As the housing industry recovers more broadly, builders are thinking again about how they can crack into new markets. For Level Construction & Development, the answer has been to hook up with a partner that already has thousands of finished lots and isn’t afraid to develop raw land to add more.
For a dozen years, Level had been building homes exclusively for home buyers in the Baton Rouge, La., market. But this spring, its management unexpectedly disclosed its intention to extend Level’s operations to Raleigh-Durham, N.C., which is now seen as a springboard for national expansion that could take the company to markets in Texas, Arizona, and possibly beyond.
Level, says Todd Waguespack, its managing partner, started “tying up” land in North Carolina about a year ago. It has already started two communities—Cardinal Oaks in Durham, where it will build 140 homes ranging from 1,600 to 2,300 square feet with prices starting in the $150s; and The Estates of Westhigh in Cary, where it has purchased 38 acres for 38 homes that will range from 2,600 to 4,000 square feet with prices starting in the low $400s. The company also paid $2.04 million for 14 acres at Ellington Place in Apex, N.C., where it intends in June to begin building 52 homes whose prices will start at $250,000.
Waguespack tells Builder that Raleigh emerged as Level’s primary expansion target because of its growth prospects. “It’s adding something like 100 people a day,” he says. Raleigh, along with Durham and Chapel Hill, form the eight-county region known as the Research Triangle that is bolstered by several major universities. Forbes magazine last month quoted the demographer Wendall Cox who ranks Raleigh the fastest growing of the country’s 52 metros with more than 1 million people, having increased its population by nearly 48% since 2000.
Raleigh’s housing sector also didn’t take the same crippling hit during the recession as places like Charlotte, N.C., whose new-home permit count plummeted by 80% during the downturn, compared to about 25% in Raleigh.
Raleigh’s other allure, says Waguespack, was LStar Management, a locally based land bank with more than 18,000 lots in 11 states. LStar was instrumental recently in helping Ashton Woods Homes and Meritage Homes break into Raleigh and hire their respective teams there. With Level Homes, however, “the plan was a little different,” says Kyle Corkum, LStar’s managing partner, because that builder not only wanted to plant its flag in Raleigh but also has greater geographic ambitions.
LStar helped Level assemble land in Raleigh and hire Briggs Napier, the builder’s vice president of sales and marketing for that market, whose resume includes stints with Lennar and K. Hovnanian. Indeed, says Corkum, Level has put together a team in Raleigh specifically to be a platform for going national, most of them execs from other builders. “It has six or seven people who have been there, done that, and have the T-shirts to prove it.”
Leading that team is Ric Rojas, a former executive with D.R. Horton, Lennar, and WCI Communities, who is taking a sabbatical from his job as partner at LStar to initially spearhead Level’s expansion efforts.
Corkum explains Level’s sudden interest in national expansion as reflecting LStar’s view that the housing industry is “at a launch point” where supply and demand are driving growth decisions. He says that Level “went hunting” for a firm that could get it into a variety of communities in different states.
LStar is currently working with around 20 builders, and many of its 25 or so associates come from some of the country’s largest home-building operations. It keeps what Corkum calls an “arms length” relationship with its clients to make sure it isn’t playing favorites with one builder over another. “These things tend to sort themselves out.”
Besides, LStar, being an owner of master-planned communities, “always has lots in places where builders want to be.” The developer works with several fund partners, including Pimco, with which it has done 15 land deals so far this year. It recently purchased, with the investment firms Isles Ranch Partners and TPG Credit Management, 1,400 residential lots and four acres of commercial property on 186 partially developed acres in the Bryton development within the Charlotte metro area.
LStar wants to increase its lot portfolio to between 40,000 and 50,000 within the next several months. Outside of its mostly western and Sunbelt markets in 11 states, LStar is looking for land in 10 other states, according to its website. “We’ll be filling in three or four states in the next few months,” says Corkum.
He concedes that finding “A” quality finished lots has become “a big problem,” so LStar is willing to purchase and develop raw land for builders. (Its organization includes a road-building team.)
As its expands, LStar is often vying for property against such master-planned community developers as SunCal, Crescent Communities, and Newland Communities, all of which are larger and have been around longer. Corkum says his company doesn’t take any of its competitors lightly. “We’re just trying to emulate them.”
As for Level, which closed 53 homes in 2012, the builder isn’t forgetting about its home market as it looks for growth opportunities beyond it. Next month, it is scheduled to begin construction on a 25-acre residential development in Baton Rouge called Villas at Case Colina, which it acquired last July out of foreclosure in a joint venture with three other developers. Level intends to build 19 homes there, ranging from 3,100 to 4,200 square feet and priced between $500,000 and $700,000.
John Caulfield is senior editor for Builder magazine.