AV Homes had 18,121 home lots in hot markets in Phoenix and Florida, and it had a Cracker Jack management team led by former Pulte Homes’ veteran CFO Roger Cregg. Now it has the cash price of admission to ride the home building market up again.

In exchange for 41.9% of the company, private investor TPG Capital paid AV Homes $135 million this week, money, Cregg said, will be used to bring its preserved Florida communities out of mothballs, to buy more land in Arizona, Florida, and possibly North Carolina, and for community development.

TPG has been on a real estate investment tear, most recently investing in Taylor Morrison Home Corp., a Phoenix-based company that issued a stock offering this year.

“We got on their radar screen,”  said Cregg of TPG Capital’s interest in the Scottsdale, Ariz.-based company. “We weren’t really looking to go on the private [equity] side.” Rather, AV looked at other ways to get the company’s existing communities opened again and more projects developed. The company already is publicly traded, so it considered bank loans, a revolving line of credit, or a new issuance of stock debt.

In the end, Cregg said the cash infusion from TPG, which will include issuance of new stock to TPG, is the best deal for shareholders. Although many investors might worry that the infusion would dilute the existing stock's value in the short term, it appears to be a boon. Stock prices immediately spiked from $14.54 to $17.53 a share, since retreating to $16.50 a share, the day after home builder stocks as a group declined.

“Sometimes this is dilutive; this happens to be very accretive,” Cregg said. “We think it’s a great value for our shareholders. If you were to issue [bond debt or revolver debt] you would have to pay interest on the debt.”

AV Homes also put in place a plan to protect $230 million in potential tax returns that would be lost if it has a significant change in ownership. Should that threaten, the company will issue more stock, diluting the new ownership’s share of the business.

Turning a Profit
Cash in hand, AV Homes’ first goal is to turn a profit, something that has eluded it for years. “You cannot save your way to prosperity,” Cregg said. “We have to sell our way there and improve our overall operations.”

The quickest way to profitability is for AV to re-open communities that are sitting dormant and reinvigorate some that are a bit fallow, Cregg said. Solavita and Bellalago, near Orlando, Fla., are on that list, as is Vitalia at Tradition in Port St. Lucie, Fla., launched early this year.

In Arizona, AV Homes has Canta Mia, a property it acquired from Jen Partners, another private equity firm that now also has equity in AV. That purchase also included Joseph Carl Homes LLC, a private home builder and developer of Canta Mia. AV Homes builds starter and move-up houses under the Joseph Carl Homes brand. Its primary business, constructing 55+ communities, is branded Vitalia.

Cregg said AV is being careful to invest in the right communities because if it makes a mistake, there’s no easy or cheap way to stop one and start another.

While its primary expansion plan is to leverage existing operations, Cregg said AV Homes has been doing diligence for some time on a parcel near Raleigh, N.C. for an active adult community. Meanwhile, AV has some lots that are well outside of its areas of interest on the block, he said.

Hard Times
The recession was especially hard for AV Homes, which was known as Avatar in 2006 when it closed 2,122 homes. The company’s business rapidly slowed and then virtually stalled. It closed 306 homes in 2012 -- a strong improvement from the 174 it closed in 2011. Yet it still lost $90.2 million last year.

2013 has brought more improvements. During the first quarter, the company closed 81 homes, up 29% from the first quarter of 2012.

Teresa Burney is a senior editor for BUILDER.