On Tuesday, the Charlotte, N.C.–based private equity firm Mountain Real Estate Capital (MREC) announced that it had entered into a strategic partnership with Denver-based Oakwood Homes, into which MREC is investing more than $100 million, which the partners will use as a platform to expand into other markets in the Midwest and West.
Over the past few years, MREC has made investments with or recapitalized 11 builders and developers, including GL Homes and GreenPointe Communities in Florida, and Classic Homes in Colorado. Last December, it entered into an agreement with Schell Brothers in Delaware to build out the remaining lots at the 185-lot Breakwater community in Lewes Beach, Del.
But its investment with Oakwood Homes is MREC’s largest to date. “We’ve been looking for an entry-level investment for the past couple of years,” Peter Fioretti, MREC’s chairman and CEO, tells Builder. In fact, Oakwood and MREC have been talking about this marriage since last June, when the two companies joined forces to acquire the 2,600-acre Banning Lewis Ranch master-planned community in Colorado Springs, Colo., with 8,500 lots. (Oakwood and Classic are both building and selling homes in that community.)
Oakwood forged this partnership with MREC after American West Development, which owned Oakwood for more than two decades, fell into bankruptcy last year. “I had a long relationship with Larry Canarelli [American West’s owner], but we would not have been in a position to grow with them,” explains Pat Hamill, Oakwood’s CEO. “And when you look at where we are, there’s such a great opportunity to enter the recovery portion of this [housing] cycle.”
With MREC, Oakwood Homes retains its name, and Hamill stays on as chairman, CEO, and general partner.
Oakwood Homes currently operates in nine communities, including two it recently started in Omaha, Neb. It closed just under 400 homes in 2012, says Hamill, and sold 155 homes in the first two months of 2013, with the goal of selling more than 600 houses this year. It has 200 homes under construction, 348 in backlog, and a lot inventory of 7,100 home sites.
Neither Hamill nor Fioretti would disclose specifics about which markets they were eyeing for expansion, and did not say whether acquisitions or starting up communities was preferred. Hamill did note, though, that markets where there’s been “some kind of [competitive] displacement” would likely show up on their radar screen. Fioretti adds that MREC “really likes secondary markets” because it’s getting tougher to find land in larger metros.
Given its investment portfolio, MREC might give the appearance of trying to develop a national footprint. But Fioretti insists his company has no interest in developing a national home-building network. Other companies tried that in the last cycle, he observes, “and it didn’t work.”
John Caulfield is senior editor for Builder magazine.