If the world of home building took place in a romantic comedy, what happened between Toll Brothers and Coleman Homes last year would be known as a “meet cute.” In the movie world, that’s the interesting way that two people meet, like bumping into each other on a train or accidentally getting the other’s mail.
Toll, one of the nation’s largest public builders, was looking to expand to a new market in the west, but it didn’t want to launch a new division. Gary Mayo, Toll’s group president who oversees the company’s operations in Las Vegas and Reno, Nev., and Boise, Idaho, had been eyeing the Boise market for years and, after looking at some market data, took a trip there with a colleague in June 2016.
It just so happens that Boise-based Coleman Homes, the market’s second-biggest builder with 311 closings last year, was looking for a buyer.
“When I took my first trip up there I didn’t know,” recalls Mayo. “But we found out inadvertently that they had listed the company with Zelman and Associates.” A month later, talks began and in November 2016, Toll officially acquired Coleman Homes.
“It was just kind of luck of the draw that Coleman was on the market at the same time we were in Boise looking,” Mayo says.
That’s as close to a meet cute as you get in the home building industry.
Boise Bound
Mayo is very familiar with Coleman Homes. He worked for its Las Vegas division for 17 years before it was acquired—by Toll Brothers. That iteration of Coleman Homes was founded by Thomas Coleman Sr. Once the trademark lapsed on the company name Coleman Sr. and his son, Thomas Coleman Jr., looked to start a new company in a western market: Boise.
Coleman Jr., who stayed on as division president after the acquisition, says he didn’t have a connection to Boise prior to moving there, except for a college roommate who was from the area. After looking at permit and demographic data, the Colemans made their decision, but those weren’t the only factors. “When I moved here in the mid-2000s, Boise was the largest market in the country, permit wise, that did not have a public builder,” he says.
Mayo and Toll had noticed that last point, too.
“What we were looking for at the time was an expansion into a market in the west that was somewhat untapped by public builders, that had strong historical permit activity, a market that wasn’t tightly land constrained, and also a market where we could acquire a builder rather than grow organically,” Mayo says. Boise and Coleman Homes checked all of those boxes.
Gary Mayo
In fact, Mayo had looked at Boise prior to the recession, but the market turned before a deal was made. Mayo’s research gave him a head start this cycle with respect to Boise, but he still had to find the right company to acquire.
Coming Together
Over several years prior to the acquisition, Coleman Homes explored obtaining outside equity in order to fuel further growth. Ultimately, outside equity wasn’t taken on, but a few years later the father and son team, each at different stages of their careers, chose to pursue a sale.
After providing the team at Zelman and Associates with due diligence information, several companies were approached about buying Coleman Homes, Coleman Jr. says. It wasn’t until about a month later that Mayo took a trip to Boise and the two companies were put in touch.
The 1997 Las Vegas deal between Toll and Coleman Homes established a familiarity among the two firms that’s stretched decades. Mayo says the Boise move was a “natural fit,” adding that the existing company cultures meshed well.
“The biggest thing is providing buyers with the luxury experience, focusing as much on the customer as the home itself,” Mayo says. “A lot of builders can produce a really good home, but can they really give the home buyer the experience that they deserve?”
The move also further diversifies Toll’s portfolio, Mayo adds, which has been a company focus since before the recession. Toll unveiled its T Select line, which offers homes at a lower price point, earlier this year, while Coleman offers three product types ranging from entry-level to second move-up or luxury.
“We just think it’s a smart business move to diversify all of your product offerings,” Mayo says. “We’re now obviously doing T Select and we have a large presence in the rental market now. It’s just a direction that the company feels is a better avenue post-recession.”
One Year In
Upon acquiring Coleman Homes, Toll kept things mostly the same. Coleman Sr. stepped away, but the firm’s roughly 85 employees are still on board and the company name was only slightly modified: Coleman Homes, A Toll Brothers Company.
“We just felt that based on what they had achieved in the short time frame that they had been in business, it was something that we really shouldn’t mess with,” says Mayo.
Thomas Coleman Jr.
Coleman Jr. says the transition for employees has gone smooth over the first year, but the new dynamic took some getting used to for himself. “There’s been a big learning curve for me in particular because I have never worked for a big company or another company at all, really,” he says. “For the most part, we’re continuing to do the things that we’ve always done. If it’s changed it’s usually been for the better.”
The past year has gone well in Boise, says Mayo, who makes the trip from Las Vegas every few weeks. Mayo wouldn’t disclose any sales or closing numbers, but did say both are better than expected.
With Toll’s capital backing, he adds, Coleman Homes has more resources and access to its national vendors and programs, which is a big advantage in Boise.
“As a private builder before with limited capital resources … it’s a very capital intensive business, so you’re somewhat limited in your ability to grow,” notes Coleman Jr. Now a year out from the acquisition, Toll is still the only public builder with a presence in Boise, which is a market that saw 3,814 closings of for-sale single-family and attached housing in 2016, up 95% from 1,951 closings in 2015. Moreover, a new forecasting model suggests the state’s population will grow at three times the national rate between now and 2025—and predicts that nearly all the newcomers will be retirees.
Mayo doubts Toll will be the sole public builder forever. “We know that other publics are doing their research,” he says. “Boise is still a small town.”
