Several months ago, Steve Dunn, president of Indianapolis-based Timberstone Homes and Westport Homes, was looking longingly at opportunities for land buys in the Midwest. However, like many privately held builders still suffering from the lack of lenders willing to fund acquisitions, he lacked the cash to take advantage of the deals.
Meanwhile, Ryland Homes was craving a bigger presence in North Carolina. The publicly-traded builder had the cash, but needed the lots.
Dunn suggested to Ryland executives that each had what the other desired, and a deal was born.
Ryland Homes recently announced its plans to buy all the operations of Timberstone Homes—the ninth biggest builder in Charlotte, N.C., with a presence in Raleigh, N.C.—within the next few days. Ryland gains 870 lots and homes in the deal, 154 already sold and under construction, plus 17 decorated models. Earlier this year, the builder purchased 504 lots in Indianapolis from Westport Homes. The terms of the sales were not released.
“We announced our entry into Raleigh last year and we have been trying to find the right assets to establish our presence in the market," said Drew Mackintosh, vice president of investor relations and communications for Ryland. "This really puts us on the map. It's a popular place and where a lot of builders want to be. We didn't go on a spending spree without any thought of price just to say our operation was up and running. I think we were pretty thoughtful with our due diligence. We entered into talks with the builder, we went down that road and we came to a price that made sense to the seller as well as us."
For Dunn, the sale offers the opportunity to “redeploy our capital” from North Carolina to the Midwest, he said. It’s not that Timberstone was doing poorly in the Carolinas, he says; it’s just that he thinks it will do better in the Midwest. With the tight lending climate it was an either-or situation.
“It was a business decision,” Dunn said. “We have some opportunities in our Midwest markets that we wanted to take advantage of, so we decided to depart the Carolina markets. As a private builder, we have limited availability of capital as opposed to some of the public builders. … We are looking long-term, seeing that our ability to compete on land and lots in the Midwest is a better opportunity than in Raleigh [and Charlotte].”
There is a lot of competition for lots in North Carolina, especially Raleigh. Builders who are there want more lots, and those who aren’t there yet want to be. That's not the case in the Midwest where Timberstone operated and where Westport continues to do business.
Westport sold Ryland Indianapolis lots that “we decided didn’t really fit with our plans going forward,” said Dunn. “They did fit with Ryland’s market share and their price point.”
Westport focuses on selling homes to entry-level buyers, while Ryland has a move-up buyer segment. Recently Westport has begun finding success selling to active-adult buyers in Indianapolis as well as the Columbus, Ohio, area—markets where there hasn’t been much product targeted to that age group, says Dunn. Westport bought some of the assets of a builder who was targeting those buyers. A couple of the projects Westport bought are age restricted, but most just appeal to the group because they offer smaller, lock-and-leave products, he says, adding that they also appeal to young buyers without children who are looking for the same thing.
Teresa Burney is a senior editor for Builder.