IT'S HARD TO ARGUE WITH JIM MIGLIORE, CEO OF BILL CLARK HOMES IN Greenville, N.C., when he boasts that land for new-home construction “usually comes to us.” Last year, the builder acquired the land assets of developer Bledsoe Properties in Fayetteville, N.C. Another parcel it recently bought in Apex, N.C.—after a national builder backed out of the deal—is expected to yield 263 homes. In Myrtle Beach, S.C., Bill Clark Homes has a relationship with Burroughs & Chapin, one of that market's biggest landowners.
Bill Clark Homes also is one of the leading builders in Wilmington, N.C., a market whose two big builders—Centex and D.R. Horton—barely register. The company's closings in six markets rose by more than 50 percent in 2005, to 883 units, and are expected to hit 1,400 in 2006. But Migliore is a realist when he admits that he's not exactly sure where his company is going to find land in the future. He's less sanguine about the emergence of another deal like Fayetteville any time soon, and his company continues to wrestle with land-acquisition challenges in Raleigh, N.C., where, he laments, “we aren't in the top 10.”
The competitive tipping point for builders across the country continues to be how much land they control, which often correlates with their ability to increase their share of a given market's closings. For growth-minded national builders, their prospects for finding sufficient real estate to meet their objectives usually determine whether they enter a market or stay there. And for local builders, land control has proved to be their best defense against such invasions.
For example, Century Homebuilders, based in Miami—where only a few nationals have seriously ventured—closed 1,066 homes in 2005 and has lined up enough land for the next five years, says president Sergio Pino. On the other hand, Ray Ball, president of Lexington, Ky.–based Ball Homes, says that his company doesn't have nearly the same presence in Louisville, Ky., as it does in its headquarters city—where it controls 4,000 lots “in a tight market”—because it has access to far fewer lots there.
In fact, although the industry's consolidation might be unstoppable, there remains a handful of markets that national builders continue to avoid entirely or haven't gotten much of a foothold in because there's not enough land available or the builders haven't quite deciphered these markets' quirks when it comes to their buyers, geographies, or labor forces. Metro areas that fit this exclusionary mold include Louisville; Nashville and Memphis, Tenn.; Kansas City, Mo.; Omaha, Neb.; Minneapolis/St. Paul, Minn.; Oklahoma City; and several metro areas in the Carolinas, according to Builder's latest Local Leaders data (see charts, page 126), which tracks activity in the industry's top 75 markets.
Land access is certainly one reason why Napolitano Homes—a top 10 builder in the Virginia Beach, Va., market—has never been approached by a national builder about selling its business, according to its president, Vince Napolitano. The market is surrounded by the Atlantic Ocean to the east, the Chesapeake Bay to the north, and the Great Dismal Swamp to the south. Even though Napolitano Homes has expanded westward and last year was active in three times the number of municipalities (nine) that it was in four years ago, its 119 closings were less than 40 percent of what it closed in 2002. “Land” is Napolitano's one-word explanation for this.
There are many reasons why builders do or don't make hay in a market. In North Carolina, gaining market share is at least partly a function of how well builders understand the unusually close ties that buyers have with their communities. “People who live in Winston-Salem wouldn't think of living in High Point, and people in Greensboro would never move to Burlington,” observes Craig Smith, president of the Westminster Homes division of Hovnanian Enterprises in Greensboro, N.C. “Even Realtors don't cross lines, so builders that operate in four, five, six markets have to focus on all of them to make any headway,” he says. Last year, Westminster closed 490 homes, 78 fewer than in 2004, but Smith says that the decline had more to do with the entitlement process than demand; he expects closings to rise to 600 this year.
Local builders also contend that national builders are looking for markets where they can close a minimum of 300 homes per year. Although larger builders might dispute that number, they nevertheless concede that critical mass is an important measure of any market's potential, and one that also determines why big builders occasionally abandon markets where they can't reach that bar.
Big builders have never shown much interest in expanding into Oklahoma City, and for good reason. The Yellow Pages online lists 131 builders in that market, but there's not one developer of master planned communities, so aggregating land for larger projects is an ordeal, says Vernon McKown, co-owner of market leader Ideal Homes, which closed 435 homes that generated $58 million last year. He notes that D.R. Horton's activity in his market is in six subdivisions that had five different developers.
Last year, Centex pulled out of Greenville, S.C., where local builders say finding large land tracts is tough. “There are only a couple of pieces of any size down here,” says Ted Smith, co-owner of Greenville-based Poinsett Homes, which closed 325 homes that generated $70 million in revenue in 2005. Smith says that Poinsett has scooped up several of the few remaining 80- to 100-acre tracts, which is why he's confident that his company can boost its closings to 500 and its sales to $100 million this year, and to 2,000 closings eventually. (Although demand for housing in Greenville continues to grow, the market did not make this year's Local Leaders ranking because of a change in the U.S. Census Bureau's definition of a Metropolitan Statistical Area. For more information, see “Methodology,” opposite page.)