STEVE WALL GETS A LOT OF WELL-deserved credit for the record growth and profits that catapulted Choice Homes into one of the nation's Top 20 builders. But stellar performance as CEO of Arlington, Texas-based Choice, and 15 years of overall service there not with-standing, Wall couldn't convince directors of the privately held company to award him a piece of the action—a chunk of equity in the company. Wall left Choice in February, without the safety net of another job, armed only with his glowing track record and a vision. He wanted to own.

During an eight-week whirlwind quest to raise capital, Wall had discussions with a variety of backers. “I talked to individuals. I talked to people with home building companies who were looking at new divisions in the markets I was familiar with,” he recalls. “I was trying to find a way to have something of my own.”

It didn't take long.

In just two months, Wall found a partner anxious to fill his financial coffers. In a rare arrangement, the global private equity firm Warburg Pincus committed $50 million to the man with the plan, allowing Wall to establish the start-up Wall Homes.

Backed by Warburg, Wall—and a battle-tested management crew who jumped ship to join him—has had the ability to hit the ground running with everything from land acquisition to advertising. The deal closed in April, and by May, the wheels were in motion to establish a presence in three Texas markets simultaneously—Dallas, Houston, and San Antonio—with homes priced between $80,000 and $200,000. By July, Wall Homes had control over more than 1,500 lots, and by year's end, Wall expects to have at least 50 closings under his belt. But that's just the beginning—over the next year, expect to see Wall Homes in more markets (“We like Florida and Atlanta,” he says), and look for closings to climb to 2,500 annually in the next five years.

DEALT IN Although private equity has been a part of the industry since the early ‘90s—when CalPERS made a commitment with its seven original advisers (see “Equity's Entrée,” next page)—most deals have been struck on the “project” side of the business, where investors can seed cash into a new community or development that is backed by the land itself. Offering a finite life cycle, these deals, which total billions of dollars today, traditionally provide a clear exit strategy and offer a minimally invasive arrangement for both sides of the partnership.

Much less common in home building are private equity investments on an “entity” level, where investments tie to a management team and their track record, rather than a specific (namely land) asset. “I've only seen that done a very limited number of times,” says home building financial consultant Michelle Johnson. She attributes it to the reluctance of many established builders to bring in partners who, in effect, purchase a “say” in a business' operations. For Wall, the arrangement fit. “I wasn't really looking for a private equity firm. But, from the word ‘go' I just always had a good feeling about them. They had a great reputation with people in our business, and it really didn't take a whole lot of work to get the deal put together.”

Apparently, the feeling is mutual. According to Reuben Leibowitz, managing director at Warburg Pincus, “Steve and the CFO [Darris McClure, who left Choice with Wall] were critical,” he says, admitting that he wasn't actively seeking a home builder investment at the time because the industry is, in his view, “a little frothy.” But, a CEO leaving a Top 20 builder is a unique opportunity. “As we see it, management is at the core. Then the question becomes, how do we build a company around that? After checking Steve's reputation, we had a lot of confidence that he would be able to attract other quality people as well.”

FADE TO BLACKSTONE Wall is not the lone beneficiary of private equity's new-found enthusiasm about home building's management strength. In March, K. Hovnanian announced the acquisition of Lombard, Ill.-based Town & Country Homes in a joint-venture arrangement with another global private equity firm, Blackstone Real Estate Advisors, an arm of The Blackstone Group. Though the purchase price, which was paid in cash, remains undisclosed, K. Hovnanian speculates, “This is the largest private home builder acquisition ever consummated.”

So what's behind the trend of private equity firms cropping up in creative deal structures with increasing frequency?