According to BUILDER sibling Metrostudy data, Port St Lucie, Fla.-based GHO Homes competes as a top 10 builder in a South Florida market where Lennar, thanks to its combination with CalAtlantic, delivers one of every three new homes in a market that produced 7,860 closings over the past 12 months.
That–and going up against other mega players like D.R. Horton (with 13.3% share), GL Homes (6.9%), and Pulte unit Divosta (3.3%)–makes the business of acquiring a steady stream of 55-plus mostly master-planned community lots, securing labor crews, and achieving some level of scale advantage in products and materials procurement difficult. To say the least.
Bill Handler
While GHO principal and president Bill Handler and his team had rebuilt the company back up from a near-death experience in the wake of former-owner Woodside’s bankruptcy in 2008, from 26 closings in 2012, to 220 in the last 12 months of operations, per Metrostudy, competing with behemoths on the Treasure Coast of Florida has been no mean feat.
Looking forward–as those larger builders consolidate and deepen scale in their selected markets at the expense of smaller players who have to scrap and scramble for access to labor crews, purchasing deals, favorable lot take-down terms, as well as capital and customers–prospects of getting by on a good name brand reputation and local intelligence wile seemed ever more difficult.
So, Handler–like many private home builder principals with an urge to continue to grow, mixed with a healthy sense of discipline and caution when it comes to getting overexposed to financial risk at a moment in the cycle where business is strong but fissures of challenge and uncertainty are emerging–chose now as the right time to look for a capital infusion and a ramp-way into two, three, five years from now as a company that can maintain its mojo.
Handler’s decision led him to reach out for Michael P Kahn Associates, where Mike Kahn helped structure an acquisition deal that would give Green Brick Partners 100% of the assets of GHO Homes and its affiliated businesses, and 80% controlling ownership of GHO Homes.
This gives Handler a much-needed source of deep capital support, which will allow the GHO team to carry on at an accelerated pace in the 55+ market in Florida that’s expected to explode over the next decade. For Green Brick, the acquisition introduces the enterprise to a brand new market opportunity with a firm whose business and culture fit nicely into a now-growing portfolio of entrepreneurial operators whose signature offerings tend toward a mass-customization and personalization model.
Green Brick Partners, whose roots were as a biofuel company operating ethanol production facilities in the midwest, forged a new identity for itself–as a real estate development and home building company–with the June 2014 acquisition of JBGL Builder Finance LLC for $275 million.
Now, after four years of strengthening its operational and market share positioning in the Dallas and Atlanta markets, and acquiring a non-controlling interest in Challenger Homes in Colorado Springs, Green Brick’s transformation into a multi-regional public home builder has reached a new level: that of strategic acquirer, calling its GRBK-controlled firms “Team Builders.”
In 2017, GHO delivered about 243 homes, according to press materials, with revenues totaling $85 million. That’s an average selling price of about $350,000, with prices ranging from the low $200s to the $600s.
According to a BUILDER spotlight story on GHO Homes by Jennifer Goodman in May 2015:
These days, GHO customers want bigger homes with nicer detailing, including granite countertops (which GHO offers standard), separate his-and-hers bathrooms in the master suite, and oversized garages. Floor plans have grown from 1,800 square feet in 2007 to 3,000 square feet and beyond.
The company’s Tailor Made program allows buyers to customize their homes with options such as enlarged kitchen islands, workshops, expanded pantries, and sitting rooms.
The acquisition reflects a pattern of purchases of a certain type that have occurred during the past 36 months, where a strategic partner–be it Japan-based, or Clayton Homes, etc.–looks at the target company not exclusively for its land asset value, but, increasingly, as a market intelligence partner whose principals can continue to access strong land positioning in the markets and submarkets, and execute on a construction operations model that’s disciplined and efficient.
“We think home building and land development is best run as local builders that also have the discipline and capital access of the best run public builders,” Green Brick ceo Jim Brickman tells BUILDER.
In such purchases, we might see the principals and their original team of associates remaining in place to a greater degree than the acquisition model more typical of M&A periods past. Yes, current land assets are a priority, but so too is the blend of local market smarts, relationships, and executional excellence that can keep the model resilient and opportunistic.
As private builders’ pain points intensify, we expect to see more of these combinations in the months ahead, especially as stakeholders try to cycle-time the markets so that they can optimize their value, but steer clear of an almost inevitable downturn in the two to three year period ahead.
