Harmony Homes in Las Vegas is off to a quick start.
The builder closed 16 homes in its first year in business (2008), a figure that rose to 97 units in 2009. This year, Harmony expects to close at least 400 homes and generate around $80 million in revenue. And Harmony appears to be positioning itself for growth outside of Nevada. “Already this year, we have 238 sales and 100 in backlog,” says Robb Beville, Harmony’s division president, who spoke with BUILDER on Wednesday morning. Last week alone, Harmony’s 15 communities generated 10 sales, which Beville concedes isn’t spectacular, but a definite sign that there are buyers out there. “That [sales total] was our monthly figure not too long ago.” Indeed, while the conventional wisdom is that Las Vegas’ housing market remains comatose, and while existing-home sales there are still lagging, new-home sales through the first five months of the year at least were up by 7.7% to 2,016 recorded escrow closings, according to Home Builders Research, a market analyst.
Harmony’s construction and sales activities have been turbocharged by its acquisitions, last fall, of about 1,500 distressed lots from big builders such as Pardee Homes, Engle Homes, and Richmond American, as well as some banks. Virtually all of those lots had some construction started on them, says Beville, a former executive with Meritage Homes, who notes that Harmony added eight projects from Pardee alone through acquisition.
Harmony Homes focuses on first-time buyers, and its houses—which range from 1,462 to 4,000 square feet—are priced starting in the high $90s. While some of its larger homes go for around $350,000, Beville says the company is getting most of its sales from homes below $250,000.
The company has no spec inventory outside of its model homes (which it sells to investors and then leases them back). After a sale occurs, the company typically completes the house within 50 days of pulling the permit, thereby allowing Harmony to virtually self-finance its construction from cash flow. Beville says Harmony Homes’ growth goal is to capture at least 10% of the Las Vegas market's annual closings. (It’s not too far from that goal already, given that Vegas is projected to close between 5,000 and 6,000 houses this year.) While Harmony will complete and close out of four communities by the end of 2010, it will open another nine.
While private equity to this point plays a small role in financing Harmony’s operations, Beville says the company has had preliminary discussions with the investment banking firm Hoolihan Lokey about, in Beville’s words, “findng $50 million in debt." Harmony Homes would use the money to acquire land elswhere in Nevada as well as Arizona, Texas, and California. “We want to be a player in each of the markets we go into,” says Beville, which would translate, Beville says, into a market share of between 2% and 5% of annual closings.
Harmony Homes takes its leadership direction from Jim Rhodes, a controversial local builder who took his larger home building entity, Rhodes Homes, into Chapter 11 bankruptcy protection in April 2009. Rhodes’ bank creditors, to which Rhodes owed $325 million, had accused him of using loans to Rhodes Homes to finance other ventures—including Harmony Homes, which bankruptcy court documents showed was owned at the time by a trust in Rhodes' children’s name—that weren’t covered in those loans. Nevertheless, Rhodes managed to hold onto Harmony when, last September, he agreed to turn over most of his residential development assets in Southern Nevada to lenders, led by Credit Suisse.
Rhodes was in the news again last month over his ongoing legal battle to gain denser housing than the one-house-per-two-acres that zoning currently allows on a 2,400-acre mesa that he owns next to Red Rock Canyon.
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: Las Vegas, NV.