After more than a decade of watching and waiting for the right price and the right builder, Lennar Corp. has moved into the Pacific Northwest market by buying the land assets of a Seattle builder and cobbling together a portfolio of lots in Portland, Ore.
Back when the home building market was soaring, Lennar Corp. executives were shopping for a builder to buy in the Pacific Northwest that could give the Miami-based company access to the land-constrained Seattle and Portland markets.
But the price of admission to those cities was high in the boom years, and Lennar couldn’t find a deal at what it thought was the right price, said John Jaffe, Lennar's vice president and chief operating officer.
“It’s a hard market [to get into] in good times, especially to go in de novo,” said Jaffe. Then the market wasn’t so good anymore, and Lennar found itself concentrating on managing its shrinking business rather than growing.
But now Lennar perceives the Pacific Northwest market as stabilized and somewhere near the bottom, Jaffe said. “It definitely feels better in that market, particularly because of its restricted land supply and fairly stable employment rate. It felt like it was the right time to get in.”
So this week, after about two months of negotiations, Lennar announced it had bought 650 finished home sites in 20 Seattle-area communities from Premier Communities, a builder that has built more than 1,600 homes in the area since 1998. A sale price was not disclosed. Premier was listed as No. 193 on the BUILDER 200 list for 2010 sales. It sold 76 homes last year, down 28% from the year before; its gross revenue was $16 million, down 34%.
Premier will continue to build and finish the homes it has under construction and handle warranty issues with its past sales. However, any non-started homes will be finished under the Lennar operation. Ryan McGowan, Premier’s operator, will become responsible for Lennar’s operations in Seattle. The Lennar homes are expected to sell in a range from $150,000 to $460,000.
Jaffe said Lennar’s management team was introduced to the Premier operators about two months ago “and we liked everything that we saw, particularly in the people, the leadership, and as we got to know them better, everything we learned confirmed our perspective that these are quality people in an organization with the reputation of taking care of its customers.”
But, most important, Lennar was buying into Premier for its land expertise, especially important in the Pacific Northwest where raw land for development is scarce because of growth restrictions.
“Relationships on the land side of the business are critical in that market,” Jaffe said.
The same is true in Portland, where Lennar recruited 22-year Portland home building veteran Ryan Selby to direct the compilation of a portfolio of primarily distressed finished home sites in 22 communities from banks and builders who were getting out of the business. Selby was D.R. Horton’s division president there for nine years. Lennar's Portland operation will also target a diverse set of customers including first-time, move-up, active adult, and luxury home buyers.
Teresa Burney is a senior editor for Builder magazine.