William Lyon Homes has made a big splash in the Pacific Northwest with the acquisition of Polygon Northwest Company, the largest private home builder in the region, for approximately $520 million.
Polygon, which has operated in the Pacific Northwest for 20 years, is ranked No. 2 in Seattle with 491 closings and held 7 percent of the market, according to Metrostudy. Its average sales price was $460,571 and its revenue was $196.7 million.
With 300 closings, Polygon also ranked second in Portland, holding a 8.6 percent market share. Its average sales price in the City of Roses was $244,314 and its revenue was $64.3 million. Overall, the company had 11 percent market share in the two markets with a total revenue of $260.9 million, and an average sales price of $378,143.
"Polygon Northwest Company brings an attractive level consistency to William Lyon Homes with a steady average of 57 homes per month and a portfolio of communities that includes a nice product mix of single family detached [80 percent] and attached product [20 percent]," says Catherine LaFemina, director of business development in the Seattle market for Metrostudy "Based on the trailing 12 months of home closings, [June 2013 to May 2014], Lyon’s acquisition of Polygon will increase the volume of homes being delivered by 50 percent to an average monthly volume of about 115 homes per month."
Polygon is expected to deliver 850 to 900 homes and generate at least $300 million of revenue in 2014, according to William Lyon. In 2015, those numbers should jump to 1,100 to 1,200 deliveries and at least $450 to $500 million in revenue. Overall the acquisition increases Lyon’s supply of owned and controlled lots by approximately 30 percent, adding more than 4,200 lots in two land-constrained markets with significant barriers to entry.
Polygon courts the move-up buyer, which account for 67 percent of its sales. In fact, 37 percent of its sales were first-time buyers. The firm is currently selling out of 12 active communities, which is expected to increase to approximately 16 by mid-2015.
With the Polygon acquisition, Seattle and Portland represent 12 percent and 11 percent, respectively, of Lyon’s overall lot position (on a unit basis), which lessens its reliance on volatile markets like Phoenix and Las Vegas.
Polygon had reportedly been looking to sell since 2006. William Lyon Homes currently operates in California, Arizona, Nevada, and Colorado, but like all relatively new public companies, its faces pressure to grow earnings per share. A big splash, like the Polygon purchase, is the quickest way to do that.
For Lyon, a public with a Western footprint that likes supply constrained markets, buying an established builder in the Pacific Northwest makes sense for a number of reasons, including gaining access to dirt in markets that are land constrained and tapping into a relatively healthy supply of trades in the Puget Sound market.
The transaction is expected to be financed through a combination of cash on hand and capital market transactions and is expected to close in the third quarter of 2014. Though after recently going through bankruptcy, some commentators remain concerned about William Lyon again taking on too much debt.
Polygon will operate as two new divisions of William Lyon Homes under the Polygon name. One will be in Washington with a core market of Seattle, and the other will be in Oregon with a core market of Portland. Derek Straight, president of Polygon’s Washington operations, and Fred Gast, president of Polygon’s Oregon operations, will continue to run their respective divisions as division presidents of William Lyon. They will report to Matthew R. Zaist, president and Chief Operating Officer.
“We are thrilled to bring Derek and Fred and their respective teams on board as integral components of the William Lyon Homes team on a go-forward basis,” Zaist said in the release. “The Polygon management team brings a tremendous amount of industry experience through which they have developed a reputation for high-quality construction and customer satisfaction, and fostered deep local relationships that our combined company can leverage for future growth.”