In February 2011, PulteGroup announced that CFO Roger A. Cregg, after 13 years at the nation’s third-largest builder, was retiring from the company. The notice contained the standard language—Cregg was helping to ensure a smooth transition and Pulte was ever thankful to Cregg for his considerable accomplishments, which included issuing the industry’s only 30- and 40-year debt and helping secure the acquisitions of Del Webb and Centex Corp.
Cregg, however, had no intention of retiring. He wanted to become a CEO. After a short stint as CFO of residential and commercial service provider The ServiceMaster Co., he shifted gears to pursue an opportunity at Scottsdale, Ariz.,-based AV Homes—a public company with a history that was slowly emerging from the depths of the crash.
“They were looking for somebody to turn around the business—either grow it or divest it,” Cregg says. “The market started to turn around in 2012, and I thought it was a good opportunity to lead a public company, though it was smaller than I was certainly used to … This was an opportunity to be at a public company with a good platform and see if I could grow it.”
Back from the Edge
AV Homes, through its predecessor Avatar Holdings, has been in business for more than eight decades and made its name as a developer. But like most other home builders, its closings began to take off in the mid-2000s—hitting 2,100 in 2006.
Then the bottom fell out. AV’s closings fell to 174 in 2011. The firm brought on Allen J. Anderson, a veteran executive with 38 years of real estate, banking, and private equity investment experience, to turn things around. But his stint would be short: In November 2012, Anderson and AV’s board of directors recruited Cregg from ServiceMaster. After Cregg accepted, Anderson moved back to the board of directors.
Cregg’s first goal was clear—raise capital to grow. Six months into his tenure, he lured San Francisco-based TPG Capital on board as an investor. The private equity firm currently owns almost half of the common equity of AV. “They said they liked the real estate industry,” Cregg says. “They had been invested in Taylor Morrison and other ancillary businesses associated with real estate. They thought it was a good opportunity.”
Analysts took notice of the move. Among them was Jay McCanless, senior equity analyst at Sterne, Agee & Leach. He’d shunned covering the company in the past, finding its geographic footprint too limited and its concentration in the active adult segment unenticing. When Cregg joined the company and TPG subsequently took its stake, he took on AV.
“Those were two good positive indicators for the company’s future,” McCanless says.
The new CEO also entered into a revolving credit facility in April 2014 for $65 million and then added two more bank loans for another $40 million. It’s currently at a capacity of $105 million.
After the balance sheet was fortified, it was time to start buying.
“I set off to look at growing the business from a greenfield standpoint organically and also through acquisitions and really try to drive the top line in hopes of driving the bottom line from a very significant loss into a profitable company,” Cregg says.
AV’s growth is impressive. At the end of 2012, its communities with closings stood at seven. By the end of 2015, that number jumped to 57.
That’s only part of the story. In a market where public builders of all types were bidding up the prices of private companies, Cregg was able to corral two with strong reputations. In March 2014, AV bought Central Florida-based Royal Oak Homes, and in June 2015, it added Charlotte, N.C.-based Bonterra Builders (keeping the Bonterra name in Charlotte).
AV vaulted into the Top 10 in Charlotte after the purchase of Bonterra. “Bonterra was one of the bigger builders in Charlotte,” says Metrostudy’s Carolina regional director Jay Colvin. “They were a really good builder and had a lot of equity built up in the market.”
So far the acquisitions have been successful. In Florida, closings jumped from 755 in 2014 to 1,124 in 2015, while they increased from five to 328 in North Carolina during the same period. The acquisitions helped AV grow its sales and allowed it to diversify geographically.
“He has reduced the geographic risk from being in just Florida and Arizona to a larger presence in Florida, a larger presence in Arizona, and moving into North Carolina,” McCanless says.
Cregg was also concerned with the kind of homes AV was selling, which was another factor that drove the Bonterra and Royal Oak deals. “When we looked at these companies, they gave us a great platform to expand in active adult but also to add more diversity to our product group segmentation,” Cregg says.
Now, a majority of AV’s homes (60%) are non-age restricted, while the balance is active adult. “At one time we were going to be an active adult company,” he says. “I changed that in 2012 to mitigate the risk of too much concentration associated with one consumer segment.”
The Next Steps
By any number of measures, it looks like Cregg has been successful. He diversified both AV’s product mix and its geography. From 2014 to 2015, AV’s closings grew by 83.6%—giving it the largest percentage year-over-year growth in the BUILDER 100.
But closings matter little if they don’t add profitability. After years of operating at a loss, AV finally turned a profit in 2015. “From a lot of metrics, whether it’s the growth of the income side, whether it’s continuing to drive more to bottom line or leverage the overheads, we’ve been on a very good run,” Cregg says.
But AV is still one of the smallest players in the public space. “We’re still looking for opportunities to grow the business,” Cregg says. “We don’t have active adult in Charlotte. We could look to take advantage of an opportunity there and we could have continued geographical expansion to mitigate some the problem of being too concentrated in one geographic area.”
While Cregg says AV is satisfied with the markets it’s in, the company remains on the lookout for new locations. “Right now, we’re fully invested but we’re still looking to generate more profitability and more growth just through the sheer size of our business,” he says.
And, the company is sitting on some land that could pay dividends down the road. For instance, it’s a major stakeholder near the new Poinciana Parkway, a 10-mile toll road being built in Osceola and Polk counties in Florida. “If you look at The Poinciana Parkway, they have the ability to open assets to better traffic flow and better visibility,” McCanless says.
In addition to evaluating future growth, Cregg’s to-do list sounds similar to that of his peers. He wants to focus on operations, especially value engineering. Additionally, staying on top of the market demands as far as products and quality of homes remains an ongoing challenge for AV, as it is for every other builder in the country. And, Cregg also wants to continue working with trades and the land and development side of the business to reduce cycle times and costs.
Cregg sounds like he just wants to continue building off of his first three years at AV. “We want to do more of the same and just do it better and faster and continue to leverage what we do in every area and every facet.”
He is, after all, the CEO.