a collection of contemporary condos, one block from the waterfront. Units range from 860 to 1,842 square feet, include between one and four bedrooms, and are priced from the low $500,000s.

Credit: Signature Properties

RETIRE IN PLACE: Buyers who aren't interested in heading south for retirement have found homes in Hovnanian Enterprises' Four Seasons at South Brunswick active adult community in New Jersey, where floor plans range from 1,493 to 2,300 square feet and prices start from the mid-$300,000s.

Credit: Hovnanian Properties

WIDE AUDIENCE: The range of plans built by Perry Homes has helped the firm maintain its top 10 ranking in McAllen, Texas. The company's homes in the Sharyland Plantation community range from 1,800 to 5,700 square feet and are priced from the $160,000s to more than $410,000.

Credit: Perry Homes

>PLOTTING A COURSE: Local builders looking to gain market share may have a tough time in the first set of markets shown here, where the country's top 10 builders hold court, taking seven of the top 10 spots in five markets and all but one in Riverside/ San Bernardino/Ontario, Calif. Picking a market where the top nationals don't crack the top 10 doesn't guarantee market share success, though; local builders control 39.1 percent of the market in Omaha, Neb., and 48.7 percent of Des Moines, Iowa.

CENTRALLY LOCATED: Ennis Homes, the No. 8 builder in Bakersfield, Calif., offers two series of homes in its Eagle Ranch community. The Sierra series starts from $270,100 and includes plans ranging up to 2,184 square feet; the Executive series (shown here) starts from $320,100 and offers as much as 3,400 square feet of living space.

Credit: Ennis Homes

AFFORDABILITY PLAY: Regis Homes, No. 2 in the Santa Ana, Calif., market, converted rental property into Canyon Villas. Units range from 543 to 1,127 square feet and offer first-time buyers an entry into the expensive Orange County market, starting from the mid-$300,000s.

Credit: Regis Homes

HOUSE HUNTING: The Palomino, offered in Vantage Homes' Wolf Ranch community in Colorado Springs, Colo., with 3,323 square feet and base priced at $330,900, includes single-level living and plenty of opportunities to customize.

Credit: Vantage Homes

FLORIDA POWERHOUSE: WCI Communities' Tuscan Reserve is among the developments helping the company solidify its top 10 ranking in the Naples, Fla., market. The project stretches over 463 acres and includes 309 planned homes including luxury villas, estate homes, and mansions with more than 7,000 square feet.

Credit: WCI

HOME STUDIES: Kimball Hill Homes' gated Riverwalk community in Stockton, Calif., is within walking distance of the University of the Pacific campus and offers six home plans as large as 2,284 square feet.

Credit: Kimball Hill Homes

GETTING CLOSER: Several Local Leaders markets have seen tremendous growth in attached for-sale housing as builders have tried to maximize the value of expensive, scarce land. Orange County, Calif., shown above, accounts for most of the Santa Ana/Anaheim/Irvine MSA, which is ranked as market No. 60; many of the top 10 builders in Santa Ana and the other four markets listed here build attached product.

For example, Century Homebuilders, based in Miami—where only a few nationals have seriously ventured—closed 1,066 homes in 2005 and has lined up enough land for the next five years, says president Sergio Pino. On the other hand, Ray Ball, president of Lexington, Ky.–based Ball Homes, says that his company doesn't have nearly the same presence in Louisville, Ky., as it does in its headquarters city—where it controls 4,000 lots “in a tight market”—because it has access to far fewer lots there.

In fact, although the industry's consolidation might be unstoppable, there remains a handful of markets that national builders continue to avoid entirely or haven't gotten much of a foothold in because there's not enough land available or the builders haven't quite deciphered these markets' quirks when it comes to their buyers, geographies, or labor forces. Metro areas that fit this exclusionary mold include Louisville; Nashville and Memphis, Tenn.; Kansas City, Mo.; Omaha, Neb.; Minneapolis/St. Paul, Minn.; Oklahoma City; and several metro areas in the Carolinas, according to Builder's latest Local Leaders data (see charts, page 126), which tracks activity in the industry's top 75 markets.

Land access is certainly one reason why Napolitano Homes—a top 10 builder in the Virginia Beach, Va., market—has never been approached by a national builder about selling its business, according to its president, Vince Napolitano. The market is surrounded by the Atlantic Ocean to the east, the Chesapeake Bay to the north, and the Great Dismal Swamp to the south. Even though Napolitano Homes has expanded westward and last year was active in three times the number of municipalities (nine) that it was in four years ago, its 119 closings were less than 40 percent of what it closed in 2002. “Land” is Napolitano's one-word explanation for this.

There are many reasons why builders do or don't make hay in a market. In North Carolina, gaining market share is at least partly a function of how well builders understand the unusually close ties that buyers have with their communities. “People who live in Winston-Salem wouldn't think of living in High Point, and people in Greensboro would never move to Burlington,” observes Craig Smith, president of the Westminster Homes division of Hovnanian Enterprises in Greensboro, N.C. “Even Realtors don't cross lines, so builders that operate in four, five, six markets have to focus on all of them to make any headway,” he says. Last year, Westminster closed 490 homes, 78 fewer than in 2004, but Smith says that the decline had more to do with the entitlement process than demand; he expects closings to rise to 600 this year.

Local builders also contend that national builders are looking for markets where they can close a minimum of 300 homes per year. Although larger builders might dispute that number, they nevertheless concede that critical mass is an important measure of any market's potential, and one that also determines why big builders occasionally abandon markets where they can't reach that bar.

Big builders have never shown much interest in expanding into Oklahoma City, and for good reason. The Yellow Pages online lists 131 builders in that market, but there's not one developer of master planned communities, so aggregating land for larger projects is an ordeal, says Vernon McKown, co-owner of market leader Ideal Homes, which closed 435 homes that generated $58 million last year. He notes that D.R. Horton's activity in his market is in six subdivisions that had five different developers.

Last year, Centex pulled out of Greenville, S.C., where local builders say finding large land tracts is tough. “There are only a couple of pieces of any size down here,” says Ted Smith, co-owner of Greenville-based Poinsett Homes, which closed 325 homes that generated $70 million in revenue in 2005. Smith says that Poinsett has scooped up several of the few remaining 80- to 100-acre tracts, which is why he's confident that his company can boost its closings to 500 and its sales to $100 million this year, and to 2,000 closings eventually. (Although demand for housing in Greenville continues to grow, the market did not make this year's Local Leaders ranking because of a change in the U.S. Census Bureau's definition of a Metropolitan Statistical Area. For more information, see “Methodology,” opposite page.)

Builders aren't rushing into or staying in markets that show obvious signs of fading, either. Grand Rapids, Mich., was one of the 60 largest home building markets as recently as a few years ago. But with the city's two main industries—autos and furniture—limping, the number of permits issued there plummeted by 35 percent, to 3,868, in 2005, which placed this market outside the top 100. Even during better days, “market share came grudgingly here,” says Mick McGraw, president of one local builder, Eastbrook Homes, which closed 350 units last year. But Pulte Homes stopped building there entirely last year, because, explains COO Steve Petruska, the market is too spread out geographically and is likely to issue only 3,500 to 5,000 permits per year over the next decade. “It would be difficult to grow there unless you're in a lot of towns,” he says.

Petruska adds that larger builders tend to shun smaller markets because trade bases are unsophisticated. “There's no one HVAC contractor in Kansas City that can handle all the work there,” he notes. But Rob Washam, whose company, Blue Springs, Mo.–based Rob Washam Homes, is Kansas City's market leader, suggests another reason why nationals stay out of his bailiwick: Buyers and zoning boards demand more customization than some large builders prefer to offer.

You'd never know, however, that customization—or anything else, for that matter—was keeping big builders from thriving in some markets, given that their domination is a fait accompli in so many regions. Pulte, whose operations extend to 54 markets in 27 states and whose gross revenue rose last year by 25 percent, to $14.7 billion, is concentrating its resources on expanding its active adult business nationwide. Two of its newer age-restricted communities, in Brownstown Township and Grand Blanc, Mich., will have more than 1,000 units combined when they are completed. “We expect to grow in every market we're in,” says Petruska—from Phoenix, where Pulte recently opened two Sun City communities simultaneously for the first time, to Atlanta, where the company captured less than 3 percent of the market's closings last year. Pulte is eyeing the Pacific Northwest as its next expansion target, says Petruska.

D.R. Horton's 11 divisions in California sold 7,475 homes in 2005, making it the state's largest builder, according to Tom Noon, president of the company's Carlsbad, Calif.–based regional office. Red Bank, N.J.–based Hovnanian Enterprises, which operates in 17 states, acquired four companies in 2005, and its CEO, Ara Hovnanian, foresees a 30 percent jump in his company's business in 2006. He concurs with fellow big builders who believe that larger companies have what Hovnanian calls a “natural advantage” in markets where permits are flat or developable land is scarce. “We have a stronger equity position and long-term debt that's less dependent on banks,” he explains.

However, markets are getting harder to handicap. Salt Lake City, a historically fragmented market, seems suddenly on the verge of consolidation after M.D.C. Holdings acquired a competitor and appears poised to make a serious run at market leader Ivory Homes (see “Riding the Rails,” below). Hovnanian Enterprises and Orleans Homebuilders shook up the normally staid Chicago market last year by acquiring two local builders. Still, Buz Hoffman, president of Lakewood Homes, that market's second-largest builder, dismisses as an “anomaly” the recent acquisition spurt in the Windy City. Lakewood closed 1,714 homes that generated $415 million in revenue in 2005, and Hoffman contends that Chicago's economic stability keeps out other large builders that view volatility as an invitation to invade.

Regardless of how the competitive winds blow, land—finding it, affording it, obtaining it—is likely to become even more crucial for builders for years and decades to come. Some local builders are already banding together to acquire property, or they are rethinking the kinds of homes they build to maximize the land they already control.

Napolitano Homes struck a partnership with a local developer that has yielded five land deals, which gave the builder control of 500 to 600 lots. And Fresno, Calif.–based Wathen-Castanos-Mazmanian recently formed a partnership with another local builder to develop a project within the Harlan Ranch master planned community in Clovis, Calif., that will have 1,944 units, including 1,344 single-family homes, 400 apartments, and 58 live-work homes. Robert Mazmanian, president and co-owner of Wathen-Castanos-Mazmanian, says that this partnership has optioned another 3,500 acres at Harlan Ranch, which is more land than he and his two co-owners could build on “in our lifetimes.” He notes as well that his company now builds homes that require smaller lots than its product of only a few years ago. Its newest series is called Garden Court, described by Mazmanian as a “four pack” of 1,100- to 1,200-square-foot homes, with alley-loaded garages and hardscaping, including retaining walls and fences, separating the units.

Smaller lots are in vogue out of necessity in the Bradenton-Sarasota, Fla., market, where local planners have responded to the wave of builder expansion in their area with growth-impeding zoning. Peter Mason, vice president of sales and marketing for Bradenton-based Bruce Williams Homes, says that his company's footprint for a single-family home used to be an 80-foot-by-120-foot lot; now it's a 65- to 70-foot-by-120-foot lot. Consequently, about 25 percent of what Bruce Williams Homes builds in 2006 will be multifamily. The company, which closed 335 homes last year and was this market's fourth-largest builder, also sees its future hinging on becoming “more of a regional builder,” says Mason, and finding developable land in the western and middle parts of the state.

The multifamily bug has also bitten builders in Kansas City, where the entitlement process for single-family homes is getting longer. Washam of Rob Washam Homes, which closed 247 homes last year, says that demand for less-expensive multi-family homes in the $110,000 to $120,000 range “is on the brink of exploding here.” Not surprisingly, 85 percent of the 300 to 325 homes his company expects to build in 2006 will be attached.

Hanley Wood Market Intelligence, owned by Hanley Wood, LLC, publisher of BUILDER, is one of the home building industry's largest providers of information on new-home projects, land development, and real estate consulting services. The following methodology was used in compiling the 2005 Local Leaders data:

As two larger competitors slug it out in Salt Lake City, Hamlet Homes shifts toward transit-centric projects.

Ivory Homes closed 956 homes in the Salt Lake City market last year, more than any other builder, according to BUILDER's Local Leaders data. But its position as market leader is in jeopardy after Denver-based M.D.C. Holdings—the parent of Richmond American Homes, Utah's second-largest builder—acquired Springville, Utah–based Salisbury Homes. That March 1 deal has the potential to include more than 1,100 finished lots and is projected to boost Richmond American's closings in Utah by 100 homes in 2006 and by more than 250 in 2007.

Even before this combination, Salt Lake had become a hotly contested market where “competition for greenfields is ferocious,” says Michael Brodsky, president of Park City, Utah–based Hamlet Homes. “I can't see paying $70,000 to $80,000 for raw land.”

So Hamlet, a 12-year-old builder that in 2005 closed 304 homes that generated $92 million in revenue, is searching for higher-density multi-family opportunities along Salt Lake's TRAX light-rail system, which currently runs 25 miles in a north-south direction from downtown. Hamlet broke ground on its first transit-oriented project a year ago in Murray, Utah, where it is building 100 homes on a seven-acre brownfield assemblage. Hamlet has since purchased two parcels within 100 feet of rail stops: On one, it's building 105 townhouses on five acres; on another, 350 units on 16 acres.

TRAX could eventually expand to Daybreak, a 4,126-acre master planned community in South Jordan, Utah, where Hamlet also recently signed on to build.