Talk about hitting the ground running.
Tri Pointe Homes, a Newport Beach-based builder that launched this spring, is already finding business at a time when more seasoned competitors continue to struggle.
Tri Pointe is one of six builders that The Irvine Company has chosen to build homes for it in two new subdivisions within Irvine Ranch, its sprawling master-planned community in Southern California. Tri Pointe is also preparing to start building homes in San Diego’s San Miguel Ranch.
That a startup has been able to get onto the radar screens of two major land developers so quickly is a testament to the reputations of its founders, three former senior executives of William Lyons Homes who left that builder as it was in the midst of downsizing its operations over the past year.
“As we looked at the home building universe, there was a serious meltdown, and we thought that a new business model would be the right ingredient for the future,” says Doug Bauer, who in his capacity as Lyon’s COO had a 20-year relationship with The Irvine Company. Bauer is joined by Tom Mitchell and Michael Grubb—Lyon’s former executive vice president and CFO, respectively—as Tri Pointe’s principals.
The “model” Bauer refers to, which bears similarities to how his team grew William Lyon Homes in the early 1990s, is that of a home building company unencumbered by debt and land, which builds for developers and whose principals are funding its lean operations out of their own pockets, initially at least. (A private equity source that Bauer declined to identify is providing some financing.)
At Irvine Ranch’s Woodbury and Woodbury East neighborhoods, Tri Pointe is set to build 95 three- and four-bedroom homes—under the brand “Sonoma”—that will range from 2,350 to 2,600 square feet and sell for between $750,000 and the low $800s. The Irvine Company reportedly will pay its builders between 3% and 6% of each home’s selling price. At San Miguel Ranch, Tri Pointe is on board to build 52 homes that will be as large as 3,000 square feet and be priced in the mid $500s.
Bauer and Grubb believe that construction fee deals like these can at least cover Tri Pointe’s overhead in its startup phase. (It currently employs 10 people.) Going forward, the builder intends to deploy capital to acquire finished lots on its way to its goal of building 1,000 homes within the next five years. Three-quarters of those houses will be in Southern California, and the rest in Northern California, where Tri Pointe plans to open a divisional office next year. (Bauer ran William Lyon Homes’ Northern California operations for five years and will spearhead his new company’s expansion.)
The partners say they are less concerned about demand for their houses than they are about interest rates—which “have to go up eventually,” says Bauer—and the impact those increases will have on buying activity.
The “Tri” in Tri Pointe is an acronym for “Think. Renew. Inspire.” Those words are shorthand for a philosophical business approach that Mitchell says emphasizes product diversity, a hands-on management style (Bauer told BUILDER that a recent framing walk-through was his first in three or four years), and customer satisfaction.
To that last point, Tri Pointe is currently focusing on entry-level buyers. Its principals say the company’s Web site will soon include a “green” platform that plays up the benefits of energy-efficient construction. And the builder’s principals are exploring how best to employ social media for marketing purposes.
Mitchell adds that Tri Pointe won’t be averse to expanding beyond detached single-family homes. “We are exploring opportunities in attached, multifamily, mixed-use, and infill. Anything on-grade up to 30 [units] per acre would be possible.”
John Caulfield is senior editor for BUILDER magazine.