For the third time in the past year, Greenwood Village, Colo.-based Century Communities bought another home builder. On Tuesday, Century announced that it had purchased Houston-based Grand View Builders for $14 million, picking up 601 controlled lots and 13 communities in the greater Houston area in the process.
The move gives Century a foothold in Houston, 2013’s largest housing market. Last year, Grand View had 112 closings and ranked 33rd in the metro. So far this year it has closed 88 homes. The acquisition brings Century’s total land position of owned and controlled lots to 10,665, representing an increase of 28 percent since the end of 2013. It’s fueled that growth with an IPO in June.
“When you look at the economy and analyst rankings of markets, Houston is consistently in the top tier with exceptional wage growth, exceptional job growth, and exceptional population in migration,” says David Messenger, CFO at Century.
Though Grand View had a minor share of the market, the management team, led by president Marc Jungers, gives Century the potential to grow. Jungers, in a former role as head of Choice Homes' Dallas division, has closed 1,000 homes a year before. “We found a seller with experience running a larger division,” Messenger says. “We thought it was great opportunity to put capital to work and be able to go start locking up land and expanding operations.”
Jungers’ past experience with Choice Homes also could give Century the flexibility to move into Dallas (the only large Texas market Century is missing) without needing to acquire another builder. “Marc is a very experienced builder in Texas,” says Michael Kahn, who represented the Grand View in the deal. “Obviously, there is a big interest by Century in growing their Texas operations. Certainly, Houston is a big market.”
In April, Century purchased Las Vegas-based Dunhill Homes to propel its presence into Sin City. In September 2013, it purchased Jimmy Jacobs Homes, based in Austin, Texas, for $20 million. Jimmy Jacobs had 915 lots under control in Austin and San Antonio—after the acquisition, Century had a total of 3,000 lots under control in those markets by the end of 2013. “By taking this size of investment in a market as large as Houston, it gives us the opportunity to have a similar pattern [of growth],” Messenger says.
The post-recession world brought capital constraints and challenges for Grand View, which has to compete with all of the major publics in Houston. “Those [companies] that survived still find themselves in a capital-starved position,” Messenger says. “As the public companies continue to buy up and lock up land, the private builder is being left behind. We think there is an opportunity to partner with those private builders, provide them capital and liquidity, and expand those operations and footprint under the Century Communities brand.”But just because private builders are under stress doesn’t mean they’re going to be sold in fire sales. “There’s definitely a lot of competition for private builders,” Messenger says. “We’ve only done two acquisitions [since the IPO] despite having looked at significantly more. During the IPO road show, we looked at 100 possible acquisition ideas, targets, and concepts.”
Despite seeing only a couple of these deals hit the finish line, Messenger isn’t disappointed. “We haven’t had a large hit rate, but at the same time, we’re very selective with our capital,” he says.
“We think we’re in the early stages of the housing recovery,” Messenger says. “We’d rather be able to play a bigger part in the recovery [by making acquisitions] as opposed to doing greenfield acquisitions and waiting a couple of years for those first dollars to come back in.”