Together, Standard Pacific and Ryland combined to build and deliver 12,633 homes in 2014. All things being equal, the total would move them up to the No. 4 ranking in our BUILDER 100 rankings, pushing NVR to the No. 5 spot, and pushing Toll Brothers out of the top 10.
If you take the 12,633 as a percentage of the Census Bureau's tally for new homes sold in 2014, the math tells you that a Standard Pacific-Ryland combo would account approximately for 2.89% of a total of 437,000 new homes sold. D.R. Horton, on the other hand, produced and sold 30,455, or nearly 7% of the new-home market, while Lennar's 21,003 deliveries in 2014 accounted for 4.8%, and PulteGroup's 17,196 unit deliveries represent 3.9%. Taken together, the Top 5 home builders (counting the planned Standard Pacific-Ryland combo) would account for one out of every five new homes sold in the United States in 2014.
And chances are, that same top 5 will tally to an even bigger chunk of the new home pie in 2015, even as the painstaking recovery disperses to a broader-reach geography and a more expansive universe of prospective home buyers as the vaunted credit box qualifies more borrowers for mortgages.
Just as consolidation continues to re-sculpt other industries, including the building materials and supply channel interlocking with home building, the pressures of capital investment will force further roll-ups and efficiencies into the world of home building.
One of the strategic factors the Standard Pacific-Ryland makes clear is that liquidity and capital optionality are critical to home building ventures that must weather cyclicality. Lots, both owned and controlled, both finished and raw are the visible, tangible dashboard of a home building business, but liquidity is what cushions and smooths a home building's passage through the ups and the downs part of a home building cycle.
Scott Stowell, who's stepping up to the role of executive chairman of the new combined entity to be formerly known as Standard Pacific and Ryland, speaks of the present moment as the "middle innings" of the housing recovery.
Now there's nothing to prove that he's correct about that assessment. Others could argue that the current recovery is already long in the tooth, and some may say that the recovery game is stuck in the early innings, with a batter fighting off one pitch after another, foul after foul after foul.
But Stowell's contention and conviction that the cycle has hit its midpoint validates his and Ryland ceo Larry Nicholson's belief system that now is a good time to combine a land portfolio into one, 74,000 lots, with strong market positions in 20 of the top 25 new home metro areas, and take out significant costs as a way to improve margin performance when operating margins are tough and getting tougher.
In Raleigh, for instance, the new Standard Pacific-Ryland combo will command more than Lennar's 8% of the local market. Theoretically, this gives the new company an opportunity to extract costs by combining operations, and improve margins on price positioning, cost clout with local labor sources, and heftier negotiating power with land sellers and developers in the market.
What's more, competitors in the market--especially capital constrained private home builders--will find themselves in a proverbial corner as they scout for lots, try to line up their trades, and court customers in those markets.
The surge for share, and the potential profit gains market share can yield, may get a gust of motivation from the fact that financial investors like MatlinPatterson, which owns 41% of Standard Pacific, want options for an exit so that they can return money to the investors in their funds. A number of large, public builders have private equity investors that may be looking for exit opportunities, and this type of combination, aimed at leveraging market share strength to increase margins and take out costs, looks like one way to open up those opportunities.