Over the next 15 months, D.R. Horton is expected to take down a total of 96 finished lots in the Birmingham, Ala., market, at an estimated cost of $4 million, from Four Star Holdings, a local startup home building and real-estate venture with big plans for growth.
Four Star, based in Odenville, Ala., was incorporated in the fourth quarter of 2009, and is a combination of several other companies that it acquired on March 31: Ridgefield Development Corporation and Four Star Realty. Both of those firms were founded, in 2002 and 2006, by Fran Mize and Bobby Smith Jr., who are Four Star Holdings’ president and CEO, respectively.
Mize told BUILDER on Wednesday that she and Smith have worked together for 12 years, she as a real estate agent and he as a second-generation home builder. Four Star Investment, the holding company’s home building entity, is an offshoot of Smith’s previous company, B&B Contractors, Mize explains.
Combined, the entities within Four Star Holdings have built more than 1,100 single-family homes as well as more than 30 commercial properties and other multifamily projects. Last year, Four Star Investments closed about 50 homes, compared to 250 in 2006, says Mize. Four Star’s homes range from 1,100 square feet priced in the low $100s to 3,500 square feet priced in the high $300s. It expects to close between 80 and 85 homes in 2010.
Four Star Holdings also controls more than 5,300 building sites in this region. In the first phase of its deal with Horton, the company sold 38 finished lots for $1.3 million, which works out to be an average of $34,342 per lot. (Mize has stated previously that the lots which Four Star has developed in general have been delivering a 40% profit.)
Mize says that Four Star Holdings’ goal is to be recognized “as a primary source of building lots” in Alabama, at a time when there aren’t many other companies developing lots.
To that end, last December Smith and Mize acquired Dragon’s Lair Holdings in a reverse merger for $325,000. A reverse merger is a quicker, less-expensive way for a private company to become a public company. Rather than going through an initial public offering that can take a year or more to complete, a private company merges into a public shell company (in this case Dragon’s Lair). The whole transaction takes only a few weeks, and it usually doesn’t require the buyers to raise additional capital.
Mize says she and Smith went this route specifically to create Four Star Holdings as a public company and therefore give it greater access to investment capital. On Feb. 10, Dragon’s Lair Holdings (which previously marketed a Chinese herbal liniment) changed its name to Four Star Holdings. (Mize says the personal care product “was of no interest to us” and has been discontinued.) On that same date, the new business issued 12 million shares of common stock, 6 million of which went to its two principals.
Four Star Holdings—which identifies itself in its press releases as Birmingham’s fourth-largest builder—reported sales of $163,148 for the three months ended March 31, during which it lost $131,442. Mize says the company expects to be profitable by the third quarter of this year. Four Star Holdings is currently negotiating another land deal with Horton and sees future acquisitions on the horizon, too.
The holding company optimistically projects that its annual revenue from home building and lot sales will average $104 million over the next nine years. Mize is encouraged by a recent report from the Alabama Center for Real Estate, which estimates that the state’s home sales in March rose 49% over February and by 14% over February 2009. “I do know one thing,” says Mize. “People are still buying homes. But builders need to be exceptionally careful about doing their homework.”
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: Birmingham, AL.