A person familiar with TRI Pointe Homes' and Barry Sternlicht-led Starwood Capital negotiations to pay an average of around $100,000 per lot for the Weyerhaeuser portfolio of five home building operations, with 27,000 lots said last night, "I think it's going to get done."
The Wall Street Journal's Kris Hudson and Dana Mattioli report on the back of an earlier Reuters report that TRI Pointe is indeed the leader in the clubhouse to land one of home building's biggest prizes this year.
TRI Pointe Homes Inc., the West Coast home builder controlled by Barry Sternlicht's Starwood Capital, is in the late stages of negotiating to buy Weyerhaeuser Co.'s home-building unit for roughly $2.7 billion, according to a person familiar with the talks.
If the deal is completed, TRI Pointe would become one of the 20 largest home builders in the U.S. The price under consideration well exceeds the Weyerhaeuser unit's book value of more than $1.7 billion, according to ISI Group analyst Stephen East.
Rival bidders included Brookfield Asset Management Inc.'s Brookfield Residential and Meritage Homes Corp. Representatives of Weyerhaeuser and Starwood Capital declined to comment on the sale process. TRI Pointe Chief Executive Douglas Bauer didn't return calls seeking comment.
The outcome is still in limbo. What's certain, though, are that this deal contains themes, challenges, and insights that belie a series of shocks and headwinds external to residential real estate's slow but sure cyclical resurrection.
Next, bone up on the TRI Pointe story, which is no ordinary "minnow devouring the shark" story. It would be incorrect to call a home building operation whose leading stakeholder is Barry Sternlicht's Starwood Capital a minnow. Here, here, and here are deep backgrounders into how TRI Pointe came to be the power that it is today, on a fast-track to one of home building's top 15 national companies.
We'll explore a series of key questions, themes, and insights here in this space with a couple of updates during the course of this morning and afternoon.
* What does the $100,000 per lot price point say about investors' belief system in housing's recovery trajectory right now?
* What the dollar level of this deal say about the on-again-off-again bidding for regional California land giant, Shapell Homes?
* It's fair to question--given the high-quality and professionally disciplined talent of most if not all of the Weyerhaeuser companies--how important to the deal the respective operating teams are. On the surface, since vacant developed home sites might be considered the highest priority right now, the asset value of the Weyerhaeuser land holdings would be the basis of the deal. However, in the M&A deals that are getting done these days, large and small, the question that inevitably arises is how iterative and scale-able a company's current snap-shot business model may be.
* For the also-rans in the bidding for the Weyerhaeuser portfolio, the fact that they may not land this particular package only redoubles their respective need to pipeline more lots, more talent, more aggregate demand across their business footprint to make their near-term growth and profit machines make sense. So, we'd say the inflection point suggesting many more and perhaps major mergers and acquisitions deals are part of what is signalled.
* The predominant product positioning in many of the Weyerhaeuser companies emphasizes move-up and second-time move-up buyers (not in every case).
We know that a number of M&A deals are racing toward the finish line, each of them motivated on the buy side by a need for new stores (new-home communities) in markets that are showing resilience in the face of choppy, anemic fundamentals improvement, and considerable policy uncertainty. Sellers are at the table simply because they've decided the time is right. As in, to wait would be a risk.
This is because global capital's decision chain wants to stick to its conviction that a housing recovery, stretching from the present into the next 24 to 36 months, is real, and therefore the best bet for yield on invested capital. Top among considerations investors look for as they weigh engagement in home building are the operators' ability to validate their business model--land acquisition, operational program, sales track-record--beyond the moment.
Sternlicht is one of the smartest dollars-to-real-estate-to-operational-model investors alive, ranking with the likes of Bob Toll, Stuart Miller, and Don Horton. What they know and what they've learned about land and operators is when (to buy or sell) and who (to hire, know, and get close to). TRI Pointe's CEO-COO-CFO triumvirate of Doug Bauer, Tom Mitchell, and Mike Grubbs have shown themselves to be among the smart kids in answering these two critical questions, when and who.
Just this afternoon we've picked up news of another--much smaller--deal in the Atlanta market, The Carlyle Group private equity investment in a home building company that's small, smart, unencumbered by legacy land issues, and is well-connected on the access-to-lots and operations front.
How does this single-market private equity investment tie to a $2.7 billion acquisition of a multi-regional powerhouse? Thematically, it expresses a powerful financial drive-for-yield impetus, money that thirsts for opportunity to partner up with a (hoped-for) up-and-comer. Edward Andrews' model on the ground is tiny but scale-able.
It's not an exaggeration to suggest that as many as a third of private home building companies in the top 200 by volume are in more than casual conversations about getting bought. Why? They'll tell you what they tell you, but it's because they know they'd better at least explore it.
We'd like to hear from you, too, with comments in the space below about how the dots connect. Stay tuned. Next update to this piece will be concurrent with tomorrow's BUILDER PULSE deployment at 9:30 a.m. eastern.
Learn more about markets featured in this article: Atlanta, GA.